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COMBATING RURAL PUBLIC WORKS CORRUPTION: Food-for-Work Programs in Nepal February 2000
Patrick Meagher Kumar Upadhyaya Betty Wilkinson Working Paper No. 239
Combating Rural Public Works Corruption: Food-for-Work Programs in Nepal
by Patrick Meagher, IRIS Center Kumar Upadhyaya, HURDEC Betty Wilkinson, IRIS Center
Final Revised Version Submitted to the World Bank Poverty Reduction and Economic Management Network/Poverty Division February 1, 2000
Table of Contents
TABLE OF CONTENTS LIST OF TABLES AND FIGURES PREFACE EXECUTIVE SUMMARY TABLE OF ACRONYMS AND EXCHANGE RATES 1. INTRODUCTION i ii iii v x 1
2. WORKS CORRUPTION IN NEPAL: PATTERNS, STAKES, GENESIS 2.1 2.2 2.3 MODALITIES OF PUBLIC WORKS CORRUPTION WINNERS AND LOSERS SYSTEMIC ISSUES
4 4 7 10
3. ADDRESSING CORRUPTION IN NEPAL’S FOOD-FOR-WORK INFRASTRUCTURE PROGRAMS 3.1 3.2 3.3 3.4 NEW APPROACHES: CHURIA FOOD-FOR-WORK PROGRAM, 1992 TO 1994 THE CHURIA GOVERNANCE MODEL EXPANSION UNDER JOINT DONORS: RCIW 1995 TO PRESENT REPLICATION ISSUES UNDER RCIW
16 16 19 23 24 29 30 32 39 44
4. RESULTS AND ANALYSIS 4.1 4.2 4.3 SUMMARY OF RESULTS ANALYSIS CONCLUSIONS
BIBLIOGRAPHY ANNEXES A. Public Works Governance: A Review of the Issues B. Nepal: Governance Context C. Food-for-Work Programs: Overview
A-1 B-1 C-1
List of Tables and Figures
Tables: Table 1: Summary of Corruption in Nepal FfW Projects .......................................................... 14 Table 2: Responses to Nepal FfW Corruption Results ............................................................. 41
Figures: Figure 1: RCIW- Program Organizational Chart ....................................................................... 28 Figure 2: Political Structure of Nepal (National Level) .......................................................... B-12 Figure 3: Ministry of Local Development ............................................................................... B-13 Figure 4: System for Public Sector Fund Flows and Control ................................................. B-14
although we take issue with certain aspects of their approach. we owe it to them to be fair. and management of small civil works programs can substantially reduce corruption and raise the productivity of resources invested. Chas Cadwell of the IRIS Center. The findings from that field study have been extended and updated as a result of more recent fieldwork (September 1999) by a member of the IRIS staff and an independent Nepali consultant. and contributions to this activity: Giovanna Prennushi for her unwavering commitment to integrity and her facilitation of World Bank financing of this report. as they feared professional and personal repercussions. Most conversations were held with the specific understanding that the individuals concerned would not be quoted or referred to in the report. Manfred Beier and Naveen Rai (then team leaders of the Churia Food-for-Work and Churia iii . Replicating such a process innovation on a large scale is a difficult task. the project was relatively new. donor representatives. The team documented results based on field observation and interviews of a number of key local staff of the project. Also. and members of the affected communities. Nepali consultants working on the program. The team would like to acknowledge the following persons for their kindness. in its second year of operation. the team is well aware that project management and officers are working to implement and to ensure integrity in the program across 20 (eventually 45) districts. an American research and technical assistance institute.” monitoring. The scope of the fieldwork was wide. and for opening themselves up to this kind of examination and criticism. A field study was carried out in October 1997 in the Eastern terai by a joint IRIS/HURDEC team to confirm the findings reported in project documents. members of local committees involved in administering the program.Preface This paper documents an innovation in project governance mechanisms aimed at reducing corruption in local civil works programs in Nepal. Since then we have met directly with that project manager and updated our information on the program. There have been questions raised by the concerned aid agencies about the team findings regarding the replication project. but can be successful if care is taken to ensure consistent adherence to its main governance principles. Therefore. This paper in no way purports to be an evaluation of the RCIW program. in sometimes difficult circumstances. We discussed the specifics of this program with beneficiaries. and IRIS. commitment. the expatriate project manager was in the field and thus unavailable for interviews. a Nepalese NGO. as well as consultants and involved civil servants. and in the final documentation we have qualified our findings to take their comments and concerns into account. Their cumulative efforts to date have brought important benefits to Nepal. Also. civil servants and elected officials from the local and national levels. This document is based on over four years of work and observation by staff members of HURDEC. at the time the program experience was being studied. The results show that enabling local “ownership. with assistance from HURDEC. who funded the initial field research from IRIS core funding. They deserve enormous credit for addressing this intractable area to begin with. However.
while asking us not to share their names. Barbara and Rick Hughes. Detlev Boetcher and others of GTZ. which supported the creation of this model and kindly opened the door to scrutiny. openly shared their circumstances with us to make this work possible. Mushfiq Mobarak and Paul Okaru for editorial support.Forestry projects). Kerry Hoke. who kindly provided working space. Sitaram Prasai. and to all of those Nepalis who. Parimal Jha and the HURDEC team for physical and moral support in the research and its implementation. iv .
and kickbacks to auditors. v . National-local labor rate arbitrage.Executive Summary Publicly-funded and administered civil works programs are known for accountability problems around the world. resulting in overestimation of aggregate costs and the sharing of rate differentials among bureaucrats and intermediaries. resulting in sub-optimal project selection. local public works have traditionally suffered from the intrusion of politics. Manipulation of rice quality. and loss levels from storage. The absence of effective coordination and transparency of public works planning at the national level has meant that political calculation could easily take 1 The authors refer to those FfW programs that did not benefit from the innovative design features discussed in this paper. cost over-estimation. Over-invoicing of construction costs. along with the lessons to be drawn from their successes and failures. non-transparent bid systems. it can create others. In Nepal. with intermediaries pocketing the difference. in which particular contractors are favored in return for gratuities. village elites.1 it is estimated that between 40 and 50 percent of program budgets are appropriated for personal gain. quantity. both in terms of physical location and types of works. This paper examines these problems. Overestimation of civil works project costs. and overseers. sometimes to the target beneficiaries themselves. · · · · · · · Several factors cause this situation to persist. a set of expected entitlements for politicians. including programs implemented prior to this experience and those carried out contemporaneously but under the traditional arrangements. and manipulation of labor rates. Using food-for-work as a payment mechanism addresses some of the control problems associated with cash disbursement. as in many developing nations. engineers. resulting in intensified problems of misappropriation. and transit. measurement at payment. Mis-accounting of cash. and their sale. First. Misappropriation of construction materials and grain. such as possible manipulation of rice quality and quantity. inadequate technical and financial supervision. despite both the criticisms of waste and misappropriation. and an intensifying need for the poor to directly receive the benefits of rural works programs. The catalogue of corruption in these projects includes the following problems: · Unrestrained political discretion in the selection of works projects. which undermines efficiency and distorts incentives. the political economy of these programs created. In traditional Food-for-Work (FfW) infrastructure projects in rural Nepal. “Managed” or non-existent bidding processes. and the weak supervision traditionally applied to relief programs. civil servants. focusing on reforms introduced in a subset of these programs. However. and committees charged with representing the beneficiaries. and payoffs to accounts staff to look the other way. in effect.
these constituencies are quite weak. districts that lose out in the distribution of spoils. and contractors harmed by collusion and unfair competition. In this context. and appear incapable on their own of changing the system. local governments in practice remain largely subordinate to the national administration. The larger-scale institutional arrangements under which FfW programs are implemented in Nepal. and depend on central grants and foreign aid. The most important losses imposed by this system are spread broadly across the economy. Indicative of the weak authority at the local government level is the fact that these governments levy and control only a very small fraction of their own finances. In some cases. A new decentralization law enacted in mid-1999 may eventually help resolve a number of these problems. which are subject to discretion and delay. tried to design a set of project mechanisms that would enable local people to determine and manage their own infrastructure projects at the village level. the administrative systems can encourage corrupt behavior. virtually guarantees significant levels of graft in the bureaucracy. They are accountable to political patrons at the center rather than to local electorates. and Nepal’s strong quasi-feudal cultural legacy. confronted with a terrible drought and its aftermath. National budgets for rural development do not either reflect or assist planning. attract the interest of bureaucrats as sources of corrupt rents. and quite low in comparison to staff and consultant salaries paid out of project funds for similar types of activities. User Committees have often been closely linked to these client groups and have taken a share of the spoils. and generate strong opposition to reforms that threaten those rents. high costs.precedence over technical and development criteria in the distribution of projects. In 1993. While one could identify discrete harms to villagers. and diminished returns to public investment. These illicit gains become an integral part of civil service reward structures. so the emergence and mobilization of opposition groups is difficult. These losses take the form of wasted opportunities. This situation. despite their titular role of representing the real needs of beneficiaries. Rural landowning classes and client groups at district and local levels have received projects and resources as patronage benefits under this system. The expenditure and financial control systems are too weak to impose real discipline in FfW program administration. distortions. A significant part of the spoils consists of misappropriated resources and bribery. expenditures are non-transparent. what can be learned from attempts to design rural works projects in ways that counteract the worst of these incentives? The Churia Food-for-Work program provides an illustration of how such an effort might succeed. They designed an administrative structure that was introduced in 1993 in one district of the Eastern terai vi . a team of Nepalese consultants and German technical advisors under GTZ financing. and the audit and anticorruption bodies fail to impose accountability. both formal and informal. from the national level to local overseers. with each control point skimming an agreed percentage. but the work required to implement this law has only just gotten underway. fail to impose effective control. A large part of this problem arises from civil service pay scales that set salaries for many line bureaucrats at levels well below subsistence. Despite several decentralization and constitutional reform initiatives since the early 1980s.
and participatory project selection. this also meant that existing governmental norms and procedures would apply. as a result of variations from the Churia program design agreed to by the government and the donors. all of which can be attributed to the few straightforward changes in incentives and controls mentioned above. and repeated under normal weather conditions in two districts in 1994. public project books. Grain leakages reduced to the 1% range. Rice payment in tranches paid publicly. improved cost-benefit ratios. The system included. Sufficient resources available to staff to do their work properly. Increases in the numbers of subsequent local projects. on the one hand. and included significant decreases in misappropriation. RCIW continued and indeed formalized in written guidelines the practices of public audit. and field operations began thereafter. The results of this approach in the 1993-1994 period were impressive. and public audit. as its core elements: · · · · · · Local determination of projects at the village level. This meant. On the other hand. it appears that the replication has not been able to match the initial project in rigorously controlling leakage. Establishment of local labor rates for earthworks. and monitored by User Committees with membership from all major political parties. to ensure effective local accountability. However. and that the project consultants would have substantially less control than in the Churia model. local record-keeping. Free availability of public information. it is also broadly conceded that the approach adopted in RCIW has not been as successful as the Churia model in controlling corruption. resulting in improved costbenefit ratios. Local selection of projects with local contributions. Increases in the participation of women. and unaccounted-for cash substantially reduced.(lowlands). On the positive side. Among the achievements were the following: · · · · · · Implementation of two to three times the targeted number of completed works at half the cost or less. vii . Subsequent election of local leaders involved in the project to local public office. After a thorough review. funded by sources including communities themselves. While successful in many respects. The central change was to make the Ministry an equal partner in the project. this program appears to be significantly more efficient and less subject to graft than typical government programs. Even with the imperfect application of these guidelines across 20 districts. to eliminate corruptioninducing differentials. that resource contributions by the participating levels of government would provide the program some element of sustainability. Full authority for implementation and monitoring delegated to professionals working outside the civil service structure. a replication of the program was negotiated between two donors and the Ministry of Local Development in 1995.
A much larger number of projects in each program district. but as amended under the subsequent replication project (RCIW). to sustain the rigorous requirements of the original Churia program in the face of strong opposition within the central Ministry of Local Development. As a result. In order for the program to achieve its objective of removing corruption from the process. and external verification by independent agencies were key elements of Churia’s success. Strong and consistent requirements of transparency. Control by the Ministry of construction materials acquisition and of rice transport. GTZ and WFP suggest that this compromise was the unavoidable price of expanding the program from two districts to twenty. national norms have predominantly been used. consistent with traditional practice. Difficulties implementing transparency mechanisms due to the insistence of the national Ministry on adherence to traditional systems for FfW programs. appeared to be less successful than before (but more than a traditional FFW project). Donors and HMG should pay serious attention to the following issues in this area: · Concurrence of all parties on project roles. incentives and in some instances opportunities for skimming have returned. and of securing active partnership by the government. of using uniform national work norms except where local norms are specified by agreement. a simple and transparent system. · · · · · One might attribute the relative weaknesses in the RCIW program to an unwillingness by key stakeholders. The Churia governance model was successful initially. of a lack of open public selection of independent User Committees. with very little countervailing power in the hands of consultants and project personnel. with insufficient resources and authority by consultants to identify and deal with procedural breakdowns and wrongdoing. Perhaps the most obvious weakness arising from this compromise has been the predominant use of national work norms. enabling cronyism in the selection process to return. including the original Churia project districts and a few others. Since the use of local work norms was not encouraged. with resulting leakages. Apart from a minority of districts. Indications. The implications of these experiences with project operation are clear. at least early on.The RCIW approach suffers from the following governance weaknesses: · A policy. resulting in greater political intrusion into selection and less adherence to technical criteria. public audit. Project selection subject to a much greater extent to political processes. the original concepts should be reinstated and followed as faithfully as possible. and viii . notably the donor community. and causing some User Committees to become dysfunctional. which create very strong incentives for civil servants and intermediaries to engage in corruption. and their subsequent erosion partially explains the difficulties observed in the initial period of RCIW operations. RCIW saw a retreat to the use of national norms.
g. signals of serious intent by international donors to demand effective governance across programs. responsibilities. In a larger sense. a User Committee with open selection and representation from various counter-balancing interest groups. or at least by a staff of reasonably paid and accountable professionals outside the civil service structure. as well as by disseminating the results of the governance experiment. can produce still more important and durable benefits. and a project book which is up-to-date and available to any villager. insistence on transparency and broad public access to information on procurement and program expenditures at all levels can improve project results. The successes of the Churia program. Use of local norms on a performance basis. may be required in the initial years of a program. strictly implemented and independently verified in the field. especially if the project is implemented through the DDCs (local governments).. suggest that implementing these design principles can substantially improve program governance and as much as double program benefits where these tenets are consistently followed. and sustained reform of the institutional framework within which these programs operate. through training on roles. Serious consideration of pay incentives (e. Direct implementation by the donor agency and its contractors. Finally. performance-based top-up payments) where possible to officials involved in the project activities. A firm standard that corruption and cheating are unacceptable should be established and consistently applied by all parties. including expenditure controls and decentralization. and needed technical skills. ix .· · · · · the operating agency. Proper setup within DDCs and VDCs. a standard measurement system. and the follow-on work under RCIW. public audit.
x .Table of Acronyms and Exchange Rates AGETIP CDO ChFDP CIAA CTO DDC DfID DSCO DTO FfW GDP GNP GTZ HMG HURDEC IFI ILO IMF IRIS LDO MLD MoF NGO NPC NR RCIW UC UN UNDP USAID USGAO VDC WFP Agence Generale d’Execution des Travaux d’Interet Public Chief District Officer Churia Forest Development Project Commission for Investigation of Abuse of Authority Central Treasury Office District Development Committee Department for International Development of the UK Government District Soil Conservation Office District Treasury Office Food for work Gross Domestic Product Gross National Product German Agency for Technical Cooperation His Majesty’s Government of Nepal Human Resources Development Centre International Financial Institutions International Labour Organization of the United Nations International Monetary Fund Center for Institutional Reform and the Informal Sector Local Development Officer Ministry for Local Development Ministry of Finance Non-Government Organization National Planning Commission Nepali Rupee(s) Rural Community Infrastructure Works Project User Committee(s) United Nations United Nations Development Program United States Agency for International Development United States General Accounting Office Village Development Committee World Food Program of the United Nations Nepali Rupee exchange rate: US$1 = NR 61. 1998.00 on April 25.
intended initially to cope with the severe drought in 1993. In such circumstances. only the losses through lower wages to laborers are considered. supporters. and the amount of earthwork done by a laborer in a day for different types of soil has been recorded in GTZ documentation of the project. the programs operated during the three-month period of the off-season. and encouragement of public servants and others to appropriate public resources illegally for private gain. seeking to decrease off-season deforestation by providing funds for alternative labor uptake to improve rural infrastructure such as roads. These include lower payments to the poor laborers who need the resources most. Some other estimates-. when labor demand is very low 2 3 Beier et al (1993) pp. In estimating the leakage figure at over 50 percent for these programs in Nepal. • over-invoicing and/or theft of construction materials and equipment. particularly Food-for-Work programs. Introduction Worldwide. or in extreme cases. no work done at all. discussions with CARE and World Food Program (WFP) Nepal.2 Since most capital works programs in developing and transition economies have substantial donor involvement. leakages of 30 percent or more of the total project costs have been documented in a global context. when corruption occurs the donors are also victims – and may be. high cost infrastructure which is loosely planned. 1 . other losses have not been measured. the estimates of economically productive capital investment are far overstated. When corruption occurs in civil works programs. poorly constructed and inadequately maintained. irrigation schemes. by their silence. In its second year (1994).put the leakage above 50 percent of the total value in labor-intensive infrastructure works supported by Food-for-Work (FfW) programs. fishponds. In both years. the German Agency for Technical Cooperation (GTZ) funded Food-for-Work programs in Siraha and Saptari. and those of personal consumption understated. as part of the Churia Forest Development Project. and river control measures. or some combination of the two. the program broadened its aims.3 The majority of the misappropriation occurs in four ways: • discrepancies between wages paid to laborers and budgeted amounts.including those for Nepal-. More severe losses have been possible in Nepal largely because of the significant difference between official and actual market wage rates for unskilled labor and materials. there are significant social and economic costs. 5-6. In other words. creation of a low-quality. and • completion of tasks at a technical level below that which was agreed. The FfW was a public works program. In 1993 and 1994.1. Whether done for cash. food. one of the areas plagued by the most endemic and persistent corruption is local public works program implementation. • over-estimation of the amount of work needed to complete tasks. the estimate is a very conservative one. two Eastern terai (lowland) districts of Nepal. The mechanism of this manipulation has been illustrated in WFP documents.
