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POLICY REFORM LESSONS LEARNED:A REVIEW OF ECONOMIC GROWTH RELATED POLICY REFORM ACTIVITIES IN DEVELOPING COUNTRIES

JUNE 2007

This publication was produced by EPIQ II, United States Agency for International Development. EPIQ II Prime Contractors: Chemonics International,International Resources Group, PA Consulting Group (2003–2009)

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I

POLICY REFORM LESSONS LEARNED:A REVIEW OF ECONOMIC GROWTH RELATED POLICY REFORM ACTIVITIES IN DEVELOPING COUNTRIES

June 2007

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II POLICY REFORM LESSONS LEARNED

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POLICY REFORM LESSONS LEARNED CONTENTS III

TABLE OF CONTENTS

INTRODUCTION . . 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SECTION I: MANAGING THE POLICY PROCESSINVOLVE THE PLAYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Lesson 1: Find a policy champion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Lesson 2: Involve key stakeholders throughoutthe policy process .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Lesson 3: Coordinate with other donors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

CONDUCT OPEN AND FLEXIBLE POLICY DIALOGUE . . .13Lesson 4: Policy dialogue must adapt to specific political,economic, and cultural contexts . . 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lesson 5: Promote a flexible approach to policy dialogue . . . . . . . . . . . . . . . . . .15

GET THE TIMING RIGHT . . 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Lesson 6:Approach policy change as a continuing process . . . . . . . . . . . . . . . . . .17

Lesson 7:Time policy: work strategically . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

COMMUNICATE EFFECTIVELY . . . . . . . . . . . . . . . . . . . . . . . . . .19Lesson 8: Know the context in managing and communicating information . . . . .19

Lesson 9: Communication legitimizes the policy process and reinforces change .21

SECTION II:WORKING WITH THE POLICY PROCESSDIAGNOSE THE PROBLEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Lesson 10: Be sure analyses are solid and credible . . . . . . . . . . . . . . . . . . . . . . . .25

DESIGN THE POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Lesson 11: Help donor partners to support policy efforts . . 27 . . . . . . . . . . . . . . . .

Lesson 12:Account for a variety of factors when helping design policy . . 28 . . . . . .

Lesson 13:Analyze the incentive structures of policy instruments . . 29 . . . . . . . . . .

Lesson 14:Anticipate barriers to policy implementation . . 31 . . . . . . . . . . . . . . . . . .

IMPLEMENT THE POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32Lesson 15: Be alert to policy implementation realities . . . . . . . . . . . . . . . . . . . . .32

Lesson 16: Develop an implementation strategy . . . . . . . . . . . . . . . . . . . . . . . . . .33

Lesson 17: Identify financing sources for short- and long-term implementation .33

Lesson 18: Plan to help build the capacity of stakeholders . . . . . . . . . . . . . . . . . .34

Lesson 19: Delegate implementation responsibility to local authorities . . 35 . . . . . .

EVALUATE THE POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37Lesson 20: Evaluate policy performance . . 37. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lesson 21:Tell a story – process and results . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Lesson 22: Learn to track what is important . . 39. . . . . . . . . . . . . . . . . . . . . . . . . . .

LIST OF CASES . . 41. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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IV POLICY REFORM LESSONS LEARNED

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POLICY REFORM LESSONS LEARNED INTRODUCTION 1

INTRODUCTION

For many years, development assistance to fostersustainable economic growth and social infrastructurein developing nations, focused mainly on field

projects, demonstrations, infrastructure investments, andcapacity-building programs for various civic organizations(NGOs) and government ministries. However, over the lastseveral decades, development practitioners havedemonstrated an increasing appreciation for policy reform asa means to obtain far greater, and more enduring results andbenefits.

This report reviews experience gained from creating andexecuting programs focused on designing, implementing,and assessing economic development-related policy reformsand strengthening the organizations engaged in policy work.It is intended as a practical guide for developmentprofessionals with operational responsibilities for policyreform, including their donor partners in governmentministries, local as well as international NGOs, variousaffected parties, and donors and donor-funded policyadvisors.

It is also designed as a quick reference guide that includes abrief introduction to policy reform fundamentals in thecontext of economic development. It contains presentationsof twenty-two lessons learned and a selected list of casestudies that appear in the full report (included in the CD-ROM provided in the pocket on the inside back cover ofthis report).

POLICY FUNDAMENTALS The challenge in assisting policy reform and developmentpartners is to learn how policy reform might bring aboutactions that will then lead to improved and sustainabledevelopment outcomes. Policy reform, as we see it,encompasses two main thrusts: a) changes in laws, decrees,regulations, i.e. the enabling framework, and b) improving

the institutional capacity of development partners toimplement the enabling framework effectively.

Various public policies can impact the developmentperformance of a country. Two types of policies typicallyhave economic ramifications:

Targeted Sectoral/Industrial Instruments. Designedexpressly to address specific development issues by setting (orchanging) policy—the "rules of the game"—that guide thebehavior of businesses and households related to, e.g.,production, consumption, use of public resources, costrecovery of public services, and full cost pricing.

