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Conversation with Matt Andrews on limits to externally influenced PFM reform

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Martin Johnson:
Dear PFM Boarders,

For our third fire-side conversation online we have the honour to have with us Matthew Andrews. He is an  Associate Professor of Public Policy at Harvard's Kennedy School, and commentator on governance in development. He manages his blog on Governance reform in international development at http://matthewandrews.typepad.com/.

If you are a registered member of the Board, you have the possibility to pose a question to Matthew online. The focus of the conversation with him is 'limits to externally influenced PFM reform and options for overcoming these'. As practitioners in transition and developing countries we all have our success and sorrow stories to share. We now have an opportunity to ask Matthew what his views are on externally influenced PFM reform, limits to the successful implementation of such reform and him possible ways to make our work more effective and sustainable.

The time allotted for questions is  Monday 16th to Wednesday 25th January 2012. After this period the interview will be closed and remain in the archive for future reference.

Martin Johnson:
To get the ball rolling, I would like to ask Matt the following simple question:

Question 1:
What is it that you mean by "limits to externally influenced PFM reform"?

Governwell:
Hi Martin, Mauro and PFM Board readers. First, let me say thanks for inviting me to share. It is great to be here.

Answer to question 1

I would like to start by saying that my work differentiates between endogenous reform and what I call 'externally influenced' reform. I think it is an important differentiation.
 
Most of the research on institutional change in developed countries looks at reforms that emerge within countries, and are defined, funded, implemented and evaluated from within the context itself. These are endogenous reforms. Most reforms in developing and transitional countries are not so endogenous. (This is also the case in some developed countries, especially given the role of the European Union and in the current crisis in places like Greece). These reforms are motivated and/or financed and/or defined and/or implemented and/or evaluated by outsiders. They are thus 'externally influenced'.

I assume many readers on the PFM board are external agents working on these externally influenced reforms.

I argue that externally influenced reforms are different. They (typically) do not emerge as responses to shared responses as most endogenous reforms do. Solutions are not found through internal 'muddling through' as is the case with most endogenous reform solutions. They are not hatched through ever-expanding networks of internal actors as most endogenous reforms are. Instead, externally influenced reforms are often (but not always) introduced--at least in part--as 'signals' for external agents. They are often introduced as off-the-shelf solutions (typically best practices, to provide the best signal), through very narrow sets of champions who have direct engagement with the oustiders bringing the reforms in. Think of the Budget Director, Head of Treaury, etc.

Now, in my work I have found that these reforms are quite limited--because of these characteristics. I look at the limits in PFM in particular, through case studies and through the PEFA data--which provides a nuanced perspective that is unusual for indicators. With both of these sources of data, and working over a number of years, I find that countries with PFM reforms tend to all have limited results in the same areas:
- First, they make budgets better than they implement them.
- Second, they look better from a legislative perspective than they are, in terms of actual implementation.
- Third, they look great when one views the work of concentrated groups in central departments (like budget, treasury) but all falls apart when we move to the users in line ministries, districts, provinces, etc.

I call these three limits the downstream, de facto, and distributed or deconcentrated agent problems. After externally influenced reforms, upstream dimensions of PFM systems (in budget preparation) typically do better than downstream dimensions. After reforms, de jure dimensions of PFM systems typically look much better than de facto dimensions. After reforms, concentrated agents do great, but deconcentrated or distributed agents don't.

I would guess that many readers have seen exactly these results in places where they have worked. While these reforms deliver some gains, and in some places enough to act as meaningful 'signals' for 4 to 6 years, the reform also face routine limits--which are stubborn and repeat themselves over multiple reform experiences.

I could carry on discussing this all day, and provide some ideas on why these limits are peculiar to externally influenced reforms, exactly why the limits prove so stubborn, and how they might be overcome. But let me hand this back to you for the time being to see how others respond.

Useful links:
1. http://matthewandrews.typepad.com/mattandrews/2011/06/where-is-the-gap-between-form-and-function-greates-and-why-some-ideas.html
2. http://www.cipfa.org.uk/pfmconference/video.cfm  (go to Day 2)

Martin Johnson:
Matt, thanks for this very interesting introduction to your ideas in this area. Given the experience that I have had in a number of countries and that I have shared with some of my fellow Board members in some of those countries, one of the first questions that comes to my mind is

Question 2

what can we, as external agents, do differently to help in creating demand for reform and to help in widening the constituency for reform, both of which would be required for a determination to 'muddle through' and/or 'do what it takes' to be established? Some of us saw reform move far and (after a lengthy gestation period) fast in Albania, for example, but only when senior managers actively drove the reform and demanded that management per se worked. For a while there was a determination to achieve. The demand was created but the constituency was not as wide as we would have liked. I am not quite sure how much of what was achieved continues to stick although I understand there has been some weakening of what was institutionalised during that period. I am sure you and others have many similar examples ... but what can we do, in effect, to facilitate the creation of the conditions for 'endogenous' reforms through our role as external agents?

Napodano:
Hi, Matt;

My question (Question 3) is:

who really are these external agents? I believe that donor representatives in countries are the external agents in the first instance.

When I am called into the country with defined ToRs, especially on a short term mission, I have very little scope to 'muddle through'. Indeed I try whatever it takes to involve as many counterparts as possible and instill a sense of 'mission' and a 'drive to results' but these are phases that, in my opinion, should be dealth with early on through dialogue between donors and Government. 

In longer missions, as mentioned by Martin, I agree that the TA team may have a chance to influence directions. So am I advocating long-term missions over short-term ones (shooting myself in the foot?). I am not sure because long term missions can become a real waste of money, if they choose to play safe and not 'muddle through'.

Final note: Once I tried to stop short a contract because the local counterpart was not interested at all in the work, but the donor representative was just not prepared to take the bureaucratic hassle.
 

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