In the first two districts. devised a simple mechanism for local civil works administration which included broadbased public engagement in managing and monitoring the works process. lack of any mechanism for maintenance.and family income is substantially reduced. with some prospective recommendations about replication in other related types of projects. the incentives at work in Nepal’s political and administrative hierarchy helped reinforce these shortcomings. inadequate control mechanisms for food inflows and work output.5 percent. It will evaluate the effectiveness of these mechanisms as anti-corruption measures. There is a provision for similar public audits and related local involvement in the Food-for-Work Project currently being implemented in 20 districts of Nepal. working with German advisors. politicized decision-making regarding aid levels and project siting. including direct implementation work by HURDEC on both the Churia and RCIW projects. particularly the use of public audits. These consultants were provided by a local organization. Human Resource Development Centre (HURDEC). This paper will examine the problem of corruption in FfW programs in Nepal and an innovative initial response to this issue. initial reviews of this revised system revealed some modification problems that will be discussed in the pages that follow. The result was a completion rate of high-quality local civil works projects of over 90 percent. The paper then describes how the corruption problem was anticipated in a FfW project design and implementation process. In response to this situation Nepali consultants4. The dangers of using the existing systems for FfW included difficulties in defining program focus. and an analysis of this experience provided. a review of the relevant literature. 482 community projects were set up in 165 Village Development Committees (VDCs) and one municipality. as well as rice loss rates of less than 0. Further. the results are evaluated. Project managers needed to confront significant operations problems based on historic FfW practices in Nepal before they could make the Churia program effective. 4 2 . which implemented this system in two twelve-week efforts over two years. However. and follow-up work by IRIS and an independent consultant in Nepal in September 1999. a joint venture of the Ministry of Local Development (MLD). The paper begins with a brief overview and analysis of corruption in Nepalese public works administration. In the concluding section. and examines the solution that was adopted by both the Churia and RCIW projects. and virtually ensured significant corruption and performance problems if a new approach was not taken. It is also the result of over four years of work and observation in this area by both IRIS and HURDEC staff. as well as the extent to which they provide a useful model for the governance of rural public works and other types of infrastructure projects. especially as it affects rural projects. This is a remarkable record by world standards. particularly the introduction of public audit systems. the German Agency for Technical Cooperation (GTZ) and the World Food Program (WFP). The paper is based on a field study during October 1997 in the Eastern terai by a joint IRIS/HURDEC team. and encouragement of a receiver mentality rather than a self-help mentality.
3 . A discussion of FfW projects and their difficulties in Nepal is included as Annex C. a short review of current theory and research relevant to governance and corruption concerns is included as Annex A. civil works processes. and Nepal’s economic and governance environment. An overview of the economic and governance situation in Nepal. For the interested reader. is included as Annex B. including the administrative framework in which civil works projects are carried out. It assumes a significant degree of prior understanding of general corruption issues.This paper was written with a tight focus on Nepal’s civil works corruption problems and potential solutions.
the estimated cost of the job might illegally be made available to bidding firms for a “fee”. In practice. Selection of the type. and being selected on the basis of openly verifiable criteria. Payments to the selection committees and reviewers of firm qualifications can also occur. payments are made to potential competitors to ensure that they either do not bid. if the cost estimate is increased by 30 percent. Stakes.1 Modalities of Public Works Corruption Governance problems in public works vary widely. opening additional windows for corruption. and hence unqualified or high-bid firms may still win contracts. The benefits of a potentially competitive bidding system are foregone in the case of a civil works program where. “Where’s my road?” appears to be the bone of much political contention.e. benefits. because of "developmental" considerations.g. and the chief engineer agrees to increase the cost estimate for the work. “Managed” or non-existent bidding processes. and then all firms agree to submit bids at or above this costing level. Works Corruption in Nepal: Patterns. location. or bid in amounts higher than the bribing firm. occurs largely on the basis of political horse-trading. In a variation of this. rather than social or economic analysis. potential bidders agree not to bid. the works are to be implemented through User Groups (i.2. and have never had to construct anything. In addition. setting the stage for the analysis of program reforms in the chapters that follow. The prevalence of this pattern undermines the legitimacy of the public sector and tends to promote the exchange of nontransparent. In addition. the winning contractor may keep ten percent and pay ten percent each to the engineer and the group of non-bidding contractors). the pressures of competing interests reinforce a system where budget allocations are made which are insufficient for project completion but must be spent. and standard of public works is a matter for intense debate. Determination of placement. and the use of 4 . Such programs require that the funds appropriated for civil works be handed over to the User Committees. including illicit. A fair and transparent bidding process involves qualified contractors bidding openly for a project. Genesis What patterns of public works corruption concern us in this report? Who gains and who loses as a result of them? What do we know about the roots of these corruption problems in the institutional environment of Nepal? This chapter examines these issues. the community of prospective beneficiaries) and their representative User Committees. The following mechanisms were found to be in operation in Nepal: Selection of works programs. There are stories that some contract bidders operate solely for these kickbacks. They flourish in an environment where information on program objectives and costs is highly restricted. 2. This margin is then shared evenly through kickbacks (e. particularly of new roads or trails that enable access to previously inaccessible areas.
a given quantum of earthwork may require one-half to one-third the number of workdays reported. and split the profits with the contractor. Differentials in productivity norms (see above) can increase this appropriable surplus. sell the remainder. political manipulation and corruption are probable. i. then laborers are paid a much-lower local wage rate on the job. transport. Payments for “ghost” workers are made.e. bid the contract at less than half the estimated price. as a result. or on the basis of achievement of certain tasks. This is closely related to the issue of work norm manipulation discussed above. The rate of payment to laborers is set high. Thus. Governments will either accept free inputs from donors. Since there is no competition and little supervision. it is not uncommon for contractors to face strong competition and. carrying out the job. In regular civil works projects. and the windfall is shared among the controlling stakeholders. This is particularly true in the case of earthworks. or purchase them centrally and provide them as a “free good” to construction sites. who may or may not use them for a given civil works program. Local labor rates are increasingly set on a performance basis. even though real wages vary greatly depending on the locale and the season. Payments to labor can be made either on a level-of-effort (time) basis. Under these conditions. Those with access to the granted inputs simply appropriate them and sell them to private sector contractors. Intentional over-estimation of civil works labor and costs. 5 . The “magic" here lies in the formula used for estimating the labor costs of projects (called "work norms" by the engineers). since formation of User Committees is left “to the village. Similar practices are used for estimates of materials. a government bureaucrat may take delivery of an input such as steel wires. In a variant of this problem. and skilled labor. Regrettably. and the rates are set centrally. but is actually done according to more demanding local norms. A Japanese grant providing steel wires for river bank stabilization in Nepal has been terminated. In non-competitive projects managed by Users Committees at the village level. contractors have no problem going as low as 40 to 50 percent of the estimated cost. The standard estimation formula requires two to three unskilled laborers for a piece of work where actually only one laborer is needed. and satisfying the "stakeholders" with kickbacks.” User Committees largely consist of village-level contractors with special leverage on the local power structure. The majority of work is done on a time basis. which generally constitute more than 70 percent of the total cost of an infrastructure project. Misappropriation and sale of grant inputs.contractors is not allowed. in which work is reported to be measured and paid according to official work norms. look the other way when half the number required are used in the scheduled works program. This is a major source of civil works corruption. the slackness of work norms provides a major opportunity for misappropriation. National-local labor rate arbitrage. apparently because this practice was observed (although the precise reasons for this have not been made public). as well as substandard payments to actual laborers. “deliverables”.
Payments can also be made to supervisors to accept situations where work was never completed at all. payoffs to accounts staff. Accounts staff have made payments to unrelated third parties and charged them to the contract account. and in some cases a second time from the grain repurchased from laborers at a low price. The payments are split between civil servants and contractors. and contractors are not allowed. they may resell the grain back to the contractor -.” Misaccounting of cash. sharing the windfall with other “stakeholders”. and User Committee members appropriate residual grain and sell it for gain. In addition. 5 6 . costs can be inflated far above actual construction costs. Payments during the construction process include those to supervisors of works contractors to accept substandard materials. “our landscape is littered with the bodies of unfinished projects. as are other cash payments for the works activities. Engineers are not the only persons who can be bribed in civil works programs. cash for materials alone amounts to more than NR 40 million ($656. and they are inadequately accounted for. In Foodfor-Work programs. Payments to laborers are supposed to be provided as a blend of grain and cash. as one villager put it. laborers are sometimes not paid their cash due. Before or during civil works projects. 6 As laborers may need a small amount of cash for salt or oil or kerosene.Over-invoicing and kickbacks. As part of the process of grain In the current RCIW program. Since monitoring is rarely done by project staff in government. Specific problems with FfW programs include the following: Grain misappropriation and sellback. but are simply given the grain. There are additional problems that occur when a civil works program provides grain as the principal payment for labor. even though such overage did not occur.5 Payments for grain storage and transport are routinely inflated over actual costs. once from the misappropriated cash.000) for twenty districts.at a profit to the latter. not to check costs of materials or labor against claims. as in Food-for-Work programs.6 Watering rice/cutting quality/delivering wrong amounts. or projects which were paid for but never started. These accounts staff are then paid a portion of the illicit funds in return for “regularizing” or burying such records. but what is actually paid to laborers is less. As described above. Payments for cost over-runs can be authorized. Such programs require that the total estimated funds be handed over to local User Committees. The most common form of Food-for-Work bribery is inconsistency between the amount of payment to laborers that should occur on the one hand. and what is actually distributed to laborers on the other hand. and to accept progress which may lag behind the agreed progress schedule or fail to meet engineering quality standards. made payments early. made payments in excess of the agreed amounts. cash advances are made to pay for transport of rice and materials as well as for purchase of materials. and given payments or advances with inadequate or non-existent supporting documentation. the payment rate is often standardized. The contractor could benefit twice from this. Weaknesses in the financial and audit systems prevent effective countermeasures.
and the districts do not have the equipment or capacity to check quality in terms of moisture content or rocks inside the rice. Some loss is natural due to changes in humidity and other factors. Nevertheless. There is a great deal of variability in these areas. it is harder to enforce quality. even when it is not edible. rice is provided in advance in “tranches”. and bribes are paid in return for taking delivery of grain that may be substandard. If that rice is refused.” An irony in this process is that donors commonly over-estimate the quality level desired by laborers. Weaknesses in the current monitoring system make it difficult to detect such stealing. Deliveries of substandard grain sometimes actually provide what laborers want. The parastatal National Food Corporation generally has warehouses locally and the capacity to measure this. the poor. 8 See more detailed discussions on this in Annex B. already written-off rice from previous years has been supplied to clients. since these programs are time-sensitive. the rice had to be returned once. higher in moisture content than agreed upon. In some locations. In one district surveyed. and amounts to be delivered. and villagers whose livelihoods would be enhanced by completion of quality local civil works. The rice supplied for the current year is then sold off. The losers are those who are expected to benefit by such programs: women. Amounts are delivered with the rest “to come later. moisture content. ranging from large nationally-tendered projects to small rural infrastructure programs. In a highly time-sensitive activity like FfW. while officials and contractors pocket illicit money from the resulting disparity between donor estimates and what was delivered. but it becomes a matter of timing. Storekeepers report losses of rice during storage. the winners include both village elites and the government/civil servants with whom they interact. Between 40 and 50 percent of the total FfW civil works budget of Nepal is believed to have been siphoned off for personal gain by those implementing traditional A good sample of rice is provided for bidding purposes. delays in rice deliveries can be disastrous. Exaggerating rice losses at different stores. the problems of inefficiency and corruption persist in all types of public works projects.7 Commonly. based on the work schedule and anticipated time to completion. In such circumstances. out of three deliveries. quality standard. Then they request that the authorities write off the loss. In addition. Table 1 at the end of this chapter summarizes the effects and causes of public works corruption in Nepal. The standard tenders are called nationally. since they do not control payments.delivery and payment to laborers. and the resultant funds shared among storekeepers and other collaborators.2 Winners and Losers In Nepal as elsewhere. better quality will usually be sent to replace it. 2. the rice quality is often much poorer. donors and governments agree on the type of grain. 7 7 . or short of the agreed volume. However. it has been reported that profiteers at the User Committee level and at the district stores appropriate the rice and report it as natural “loss”. once the delivery arrives.8 The full transition to a more transparent and accountable system is yet to be made. Much of this derives from a traditional feudal system in which extraction at various levels was considered not only acceptable but appropriate behavior. although this is known to provide opportunities to solicit occasional bribes from rice suppliers.
and are a strong force in the local power structure. When illicit funds are received during the setup or implementation of any civil works program. Civil servants and politicians are the other main beneficiaries. illicit sales of inputs. since they usually control either local civil works contracts or User Committee operations. Village elites (e. civil servants.9 Of these funds. According to informants cooperating with IRIS. and the ministry in equal amounts five percent for entertainment costs10. these groups are also contractors for village or district level civil construction works. The authors and their organizations confirmed this information through detailed interviews both in the capital and in three districts in the field. and the Ministry of Local Development – all of which are agencies with major infrastructural development responsibilities. rice suppliers. there are standard percentages that are paid to each group up the line. and the rest is paid to politicians. landowners and business people) benefit from the payoffs. health. Quite often. A typical system for distribution of this “black money” is as follows: · · · · · · 9 10 ten percent to the local audit office ten percent to local politicians. where a civil servant is sure to make additional money from misappropriation and bribery. and transfers/appointments require illicit payments to appointing officers within the civil service. Given existing power structures in the village or district. These have been known to include the LDO. Elites are well-known not only by the local villagers but also by any development agencies working in the area. from numerous politicians and civil servants who declined to be named but admitted to the breakdown. education and so on). National Food Corporation Staff. these are the people likely to be selected in any village-level committees formed to carry out development works (in forestry. are almost always men. other than those discussed in chapter 3. This information was obtained and confirmed in field interviews with informants having first- 8 . Certain Nepali government departments have been identified as “cream departments”. are in the Roads. the most lucrative jobs as far as public works corruption is concerned.programs. the DDC. and others. if not there.g. Positions in these departments are highly coveted. and improper accounting of payments or advances. Irrigation. and others at various levels. The corrupt practices used for such payments include kickbacks of various kinds. These individuals are largely from higher castes. all of whom therefore benefit from corrupt practices and reinforce their operation and continuance. and Water Supply Departments. to local engineers and overseers 25 percent to the direct overseer 15 percent to the district engineer 35 percent to the overseeing accountant. i.e. the department. have relatively high socio-economic status. approximately one-third goes to either contractors or User Committee members.
officials. payments to local and national politicians translate into a threat of overwhelming negative political consequences to those wishing to change the existing system. any threats to the flow of corrupt payments are also potential problems for the officials’ personal well-being. or punishment of offenders. The shortfall in income . Depending on how these additional resources are financed. and overall sub-optimal use of government resources. Moreover. Shortfalls in the quantity or quality of public works due to corruption create a demand for additional treasury resources or international aid. The under-supply of public works and paid employment can be expected to have a ripple effect across the economy. Finally. First. Second. These ripple effects. Third. are said to shift over time – the predominant tendency being toward larger sums being demanded and taken. (ii) districts. leakages through corruption. any attempt to hand knowledge. information on the level of the corruption and the social consequences is very effectively concealed. 9 . and will be seriously resisted. and find themselves ignored in the allocation of public works programs. but are diffuse and unlikely in themselves to trigger strong opposition. and diminished productivity of public investment more generally. large local payments create strong motivation at the field level to keep the system in place.There are significant implications of this allocative structure. Who are the losers? The most clearly identifiable losers are: (i) villagers (including many poor populations) who lose valuable infrastructure and employment opportunities. much more importantly. or who do not participate in it. where are the sources of support for reform and accountability? The general population harmed by corruption is relatively powerless. First. however. water. transportation. thus drawing down those resources further. until very recently (1991 and thereafter) there were no democratic mechanisms available to address corruption. those who must champion reforms are very often dependents of the existing corrupt system. and combat. payments to accounting and audit personnel strongly imply corruption well beyond the civil works programs. This would encourage strong resistance to either timely and transparent accounts. As wages for average civil servants are well below subsistence level. along with the overall take from corruption. Second. even apart from the preceding obstacles. for several reasons. These percentages. thus potentially increasing state intervention. Other indirect losses may be quite large in the aggregate. Lastly. Given this picture. few if any know that the situation is a problem or. that it can be effectively addressed. are spread across large populations and can be difficult to understand. and (iii) contractors who lose opportunities to participate in infrastructure programs due to unfair and corrupt competition. and political representatives who do not have access to graft. opportunities for graft in rural works programs draw more participants into the corruption game. quantify. they could not be voted out. health and other types of infrastructure act as drags on trade and productivity. this could increase public debt and put pressure on private financial markets. Even if the panchayats used extractive mechanisms.
2. Unfortunately. attempts to mobilize local anti-corruption movements are sometimes met with success. These projects were centrally executed through the Ministry of Roads and Transport. and qualifications of the bidding firms. there are characteristics that specifically foster inefficiency and corruption. as in many other countries. costing. 10 . and security of key information such as the engineer’s cost estimates. Government engineers provide cost estimates for the projects. These are taken into account in the budgeting. The funding is then split by the central Ministries and allocated for individual projects. would be counterbalanced by the costs to any individual of becoming informed and taking action to cure the problem. They can include anything from massive national road and power programs to small local works such as riverbank reinforcement.3 Systemic Issues What can we say about the genesis of the corruption problems described above? While the systems governing public works in Nepal do not differ dramatically from those elsewhere in the region. Road works selection was done through the Ministry.11 However. The bulk of the budgeted funds for civil construction works are allocated to the Ministry of Roads and Transport. and a review of tenders based on technical soundness. The projects were administered in the local areas by the 11 See Olson (1965) and (1982). Overall losses to the economy translate into individual losses that. small amounts of funds are provided to each of many different projects on the largely unrealistic expectation that if a start can be made.deal with rent-seeking and misappropriation may face problems of collective action. because the scale of graft begins at a level immediately visible to villagers. Quite often. Ministry for Local Development and the Ministry of Water Resources and Irrigation. This is one of the advantages of devolving rural public works to the village and User Group level. in most cases. The WFP alone provided over 11 million dollars in food aid for the rural works sector between 1977 and 1992. The official bidding process for standard public works involves open tender for most activities. Once contracts are awarded. payments are made based on progress reviews by government engineers. Food aid for use in public works programs has been a common thread in development assistance in Nepal through the last thirty years. and often from political sources or donors or both. remains problematic. when it stopped the program due to operational problems. Projects are proposed either from the local level or from the center. more funding in subsequent years will enable these projects to be completed. the level of independence and transparency of the tender evaluation process. The rural works projects with which this report is concerned involve Food-forWork. One is the chronic lack of coordination in national works planning. The mechanism for these projects involved the procurement and provision of rice to the government. and since corruption can easily arouse moral indignation.
a mass of underpaid and badly motivated civil servants presides over a lengthy series of planning and expenditure checkpoints that. budgeting processes and know-how are rudimentary. No one is aware. and materials. with priorities fixed according to political calculations.line Ministry. district representatives of the center. tend to be ineffective or even a pretext for bribery and misappropriation. A more detailed discussion and a chart depicting the structure of FfW administration are provided in Annex C. With no functional coordination on national or sub-national infrastructure planning. These features could be described in terms of formal state institutions and informal ‘cultural’ institutions. deputies in the national assembly who lobby to obtain a large share of resources for their constituencies. Thirdly. Lastly. In formal terms. they can use this information to their advantage. A number of systemic features tend to weaken the integrity of rural public works programs and to foster corruption. Secondly. Under the existing Nepali government processes. Without ‘ownership’ at this level. the VDC level continues to raise only a minute percentage of its public finances locally. transfers from the central government and foreign aid play a dominant role. local accountability is at best weak. despite the decentralization reforms through the early 1990's. nor how much work or resources are allocated to any given civil works activity. VDCs and local organizations have a relatively weak voice in planning public works and in mobilizing resources. As a result. specialized labor. or alternatively local User Committees were set up by the panchayat in order to run the village-level projects. resources are distributed on the basis of aggregated local and regional shopping lists. for this very reason. at the field beneficiary level. Contractors bid for work. and local elites who help broker center-periphery resource flows. public officials from the village to the central level are provided with little incentive to optimize the mobilization and use of resources. of how much a project will cost. For these reasons. the technicians and the officials can benefit by paying local rates and pocketing the difference. This strengthens the hand of the MLD and line ministries. the size of local tax bases.000 (equivalent to ten percent of the central government grant). First. Four main weaknesses in the expenditure and control systems are equally important. information is frequently not made public. and fail to deter or capture most instances of misappropriation and collusion. and (at least at lower levels) result in category-wise distribution of available tax revenues rather than informed capital and operations expenditures. and the design and enforcement of available tax instruments. Since the district and national level civil servants and politicians know. Because national government norms are used for costing labor. 11 . rarely more than NR 50. Transparent planning criteria do not exist in most areas and hence cannot enforce discipline on the process. and these norms are far above actual costs. audit and public accounts review systems are weak (and probably compromised). and public works programs can easily become exercises in rent-seeking and the distribution of patronage spoils. Local public finance transparency is non-existent in the current system. This problem arises from a combination of disparities between responsibilities and tax assignments.
