Subject: Comment on Prime Ministerís Statement on recent allegations of corruption against the Ministry of Finance

Comment on Prime Minister's Statement to the Press on recent allegations of corruption against the Ministry of Finance 12 May 2009

Richard Curtain

Public Policy Consultant

richard@curtain-consulting.net.au

16 May 2009

The Prime Minister's explanation of the large salaries paid to international advisers in the Ministry of Finance is most revealing about how donor-funded technical assistance works or more accurately does not work. The issue is not corruption but a failure to design the program so that it delivers the results the Government of Timor-Leste wants.

Major failure in program design

The PM's statement explains in some detail the circumstances but in the end fails to justify in terms of good practice why such high contract fees are paid. The information in the PM's statement from the full independent review of the Ministry of Finance by the international firm of accountants Deloittes, a report not publicly available as far as I can tell, shows major failures up to 2007 in what the international advisers were asked to do. The lesson the Government should have drawn in designing a new capacity building program was to restructure it so that fees are paid for results.

The contract fees paid to international advisers are excessive because those paying their fees have demanded so little in return. Current arrangements encourage low performance because advisers have a strong interest in making themselves indispensable so their working days are extended.

It is normal practice to pay consultants large fees but this is justified on the basis that the consultant delivers specified outcomes, not just inputs. Consultants with good reputations operate by identifying the problem, offering a solution and agree to be paid when they deliver that solution.

Pay for results

The system of payment for international advisers needs to change from paying people as individuals in the form of employment contracts. Payment should be for one fee-for-service contract to the agency, in this case the World Bank, for managing the project. The service contract should about the delivery of results such as a functioning procurement system, operating to international standards. Payments should be made when specified performance targets are met.

This is the form of contract that these same advisers propose for the delivery of complex services in Timor-Leste such as the national connectivity network. If this type of contract is good enough for the Government to require of other sophisticated service providers in Timor-Leste, it is good enough for its own advisers in the Ministry of Finance.

Donors need to focus on outcomes

The debate over donor-funded payments to international advisers shows the need for an different approach to how aid works in Timor-Leste. An alternative can be called 'payment for delivery'. This approach proposes that donors pay for each additional improvement made by the aid recipient to achieving an agreed goal. This can apply, for example, to donor funding for increased numbers of children going to and staying in school, or increased access of the rural population to health clinics. Better still, donors could pay for achieved outcomes such as better literacy at each level of schooling, or reduced deaths from childbirth or malaria.

The current way donors operate is to insist on a narrow form of accountability. To minimise the chances for corruption, donors impose an excessive set of controls at each step of the aid delivery process. What is missing is any donor responsibility for the final outcome, as demonstrated by the quote from Deloitte's independent review of the Public Finance Management Capacity Building Program.

Need to make evaluation results public

The other conclusion for the delivery of aid I draw from the Prime Minister's statement is the importance of making public all evaluations of aid programs, regardless of their results. This enables lessons to be learned from the successes and the failures. Donors should be required to conduct an impact evaluation of each program they fund. The Government should also ask them to put the details of each program's proposed evaluation on a public database, stating when it will be completed and giving a date for the public release of the results. Donors cannot expect the Government of Timor-Leste to be transparent and accountable if they also do not act in the same way.


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