Chapter 4: PFMRP Implementation as Rational Choice

In The Logic of Collective Action, Olson (1965) emphasised the lack of social or community
bond among self-interested individuals that they are less likely to engage in collective action,
and choose to freeride in the activity, except if there is coercion or some sorts of “device” -
for example, central authority (Elster, 1989) - which can force them to act in common
interest. In this sense, a balancing of interest means attaining coordination (Habermas, 1989).
In Cambodian case, platform approach used in the PFMRP is meant to be effective in
building the foundation for coordination (World Bank, 2012), but when it comes to
Cambodian government’s administrative environment, it is very challenging. Intra- and inter-
ministry coordination problems have been one of the major barriers in the government’s
reform efforts (So, Kurshid Bhatti, & Sissoko, 2018), especially the PFMRP (MEF, 2010,
2011, 2014, 2018b). Some extensive public sector reform programs, particularly the PFMRP,
also demand active participation from key development partners, so donor coordination,
either government-donor or donor-donor, has a great impact on the performance of such
reforms. Previous studies also acknowledged the vested interest issue in the implementation
of the PFMRP, but did not adequately provide an informative investigation on such a
problem. Therefore, this chapter, based on the rational choice concepts of public policy, aims
to identify the possible interest of selected key actors in the PFMRP - that is, MEF, line
ministries (LMs), as well as development partners (DPs) - and find out whether there are any
major conflicting interests between and among those actors, which could hinder the program
implementation process.

Inside the Ministry of Economy and Finance

MEF has been a leading implementing body of the PFMRP, so it is important to look into its
internal affairs and relations with other key stakeholders, LMs and donors, for example, to
identify the possibilities of any conflicts of interest. In MEF, because departments had no
experience of working in a cooperative environment (Taliercio, 2009), coordination problem
has been a serious obstacle for PFMRP implementation. Most evidence shows that setbacks
tend to take place at the middle-level management. At this level, the large number of
stakeholders, coupled with the existing weak communication channels, creates diverse
standpoints towards the reform programme (Hughes, So, Ariadharma, & April, 2017). Also,
the day-to-day working routine in the ministry does not involve serious negotiations, debates,
or consultations, so the officials are not used to such tasks, making it very difficult for any
discussions to reach an agreement. All departments have very different interests regarding the
PFMRP, but the major concerns are to protect their decision-making autonomy and staffing
base (Hughes et al., 2017). This implies that, with the lack of history in cooperating with one
another, MEF’s departments, in a long time, have inclined to a possessive attitude towards
their own authority or affairs or what is known as “collective psychological ownership”
(CPO).

In general, psychological ownership, which can be either individual or collective, is “the

psychologically experienced phenomenon in which an employee develops possessive feelings
for the target” (Van Dyne & Pierce, 2004, p. 441). Similarly, CPO, based on Pierce and
Jussila (2010), refers to a single and shared mindset, individually and collectively
encountered and accepted as a sense of possession resulted from interactive dynamics. CPO
within the context of organisational change - that is, self-initiated or imposed, evolutionary or
revolutionary, and/or additive or subtractive - can produce a certain degree of readiness and
self-efficacy beliefs which show either support of or resistance to change. In this case, if the
change is positive (self-initiated, evolutionary, and/or additive), employees tend to advocate
the change; in contrast, they resist any imposed, revolutionary, and/or subtractive changes
(Dirks, Cummings, & Pierce, 1996). Furthermore, to be in favour of or against organisational
change is to see whether it fulfills self-enhancement, self-continuity, and/or control and
efficacy (Dirks et al., 1996).

All in all, one can imply that the resistance at MEF’s middle management happens because
officials in different departments seem to view the PFMRP as a negative change forced by
the top authority to entirely or considerably take away their “ownership” or other forms of
benefits. It is, therefore, rational for them to resist the reform. The implementation of new
transaction process, specifically from budget release to streamlining budget holders’
capability to spend in accordance with the budget, presents a good example. Some MEF’s
units have demonstrated institutional inertia by refusing to follow the new procedures
because they lower their chances for gatekeeping (Taliercio, 2009). Such activities include
simplifying salary approval process, streamlining the execution process for non-procurement
items, and redesigning commitment for procurement items for program budget expenditures
(Taliercio, 2009).
Another instance touches on the implementation of the FMIS, which is arguably the mainstay
of PFMRP success. By simplifying bureaucratic practices and enabling instant access to
various public agencies’ timely information, this automated financial system serves to
enhance the efficiency, transparency, and accountability of Cambodia’s PFM.
Simultaneously, with the purpose to restructure the current hierarchy inside MEF, FMIS is
also an attack to the officials’ control and authority structure in the ministry, so resistance is
inevitable. In this case, evidence shows that public officials at the middle level approached
the matter by minimising the change impact through eagerly preserving the existing flawed
procedures, particularly requesting for a customised version of the software to make it “well-
fitting” for the existing practices instead of starting the move-away from their slow and
manual system (Hughes et al., 2017). Such customisation is just an attempt to reduce FMIS’s
efficiency, generate more expenditures through system upgrade, and still open the door for
officials to replicate the previous manual system.