The need to submit requests or complaints in writing imposes barriers on the large number of poor. When a government official starts to spend money. Information in Nepal is made available on a “need to know” basis. manipulated. discussed in more detail in Annex B. meantime. because no other option has been offered or considered viable. The other major complicating factor which reinforces systemic corruption is the strong social pressure for engineers and other officials to take illicit payments to supplement inadequate salaries. the goods are in the form of commodities that can be stolen.is not considered as important as acquiring assets and using them to improve ones’ social standing. 12 . which tends to weaken the government’s commitment to probity and accountability with respect to those goods. As the network of those persons dependent on bribes for their living standard increases. and leading bureaucrats are often pitifully small. in the terai. There is a widespread social expectation that engineers and overseers will make black money. They include a culture of information control and a disparity between expectations of civil servants and the resources provided to them. or can be distributed for cash compensation. In cases where bribes are taken and percentages passed up the line. the subordination of local voice. accountants. There are also other informal rules and practices which reinforce corruption in small civil works in Nepal. whether this is necessitated by administrative procedures or not.These formal features. This is implicitly linked to the expectation of both “white money” (salary) and “black money” (bribes. also called “ghoosh” in local parlance). In Nepal. Wages for engineers. villagers do not believe that outsiders are telling the truth. and it has become an accepted social practice to take bribes. On their side. FfW programs suffer from the additional characteristic that they supply goods largely financed by international aid. Verbal requests. and often illiterate citizens who interact with the public sector. For example. Also. dowry payment is based on the husband’s profession. Bureaucrats are known to make public inquiry difficult. which appears common. debased. Honesty – or not engaging in corrupt activities -. and collusion between local and national authorities affect FfW works programs almost to the same extent as they do traditional public expenditures. carry no weight and are largely ignored. and substituted. This is widely accepted in the population as the norm. These social pressures have important implications for the standards imposed by the public or bureaucrats. those who do not take money cannot pay upward. The incentive structures that tend to favor politically-motivated planning and distribution. Nepali society views groups as more important than individuals. These values are important to keep in mind when reviewing the following section on options to address corruption in small local civil works programs. the pressures on everyone to conform to this norm grows. form the governance ‘envelope’ within which the FfW programs operate. no one can be expected to support a family on a government salary alone. the automatic assumption is that he/she has received it from corrupt practices. rural. particularly anyone from government. and their careers stagnate.
and therefore are themselves poised to get whatever they can from it. and a relative or friend taking from that same system to their detriment. the systems in place encourage non-transparency and corruption in ways that present serious challenges to the integrity of rural works programs. villagers often doubt the stated rationale and rules of any government program. and reviews the results of attempts to expand and replicate its successes. and analyzed other tendencies that reinforce the existing system. Overall. depending on the season. payments of 200 to 500 percent over their salaries. however well-intentioned. As a result. People do not distinguish between themselves as individuals linked to a system. identified winners and losers.Nepali civil servants confirmed that they received. expecting it to be another mechanism for corruption. This section has examined the civil works system and its numerous corrupt practices. The next section discusses a model developed by Nepalis and others to counter some of these incentives and practices. Since historically only larger landlords paid taxes. villagers view government decisions as being something outside their individual experience and control. 13 . in Nepal (as in most societies) it is very difficult for individuals to determine that a given practice might be corrupt because it harms them as persons. or knew of others who received. Finally. and those very minimally.
DDCs. perhaps US $0. UCs.Table 1: Summary of Corruption in Nepal FfW Projects Activity Politicized Project Selection ΑManaged≅ Bidding Magnitude Contributes to 3050% benefit/cost deterioration.5 to $1 million. UCs. 14 . DDCs. Contributes to 3050% benefit/cost deterioration. UCs. 50-60% of national norm-based transfers. Winners ΑPork≅ politicians Cronies and favored districts Dishonest contractors & officials Losers Honest politicians Disfavored districts Users Competing contractors Treasury Public Honest politicians Disfavored districts Workers Users Villages Public Causes Selection at political level Planning criteria loose or not enforced Inadequate standards and enforcement in procurement Contractor links to politicians Selection at political level Planning criteria loose or not enforced Weak audit systems Tolerance by donors Encouragement by central government Arbitrage opportunity created by national norms Bribery and Kickbacks Dishonest contractors & officials Members of MLD. contractors Αon the take≅ Members of MLD. contractors Αon the take≅ Members of MLD. DDCs. Unknown. Contributes to 3050% benefit/cost deterioration. Norm differential creates windfall of approx. contractors Αon the take≅ National-Local Labor Standard Arbitrage Mis-Accounting of Cash Workers Users Villages Public Treasury Workers Users Villages Public Treasury Tolerance by donors Encouragement by central government Arbitrage opportunity created by national norms Tolerance by donors Encouragement by central government Arbitrage opportunity created by national norms Grain Misappropriation ∃ Short Amounts ∃ Substandard Quality ∃ Exaggerated Approximately 50% grain leakage.
Losses 15 .
particularly ponds. while 16 . documenting the precise area and the circumstances of those affected. Cost estimates were prepared by HURDEC using local work norms and costs. for which strategies to increase off-season employment would be crucial. public mechanisms for participation that carefully safeguarded the use of both money and rice were paramount in the initial design process. was meant to slow and reverse the rapid deforestation of this area. designed and implemented in 108 VDCs and one municipality of Saptari district during the twelve weeks of the early 1993 off-season. In response to a request from HMG for disaster assistance. The clear problem emerging was not so much a drought-driven food deficit. and rural roads involving a high proportion of earthworks.3. Hence. but a lack of available work. and resistance. and distribution through publicly-formed User Committees made up of different village interest groups. and hired HURDEC to design and implement the relief scheme (with key input from Beier). the project management hired HURDEC (Human Resource Development Centre). This two-year pilot. which caused dramatic declines in available work for the 40 percent of the population of this area who are landless. to assess the drought situation and provide some options for relief. caused by a combination of land fragmentation. The VDC Chairmen and Secretaries took responsibility for implementation. with the support and guidance of GTZ’s Manfred Beier. overpopulation. redesign. The study recommended provision of a timely and rapid Food-for-Work program in simple. Addressing Corruption in Nepal’s Food-for-Work Infrastructure Programs The story of FfW governance reforms in Nepal involves at least a six-year history of relief program implementation. irrigation schemes. The DDC was responsible for policy formulation. In 1992/3 there was a severe drought in the Churia project zone. 180 village level projects (fishponds. rice storage. At the heart of the story is an effort to reform the structure to minimize the most severe forms of corruption described above. HURDEC and the Churia project managers. irrigation canals. rural roads and riverbank protection) were identified. One project mechanism included the creation of other. locally determined and managed systems. a Nepali consulting firm. work organization. It was critical to use resources carefully and empower local people. riverbank protection. started developing a mechanism which blended Food-for-Work with local participation and sustainable civil works operations. called the Churia Food for Work Programme (ChFWP). non-forest employment options for local people. HURDEC used a multidisciplinary team to complete a participatory rural appraisal.1 New Approaches: Churia Food-for-Work Program. The Churia project managers agreed. 1992 to 1994 In 1992 the GTZ-funded Churia Forest Development Project (ChFDP) commenced operations in the Churia catchment areas of eastern Nepal. 3. In this first year. assessed. and lack of sustainable forestry management systems by the local people. exchanging food aid for local civil works. which was followed by a three year implementation phase. record keeping.
cost estimates. GTZ provided full technical and financial support for all aspects of project implementation through HURDEC. along with measurements. at least half of all identified users had to be present. overall monitoring. Following the 1993 exercise. The successful experience of the 1993 FfW program in Saptari district then formed the basis for the 1994 FfW program in Saptari and Siraha districts. and projected changes. and trained more local people in its use at the commencement of program discussions. technical directions. This orientation took place before project selection. materials. and performance-based wages of one rupee plus one kilo of rice per agreed local measure of earthworks. the process. input and cost estimates. User Groups were more carefully identified and confirmed with all villagers. This decision was consistent with an implicit commitment made to villagers that if the program worked. A small amount of cash was made available to the User Committees for inputs such as pipes. all skilled labor. In 1994. and the role of stakeholders for VDC and DDC staff. the previous program was reviewed and some corrections made. A detailed map of each project within the village area. to see if it would reduce the numbers of poor Nepalis who cut trees for income during the slow agricultural periods. General information on construction and payments of costs on projects was provided to the public as well as to civil servants. and dispute resolution. the public audit process was discussed in each area in a series of open meetings with laborers and other villagers. or labor. was included in its project book. an evaluation showed that the program was highly successful. In this second round. Other improvements made in the second year included a detailed briefing on the working principles of the programs. Finally. with numerous public consultations on how they were developed.the VDC handled selection. a detailed project orientation was held for the villagers. Additionally. it would be continued. the Churia project provided all construction materials. A set of guidelines for program implementation was written and widely distributed. and printed it. The managers of the Churia project decided to try this system a second time during the off-season. The users selected their committees publicly in the presence of the project consultants. and VDC staff and users were trained in how to measure earthworks. but it broadly 17 . The users in the village identified projects. Experiments with cash for work were conducted. either in cash. Experiments were conducted using local contributions for the projects of 20 percent in the form of materials or labor. wage norms were revised to account for soil types and distance of soil moved. and payment to them for their work was formalized. The project drawings. and it became a firm pre-condition of disbursement of future tranches. and management analysis of the projects was conducted before commencement of work. The project professionals improved the layout and structure of the project book containing the essential features and costs of the program. Inevitably. and then had to contribute 20 percent of the project cost up-front. there were some difficulties in implementing this system. and management advice were provided in simple Nepali language and entered into the project book. For the public audit. At the outset of each project.
5-6. The results of this new system were startling. placed in a book at the village level. This can be compared with worldwide Food-for-Work results showing poor reporting. Local contributions of 20% of project costs in labor. Technical plans and costing done by consultant staff in consultation with villagers. Actually. For this. stopped only ten percent of projects due to local level inertia or loss of rice tranches. achievement of less than 30 percent of the target activities. In 1993 alone. and unit costs of less than 50 percent of traditional estimates. conducting its activities openly and documenting them in the project book. Rewards to those completing projects: priority consideration for follow-on projects. the program paid out 1. in the village area. 18 . rice. with reinforcement from outsiders without local connections or interests. Public audits of all work. public access to information on any and all aspects of the project. Mechanisms for exposing corruption and placing the project back on track. money. HURDEC (1994b). or materials. based on local norms. Local supervision done by a publicly-elected User Committee representing a balance of interests. suffered net losses of less than one percent of rice. the program supported 180 projects in 108 VDCs that were independently certified as complete. in ten weeks of field activity.300 tons of rice. and implemented 300 village level projects.000 poor persons benefited from over 370. and completed the civil works projects at less than half the usual cost. spent over 2. Overall cost-benefit estimates for the two ten-week periods include: total management costs of 12 percent. all payments. food losses of 30 to 50 percent.succeeded in establishing effective project governance. and supply work to 7. This was several times the usual pace and completion rate for traditional civil works programs in Nepal.700 tons of rice. at any time.12 The results in 1994 were even better: the program covered 118 VDCs (out of 120 initially planned). Over 80.13 12 13 Beier et al (1993) pp. and explained carefully to any villager who wanted this information. all activities. and very substantial cost overruns on such relief projects. the target was to complete up to one project in 114 VDCs and one municipality. publicly accounted for. rates of return on investment of over 42 percent per year. The main features of this program were: • • • • • • • Development of projects based on priorities set by villagers themselves.000 work-days paid during the program.000 persons.
118 did so. and finally from adjoining areas if the local labor pool was not sufficiently large.15 Four elements of the local determination process proved essential to its success. then the VDC. The consultants. consultants from HURDEC (less than a dozen. In the 120 VDCs in Siraha and Saptari districts where the project was operational. However. and roads.000. In the case of roads. These User Groups ranged from 200 to 2. as they are widely scattered and are highly heterogeneous in terms of interests and socioeconomic conditions. VDC staff. Following this. most of the workers are not users. riverbanks. The laborers came first from the User Group (UG). an orientation training was completed on-site in the village. project professionals visited the villages. etc. A worker.2 The Churia Governance Model A successful model of project governance emerged out of the Churia experience. the establishment of selection standards and independent enforcement of these standards by GTZ and consultants (and later by the VDCs themselves) ensured selection more by developmental than political criteria. While the DDC made the ultimate determination regarding the projects. which reflected many of the concepts embodied in the approach known as “coproduction. consisting mainly of engineers/overseers and social science professionals) worked with each VDC to identify users and facilitate the establishment of a democratic and representative User Committee (UC). and hold a mass meeting to choose a list of potential projects in the area based on needs and demands of their constituencies. Users. then the surrounding village. users are also workers in many cases. focusing largely on regeneration of dilapidated ponds. and agreements were signed in public. and prioritized the works requests in terms of feasibility and land availability/benefits to users. 15 14 19 . See Annex B. whereas in the terai. on the other hand gets only a short-term benefit in the form of wages (rice and cash). Of the original 120 VDCs. Each VDC then had to determine the available labor force in its area. the prioritization and selection of projects took place at the local level in public meetings. and villagers jointly assessed the cost and labor requirements. discussions included all salient details. and user field meetings often were attended by the entire village. the entire village was expected to watch over the projects. depending on the type of project. After this.3. A user in the context of Food-forWork has been defined as the person/family who gets long-term benefit from the asset/infrastructure created through FfW. In the hill/mountain districts. as they do not have access to assets in the form of land. irrigation canals. we look at these in more detail: Local determination and “ownership” of projects.”14 The main features of this model have already been mentioned. defined as those who are expected to gain long-term benefits from the public works. it is difficult to identify the users. were vested with the responsibility of achieving project goals. It is important to distinguish between a user and a worker. First. Here. houses protected from rivers and land slides. A User Group consists of all the users benefiting from the infrastructure created/rehabilitated in the long run via increased production.
e. again as much as two to three times as high. official daily wage rates are much higher than actual rates paid to laborers locally. In the Churia program. publicized widely in mass meetings. and two businessmen to be members of their User Committee and to represent diverse local interests.” Due to this radical approach. the project staff ensured that the local people had virtually all the necessary tools and knowledge to complete these projects themselves. the works were selected (at least partly) based on the ability of the local community to participate. giving them the opportunity to prove their capacity to achieve results locally. These local piece-rates and the underlying productivity norms ("local norms") became the basis for estimating costs of projects. kept information flows open to the public. which meant using local labor for earthworks and other tasks. the Rice Control Committees played a much less important role than the UCs. The work norms used in estimations for various types of labor in infrastructure projects were established over 30 years ago and have not changed since. This performance-based system measures both the amount of earth removed and the distance of the movement. rather than using more complicated or mechanized options. For example. ensured relative political neutrality. instead of the officially prescribed “national norms. Establishment of local norms and rates for earthworks labor. local piece-rates). a piece-rate system was set up at between 10 and 25 percent above the prevailing local wage rates (i. organizing laborers. Rice Control Committees were to be made up of representatives from opposing political groups. Such systems already exist locally. and indeed were mere formalities or even non-existent in many cases. After a brief failed experiment with daily local wage rates. increasing the level of ownership and pride at the local level. and are used by landowners. two women. The standard mechanism developed to determine local norms for new projects In practice. two farmers. These differentials have encouraged a great deal of embezzlement. and pays accordingly. By far the majority lived up to this challenge. the official norms are estimated to be one-half to one-third of average labor productivity in this type of work. in one village. The User Committees were made up of trusted individuals selected by village public meetings. keeping an eye on each other and managing the rice stocks and payments.16 These two committees gave project control a local nexus. Third. Similarly. 16 20 .Second. it was possible to generate two to three times the normal physical work output with the same financial and/or grain resources. In the case of earthworks. and reinforced by project consultants in regular discussions with villagers. the local people selected two laborers. This group managed the physical implementation of the project. following lengthy discussions with laborers and local User Committees. Finally. and entrusted resources to people at the local level. local work norms and wage rates were established in each district. and measuring earthworks progress. Work norms and wage rates were established with DDC approval. Government policy in Nepal sets labor productivity norms and daily wage rates on a national basis. the establishment of the two governing committees was fundamental in project operations.
sometimes laborers viewed donor funds as a mechanism for cheating.was to ascertain local wages paid in a variety of VDCs in recent seasons. the project staff. (ii) all project information made fully available to interested persons. (iii) bi-weekly inspection visits by donor representatives (or consultants) to check progress. estimation methods and engineering standards used. and agree with the implementors on corrective actions to be taken before the next visit. They themselves demanded very high wages. unless they understood that the alternative was not to have the project proceed. Other dimensions of transparency were: (i) a project agreement between the resource-contributing agency (in this case. inter-VDC labor rates tend to be quite close in value. and minutes of public meetings where progress was reported. Public information. It included: • • • • • • • • a short description of the activity and works. a list of those who worked as laborers and their payments in rice and cash. ascertain successes and problems. and pay about ten percent above that rate. a list of the Rice Control and User Committee members as well as the full set of users. Therefore. measurements were made and discussed. The project book was kept with the VDC secretary or the UC secretary and available to anyone on demand from the start of the project in any village. along with laborers. up to three times the norms. Since migration for labor between VDCs within a district is quite easy and information travels fast by discussions on the road and in markets and tea stalls. and 21 . Interestingly. In addition. so that villagers could become their own monitors. we found school children who read them to parents. and villagers were quite proud to show them. a “comments” section on progress and certification of measurements and rice payments by project consultants and User Committee members. Completed project books dating back to 1993 and 1994 were commonly found available during the field visits in late 1997. which was intended to make labor supervision easier. and discussion of any issues or problems encouraged. and public audit. and the User and Rice Committees. the project book was read. This was then used as the standard throughout the district. rates for all categories of labor to be used. (iv) the piece-work system. recorded and read. including a list of materials purchased. a complete and detailed budget. payments were made. These meetings were open to anyone who wished to attend. At the end of each tranche of work. the selection of district-wide rates was possible without too much inter-VDC variation from usual private sector practices. determine the highest of these rates. This suggests that prior experience with donor-funded projects taught villagers that project staff tend to place higher priority on fund expenditure than on fairness and integrity in project management. GTZ) and the VDC. reviewed and signed publicly. An integral part of this program was information on the project was publicly declared.
which those in power tried to perpetuate. laborers were underpaid by half a kilo per measured amount of earth moved. They showed up at times and places agreed upon with villagers. because the workers did not show up to the public audit and have it corrected. Interestingly.(v) public audits. Rice distributions were carried out once a week or every two weeks. This type of problem – and solution -. payments. The HURDEC consultants were timely and reliable. a villager made his way to the HURDEC district office to report this. if rice tranches were available on time. Rice was moved by bullock carts hired from villagers in rotation. In one location. and projects were completed quickly. purchase of materials. Villagers exerted a great deal of pressure on UC members or Rice Control members who cheated. 24. Implementation and monitoring authority fully delegated to an external agency. In case of overpayment to workers. A member of the Rice Control Committee kept the rice locally under lock and key. monitored by committees with membership from all major political parties. 45. and so the theft was discovered. The nature of problems in the 1993/94 Churia Food for Work Program were largely consistent with usual corrupt practices. and often in the presence of project consultants. the actual cash and rice was under HURDEC’s control. laborers made up the difference in volunteer labor. and the consultants had full authority over design and estimation approval. In this way. Upadhyaya and Acharya (1993) pp. the next tranche was not paid. The relevant VDC chairman was fined by the Chief District Officer. Payments were accounted for in full during public audits. 22 . provided clear plans existed for project work and payments. and beatings were not unknown. and helped the local VDCs do the work properly.occurred in several locations. and physical works progress were thoroughly reviewed for consistency in a public meeting before the next phase of a project could proceed. If all rice could not be accounted for. Villagers worked hard to receive their rice. depending on the history of the VDC and User Group. so that people could easily see how much was coming. The selection of committee members from various interest groups was reasonably effective in keeping the system honest. they set firm standards by refusing to take tea or any other free item from the local people. in which all records. and arranged for pre-checks on rice quality and weight. If there were underpayments. This helped reduce the scope for corruption. Work was divided into sections. and enabled the project to be responsive to problems as they emerged in the field. 23. Project professionals set up storage in the districts and subdistricts for rice distribution to VDCs. and rice allocations made in advance for each section.17 Rice payments in tranches. 17 Beier. In addition. HURDEC (1994b) p. with between two and four tranches provided per project. the VDC or UC head was shamed publicly in an audit meeting and made to pay back the shortfall. a long history of distrust and fear of government officers by villagers could start to be overcome. and overall monitoring. Although both politicians and civil service officers were involved in the program. Rice payments were made in public before the User and Rice Control Committee members.
According to the project documentation. Areas are to be selected on the basis of food deficits in the hills. The $ 17 million program budget for the first three years (1996-8) included inputs from HMG and the two donor agencies. WFP will furnish approximately 45. as well as contracts with local firms/NGOs to provide local project advisory services such as engineering and User Committee training. (1997).000 tons of rice. funds for transport and insurance of the grain.19 Over the full five years. preference will be given to those areas within one day by oxcart from a rice depot in the terai. but in other cases they were not. The word spread that successful project completion led to new projects. 2.18 During its period of operations.000 families through the provision of labor for the creation of infrastructure. including large grain losses and frequent failure to complete works projects. Ultimately the RCIW (Rural Community Infrastructure Works program) emerged under a trilateral agreement between these parties. it is expected ultimately to benefit 30. and on the basis of concentrations of landless laborers in the terai. and the Ministry of Local Development began discussions about the expansion of this type of program as a poverty alleviation measure. After a detailed evaluation of the Churia Food-for-Work Program. In addition. WFP. 420 tons oil.3 Expansion under Joint Donors: RCIW 1995 to Present The successes of the Churia program did not go unnoticed.000. When the latter occurred. The RCIW program was signed in December 1995. 3.In other locations. It will also perform some studies and monitor overall food distribution and the laborers involved. particularly by the World Food Program.700 tons. In hill zones. preference will be given to those areas located within two days by porters or mules. 19 Boergel et al. and neither did their villages. and where clusters of projects can be undertaken.4. 23 . GTZ will provide two long-term advisors and several short-term consultants along with vehicles and office equipment for MLD. or storekeepers who misappropriated rice were forced to repay under public pressure. funds of about $280. MLD will select the districts that can participate. The RCIW program aims to mobilize approximately 15 million workdays of seasonal employment for unskilled rural workers in 45 of Nepal’s 75 districts over five years. and collect detailed information on the works completed. and makes RCIW the single most important poverty-alleviation program in Nepal. projects did not proceed. Some user Committees. affecting only 11 out of the 118 projects. VDCs. The total amount of rice embezzled was less than ten tons out of over 2. Cash wages for the unskilled labor 18 RCIW Project Document #1 (1995) sec. GTZ. and the projects could not proceed.000 for materials. that cheaters did not prosper. and training funds of $220. The Chief District Officers of the two districts fined the offending VDC Chairpersons or UC members and recovered virtually all of the missing rice or its equivalent. which had been operating small Food-for-Work programs previously but had numerous problems with them. the User Committees/VDCs became inactive.
component of the project are required by the RCIW project documents to be not less than 20 percent of total wage payments for the project. Public audits are required in the project document. MLD (acting for RCIW) signed an agreement with the Ministry of Forest and Soil Conservation to support 40 VDCs in these three districts with 500 tons of rice for FfW schemes. RCIW (1998b). unless otherwise agreed by all parties at the district level. It is anticipated that the DDC will fund 20 percent of the labor costs as its contribution. The RCIW administrative structure is depicted in Figure 1 at the end of this chapter. is consistent with these findings.23 Interestingly.22 Rice is sent by the National Food Corporation to local depots. Siraha. 23 Follow-up field research. The project document does not state whether cost estimates and labor rates are required to be public information. However. after ChFDP/GTZ took the initiative. recently completed. and ten NR. and to date the project operates in 20 districts.. The DDC staff are also expected to provide the project cost estimates and designs. The projects are to be monitored by overseers and engineers that MLD provides to the districts for this purpose. along with reviews of GTZ monitoring reports for the first ten districts.20 GTZ estimates the proportional contribution by HMG (including VDCs and DDCs) to overall project costs at 31 percent for 1997-8. 3. but this advice seems 20 21 Id. New districts are to be added at an increasing rate. with approximately one quarter of the VDCs in each district participating. showed variations from the project document and also from the Churia program on which this was modeled. p. and a portion of wages. The DDC and its staff are responsible for working with the VDCs to establish User Committees and select projects. As in 1993 and 1994. The government is to supply funds for this. the German consultants on the Churia project in their review of the WFP project documents stated specifically to GTZ that use of local norms and other aspects of the ChFWP were essential for any replication. in the amount of $ 3 million. Saptari and Udaypur were not included in the first year of the RCIW program. transport. with all political parties represented. and collected from there by representatives of the Rice Management Committees (functionally similar to the Rice Control Committees under the previous system). The project documents specify payment at three kg of rice per day per person. 22 RCIW (1998a).4 Replication Issues under RCIW Field reviews of RCIW in areas of the eastern terai during the second year of operations. 14. The Rice Management Committees are to be appointed by the User Committees. ChFDP also agreed to provide financial support to the VDCs for construction materials. with support from the GTZ consultants as requested and agreed. Official national work norms are to be used. the ChFDP hired HURDEC to provide technical and management support to the VDCs. 24 .21 The project started in ten districts of Western Nepal.
while a number of food deficit districts were not included in those selected for RCIW. As a result. with very little countervailing power in the hands of consultants and project personnel.to have been set aside during the RCIW implementation. User Committees are comprised of the VDC officers’ political contacts. 26 HURDEC (1996b) p. GTZ Kathmandu. 25 . (ii) A policy of using traditional uniform national work norms. As compared with the Churia program.g. Government officers in some locations not using local norms were candid in admitting they had gone back to the usual system in order to obtain reasonable “compensation.28 24 Memos dated 10 April 1995 from Manfred Bach and H. and in some cases refused to provide their required cash contributions. Wittur. DDC members chose several projects based on overtly political criteria (e. They said the problem needed to be referred up the line to Cabinet level. 28 Upadhyaya and Beier (1997). that identifying needy districts and villages is therefore not a simple either-or process of choice. some of the affected VDCs found themselves dictated to or overruled. they point out that pockets of food insecurity and landless laborers exist throughout most of Nepal.27 Reports on the Churia and RCIW projects indicate that government officials from the center and district were generally not interested in making changes to resolve the problem of differential wage norms. As a result. User Committees listed part of the difference between local wages and the national norms as their user contribution. 27 Pandey and Upadhayay (1997) p. and less adherence to technical criteria. 7-8.24 Findings from the field include the following: (i) Political factors play an increasingly important role in the selection of districts and VDCs. except where local norms are specified by agreement. national norms have predominantly been used. and that some political intrusion is inevitable in a program involving a full partnership with government. In some locations. However. 25 HURDEC (1997b) pp. ix.25 DDCs in many cases found it difficult to apply ‘objective’ or ‘professional’ criteria in selecting VDC-proposed projects for support. 6. Since the use of local work norms has not been encouraged and indeed has been resisted in areas where it has been suggested. Some observers interpreted this to mean the bureaucrats were resisting an attempt to reduce their sources of illicit rents. project selection under RCIW is subject to political processes to a much greater extent. Acharya to R. incentives and in some instances opportunities for skimming have returned. siting projects in their home villages). appears to have re-opened the window for graft. in GTZ open library files.26 GTZ consultants and staff acknowledge some of these difficulties. This has resulted in greater political intrusion into the site selection process. while other DDC members decided on projects either without assessment by the LDO or in contradiction to existing analyses and plans.” In some areas in the western and far-west regions. A comparison of selected districts and sites with the latest available government data in 1997 showed that some selected sites were not food deficit areas.
Consulting firms and NGOs working as advisors to the project cited several reasons why public audits were not possible. Saptari. nor were guidelines – but this appears to have been corrected. These included the original Churia areas of Siraha. One reason was that the RCIW unit in the DDCs did not cooperate.000 self-reliance grant from the central government. There was evidence early on in the program of frequent failures to hold public audits. and places severe limits on staff capacity to deal with problems rapidly as they emerge in the field. These programs are mainly dependent on the Rs 500. In some other areas. 29 26 . due to delays in allocation and funds transfers from the center.29 A more recent and broader review of RCIW experiences indicated that a few other districts had tried or were trying to use district-level norms that are not as generous as the national norms. (iii) Effective monitoring of project procedures and targets has become more difficult. A further contributing factor was that necessary planning and training programs were not provided in the first year. which jeopardizes both performance and credibility. manipulation. consultants and NGOs were trying to ensure the proper maintenance of project books. Some of these efforts have met with success. they were not strictly tied to releases of tranches of rice. along with the adjoining district of Dhanusha. This decision has significant implications for program governance. GTZ staff and consultants report that the usual patterns The DDC in Dhanusha made a decision to the effect that the local norms applied in FfW will also be applied in all the VDC level programs. In these areas. For example.In certain districts. and some other project elements by government has left those areas open to inefficiency. as this might have damaged the credibility of the local power elites. due to a combination of political pressure and limited training and support. the local norms were accepted and applied. while others have not. rice and MLD materials support are often not available on time. In a number of districts. This determination followed from the DDC’s observation that resource effectiveness was substantially increased when the Churia model was used. Another reason cited was that the consultants were not able to get sufficient back-up from the Kathmandu project office when they confronted problems in the field. (iv) Control of construction materials acquisition. public audits and project books are being properly kept. A problem of weak attendance by users/workers has also been cited by some. books are blank or not available to the public. with laborers and users largely or completely absent. and public audits are either not held or held with small groups of interested persons. due to the implementation of large numbers of projects in each program district. Even in cases where public audits were conducted. with resultant cronyism and other problems. The release of rice in these areas has not been made conditional on either public audits or information about the use of the previous tranche in these areas. Another reason was that the village level power structure was too strong to accept such a radical approach. as well as a lack of open public selection of independent User Committees in some areas. Thus. MLD budgets generally take a minimum of six months to reach the district level. rice transport. and leakage. these funds may not be available when the program requires them. and Udayapur. coupled with insufficient resources and authority for project consultants to address procedural breakdowns and wrongdoing.
g. Third. which may have encouraged both under-performance of inspections and corruption. project activity will be slower or will stop entirely. 27 . (v) Pay and incentive problems persist.30 On this point. 2-3. Bureaucrats in many public sector departments in Nepal depend mainly on the availability of such illicit income for their livelihood. the incentive scheme did not consider the amount of kickbacks that the RCIW staff might receive anyway by virtue of their access to project resources. public servants lamented the fact that careful monitoring made illicit gains from the project difficult. Officials involved in RCIW are paid a fraction of what is considered to be an adequate living wage. which required certification of their performance by the LDO as well as the GTZ consultant. the RCIW engineers and overseers are in a weak position compared with other officials. including district level engineers and overseers. On the other hand. In 1994. consultants are usually paid significantly more than all of the involved public officials. the incentive amount was far below the expectation of most of the RCIW staff. LDOs and their staff received supplements totaling less than 25. This is problematic. Second. as it was believed to have failed to produce the desired results. there are recent studies hinting that corruption derives more from bureaucratic perceptions of unfairness with respect to the reward structures than the absolute differential between public and private sector salaries alone. Currently under RCIW. In some districts the RCIW staff reported that they were already making black money at a rate of several times the amount of any incentive payments without any extra effort. Van Rijckeghem and Weder (1997). and without their full cooperation. although this may have been more a result of overall program design than of the incentive payments themselves. On the one hand. First. energy. many of them did not like the modality of its administration. if not impossible. Experiments with salary supplements or top-ups were conducted under the Churia and RCIW programs. do not receive top-ups or additional allowances for project activities (e. In other areas. There are also reports that the motivation of some of these RCIW program administrators has been undercut by pay differentials. There were also limited experiments with incentive payments under the Churia program. The efforts under Churia appear to have met with more success. travel) that add to their existing workload and costs. An experiment with monetary incentives to RCIW staff by GTZ was discontinued after one year. or money into this activity.31 These pay and motivation problems affect the entire public sector in Nepal. since these officers are the front-line implementers. there is little to no incentive for them to put any time.of Nepalese public sector management usually apply to the HMG components of the program.000 rupees for the year to compensate them for their additional work load and office expenses 30 31 Schulthes (1997) pp. in large part because the temporary nature of their jobs exposes them to insecurity and lack of influence. There were several problems with this experimental incentive system. This has led to perceptions of unfairness. Thus. project bureaucrats.
the staff from district soil conservation offices in Siraha. the payment of supplements helped to constrain corruption in a program that was already largely under donor control. Saptari and Udayapur were the government officers for this program. In the second case. 28 . and the fact that soil conservation officers had permanent government positions and hence stronger performance incentives than the RCIW engineers and overseers.in support of the program. success was ensured by a combination of the maintenance of major governance features from the earlier Churia program. From 1995 to 1997. and were paid incentives by Churia Forestry Development Project/GTZ based on their actual involvement in the planning and implementation of the Food-for-Work (RCIW) Program. In the first case. the prior acceptance of the use of local work norms by the soil conservation offices.
Figure 1 RCIW.Program Organizational Chart RCIW-Program Organizational Chart Ministry of Local Development (MLD) Program Support Unit (PSU) National World Food Level Program (WFP) GTZ.Technical Assistance Unit Program Coordination Committee (PCC) District Level DDC/MLD District Program Support Unit (DPSU) GTZ.District Support Unit Village Level VDCs VDCs VDCs VDCs Beneficiary Level User/Self-Help Groups (There are about 400 groups involved in FfW activities) Notes: Direction of management. and rice/material/cash inputs Technical/organizational assistance DDC/User Committee agreement Source: Food-for-Work Program. GTZ 29 .
This benefit would. This limited the effect of the overall patterns of upward accountability to national bureaucrats. in our view. The Churia model enabled local governments. Reduction in costs and increased returns. In later years. However. Results and Analysis What results did the reforms adopted in the Churia program produce? What sources of corruption did these changes aim to remedy. upward accountability appears largely ineffective and itself produces distortions. The Churia governance design introduced greater downward accountability to communities in rural public works. and bribery. and NGOs acting as credible advisors and overseers to enforce program integrity at the local level – thus adding additional dimensions of vertical and horizontal accountability. have been much greater had more of the original governance framework been kept in place during the follow-on project. and how did they do so? What were the subsequent results in the RCIW replication? What lessons for the future should the government and the international donors take from this experience? The outcomes and the lessons they suggest are discussed below and summarized in Table 2 at the end of this chapter. data from Siraha and Saptari document a more than fifty-fold drop in rice leakages under the Churia project in 1993-4 as compared to traditional FfW programs. It is difficult to measure the full decrease in corruption-related losses. and in part from the fact that all elements of the reform package were not consistently in force across all project areas. Increased Accountability. Available information on overall costs also supports field observations that bribery. misappropriation. misappropriation. committees truly representing the users. This arises in part from the general problem that reliable numbers on most forms of corruption are simply not available. 4. the cost per project 30 . at least in the 1993 and 1994 project years.4. According to the data compiled by Churia and compared to the respective DDC records on previous civil works. politicians. Given the nature of Nepal’s political system and its mechanisms for public expenditure control at the national level.1 Summary of Results The framework for civil works governance established under the Churia project (and partially carried forward under RCIW) had a number of identifiable results: Reduced Corruption. and cronies with respect to the programs supported by Churia. and related program distortions were substantially reduced. and contributing to the decline in waste. the replication of some of these governance improvements across 20 districts has no doubt made the use of resources under RCIW significantly more transparent and efficient than in comparable HMG programs.