The situation, therefore, demands the interference from the FMIS Project Management
Working Group (FMWG) which is made up of representatives from all General Departments
and Departments within MEF. The FMWG’s mission is to guarantee smooth coordination
among the ministry’s units, but it is found that FMWG members tend to prioritise the full-
time work in their belonged divisions over the support to improve coordination among
themselves (Hughes et al., 2017). FMWG seems to be a group of coequals rather than a team
performing under the guidance of a higher-ranking leader. Coupled with that is the quickly-
diminishing interest and falling meeting attendance from FMWG members, making it even
more challenging (Hughes et al., 2017). Even when FMIS went live in early 2016, evidence
shows that FMWG still could not eliminate the problem as some departments still had the
perception that they had been forced to involve in information technology (IT) matters, which
should be the responsibility of IT-related departments (Hughes et al., 2017).

Coordination Issues Among Other Key Stakeholders

Lack of Commitment from Line Ministries
There are cases that LMs have also shown resistance towards the PFMRP. One of which is
the consolidation of LMs’ bank accounts. LMs were reluctant to share the information about
their bank accounts, but it is believed that they hold thousands of private off-budget accounts,
particularly used for collecting fees (Taliercio, 2009). It is questionable whether all of those
accounts only perform in accordance with the norms and logic of rational public financial
management systems, or institutionalise any forms of “dirty money” or illicit state financing
instead, as Baker (2015) proved in his research on Indonesian National Police. In other areas,
LMs have also demonstrated the possessive behaviour similar to MEF, but evidence adds that
“ownership” is not the only factor reflecting LMs’ interest, what is also critical is the
assumption that reforms limit opportunities for rent-seeking. One of the areas, which has
remained stagnant, is the management of civil service establishment and payroll. Civil service
control has long been one of the most problematic sectors in Cambodia. The lack of a merit-
based system and the low level of pay in relation to the country’s cost of living are generally
known in the society. Previous efforts at the central government, mostly in terms of
downsizing and human resource management programmes supported by the World Bank
(World Bank, 2008), were unsuccessful mainly because of the tendency to remain unchanged
in the bureaucracy (Repucci, 2014). The Merit-Based Pay Initiative (MBPI) employed in the
PFMRP, for example, was suddenly cancelled, regardless of ownership in the MEF as well as
preliminary favourable feedback, and even downgraded to the Priority Operating Cost
scheme which had limited incentive structures, demonstrated less ownership, and was later
dropped too (Independent Evaluation Group [IEG], 2016).

In particular, the resistance from the Council for Administrative Reform (CAR) blocked the
reform process of establishment control arrangements (Taliercio, 2009). Surprisingly, the
Royal Government of Cambodia (RGC) does not use a single database in the management of
civil servants (e.g. counting). The budget law data is not based on CAR’s data at all, therefore
producing confusion and hindering robust policy analysis as well as transparency (Taliercio,
2004). There is no clear evidence on the reason why there is no information linkage between
budget law and CAR data, but it appears to be that CAR chose not to make its database
available for external use, or treated it as confidential (Taliercio, 2004). In addition, unlike
the budget law data, CAR’s Human Resource Management Information System (HRMIS)
does not include either political appointees or contracted and floating officers, and is not able
to verify the validity of a certain appointment, promotion, or transfer because it records what
given to it, making data easy for manipulation. In other words, it will be very difficult to
rectify any possible artificial or intentionally-inflated figures. A lesson from the consolidation
of civil service census and automated payroll systems in the early and mid 2000s shows that
although the RGC reported a removal of more than 9,000 “ghost employees,” such reduction
is not evident either in the budget law or CAR data, nor is it noticeable in the difference
between the two databases (Taliercio, 2004). This implies that CAR, to a certain extent,
intentionally kept the data on civil service ambiguous, and benefited from such manipulation.