Local elections in 1997 found a number of User Committee members running for office for the first time. women use increases in resources to benefit the entire family more often than men. The first year targets for Churia. where women are severely repressed socially. above 90 percent of those commenced. and Dhanusha. they responded that these elected individuals had shown they could be trusted to bring resources into the village and manage them properly. Election of local leaders to public office. although we were unable to obtain cost-benefit analyses for traditional FfW projects in Nepal. Many of them were elected to local or even DDC offices. In the project zone. As documented in a large body of research. and encouragement by project professionals for women to be included as laborers and on committees in all projects. Field engineers reported less than 50 percent completion on standard civil works projects under other funding sources due to both corruption and inadequate budgeting/delivery of resources to the field. Increase in numbers of subsequent local projects. 31 . Field engineers also reported that the recorded costs of traditional DDC projects are approximately twice the total real expenditure. Increase in participation of women. By the end of the second year. From a small margin of total labor. 5-6. 33 HURDEC (1994b) pp. Saptari. Women are also considered locally to be more trustworthy. and education. this is a major change. with women holding around 16 percent of User Committee positions. When villagers were asked about this. indicative of prior experience in government works programs. the villages worked hard to secure a follow-on project in their areas.000. Due to the improvements in local project ownership and outside support. increased women’s participation can reasonably be expected to improve the effectiveness and heighten the overall impact of resources provided in the project areas. involvement of women increased to about 30 percent in Siraha. or a cost per project of Rs 93. a very high rate of return by most standards. which form up to 95 percent of the costs of rural infrastructure projects. This supports the general estimate of 50 percent losses under traditional programs. 32 Churia estimates for 1994 showed a total cost of Rs 45 million for 482 completed projects. and confirms that the overall cost of the Churia program compared to standard civil works is much lower. Udayapur. and is consistent with information on comparisons of national and local norms for earthworks labor payments.33 Increase in the number of completed projects. This is due to program efforts to set up women-only projects. the cost-benefit under Churia showed a return of value on investment in two years. most VDCs were completing two projects during the short period of off-season activity. particularly in the areas of nutrition. Consequently.under the Churia model was less than half of that in comparable traditional projects. involved completing one project in each VDC. health. In each case.32 This gross comparison is nevertheless suggestive. Finally. the fraction of completed projects was very high in areas covered by the Churia model. They felt they had acquired enough leadership skills to run for office.
the program performed in line with the national norms. and the encouragement of further corruption and further damage to the system’s legitimacy. One could attribute these to effective official opposition to using the model in its original. The rents available as a result of norm differentials also gave rise to other 32 . Some of the changes introduced in RCIW are said to have been justified by the need for full partnership by the government. which reduced the effectiveness of the replication. However. the benefits from corruption in civil works spread themselves from the bottom to the top. the differences between national and local norms created an arbitrage opportunity. the RCIW design embodied compromises to the original model. and the decision by the donor agencies not to insist on the original model. a follow-on project that successfully made use of a number of the same transparency mechanisms to constrain. mechanisms. but at the cost of potential beneficiaries who could not participate. the information on local markets fails to enter into national allocation and formula-setting. that was a relatively minor matter. where did the norms. One could imagine. opposition would naturally stiffen. In setting up the replication. As has been seen from the previous discussion.2 Analysis An analysis of these FfW experiences in Nepal should begin with a diagnosis of the corruption problems confronted. and are an expected part of civil service reward structures. when a donor-funded project in two or three of Nepal’s 75 districts severely constrained the diversion of project resources to theft and kickbacks. implementation of the same system that encouraged corrupt practices in the past is much less likely to slow corruption. 4. and improved monitoring is needed to stop leakages between the national level and the local beneficiaries. the skimming of a windfall by certain intermediaries. From the bureaucratic point of view.Replication. However. such as substantial MLD authority and the use of national labor norms. then proceed to examine why certain responses were or were not successful. The problem here is that FfW food aid is a publicly-provided good that is intended to go 100 percent to beneficiaries in the targeted communities. this being the profit margin. The Churia project inspired RCIW. and practice of governance fail and thus create an opening for corruption? Clearly. and officials trade at a lower price while misreporting to the national level and pocketing the difference. if it were a private business running the activity. successful form. the donor agencies paid insufficient attention to the importance of ensuring that all of the elements creating success in the original model were present. With the prospect of many more districts (potentially 45 of them) using this new system to prevent diversion of project resources to district and national level civil servants. As a result of the differences in norms. Somehow. Thus. This resembles a problem of price controls faced with local black markets -the official price of the labor is too high.
but recognizes that districts may choose to adopt tighter (less generous) norms. since the previous system enables them to obtain greater payoffs. the Churia FfW model attempted to cut through the information asymmetry and thereby constrain the motives and opportunities for corruption. The first and most important challenge for advisors under the RCIW structure is to institute the concept of local norms under conditions where they are unable to enforce the rules by withholding rice or money. The local norms approach was successful in the ChFDP project districts because it was an absolute prerequisite for project activity. Some local politicians also favored the use of government-prescribed national norms. misappropriation of cash. manipulation of bids and project specifications. which is a highly lucrative option for Nepalis. the Churia design aimed to reduce the discretionary control over project resources that was in the hands of organizations or individuals not accountable to the community. There were overt and covert campaigns by some WFP personnel in favor of the 33 . and the alignment of incentives favoring integrity by making users and workers an important part of the public audit process. and spent several months on planning and implementation. Civil servants (backed by MLD and some WFP officials) have campaigned vigorously against local norms. The engineers are faced with a trade-off: either take greater payoffs from non-project works to maintain income.forms of corruption. there is a substantial incentive for corruption. Absent the use of local wage rates for both calculation of project costs and payment on-site. Finally. including bribery. By moving maximum responsibility and initiative to the User Group and VDC level. Kailali. or be honest. RCIW stipulates government work norms as the standard. potentially upsetting those systems. Attempts to institute this mechanism in Nepal provide the following lessons: The establishment and use of local norms. Banke. In this context. hoping to be hired by an NGO or consulting firm for higher wages. RCIW has reduced the potential for corruption and made effective project governance more difficult. HURDEC consultants went to Surkhet. There is a strong incentive for civil servants to ensure the failure of this new mechanism. and constantly tried to reverse the policy. Politicians recognized that this brought benefits to their areas. and Kanchanpur districts. and to a lesser extent to the villagers themselves. The use of local norms substantially reduced the potential “rents” available through misappropriation resulting from control of cash and food. and patronage-based project awards. Its rationale was frequently discussed with all concerned. or be sent abroad for training by a donor. as they also benefited from the existing system. public audits devolved monitoring to the User Groups. Serious conflicts erupted between officials involved in RCIW and the HURDEC advisors over the local norms issue. portrayed HURDEC professionals as disruptive elements. and that the credit they earned from supporting it (or at least not opposing it) would outweigh the returns from graft that they would have received under the traditional system. In contrast to traditional FfW programs. This meant minimal reliance on administrative audits conducted by civil servants. In departing from this precedent.
External verification and validation of key decisions. In at least two cases. Subsequently (after HURDEC withdrew from RCIW in these districts). demonstrated erosion of confidence and possible corruption. public payments. Where attendance was too small (e. Another sign of problems was a person trying to prevent large attendance. In the case of Kanchanpur. sends timely signals of project performance. in some cases using the argument that local norms would be exploitative.use of government work norms. then something is probably wrong.” Using project consultants as their development partners. Villagers usually fail in their efforts to control corruption because they have no leverage over civil servants or local elites. Attendance at village audit meetings increased when the programs were successful. Nepali program consultants who had the necessary resources provided communities with an “integrity anchor. and employment favoritism.34 An important flaw of the RCIW replication was that it greatly diminished Accountability in some cases has outstripped available safeguards. public documentation. Public meetings. ex-gratia payments to overseers and engineers. local villagers fought successfully against problems such as arbitrary decisions about projects. At least two of the RCIW engineers are reported to have approached the respective DDC Presidents with the offer of bribes if they opposed the use of local norms. This individual falsely promised that if they reversed the decision on local norms. When the level of resources. and its use shows how effectively the project is performing. it cheating became more difficult. rice theft or delivery of unacceptable quality rice. less than 50 percent of users) the meetings were not held. if villagers have seen it and discussed its contents. he would provide a large amount of cash resources for the program.g. an officer from MLD went to the district personally. If it is incomplete. improper earthworks measurements. It took HURDEC professionals one to two months and in some cases several DDC meetings to finally get the DDC members to decide in favor of the use of negotiated local norms. persons who stole project rice were beaten by villagers until they returned the rice. and objectives became known and understood widely. The project book is also very important. or does not reflect known problems. then the project is going well. the negotiated norms (halfway between "official" and traditional local norms) that had been established with a great deal of effort in Kanchanpur were withdrawn. Kailali and Surkhet as well. by definition. and used a "carrot and stick" approach to ensure the use of national norms. The presentation of a public project book made detailed resource information about projects accessible to any villager with someone in the family who could read it to him/her. roles of the players. A transparent system. The funding agency’s requirement that key activities such as rice distribution and audits of resource use be conducted publicly was crucial to program integrity. or if held. not available. 34 34 . If it is completed and readily available to anyone. Corruption grows in environments of secrecy where rules and resources are unclear. The old norms and rates were reinstated in Banke. if everything is written in. and warned of dire consequences if they did not. Public payments of rice and money made theft by underpayment very difficult. compensation.
and that there were finite resources. and must be discussed with local users who will monitor this themselves. less of the benefits accrue locally. Focus on systems that can be locally run and owned. the VDC and DDC staff have carried on with government-funded projects using this management mechanism. Furthermore. Since laborers sometimes try to over-measure their work for payments. and ensuring that everyone understands measurements and timing. things can be hidden. User Groups have an encompassing interest in the performance of these projects. the project processes tended at times to undercut this. In recognizing that any theft would reduce benefits accruing to the village. The program recognized early that clarity of activities and purpose is directly related to levels of corruption. but by the VDC or even the DDC.35 User Committees have also been the scene of manipulations – intended or not – that tend to undercut the potential governance benefits of well-designed FfW projects: it has been observed that formation of most of the users’ committees have become a formality. Rural projects involving the poor present unique challenges. public audit. When projects are technically complex. a considerable amount of time needs to be spent with villagers discussing the nature of associations. villagers became much more willing to fight corruption. the late arrival of cash from the center and its delayed transfer from the VDC made it more difficult for the UGs to keep their momentum. a variety of funding sources have been used by villages for follow-on projects using this governance mechanism. their own contributions have been pooled for self-managed projects such as temples or ponds. Concentrating on locally selected projects increased interest in having them work. since inefficiency and corruption tangibly reduce the benefits to the group and to individual members. and in many of these villages. This is a powerful statement on the impact of this type of system in terms of local empowerment. In situations where many are illiterate.the external consultants’ power to resist traditional corruption or stop implementation if they encountered situations that the villagers knew were wrong. Where decision-making is further away. even where the RCIW project is not operating and has not been active for some time. repeating the explanations. and transparency. and there are fewer people who understand how the project should work. and therefore implement projects effectively. When villagers as a group set up User Committees that balanced powers. For example. Since there is such a long history of exploitation. UCs are not adequately aware of their 35 Pandey and Upadhyaya (1997). one report on RCIW indicates that most User Committees were chosen not by the UGs. it increased the probability that the members would prevent each other from cheating. retain the commitment of the workers. In some areas. more time and energy needs to be spent explaining the systems. Therefore. 35 . While the User Groups were meant to be the initiators and implementers of projects under VDC management. careful determination of the work and cost up-front is very important.
The project professionals also let the VDC residents know that they were viewed as being capable and responsible people who could run their own projects successfully and without corruption. or manipulated. and honestly. In many cases they have been “used” by nonusers of the projects as rubber stamps. This is a result of monitoring mechanisms established as part of the project. to check progress and to work with villagers on project management issues. ODC (1997) pp. and the word got out that integrity was rewarded. ignored. they would be eligible for another project in the future. follow-on projects were awarded in VDCs. that the complications of working in partnership with the government. responsible persons try to compensate the expenses (time and money incurred to make contacts at different level and during implementation of projects) by other means.roles. The fundamental guideline was “trust but verify. however. benefiting from a tacit “hands off” policy that exempts it from the more common Nepali system of skimming. and the consequent loosening of external supervision have made such problems more difficult to address under RCIW. They are often either dictated to by the DDCs.37 These failures contradict the logic of co-production and tend to undermine project performance. These problems with Users Committees did not originate with the RCIW replication... It is fair to say. This effects [sic] the process of empowerment of the people and does not impart ownership of projects among the users. The limited experiments with cash supplements for project bureaucrats suggest that carefully-designed incentives can help reward the integrity of government partners and ward off the worst effects of an unreformed civil service.36 User Committee members in some districts view themselves as having little to gain from membership in the committees. Where there was sufficient time. Since such involvement is quite high. This reinforced project operations. At the same time. Some simply prefer to work as laborers in the FfW projects for compensation. The distribution of rice under the RCIW program is thought to be quite transparent. Villagers in these areas communicated to each other frequently. their removal would prompt a return to high levels of 36 37 HURDEC (1995). responsibilities. both in the first year and subsequently. the vast expansion of activities. 28-30. They kept their word. maintaining integrity requires careful choices and constant monitoring. 36 . Similarly. Expecting and then promptly rewarding integrity and performance. and rights. and created an environment where it became very costly to cheat. but date back to the beginning of the Churia project. This tendency among people does not create a healthy environment for transparency. responsibly.” The project staff set up arrangements to visit village projects regularly. the involvement of responsible UC members is not accounted in local contribution. The Churia program implementation team informed villagers that if they completed their project rapidly.
In general. Efforts to involve women. However. these women-only programs were the first of their kind. regardless of the latter’s capacity to complete the tasks.39 ‘Zero-tolerance’ to corruption stance. very poor women will work alongside males. and these usually have more cash components. Workforces are mixed. or to place responsibility for cash in some special or external structure. In addition. 40 Where government systems create opportunities for corruption.38 Cash for work is harder to manage. because the arrangements are bilateral. the cash component offers a source of illicit supplementary income. The mechanisms which tend to drive donor projects include on-time performance and. Women were acknowledged in all field areas as being more honest than men. 38 39 Schulthes (1997) p. 2. encouraging the use of women in labor and as committee members. In many areas. for which cash is unavailable. by the local people themselves and by government staff. A bigger monitoring problem plagues the cash contributions – where bureaucratic flexibility to manipulate rice payments has been taken away. in particular. the use of their budgeted funds. They have generated considerable social impact among the local people. their lower levels of education and literacy make more intensive training in management and technical requirements necessary. both as workers and project users. Since female civil servants in these fields are unknown. the Churia project hired women motivators to support operations of these projects. This suggests a need either to de-emphasize cash for work programs in local civil works. they operate directly with the government. because cash is fungible. developed their confidence in managing their own affairs and opened up some new possibilities for the upliftment of poor women in the VDCs despite the restrictive traditional setting. and set up women-only trials in both years. In some cases. projects are accepted due to heavy political pressure from above. even the relatively well-to-do women worked in the ponds (Bastipur and Fulkahakatti VDCs in Siraha). in 37 . in this context they are very shy in dealing with outside males.rice leakage. page 27. In addition. In the context of Siraha and Saptari (which are considered to be among the very traditional and conservative societies in Nepal). In discussions with donors. 40 Donors are moving increasingly to implementation via international NGOs and local NGOs. making project work without female professionals very difficult. although largely male. as in the Churia project. Involvement of women in particular types of projects takes special effort. 1994 stated: The women-only projects have boosted the morale of the women. As the final report of the Churia Food-for-Work Program. Some women’s groups have formed User Groups and taken on civil works programs. In a few cases. but is very worthwhile in terms of the overall benefits to their families and protection against corrupt practices. those with selection power will choose projects with higher proportions of cash expenditures. or in areas where tribal group involvement is high. because they are harder to audit publicly. there has been ambivalence regarding the capacity of the government to move to a low-corruption system. Ibid.
donors.43 response to the very poor project performance in the past under government implementation. At the VDC level there was a clear link between those who had been active on User Committees in VDCs with completed works. 41 Direct communication from senior donor representative to Betty Wilkinson regarding RCIW. However. The overseer said they should be ashamed to ask for papers. and the government was crucial.000 provided annually to each VDC. local ownership was virtually impossible. An important finding from the Churia program was that a carefully crafted balance of power between users. If they had too much control. If the reverse. They rapidly discovered that they had power to influence local activities. properly. and without taking bribes. If the donors granted too much power to government to dictate terms. If the users did not get enough information or understanding.for corruption! As mentioned previously. there will be continuous efforts by the corrupt to increase the margins for corruption. 42 Examples of this have been cited previously. Another example bears mentioning: A DDC overseer told a VDC that he had done a great deal of work for them and deserved to be paid 15 quintals of rice. In addition. they came under the domination of local elites. This is a dramatic turnaround from Nepal’s long tradition of “civil masters rather than civil servants. who exploited the majority more thoroughly than traditional civil servants. Some felt that they lost their elected seats due to pushes for integrity. and even to MP local development fund allocations. and their subsequent firsttime election as VDC representatives or chairmen.”42 A great deal of debate has taken place in project districts over the political effects of decisions regarding the use of local norms. but said that if he took the rice he would have to sign a receipt for it. then they could not implement projects and complete them properly. especially in comparison to previous systems. Some district and village politicians felt that the public audit and local norms systems could be modified and applied to the allocations of NR 500. even those who lost felt that the demonstration of integrity would benefit them politically in the long run. or attempted to make changes at the margins rather than pushing for fundamental reform. which at this time are not accounted for. the users suffered and corruption was reinforced. while others who were elected or re-elected were convinced that commitments to local norms and public audits made them more popular. Dhanusha DDC recently decided to apply local norms to its regular VDC programs. This meant they put pressure both on User Groups and on district-level staff to perform their functions rapidly. but a political obligation of democratic systems. Focus on the benefits of accountability. They agreed that he had probably done ten quintals of work.donors have either looked the other way. When the donor argues that “certain levels of losses are acceptable. There were some interesting spinoffs from the Churia model with respect to democratic processes. Villagers at the local level were impressed with the notion of transparency.”41 this creates openings to keep corruption operational. While there is tolerance and a known tradeoff of project timing versus corrupt practices. 43 38 . and then notified his supervisor that this VDC’s project should be shut -. these systems could be applied at the DDC level. to water use systems. October 1997. and that it was not only possible.
and helped create a more positive view of government among ordinary people. work norms. They.3 Conclusions The preceding discussion illustrates the importance of institutional design to the effective governance of rural development projects. “our people”. and the head of police. while political history and personal allegiances are paramount. Competence is rarely considered. Our main conclusion is that donor and recipient government agencies should give careful consideration to the incorporation of all the essential components of what we have described here as the Churia governance model. a historic and traditional system of cultivating loyalties through personal attendance on and long commitment to certain leaders. and there was tremendous fear in the local population. repaid in awards of sinecures and other benefits. 44 39 . Decisions on staff for the civil service are made at the center and in districts. They mentioned explicitly that there needed to be a breakdown of the afno manche44 linkages in order to professionalize the civil service. almost daily stories of suspected corruption in the Kathmandu newspapers testify to this.Politicians also valued the independent consultants. and other areas have had significant impact on the benefits to rural populations of these programs. local responsibility. started to erase bad feelings between the civil service and local people. Certainly. and more investment in training civil servants in basics like bookkeeping. including FfW infrastructure activities. there have been at least annual changes in all of these posts. Those who want to increase public sector integrity felt that greater transparency improved trust. with the emergence of opposition parties. and rather ruefully acknowledged their own roles in perpetuating that system. Those most likely to be transferred with the political winds are the Chief District Officer. Donors and HMG should pay serious attention to the following issues in replicating the Churia model in other areas: Literally. and their joint efforts to date represent a clear and substantial improvement over the status quo ante in this area. Advances and retreats on the issues of audit. 4. since they felt that the latter provided a safe place to ask questions and to help change the political balance with the civil servants. Politicians repeatedly expressed the need for longer appointment periods. The experience of the RCIW partner agencies belies this. This is not to suggest that all of the choices involved in such an approach will be obvious or easy. it is expected that secret activities or corruption will come out. This has also led to some frustration because the response from government has not been up to expected levels. In most districts over the last several years. We take issue with them in areas where their own initial experiments suggest ways in which the RCIW project could be better than it is. A major change cited by interviewees was that during the panchayat period. corrupt activities were hidden. deserve enormous credit for taking on the problems of governance in rural infrastructure projects to begin with. making local administrative accountability or consistency impossible. the Local Development Officer (who has a significant portion of the budget under his control). and GTZ in particular. Currently.
(iii) Especially if the project is implemented through the DDCs (local governments). (v) From the start. management of projects by representative 40 . and an open project book should be strictly followed and independently verified in the field. A project must provide them with needed technical skills. a standard measurement system. (vi) It is important to ensure proper setup within DDCs and VDCs. In particular.(i) Concurrence of all involved parties – meaning users. performance-based top-up payments) where possible to officials involved in the project activities. a User Committee with open selection. on roles and responsibilities. (vii) Partial contribution towards the cost of the civil works. and (d) the operating agency. This helps ensure that all forces will balance each other out. Dissemination of the results is also important. committed before the start of the project and fulfillment of this commitment is mandatory. and making a third (non-governmental) party accountable for expenditure and project implementation verification is crucial for an initial period. but should use all available mechanisms for communication.g. the use of negotiated local work norms. Agreed sanctions for corruption and cheating should be established. a firm standard that corruption and cheating are unacceptable should be established and consistently applied by all parties. while transparency standards and expectations are established for the first time. transparency and public audit. open channels for the flow of project information. and ensure that they understand their own power in putting it into place and using it. but the actual length would depend on local circumstances. (c) resource amounts and accountability. In particular. workers. (ii) Use of local norms on a performance basis. The minimum length of this period should be two years. but at the same time. both political and civil servants. Team-building among DDC and VDC members is crucial. This requires a staff of reasonably paid and accountable professionals outside the civil service structure. Caste or political battles must not overtake the importance of the task. public audit. (iv) Direct implementation by the donor. the User Committee and associated meetings must not be held under the auspices of important villagers or religious associations or one political party. The key elements of strong governance are mutually-supportive: local voice and ownership. people should be allowed to publicly atone and repay. then make this process and results publicly known. it is crucial to introduce the public audit system fully to all villagers. some consideration should be given to providing pay incentives (e. and everyone else -. by training relevant personnel.on (a) project roles and approach. The users and other villagers then take an early interest in “owning” the project decision-making and management at the local level. (b) a simple and transparent system.
Public goods. and intermediate levels. are fungible. supporting a far more needy and deserving target group. Attempts to strengthen these elements will always face resistance from groups who stand to lose. 41 . donors also must recognize that such governance issues extend well beyond individual projects to the national-level pressures of civil servant salaries and accountability. national. The systems of budgeting. As this report has tried to demonstrate. expenditure control. Local inputs are complemented rather than replaced. These include politicians desiring patronage rewards to dispense. A return to business-as-usual would mean that. and how the program might both be shielded from the worst effects and contribute to systemic reform. A strong donor commitment to effect program governance sends a different signal.local committees. civil service pay and discipline. if at all possible. some hard thinking is required about whether a program is appropriate in light of system corruption and other problems. enjoy unparalleled leverage in this area. up to one-half of all project resources may be diverted to personal – or political . such projects fit within an evolving scheme of governance encompassing local. Thus. with tangible benefits. while a program might achieve immediate goals of expending a quantum of project resources in return for a nationally-determined level of civil works output. appropriate civil servant incentives. Thus. the performance of rural works projects should be evaluated within both a narrow project design and a wider framework of governance. and work accordingly on a policy level. The role of the involved donor agencies in reinforcing good governance is cannot overstated. In less ideal conditions. this illicit tax can be avoided through serious attention to institutional design and followthrough. A corollary of this is that the project outputs are truly co-produced by the community and its partners. public procurement. Donors. especially funds. and the project arises from agreement by all sides rather than fiat. On the other hand. and reliable external support and monitoring. and the brokers and rent-seekers stationed at control points between the national and local levels. observance of the Churia principles should not stop with the establishment of the FfW program as an enclave of probity. whether the World Bank and other donors will play a constructive role in support of effective governance is a question whose answer may ultimately require further examination of incentive structures within those donor organizations themselves. who finance the lion’s share of development expenditures in Nepal. and intergovernmental fiscal relations play a critical role in determining the overall incentive structure of those directly involved in the FfW projects.use. The signal that such a tax is tolerable – a signal all too often and perhaps unintentionally sent by donor agencies – can essentially halve the benefits to rural communities and distort incentives further in favor of redistributive rather than productive activity on the part of officials and private agents. civil servants seeking to increase their remuneration illicitly. As the Churia experience demonstrates. and these projects provide test cases for the implementation of governance reforms. Ideally.
50% to approx. 1% under Churia. Lessons Elected officials use political criteria.Table 2: Responses to Nepal FfW Corruption and Results Activity Politicized Project Selection Responses Increase local voice and management for small works. ΑManaged Bidding≅ Quantity and quality of works improved. Key is to make this transparent and bribery-free. User Group Αownership≅ Public audits Clean audit condition for next tranche. and costs decreased by 50% under Churia. Public audits External verification Simple projects Civil servant salary top-ups and performance incentives. Improved. Evidence of less corruption Backsliding under RCIW Quantity and quality of works. Some did not Some backsliding Small reductions. information flow. Civil servant salary top-ups and performance incentives. If one or more of these lost. and costs decreased by 50% under Churia. National-Local Labor Standard Arbitrage Elites and bureaucrats will fight to maintain opportunities for corruption. Partial reversal under RCIW. corruption 42 . incentives. Evidence of less corruption Backsliding under RCIW Some districts implemented and thereby reduced costs and leakages. constrain bribery. Bribery and Kickbacks Decentralized monitoring and enforcement can align incentives to increase effectiveness. Grain Misappropriation ∃ Short Amounts ∃ Substandard Quality ∃ Exaggerated Losses Food leakages down from approx. Use local norms Public audits Results Scope for cronyism slightly reduced. No cash counterpart until audit systems improved? Mis-Accounting of Cash User Group Αownership≅ Public audits Clean audit condition for next tranche. Need to sustain combination of restricted corruption opportunities. Need to reduce contractor influence on public works decisions. but cash management still problematic. and controls. Need to co-opt them through incentives and political pressure. Public audits External verification Simple projects Civil servant salary top-ups and performance incentives. and ensure competition. Civil servant salary top-ups and performance incentives.
43 .can return.
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1998. March 30. Public Works Governance: A Review of the Issues Public works projects are among the most vulnerable to harmful forms of corruption. Donors bear some responsibility for the problems. on which we focus here. The quality of public works governance derives in large part from institutional structures and incentives within the public sector. The fact that donor funding in one area allows local funds to flow into other priorities where rules are more lax must also be taken into account. has plagued African nations as well as some American cities for much of recent history. i. Observers of South Asia have long noted the presence of public sector corruption. follows.e. and cultural heterogeneity.45 Public works corruption figures prominently in this context. with the narrower status group taking precedence over the community at large. is that the institutional framework for public administration fails to provide the incentives and controls needed to overcome these difficulties and to restrain corruption. religious. A review of these institutional factors.” in Carino (1986).46 This same problem. including the nation-state. This status can lead to a fragmentation of loyalties.g. “National economy nosedives due to corrupt politics. 16. e. See. 949-50. The focus of much early donor involvement. “Bureaucratic Corruption in Asia: The Problem of Incongruence Between Legal Norms and Folk Norms. in some cases equally if not more severe. and some have seen an increase in its incidence. and in particular international financial institution (IFI) funds that are more dependent on host government approval and support.Annexes A. corruption has continued to occur in public works in this region and elsewhere. or at least in the incidence of corruption scandals in the region. See also Lee.” Kathmandu Post. Corruption in public works thus involves institutional factors that weaken project governance and encourage inefficiency and malfeasance. characterized by ethnic. What are the roots of the problem? Myrdal noted a link between vulnerability to corruption and the status of South Asian countries as “plural” societies. Despite the efforts of donors to establish transparent systems. The nature of private or civic involvement in works projects also plays a critical role. The other dimension of the problem. 45 A-1 . March 27.” Kathmandu Post. has been on provision of new infrastructure. 46 Myrdal (1968) pp. and resultant modes of public works corruption identified generally but found particularly in Nepal. Guhan and Paul (1997) p. This includes power arrangements between central and lower-level authorities. 1998. “Financial irregularities show no sign of progress.
g. the agent knows about her/his own performance but this information never or only partially gets to the principal).e.g. client surveys. licensing. or other necessary steps. In this situation. introduce competition. moonlighting. compliance with labor or product standards. The chief of state. namely bribes that ensure the bribe-giver a competitive advantage or expedited treatment. performance reviews. which comes from the economics literature and has been applied to corruption issues by Susan Rose-Ackerman. 109-113. 74-75. A-2 . Where this is the case. members of the public (e.). remove controls. among others. shirking. all of these conditions might not be met. set-asides. customs. or the electorate -. appropriate civil service pay and career paths). and increase the penalties for corrupt behavior. grievance boards. The agent may deal with a group of clients. minister. Monopoly power exists in the exercise of many government functions because 47 48 This section is based in large part on Meagher (1997). Klitgaard (1988) pp. Rose-Ackerman (1978) pp. This is especially true if there is an informational asymmetry between the agent and the principal (i. In some cases this may be unavoidable as a practical matter. an effective strategy might include injecting a market force into the system: competition. stealing. or are not feasible in the short term in many low-income countries now undertaking reforms. Klitgaard offers two formulae for understanding and influencing the incentive structures for corruption: (1) corruption equals monopoly plus discretion minus accountability. open up channels of information in order to monitor agent performance (audits. approvals.g. targeting of communities.usually a bureaucrat. hotlines. or public service provision). 1 Institutional Roots of Corruption47 The most influential paradigm in this area is principal-agent theory.e. i. reduce potential rents. If we assume that the principal is interested in the proper implementation of policies and the efficient use of public resources. e.g. lower the potential profit from agent opportunism (liberalize. each party in the approval process will have a motive to advance its interests through mutually-beneficial transactions. appeals.depending on the system and context -. Here. Robert Klitgaard. and effective legal restraints are in place. or one's place in the queue for the next available certificate or permit. taking bribes) in whatever areas of discretion s/he has. The agent may act opportunistically (e. a single office or even a sole bureaucrat controls the granting or denial of benefits. appropriate control mechanisms exist. in tax. low-profit activity for agents. site zoning rules. whistle blowers. and (2) principals need to make corruption a high-risk. A second major cause of corruption is the existence of monopoly power over awards. It may not present a problem if certain other conditions are met (for example if this approval point is staffed by civil servants who are reasonably paid and imbued with a professional ethic). then the principal will then want to set appropriate incentives for the agent (e.). However.48 One obvious cause of corruption is the use of non-market criteria.is the principal who delegates responsibility for the use of public resources and the carrying out of certain duties to an agent-. etc. and provide supplemental income to the bribe-taker. etc.A.
introducing competition is not feasible or for other reasons. The other way. line bureaucrats and their superiors have a shared interest in making the process of selection or approval as lucrative as possible. Virtually every country in the world has administrative and criminal laws on the books that provide for sanctions. actors and activities into this area. other ways must be found to constrain bureaucratic discretion. through appeal against administrative action. Public works contracts are awarded for the wrong reasons and produce the wrong results: unjustified costs and/or inadequate results. the door is open to the purchase and sale of speedy and favorable decisions through bribery. public resources that might have gone into productive investments are wasted. inspection.or a corrupt applicant -. leadership. Second. having lost due to unfair competition. and sanction on the one hand. In order for such standards to be effective. including collusion and bid-rigging on the private sector side. higher officials have an interest in handing them out to ethnic or political cronies as a form of wealth-sharing. Commitment. A-3 . is to impose accountability on the official. The most obvious way to limit this discretion is to take all or part of the decision out of the official's hands. Competitors of the corrupt bidder (if they exist) suffer immediate harm. Public works fraud and corruption – the main issue at stake in the Nepal FfW projects -takes many forms. punishment does not work well as the primary instrument in the fight against corruption. Moreover. all of whom expect to benefit from the bureaucrat's position. The processes of appointment and rule-making play a critical role in shaping the behavior of the bureaucracy. judiciaries and prosecutors often do not have the political independence. As a result. of course. In these situations. the prospect of corrupt rents draws additional. Beefing up enforcement to discourage noncompliance can work as a complement to this. political or practical. as well as payoffs to government officials for the award of particular contracts. an official can freely determine the timing and basis for a decision. In a dysfunctional system where government posts are sought for their corrupt earning potential. This allows them to support extended families and to provide a share to their superiors. as a legal or practical matter. and perhaps other means such as moonlighting and embezzlement. they must be enforceable through supervision. and institutional changes that alter official value-systems and incentives need to come first. and on the other hand.of discovery and punishment should be high enough to offset the potential gains. In either event. nor the necessary de facto power and material resources to enforce their decisions. The risk to a corrupt official -. less desirable. But there are two problems in punishing corruption through the courts. In this situation. regulations are created or manipulated in ways that maximize the complexity and minimize the transparency of the process. either through fixed time limits on approval decisions. These bureaucrats earn their main income through bribes and kickbacks. The ability to multiply rules and complications enables officials to create delay and to exercise discretionary choice among several applicable rules. There are many broader problems as well. First. or at least the requirement to provide information openly and justify decisions according to a set of legal or administrative standards. If. rigid rules of approval or denial. The recipients of the posts receive salaries that are sometimes so low as to be meaningless.
Pope. or perhaps to cooperate with non-governmental watchdog groups who monitor public works projects from the outside. Tanzi and Davoodi (1998) p.Not only the process of awarding contracts.g.dams. and staff.corruption increases the number of capital projects undertaken and tends to enlarge their size and complexity. 16-23. and the need to keep corrupt transactions secret (e. Wade (1982) pp.52 There is also evidence that high levels of corruption draw public resources away from education and health spending. the latter tend to be neglected in favor of new or replacement works.50 Where public works corruption endures. dispensaries. payoff requirements. ed. Real public investment needs are not met. including the establishment of local tender 50 boards. all other things equal. resources may flow into expensive and complicated "white elephant" projects -.51 By one estimate. over-invoicing.54 49 IRIS (1996) pp. since new projects provide the kinds of benefits to corrupt officials and contractors that operations and maintenance cannot. Here. even though the share of public investment in gross domestic product . (ii) low operation and maintenance expenditures. 51 Id. An alternative may be to decentralize some public works responsibilities. change must begin at the top.. corruption plays a role in perpetuating macroeconomic instability. 1.. 53 Mauro (1996). Both audit systems and quality inspections are needed for effective control. by the use of commission agents or money laundering schemes) raise the costs of these projects. and towards large procurements of equipment and infrastructure. p. 54 Uganda is now undergoing such a decentralization process. However.49 According to a recent IMF monograph: . (1996) pp. This will require on-site inspections and monitoring. These losses help drain the treasury and create an unsustainable debt burden -.may have risen. However. Empirical support exists for the proposition that.. this legacy of past investments raises the costs of operation and maintenance. and poverty. Improving accounting and auditing systems to achieve parity with international accounting standards can constrain discretion on one side. high corruption is associated with (i) high public investment. slow growth. 75-84. but the focus of public investment itself becomes distorted: instead of low-cost schools. Meanwhile. government buildings -and military hardware. the major tasks become insulating the civil servants in this area from political pressure.53 As the major cause of large-scale corruption in government contracting is a failure of accountability at the highest level. The result is that. some public investment can end up reducing a country’s growth because. and (iii) poor quality infrastructure.. and constraining discretion and imposing more public accountability on the contracting process. 52 Rose-Ackerman (1996). procurement fraud that relies on shoddy workmanship or withholding materials rather than inflated bids and invoices will not necessarily be discovered through audit systems.without the increases in productivity needed to pay them off. 314-17. airports. paradoxically. public works corruption has increased the cost or lowered the quality of infrastructure in some countries by 30-50 per cent. 5-9. A-4 . the average productivity of that investment has dropped. Assuming political will at this level.
supervisors. Colleagues. Even apart from the existence of political will to make controls effective -. and prosecutors. This type of corruption could include embezzlement of government funds. This would provide some basis for evaluating the use of public resources. and wage rolls. theft of other public resources. government inspectors. with impunity. and impose accountability. and budgets. One of the keys that could enable an aroused public to unlock reform in this area is a more transparent public finance system. Another form of public sector reciprocity is more like extortion: in highly centralized governments lower-level officials may be forced to pay off higher level officials who hold the exclusive right to approve projects.55 Theft and embezzlement also involve cooperation. and accountants need to be paid off or restrained by powerful patrons higher up in the ranks in order to keep them silent. increased autonomy. more dilatory. This is a result not only of high-level protection but also of the inadequate powers of compulsion and sanction placed at the disposition of auditors. although their gains are likely to be shared with higher-level appointed or elected officials as a condition of employment. as public officials become less attentive. and material resources at the disposition of government auditors. and an appropriate level of decentralization that brings to bear the incentives of local populations and elected officials to manage public resources wisely.Also at issue in the Nepal FfW case is misappropriation of public resources. Accounts in many countries can be turned in months or even years late.and this is especially so in developing countries. Accounting systems are often outmoded. civil society. powers. users of public services are neglected. where revenue. A-5 . and subject to manipulation. and budget information are easily available to watchdog groups and researchers.2 Decentralization and Vertical Accountability High levels of corruption derive primarily from the failure of institutions to align incentives. Government property and funds go to waste. Id.it appears difficult even for well-intentioned public managers to obtain accurate and usable information on accounts. The beneficiaries are public sector employees. Strengthening governance means improved cooperation among top leadership. As a result. constrain discretion. inspectors. civil service fraud. and more predatory. plans. where most budget and expenditure allocation processes are non-transparent and subject to discretion. This further diminishes the legitimacy of government.which is the heart of the matter -. thereby encouraging noncompliance and evasion. and other corrupt practices that occur within the public sector. A. The problems of information and collective action to control this type of corruption are daunting. and reformist elements in the public 55 56 Meagher and Korsun (1997). and as the public sector wage bill balloons to accommodate patronage hires and nonexistent "ghost" employees on the payroll. and costs rise as these are replaced. expenditure. inventories. staffed by personnel with inadequate skills. Few people in any country have a clear idea of how public resources are used -.56 The answers here are likely to include a combination of improved accounting systems.
and political autonomy.57 Moreover. the state has a tendency to be “soft” and to lack legitimacy. most often without great success. Most frequently. the situation is the opposite: limited powers are delegated by the central to lower governments within a unitary system. in order to meet what they deem to be public needs. and the rhetorical goal of enhancing local initiative is blocked by heavy-handed supervision. Devolved government units operate under locally-designated or elected authorities. Effective governance at every level of government derives in large part from incentive structures created by the division of powers among layers and branches of government. Deconcentrated government units are administrative extensions of the central government. One important dimension of this is appropriate decentralization. staffed by civil servants. (ii) devolution turns powers over to separately constituted regional/local governments with discernible administrative. intergovernmental systems differ greatly in their respect for the principle of subsidiarity. and the exercise of some form of supervision or check over lower levels by the central government. D18-20. The majority of national governments are not organized – even in principle – under limited delegations of authority from populations or lower-level governments. the requirement that public or quasi-public functions be performed by the lowest appropriate level of government. In these circumstances. religiously. 16-18. and without their own tax base or formal accountability to local electorates. and the ability of governmental units to act as a check on each other. A corollary of this is the ability of communities to self-organize into civic. private sector. characteristic of many developing countries.e. lack of power and resources. have budgets and tax bases of their own along with some ability to fix taxes and fees on their own. decentralization resembles deconcentration more than devolution. or by the private sector. or the dominance of the same political elites at all levels.and private sectors to put the appropriate institutional arrangements in place and to make them work. Nepal is no exception. Traditions of governance and political loyalties are often much more strongly linked to local or regional levels 57 58 Meagher and Korsun (1997) pp.58 Effective and appropriate decentralization can be especially critical in ethnically. Where these provide strong incentives for local initiative and efficient use of resources. effective decentralization becomes much more likely. The structure of transfers and supervisory powers makes a critical difference in the level of autonomy. or governmental units consensually. i. In this situation. Decentralization has been advocated and attempted in many forms in recent history. A-6 . Id. fiscal. and culturally plural societies. and authority over a range of functions not limited to a single purpose or narrow range. Both deconcentrated and devolved authorities involve fiscal transfers from central to sub-national levels. special-purpose. and therefore the quality of sub-national government. This is an important dimension of what is sometimes called vertical accountability. One can distinguish two ideal-types of decentralization: (i) deconcentration shares authority among central and regional/local units of the same central administration by moving governmental units closer to the population. and communities and sub-national governments are often prevented from formally reorganizing or cooperating to meet locally-identified needs.