Even when CAR gave up its duty in controlling personnel records and payroll to the Ministry
of Civil Service (MCS), which succeeded the State Secretariat for Civil Service in 2013, it
seems like the possessive attitude was also transferred to MCS. MCS did not make the
HRMIS connected to LMs to ensure data consistency. The effect of this is that LMs instead
store their personnel records on Excel spreadsheets, and keep in touch with MCS on a hard-
copy basis (GSC, 2015). Reports found that the paperwork sometimes needed to be changed
several times, and sent from one agency to another, indicating a long check-and-verify
process between LMs, MCS, and MEF. At the same time, despite MEF’s authoritative
instructions, LMs tend to delay the submission of reports on personnel changes to MCS
between one to three months (GSC, 2015), making salary payments to employees late as
well. This is not to mention that LMs’ personnel departments generally demand employees to
present themselves to fill in the forms or inform any changes related to their personnel
information. Consequently, some employees took several months to follow the procedure
(GSC, 2015), leading to significant adjustments in personnel expenditure and falling budget
credibility.

Donor Practices: Losing Trust?

In addition to the uncommitted actions from LMs in coordinating the implementation of
PFMRP, donor practices have demonstrated two unfavourable big pictures in terms of
coordination among development partners themselves (and with RGC) and their assistance or
support in the PFMRP. Considered the fact that there are more than 30 donor countries and
multilateral agencies giving aids to Cambodia, poor donor coordination has been a major
concern - especially during the pre-PFMRP period - as their practices normally displayed the
act of competition rather than cooperation, for example, in the recruitment of qualified public
officials (Chu, Jaramillo-Vallejo, O’Brien, & Effron, 2010). Another source of donor
coordination issue is the divisive focus areas of Cambodia’s PFM supported by all 11
PFMRP donors (i.e. Asian Development Bank, International Monetary Fund, United Nations
Development Programme, World Bank, Australia, EU, France, Germany, Japan, Sweden, and
UK). For instance, the IMF pays attention to tax, customs, budget management, and treasury
reform; the ADB concentrates on the Medium Term Expenditure Framework, internal audit,
and some UK-supported consultancies; France’s bilateral technical assistance (TA) focuses
on budget classification and tax; Japan International Cooperation Agency bilateral TA
spotlights tax and budget reform (Taliercio, 2009). Even during the early discussion about
PFMRP design, interest among the 11 DPs was discordant, basically falling into whether to
make the reform program follow a traditional bilateral approach or a multilateral technique
with an effective coordination framework (Taliercio, 2009). Even when those DPs learnt
from the failed 2001-2003 multi-donor Technical Cooperation Assistance Program that also
targets the PFM and financial sector reforms in Cambodia, and came into agreement on
following the multilateral and more coordinated approach, which afterwards influenced the
introduction of PFMRP, evidence shows that some DPs were still dubious about the whole
process, and employed a wait-and-see approach towards the PFMRP implementation
(Taliercio, 2009).

Frankly speaking, donor-donor harmonisation in PFMRP has, for a number of years, shown a
number of improvements, credited to the leadership of the World Bank using its convening
power to pull donors together (IEG, 2016). More specifically, DPs acknowledged the
important role of the task manager at the World Bank’s expanded field office in producing
such betterment. At the same time, based on an External Advisory Panel report, RGC-donor
coordination also improved, again, due to the World Bank’s very active role as a liaison
facilitating the communication between RGC and DPs (as cited in Chu et al., 2010). It is,
therefore, very important to note that the predominant role of the World Bank in Cambodia’s
PFM system should not be overlooked. The World Bank also, seemingly, began the turning
point in PFM reform by conducting a participatory Integrated Fiduciary Assessment and
Public Expenditure Review which, according to the MEF (2004), built the foundation for the
PFMRP.

Nevertheless, such an important role, to a certain extent, diminished after it ended the seven-
year ongoing Public Financial Management and Accountability Project (2006-2013) in
Cambodia. Possible major reasonings behind the suspension, as the IEG (2016) reported,
include the five years of failed FMIS procurement which collapsed in 2012, the cancellation
of World Bank-backed MBPI in 2010, the alleged fraud and corruption cases in seven
unrelated projects found by the World Bank’s Integrity Department, as well as the
counterproductiveness and overfunding of the Independent Procurement Agency which was
unexpectedly established to deal with the above crimes, catalysed by a land settlement
conflict. Since then, DPs have so far shown the decreasingly low levels of support to and trust
in how Cambodian government’s systems function. In Cambodia, donor disbursements
represent a huge portion of funding available for financing public expenditure. However,
there was a considerable decrease in donor disbursements as a percentage of total RGC
expenditures between 2010 and 2016 - from around 61 to only 28 percent, respectively (GSC,
2015; Open Development Cambodia, 2018).

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