on the other hand. Multiple and overlapping jurisdictions matching social consensus on particular issues – in short. the ability of the society and the state to encourage voluntary compliance with laws and norms discouraging rent-seeking and corruption appears to depend on relative cohesion -. regions. some form of decentralization or “polycentrism” – are therefore necessary to effective governance. on the one hand. state. Where there were strong and lasting monarchies such as in Nepal. the result is a system sometimes described as “polycentric”: A polycentric polity offers citizens opportunities to organize not one. and where the state is highly centralized.It is nested in a municipal. including government provision. and national regime that can complement the activities of citizens organized in these minipolities. Where devolution occurs along both these axes. where modern state governance mechanisms represent a dramatic break with the past. Ostrom (1996) p. Governments that exceed their mandate as agents of collective choice for the community extend themselves beyond their sphere of legitimacy. 1082.between (i) the social unit of collective action and its norms. hence the deferral of immediate gain. the scope of powers conferred on a governmental unit whether national or sub-national. or factions. as well as along the government-community (or civic organization) axis. Contests for power among political or social factions often result in the victors’ use of state powers for narrow purposes of aggrandizing their own families. but many... and (ii) the immediately encompassing state jurisdiction and its rules and enforcement mechanisms. Legitimate rules and implementing organizations can foster long-term time horizons. A. and communal provision.60 In the area of public works. and the relation of this to the scope of social cohesion is a concern about legitimacy.59 Underlying the quality of laws and implementing agencies.or at least lack of radical disjuncture -. This appears most likely in situations of social fractionalization.. A-7 . Widner (1994). Highly centralized public 59 60 Id. By contrast.3 Local Participation Decentralization can be said to happen along the national-regional-local government axis.than to the national level. the traditional sphere of governance may have been more or less coextensive with the modern state. This directly affects the state’s ability to restrain rent-seeking and corruption. governing authorities. they may become less dependent on redistributive politics at the national level and more interested in supporting legitimate and effective governance. but both democracy and modern administration are of recent vintage. private provision. public-private partnerships. Cornell and Kalt (1995). public works contracts. In other words. where local or fractionalized loyalties are allowed a formal voice through robust local or regional governments.. Hobley and Shah (1996). polycentrism implies several possible models for meeting the need for public or quasi-public goods such as infrastructure.Each unit in a polycentric system exercises independent authority to make and enforce rules within a specified area for particular policy areas. See Putnam (1993). Each model poses particular challenges with respect to governance.
This model should be useful in understanding the successes and failures of governance in rural infrastructure projects. relative wage-levels and opportunity costs in the public sector and the community. more specific tailoring of works projects to revealed preferences. coproduction projects can achieve exceptional levels of efficiency. and partnerships with local communities and civic groups. maintenance. By contrast.61 The rural works projects in Nepal that are the subject of this study have some of the characteristics of coproduction. while the fact that the community is providing – by design – a part of the inputs limits the amount of public capital potentially expropriable through public sector corruption. If appropriately chosen and structured. 9-10. in order to deal with issues of use. such as complementarity of publicly and privately-owned inputs. having a private or quasi-public agency commission and supervise small public works projects according to market principles (e. donors. In the Nepal programs examined in this paper. cognitive factors such as interest and motivation. Whether such synergies are available in a given situation depends on several factors. and supportive legal and administrative structures.62 61 62 Id. a works project involving only government units and paid contractors is not coproduction. At the core of successful coproduction is a credible mutual commitment to project goals by the public sector and the community. whereas projects in which communities work with government to identify and plan projects.g. irrigation and fish pond projects tended to have UCs that were designed to continue after the construction was completed. Isham and Kahkonen (1998). Among the important administrative factors are the existence of effective oversight systems in the public sector. Rural infrastructure in developing countries has often been produced through joint contribution of inputs by government and private citizens in the community – what has come to be called the “coproduction” model. would be considered coproduction. On the last point. The definition and role of User Committees varies from project to project.g. Strategies to combat this include deconcentration or devolution of certain types of works projects (e. Coproduction’s benefits potentially include greater efficiency. schools or feeder roads). Projects for the construction or rehabilitation of roads or trails tended to set up UCs for the purpose and time period of construction only. and donate at least some of the required inputs. Pandey and Upadhayay (1997) pp. the design of coproduction projects can strengthen governance by subjecting public sector partners to transparency and accountability requirements. ideally a contract between the official and civic organizations involved. A-8 . and NGOs who provide resources. User Committees provide the interface between populations that will use new infrastructure and the government officials.works schemes in poor developing countries have often been plagued by inefficiency and corruption. and sustainability due to the public-private synergies created. By definition. and decreased opportunities for shirking and corruption by public servants. in the case of AGETIP in Francophone Africa). and the institutional incentives – such as civil service wages and performance rewards – of the government officials. integrity. and governance of the facility.
compared to labor costs for individual users.” in which communities or local development “brokers” exploit leverage created by overriding government or donor interest in completing projects or spending project budgets.This points out the importance of the type of good being produced – a pure public good.” in which communities receive inputs in return for conditions defined elsewhere (i. and it is here that principal-agent problems become most severe. Upadhyaya and Acharya (1993) p. bring resources. This paradigm essentially matches the “coproduction” model discussed earlier in this paper. The benefits of these infrastructure works are likely to be much greater. At point (iii). which are not realistically available in the case of rural Nepal. the rationale for a defined group of users to organize construction. In the former case. 63 Beier. government or donors). For this context. resulting in increasingly difficult governance challenges as one moves from (i) to (iii). and especially to maintain a road is difficult. this is the end-state of projects that have outlived a useful life span. ideas. or something with more ‘private’ characteristics such as ‘rivalry’ or ‘excludability’. there are few means to impose the costs of a road on all users. and initiatives to the table. depending on the category of infrastructure produced.63 Each of these categories indicates a different level of local ‘ownership. A-9 . local collective action to construct. a project is farthest from the coproduction ideal. and jointly plan the program. as well as communities. Apart from toll roads. (iii) “Bargaining. In some cases. The cost to the individual of expending labor on it. one might question whether rice payments are strictly required as an incentive for irrigation and pond projects – or one could at least envision wage and local counterpart contribution differentials among different types of projects. On the other hand.e. Absent the incentives provided by the FfW projects. is much greater than the average benefit of the road to the individual.’ hence a different degree of voluntary participation. and governance becomes clearer – and as a result easier. (ii) “Conditionality. Indeed. a useful taxonomy of development program dynamics would be the following: (i) “Partnership” in which donor and government organizations. when the alternative of ‘free-riding’ exists. repair. or to exclude those who do not contribute. than would be the case with roads and trails. maintenance. with the attendant inefficiencies and misuses of project resources. 26. ponds and irrigation works can be either rival – since simultaneous use by all those interested is not possible – or excludable.
000 miles of road and only 52 miles of rail.181 square kilometers perched between India to its south and China to its north. and some investment to exploit these opportunities has been made. and NPC/HMG and Bihari Krishna Shrestha. the rugged terrain has created both unique pockets of tribal populations with their own languages and cultures. Nepal's natural resources present relatively limited options in terms of economic development. They are embedded in an economic. B. Due to the geographic extremes. with over 90 percent residing outside cities and towns. infrastructure is exceptionally costly to develop. and the high mountains of the Himalayas. narrow area. It is not unusual for Nepalis to live several days' walk from any navigable river. In addition. Equally. is very small compared to the population. the hilly regions in the center comprising 68 percent of the total area. This backdrop. road. with just over 7. Ninth Plan. Its population of approximately 22 million lives in three zones along its long. Nepal: Governance Context Relief and development projects in the countryside do not stand in isolation. The population is growing at over 2. With five of the tallest seven mountains in the world within its borders. which is 18 percent of the total land area. and other infrastructure is very limited. Forests once covered much of the country. but experience difficulties in dealing with the new global economy. and administrative context that calls them into being and shapes them. Following is a review of this context in Nepal. There are few known mineral resources. but it is seriously constrained by both regional and environmental considerations. Nepal's unique topography and hydrology offer serious physical development challenges.1 Economic and Historical Overview64 Nepal is a small mountainous kingdom of 147. especially governmental and societal institutions framing the exercise of authority. For the near future. The road. and many areas are eroding due to loss of tree cover. Concept Paper. Nepal's many rivers and gorges provide excellent options for hydroelectric development. Nepalis are overwhelmingly located in rural areas. Only 38 percent of the arable land area is irrigated. the people and cultures of Nepal have a rich legacy. but deforestation has been very rapid. social. political. plays a critical role in determining incentives that influence the probity and efficiency of civil works projects. Arable land.Annexes B. rail. and some of the most isolated conditions anywhere in the world. The minerals are largely non-commercial. the main benefit of Nepal's physical features will be in the ongoing generation of tourism.3 Statistics from this section are extracted from the Nepal Central Bureau of Statistics 1996 handbook. or airstrip. mainly iron and coal with a few pockets of semiprecious stones. although there are recent indications of exploitable petroleum and natural gas pockets. These include the flat plains area or terai to the south with 17 percent of the land area. 64 B-1 .
particularly in rural areas. Stiller and his colleagues have exhaustively documented both periods. and the ability to implement new ideas has been severely constrained due to geographic. and their development and impact on Nepal. from 1846 until 1951. is not only acceptable but expected. at 55 percent for men and 25 percent for women. Nepal was an absolute monarchy under the reign of the Shahs. Her dynastic history and culture have tended to reinforce these limitations. average life spans are short.percent per year. becomes the mechanism for moving up the ladder. and the outside world is either intermittent or non-existent. Nepalis suffer from poor health services: maternal and child mortality rates are high. and are viewed as the sole mechanism for B-2 . They are poor: recent World Bank studies indicate levels of severe poverty in almost half the population. (iv) The experience of the absolute monarchy and Rana periods and the newness of democracy has meant that patterns of patronage run very deep. and topological factors. It is still considered socially and politically acceptable to require very high standards of living in order to lead. During the early Shah period and particularly during the Rana period of Nepal's history. at their expense. Unions and the civil service have become extremely politicized down to very low levels. political. and payments of bribes for performance of duties. Afno manche. malnutrition affects over 40 percent of the population. Access to. democratization. providing allegiances to powerful senior politicians. Because allegiances are so strong. who conquered the Kathmandu Valley and unified the country in 1768. were firmly entrenched in the civil service. and per-capita income is under $200. and changes in the concepts of appropriate business and government transactions have been slower to emerge than in some other nations. Political infighting within the civil service in order to acquire more power and resources is stronger than in some other countries. In addition. industrialization. These writings lead to the following conclusions: (i) The physical structure of Nepal has created a great degree of isolation and limited both outlook and potential growth. and there is a very serious shortage of skilled labor. the pattern of legitimacy of such behavior was set firmly in place. This situation both encourages corrupt practices and lowers general social expectations about the uses of funds mobilized from the general population. and diarrheal diseases are endemic. Until 1991. (ii) As in feudal periods of history worldwide. no matter how the requisite resources are acquired. (iii)The fact that the Ranas were hereditary civil servants who became de-facto rulers meant that patronage in lieu of professional competence. This attitude has been extremely difficult to dislodge. Many live as their families have for centuries. the Ranas. Therefore. men migrate out to India for long periods to earn additional income. as agriculturalists in traditional villages. new ideas. living much better than those around you. the country was run by the hereditary civil service family. cultural. Father Ludwig F. and just under half the population is under the age of 15. For most Nepalis. for a sizable part of the latter period. However. Literacy levels are very low. or "our men". exposure to education. extraction of wealth from peasants by landed gentry and monarchs has been a common practice. In many areas.
Chhetris. The economy continues to be an agrarian one. the small size of the local economy. Behind that reasoning is an assumption of a certain degree of equality. in which certain persons simply by their birth circumstances have arbitrary rights over others. Unemployment is estimated at ten percent. as in Nepal. and low savings. Id. including grants and loans. culture. Like rentier states who derive major shares of GNP from mineral extraction or fixed infrastructure (e. and Newars. By one estimate. foreign aid accounts for some 80 percent of national development expenditure. with small amounts from exported grain and handicrafts. with agriculture employing over 90 percent of the population and accounting for 42 percent of GDP. lack of development. accounts for virtually all export earnings of about $400 million.66 Some social scientists have advanced the view that countries with over 30 percent of revenues coming from donors tend to experience more severe governance problems than other countries at comparable levels of development. Where such equality not only does not exist but is not considered an appropriate view of reality.8 percent per year.g. This is particularly true inside the civil service. Integrity in business practices has as a pre-requisite an understanding that each person is intrinsically eligible for fair and open dealings. and leather goods has expanded recently and. with underemployment at 40 percent. The government has been active in opening the economy and encouraging trade and foreign investment since 1991. Rural development in Nepal has suffered from a vicious cycle of poverty. and tobacco. Production of carpets. aid-dependent countries have not traditionally needed to negotiate economic and 65 66 Shrestha (1998) pp. it is extremely difficult to introduce individual accountability. and mainly includes agricultural processing of grain. Land-shortage and especially skewed distribution. aggravates these problems. with five percent of the population estimated to control 40 percent of agricultural land. However. and 40 to 45 percent from external resources. (v) Religion. Nepal’s greatest strategic potential may be to market itself as a window to trade with China and India. garments. 1-2. where collective realities overshadow individual concerns. and frequency of natural disasters have dampened initial interest. and history in Nepal reinforce a view of society which is very stratified. In addition. the physical isolation of the country. with which it has relatively open borders and low duties. dominated by Bahuns. B-3 . net of undocumented trade with India. high population growth. jute. A further complicating factor is the population’s heterogeneity. Ranjitkar (1996) p.improvement of one's status. important canals or entrepots). 11.65 It is also important to note that Nepal has been highly aid-dependent for much of its recent history. sugarcane. and overall public sector budgets are usually derived approximately 55 to 60 percent from internal resources. Nepal has more than sixty different ethnic and caste groups. Industrial activity and manufacturing is very small. business integrity is very difficult to develop in any scale. actual performance or professional integrity are widely considered to be either unimportant or actually detrimental to one’s career. Nepal’s GDP is estimated at just over $20 billion and is growing at about 2.
the government pursued decentralization by means of administrative orders. Unable to contain widespread public agitation against the panchayat system. 1990. there is no sign of improvement in corruption. the panchayat was steadily subjected to pressures to change. Under the new constitution. and made ministerial coordination for purposes of effective rural development difficult.2 Governance Reforms in the 1980s and 1990s The Nepali pattern of a monarchy reinforcing its powers through the traditional institution of the panchayat continued in the decades leading through to 1990 and the new constitution. supervision and general administration of the country. The council of ministers are responsible for the direction. B-4 . There is little in the political situation of recent years to suggest that fundamental change is in the offing. This political structure is depicted in Figure 2 at the end of this annex. decentralization is seen to have an even stronger logic there than in other countries. and it may help explain the situation in Nepal. despite increasingly frequent denunciations of corruption in the press. parliament’s first legislation in this area. King Birendra lifted the ban on political parties on April 8. Until the Decentralization Act of 1982. Repeated efforts have been made to decentralize in Nepal since the 1960s. incorporated some earlier innovations. The 1990 constitution preserved the king’s status as chief of state under a constitutional monarchy. As a result.67 There is some empirical support for this proposition. This has helped entrench patterns of elite patronage and control of rural development. and ever-increasing political debate. Despite the repeated assurances of ministers and bureaucrats to the donor community. In recent years the situation in Nepal has become more uncertain. including the devolution of planning and resource allocation authority 67 Moore (1997). establishing a multiparty democracy with separation of powers and recognition of human rights. as well as one’s caste and economic status are thought to be important determinants of availability of justice. Given Nepal’s highly stratified social context and its physical barriers to effective central command and control. The 1982 Act. Many observers have concluded that things will not change unless the donor community puts strong pressure on the existing system and monitors the results closely. Though an independent judiciary was a stated goal of the 1990 constitution. Intervention of political figures and government officials in the judicial process. and the independence and integrity of the judiciary have repeatedly been questioned in the press. Though manipulated by the monarchy to suit its political ends. B.governance reforms with local commercial and industrial classes who supply the bulk of public revenues in other countries. but it is not universally accepted. the judicial system has suffered. Brautigam (1992). Elite politics have traditionally revolved around obtaining shares of public resources for rural constituencies. the incentives for reform facing ruling elites in aiddependent countries are comparatively muted and may have encouraged the deferral of reform. executive powers are vested in the prime minister and his deputy together with other ministers as required.
with the selection and finalization of projects being led by the DDCs.to the district and village bodies. have been providing support and expertise to DDCs and VDCs to overcome their information and capability gap.912 VDCs spread across 75 districts. and the Town Development Act) attempted to take these changes a step further and to support their implementation. working with the VDCs. However. there is a steady realization that the DDC and VDC should play a greater role in local governance. Village Development Committees (VDCs) and municipalities. there are now 58 municipalities and 3. the VDCs and associations. and donor programs supporting decentralized governance. Local communities were empowered by the decentralization laws to direct their own development agendas with external assistance. As a result of the reforms. under a unitary system of government. and other community elements. The Local Development Officers provided by the center to the DDCs.68 Decentralization in Nepal is based on building local capacity through delegation and devolution of responsibilities under the overall “guidance” of the central government. The local Governance Acts of 1992 assigned increased authority. by calling for the DDCs to act as enabling and coordinating bodies for the primary agents of local development. control and responsibility for development interventions to District Development Committees (DDCs). The 1992 legislation also provided for multiparty elections to town and village councils. placing the government’s district development capability under the administrative control of the district bodies. and DFID. The ability to make autonomous decisions regarding use of financial resources is one of the key factors in determining the level of authority vested in local government. This administrative hierarchy is depicted in Figure 3 at the end of this annex. as exemplified by the districts’ growing awareness of both their rights and responsibilities. and the establishment of sub-district service centers. has been difficult to implement. (1990). The UNDP program provides for the identification of programs by local User Groups. The policy of concentrating the management of development efforts at the district level or below. notably those of UNDP. Coming after agitation in the late 1970s and the national referendum of 1980. DANIDA. B-5 . The constitution of 1990 established the main responsibility of the state as maximizing participation of people in the governance of the kingdom through decentralization of central authority. the Decentralization Act of 1982 and the Bylaws of 1984 were advanced by the government under both populist and efficiency justifications. In Nepal the DDC has direct control over only about ten percent of the annual amount of government expenditures in a district. UNDP reports that users have contributed 40 to 73 percent of 68 Bienen et al. expressed in the 1992 legislation. Accountability is possible in principle due to the checks exercised by overlapping levels of power. The Local Governance Acts of 1992 (the District Development Committee Act. The poor quality of public service delivery leads to an eternal conflict between the elected local leaders and central line agencies. NGOs. the Village Development Committee Act. Though the balance of power remains in hands of the central government and its officers. these changes remained far from full implementation in practice.
within the unitary structure.total project costs.000 villages and municipalities continue to receive most of their resources from central transfers. (ii) inadequate specification of fiscal transfer criteria. Build Our Village Ourselves. All district-level units of central ministries are to be absorbed by the DDCs. Despite enactment. which limits transparency and tends to increase budgetary uncertainty at the local level. Id. the new law is not yet implemented. In practice. (1995b). had the political effect of emboldening some DDCs to develop more ambitious development plans and political agendas than they otherwise would have. although this is expected to happen in staggered fashion across districts. hence in legal and administrative terms the previous legislation remains the most relevant to a discussion of recent events in Nepal. B-6 . 71 Shrestha (1998) pp.000 for each VDC.69 The government has also put forward projects aimed to foster local development management. UNDP (1995b). under such programs as Self-Reliant Development. to say nothing of augmenting.000 to 500. The other more than 4. the new law. the Village Development Programme. as does the central government. and (iii) the lack of adequate capability (especially trained personnel) and support for the 69 70 UNDP (1995a). VDCs are raising a very small portion of their revenues locally – not more than ten percent. however. The new law takes some positive further steps to devolve policy initiative and fiscal resources to the DDCs and VDCs. Furthermore. although there has been useful interaction between DDC associations and government decentralization commissions. Importantly. consistent with its role of providing “guidance” to the lower levels. perhaps even before its passage. Only Kathmandu and other “Metropolitan” municipalities have approached this level and exercised any real autonomy. the 1992 decentralization acts devolve significant policymaking and fiscal powers to district and local governments. and efforts to develop bylaws and implement the Act are underway. earlier governments appeared ambivalent about maintaining. 5-6. which frequently come with central mandates.71 The current parliament enacted a new decentralization law in May 1999 called the Local Self Governance Act. Among current concerns about the effectiveness of local government are (i) the reservation of central power under the Village Development Act to suspend VDCs under circumstances that are somewhat broadly defined. the current level of decentralization. These programs have allocated from NR 300. and the Rural Development Fund. B.3 Administration and Finance of Local Development In principle. and donor funds and projects. It was apparently expected that the local jurisdictions would raise 70 percent of their total public funds through local revenues. with the aim of building their capabilities and reducing local dependency on district and central-level planning. Target Group Development. and the DDCs exercise more political initiative in rural development than envisioned on paper. and no timetable for this yet exists.70 Practice has proved somewhat intractable. 16-21.
The DDC reports to the MLD where there is a separate division to look after local governance issues. Districts. and the district-level political body chosen by indirect election. VDCs. The VDC– comprised of a secretary. waste. The MLD releases the grant from the central government to the DDC. and often inadequately implemented.is responsible for development activities within its jurisdiction.73 The general administrative framework for local development programs in Nepal is as follows. “Central” and “district” projects are only loosely defined and subject to manipulation. a technical assistant and a locally elected political body-. A VDC’s programs are approved by its general assembly every year. foster uncertainty. The DDC also forwards its annual program to the MLD. traditionally. and have frequently had their input severely limited. hence unable to grasp and effectively use. Even where a bright line has been drawn using size or cost criteria. he is an independent officer under the Home Ministry. (1990). Overlapping of programs between the VDC and the line agencies is possible. the weaknesses of the national budget processes (see below) are repeated down to the ward level. A general assembly of the DDC approves not only its annual programs but Shrestha et al. towns.72 While the 1992 Acts formally devolve powers to the district and local levels. 9-10. Moreover.000. assessed in ad hoc and non-transparent ways. with the result that projects are not prioritized for funding. (1998) pp. the center uses several tactics to retain control over development projects in the interior. and VDCs do not directly work with line agencies in most cases. 74 There is a Chief District Officer who heads the civil servants in each District. As a result. and especially VDCs have been hard-pressed to counter these pressures in order to advance their own interests. 73 72 B-7 . 72-4. The VDC reports directly to the DDC and is also dependent on it for the release of the standard central government grant of Rs 500. the powers given them by the legislation. besides being supervised by the political representatives of the VDC. inadequate planning. and corruption. The VDCs also forward their annual programs and budget to the DDC. the DDC coordinates with all the line agencies in the district and also has its own programs and grants from the central government. and have often been hampered by their tendency to be uninformed about. Bienen et al. The DDC is comprised of the LDO and his/her staff. but are adjusted according to actual funding levels and timing. DDCs. UNDP (1995).74 In principle. The secretary and the technical assistant are civil servants who are also supervised by the Local Development Officer (LDO) in the DDC. Any activity or program implemented by a line agency can also be implemented by the VDC within its political borders. central officials have responded by aggregating smaller into larger projects or by pushing more complex designs.operation of local governments. Meanwhile. they have seldom modified sectoral plans handed down from the center. their local counterparts often subdivide projects to fit them under the tender thresholds. Instead “shopping lists” are forwarded up the line. Chronically late releases of funds and a failure of most financial controls over public expenditure. especially beyond the center. depending on the availability of funds.
and the account has to be operated jointly by the VDC Chairperson and Secretary. department. which is printed and circulated after being approved by the Parliament. Depending on the availability of resources. and the functional reality of costing. enabling ghost projects to be funded. Center. the NPC and/or the Ministry of Finance asks the line Ministries to make necessary changes in the proposed budget and program. The office of the Auditor-General does the final auditing of the audited accounts of all the offices. the NPC and MoF operate unilaterally on budgetary changes. Any irregularities are reported to a special committee in parliament that reviews the situation and gives direction to the government. Finally. Instead of pragmatically rank-ordering civil works projects by overall development goals and needs of the country and completing those at the top of the list. they have no control over the latter’s funding or operations in practice. All the approved budgets and programs are put in the "Red Book. the Rural Development and Self Reliance funding. the revised budget and program are forwarded from the districts to the line ministries and then to the NPC and MoF via the regional offices. One of the difficulties of the budgeting process is the conflict between political demands for projects. The DTO audits the accounts of the district level offices at the end of the fiscal year.also that of the line agencies in the district. and it may cost double the standard budget to build a road section over two years rather than one. This process is far from exercising effective control over public funds: the total accumulated amount of irregularities has reached almost the size of Nepal's annual budget. a half-bridge will collapse during the rainy season. departments. division in the line ministry. Very often. and finally the finance ministry and NPC. Funds released to VDCs are to be deposited in the nearest bank." or official national budget document. at times. regional level (where regional offices are still operational). divisions (within the ministries). Therefore. The government requires progress reports every four months and one annual report at the end of the fiscal year.4 Weaknesses in Nepali Administration Nepal’s record of transparency and accountability in the use of public resources is uneven. is depicted in Figure 4 at the end of this annex. funds are simply insufficient for the number of projects requested. All the line ministries (including the MLD) forward their annual programs to the National Planning Commission (NPC) and the Ministry of Finance for approval and budget allocation after they have been approved by the line Ministry. The CTOs audit the accounts of all the central/regional offices at the end of the fiscal year. and B-8 . This process may or may not involve consultation at the local level. however. B. The line of flow of the reports is the same as that for the annual program and budget: village level to district level. the insufficient funding opens a window for corrupt practices. The reality of the field situations requires that the entire amount be made available to complete the works. and providing a pretext for massive over-expenditures on multi-year completions. An example of the system for public sector fund flows and control. bureaucrats usually include the majority of requested civil works projects in the program with small amounts of funding. The right to information is guaranteed by Article 16 of the Constitution of Nepal.
including complaints to the Commission for Investigation of Abuse of Authority (CIAA) are ultimately cumbersome and ineffective. and parliamentary proceedings – are open and available to the public. B-9 .75 Expenditure control. CIAA investigations at district and lower levels are delegated to investigators at the district level.) With respect to public works. political influence. and lack of a conducive environment and 75 76 Shrestha et al. This. information on government policymaking and administrative decisions appears much more difficult to obtain. The Constitution requires the Auditor General independently to audit certain government accounts. audit.5 billion ($25 million. due to grossly insufficient salary and other incentives. Id. Despite an estimated five percent drop in the level of misappropriation over the prior year. and only 40 to 60 percent of equipment and supply procurement. are handled through competitive bidding. one of the most active bodies in the parliament. the September 1997 Auditor General report still put the overall figure at nearly NR 1.though formal implementing legislation and procedures do not exist. the audits themselves do not appear to be effective nor to impose a high level of de facto discipline on public expenditure. 7. combined with external financing of approximately 40 percent of all government expenditure (75-80 percent of the capital budget). donor allocations. as in many poor countries. reporting by government units is usually greatly delayed. The Parliamentary Accounts Committee. approximately 60 to 80 percent of construction work. an inappropriate promotion system. 74-83. However. draft legislation. lack of distinction between an officer who performs his duties well and one who does not. (1998) pp. and allocations tend to be based on assessments of available funding derived from previous expenditure patterns. and the failure of enforcement. and investigation appear fraught with delay. in most countries where it occurs. One dimension of this is the budgeting process. tends to be accompanied by low tax collections. and procedures for investigating and prosecuting misuse of public resources.76 These weaknesses in the expenditure and control systems mean that attempts to subvert the integrity of rural works projects often do not face effective countervailing pressure within the government. and corruption. while other audits can be ordered by legislation. indicates a certain laxity of financial discipline that. which extensively reviewed the civil service: (i) Low level of motivation and morale of Nepali civil servants. inefficiency in public spending. while government audit reports are considered openly in parliament and some information at this level is available publicly. The weaknesses of the existing administrative system in Nepal can be summarized as follows. examines and raises questions about the Auditor General reports. Not more than 80 percent of public expenditures are regular on-budget spending. and other factors. On the other hand. some categories of information – such as budget reviews. In Nepal. the projection of capital and operating expenses into the future is not highly developed. Moreover. based on the findings of the Administrative Reforms Commission of 1992.
incentive system to motivate civil servants. 77 B-10 . the actual volume of work. about one quarter of the true cost of such services. Report of the Administrative Reform Commission. (iii) The number of staff. As one example. This not only delays the decision making process. The number of offices and the staff in government bodies increased from 22. resulting in a highly expensive and ineffective organization. with over half of national revenue necessary solely for civil service salary and allowances.272 permanent posts in 1961 to 100. supplying basic goods to the people). the financial and administrative rules have not been changed to reflect these new circumstances.periodically verify the property statements of the staff. -. the informational needs and demands of a democracy are far different from those of a monarchy. with over 80 percent overlap. required in order to export goods from Nepal. (ii) Unnecessary expansion of the public sector to activities far beyond a reasonable scope (e. However. The main suggestions were to: -. (v) There are too many mandatory hierarchies in the decision-making processes. (vii) Accountability within the civil service is virtually non-existent. Thus. but also wastes the efforts of staff in unnecessary activities.alter the existing rules and regulations to allow appropriate delegation and follow-up. but travel and daily allowances paid for field personnel are very low. In addition. The remedies are preventive as well as punitive. (vi) There is too much paperwork in the Ministries and the Departments. The Reform Commission also investigated the reasons behind existing corrupt practices and suggested some remedies for better administration. -. 1992. The number of ministries has increased from 22 in 1991 to 27 today. there is little or no motivation to go to the field. an export procedures study found that there were as many as 89 papers. (iv) The functions of the government have changed tremendously in scope and nature over the last few decades. 77 The cost has become prohibitive. preventing them from concentrating on key issues.make procedures and systems transparent.632 in 1991. the program and the budget in most public sector offices bear no relationship to one another. -. Actions such as procurement of paper clips are presented to Ministers for their approval. When something goes wrong.g. A simple issue has to pass through as many as six levels before it is finalized by a senior manager. and Source of data through 1991: His Majesty’s Government of Nepal. It also overburdens senior managers with trivia. Not only salaries. it is difficult to locate the responsible person and to take appropriate action to correct the problem. opening restaurants.provide the staff with sufficient salary and incentives (including housing allowances or government quarters) to motivate them to perform their duties.
B-11 . One important recommendation in this connection was that the basis for cost estimates concerning all government works must be made available to the general public.publicly and rapidly punish the corrupt.-.
Figure 2 Political Structure of Nepal (National Level)
Political Structure of Nepal (National Level)
His Majesty the King Raj Parishad (State Council)
Executive Body (Cabinet)
Legislative Body (Parliament)
Judiciary Body (Supreme Court)
Rastriya Sabha (National Assembly 60 members) Different Ministries, Departments, etc.
Pratinidhi Sabha (House of Representatives 205 members) Different Appellate Courts
District Courts Chief District Officer (CDO)
District Level Line Agency Offices
Figure 3 Ministry of Local Development
Ministry of Local Development
Line Divisions General Administration Division Policy, Planning & Program Division
Special Development Bodies Technical Engineering Division Women Development Division
Local Infrastructure Project
District Offices Local Governance Division
Decentralization & Legal Consultation
District Development Committee
Village Development Committee
Figure 4 System for Public Sector Fund Flows and Control
System for Public Sector Fund Flows and Control*
Budget speech & grant for scheme approved (MoF)
Funds entered into “Red Book” (MoF)
MoF authorizes MLD to use funds and sends CTO letter that MLD is authorized
MLD informs CTO about internal allocation of budget, and informs and authorizes DDC to spend budget
CTO informs DTO that budget approved
DDC requests DTO release first installment of funds to DDC and VDC
DTO releases funds to DDC/VDC account
DDC/VDC releases first installment to UC after procedures completed
For each further installment, UC provides VDC with details of previous installment expenditure, progress report, and expenditure plan for the current installment. VDC provides DDC with details of first installment expenditure, etc. and requests next installment
*Rural Development and Self-Reliance funding MoF: Ministry of Finance CTO: Central Treasury Office MLD: Ministry of Local Development DTO: District Treasury Office DDC: District Development Committees VDC: Village Development Committees UC: Users Committee
DDC releases next installments
C. Food-for-Work Programs: Overview
This annex briefly reviews the evolution of Food-for-Work infrastructure projects from their beginnings in food relief programs. Food aid was originally developed as an emergency measure aimed at providing immediate food relief to victims of either man-made or natural disasters. The aim is a short-term one -- to provide food for victims of a disaster until the local inhabitants can rebuild.78 In areas where emergency situations are more common, such as in Bangladesh and Nepal, there is extensive experience with food aid as food relief. The grain is provided free of charge to NGOs and government agencies to distribute in disaster areas. Often, other foodstuffs such as oil, salt, and sugar are also distributed to families in need. An extension of food aid has been the now-familiar Food-for-Work programs. Under these programs, rice, wheat, or other grain has been provided for payment to laborers in return for their work on civil construction, rehabilitation, or maintenance. This introduced a longer-term objective to a system which was traditionally short and intensive in nature. A more recent development provides additional foodstuffs as listed above, and/or additional cash to buy other food items. This system has largely been done on a group basis, with either contractors or NGOs/civic groups providing the labor under the supervision of government officials and occasionally donor advisors. The average cost per project is NR 400,000, of which 90 to 95 percent is said to go to the villagers. In general, local politicians favor this program, because there is a good deal of poverty in the villages, and government agencies do not have much in the way of resources there. Food-for-Work programs have not proven to be successful in disaster environments. Civil works and other construction activities take time, planning, and careful management if they are to be done well. Such circumstances rarely exist during an emergency: things have to be done immediately, under situations where there are difficult logistics and poor communications. The situations are often so overwhelming that the aid and government workers are hard-pressed to keep victims alive, let alone carefully manage and monitor flows of money and food. The local people are struggling to survive and rebuild. A further extension of the food aid concept has been to provide a mechanism of developing paid work for those who have no land in areas of endemic poverty. In Bangladesh, for instance, CARE has successfully worked with the government and local women to set up road maintenance teams which are paid in rice and a small amount of cash in return for road repair. The government officials monitor the road conditions and advise on repairs, with CARE’s involvement. The CARE Bangladesh program is famous for its empowerment of very poor women. However, these programs have also been problematic, not least because traditional civil works have historically involved corrupt practices, and these practices have been extended
It was also a mechanism to relieve developed nations’ surplus stocks.
At the final level. 79 80 Beier (1993) pp. mission statements. 5-7. Thus. has transferred responsibility for identifying..80 The catalogue of corruption problems in Nepali civil works and FfW program implementation has been described in an earlier part of this paper. The attempt to move responsibility to lower levels through the decentralization laws can be seen as an effort to make programs such as FfW more effective by supporting local initiative: One of the main problems [with FfW programs] was that the measures were not always in keeping with the wishes and priorities of the target groups. regardless of local determination of needs or available resources. the target groups felt less responsible for the maintenance of infrastructures established or rehabilitated by FfW measures. Beier cites both ILO and USGAO reports which clearly identify this as a major failing of UN and USAID programs. within the scope of its decentralization policy. Often. the donor provides the rice. Where roads were developed or rehabilitated using Food-for-Work.79 In traditional Food-for-Work programs in Nepal. no public records. Improper selection of locations. but also under other government activities. At each decision level. objectives. There are no true audits. C-2 . there is a tremendous degree of conflict and lack of transparency. nor do they discuss district-level goals and objectives. Donors have not developed or used effective monitoring systems. Therefore. Where a new Food-for-Work system is introduced and runs parallel to operations under the traditional system. reviewers estimate that large amounts (up to half) of the rice is taken off for bribes. This is also true for allocations from the DDC to the VDC. planning and implementing FfW measures to district and village level. National ministries do not communicate goals. food-surplus areas were selected. no evaluations. and in these areas the payments were considered inadequate for the work required.. The following design problems were also noted: 1. GTZ (1995). Officers will openly argue that the introduction of a system which is more transparent will not only affect their bribes under the Food-for-Work program. Moreover. the projects were chosen for political rather than economic reasons. This is also true of development resources. etc. emphasis was placed on constructing roads in the district. or learned lessons from the past in this regard. National MPs want funds channeled to their electorates. VDCs collect rice and distribute to the ward. The system orientation is toward the concealing of information. for example. civil servants are largely accountable to the center rather than to local political masters.The Government has learned from these experiences and.into works undertaken using this payment mechanism without changing the structure of the activity. The decisions regarding which districts get rice allocations are politically driven. whereas villagers are more interested in irrigation facilities.
Projects were not always carefully chosen to provide maximum benefit. underpayment of rice allocations and payment of substandard rice. The FfW projects have made this type of project more difficult by introducing cash and in-kind (rice) wage payments. and obtaining payment for incomplete projects. Under these systems. 37-40.82 81 82 HURDEC (1994b) pp. 3. FfW projects have been introduced into areas with a successful history of development projects based on voluntary local labor contribution. Villagers have come to expect that the government or donors will take care of these assets. Maintenance for the assets created under these projects was not planned or budgeted. including construction of village roads. C-3 . whose methods included bribery to government officials to receive contracts. Inadequate program focus. contributions of labor or food for laborers was required from all users. The foreign aid systems are destabilizing these traditional practices.81 In some cases. Many local assets such as irrigation canals and roads were traditionally maintained by self-help practices. and irrigation canals. Subsequent work such as that in the Churia projects (see discussion above) has demonstrated the superior returns to ponds.2. 12. particularly by removal of local contributions and local control. inadequate technical quality of projects. 4. Undercutting local self-help. irrigation canals. 5. bridges. Works were contracted to large outside contractors. HURDEC (1996a) p. 6. Grossly inadequate technical and financial monitoring. and other assets as compared with roads. called bigauti or hasheri systems. Non-existent local control and access to project data.
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