Macroeconomic policies. Designed to meet economicdevelopment or stabilization objectives, these policies canhave positive or negative economic impacts. Examplesinclude policies to restructure the energy sector which reduceboth fuel use and air pollution; fiscal reforms that reduceofficial debt, lower interest rates, and increase incentives forprivate or public sector investment; and trade policies andagreements that may provide inducements for better—orworse—corporate performance.

Coherent and effective programs to improve developmentoutcomes will require careful attention to all developmentassistance activities, not just those directly focused ondevelopment policy. A necessary starting point is to agree ona common development framework.

A COMMON DEVELOPMENTFRAMEWORK:THE POLICY PROCESSPolicy effectiveness is enhanced to the extent that there is aconcerted and coordinated sequence of stages that start withan assessment of the policy opportunities—this is oftenthought of as diagnosis, or as problem definition. Another wayto consider this task is that it concerns the quest for policyreform opportunities. The second stage is concerned with

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2 INTRODUCTION POLICY REFORM LESSONS LEARNED

design of a policy solution—entailing how to change the"rules" and their associated implementing mechanisms by:(1) analyzing opportunities to improve economic outcomes;(2) improving institutional capacity; (3) assessing theprobable impediments to policy reform; and (4) formulatingfeasible policy innovations. The third stage is implementationof those innovations developed in the design phase of theprogram. Finally, there is the essential work of monitoringand evaluation of the outcomes of the reform process. Thesestages can be portrayed as a wheel (see Figure 1).

Notice in Figure 1 that this on-going process is coordinatedand facilitated—"managed"—by stakeholders from a varietyof settings and circumstances who nonetheless agree tomaintain a continual and constructive dialogue about the

process. It isimportant thatthese stakeholdersbe sensitive to theimportance oftiming andtimeliness, andthat they make acommitment toopen, on-goingand frankcommunication.The arrows inFigure 1 capturecritical flows andsequences.

Appropriate and lasting policy reform will be enhanced tothe extent that the general spirit of Figure 1 is central to thepolicy process.

While the stages illustrated in the rim of the "policy wheel"move forward logically from diagnosis through to evaluationin an apparently linear fashion, it is important to note thefunction of the arrows moving from the stages to the hub.These are bi-directional because policy champions not onlymanage the inputs and outputs of each stage but they alsoreact to feedback from various stakeholders that occurs ateach stage; feedback which is used to adjust design, analysis,timing, dialogue and information flows throughout thepolicy process. This is what is commonly referred to as"adaptive management" and it is critical to the success of

policy reform efforts. It is also worth noting that feedbackcomes from not only the targets and those affected by policyreform but also by those participating in the policy reformprocess. As we shall see later, the more participatory thediagnosis, design and implementation process, the morefeedback that can be used to refine the policy. As thesubsequent discussion and case studies will show, policyreform and institutional capacity-building are highlydynamic processes.

The lessons learned are grouped into those related to the hubof the wheel, which is a set of actions referred to collectivelyas "Managing the Process" and those that concern the fourindividual stages of moving through the "policy reformprocess."

Figure 1MANAGING THE POLICY PROCESS The focus of the first nine lessons is on a set of actions thatwill generally produce a constructive and effective process ofcoordination and facilitation (here called "managing theprocess"). Lessons from these actions focus on: (1) the rolesof the participants in the policy process; (2) the importanceof communication (dialogue) for exchanging informationand reaching agreement on the policy opportunities and howbest to pursue those opportunities; and (3) the sequencingand temporal dimensions of the process. A shortintroduction to these actions is provided below and eachaction is linked to the corresponding lessons in Table 1.

Involve the players. The first three lessons pertain to theplayers who participate in the policy process—decision-makers, civil society, implementing ministries, the privatesector, NGOs and PVOs, and relevant donors. The lessonsillustrate why effective and respectful participation isimportant, and describe ways of involving the players andcoordinating their constructive interactions to increase thelikelihood of successful policy reforms.

Conduct open and flexible policy dialogue. Lesson 4 and 5focus on the importance of open communication—thepolicy dialogue—and the mechanisms by which playersexchange information and work out agreements on specificpolicy opportunities (problem definition), and how thosepolicy opportunities might best be pursued. Open communicationmust occur throughout the policy process, and if this

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happens then those responsible for making decisions at eachstep along the way will be well informed, and able to offercoherent reasons for decisions and actions undertaken.

Get the timing right. Lessons 6 and 7 concern the temporalaspects of the policy process. These lessons illustrate howattention to timing (and timeliness) make it possible for allparticipants to be more effective in moving the processforward.

Communicate effectively. Lessons 8 and 9 concern theimportance of effective communication. All participantsmust have access to the same information, they must trustthat information, and they must see how that informationcontributes to the effectiveness of the policy reform process.Honest communication is essential in assuringaccountability, transparency, and legitimacy of the processand the resulting policy reforms.


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Table 1 Management Actions and Associated Lessons Learned

MANAGEMENT ACTIONS LESSONS*

Lesson 1: Find a policy champion

Involve the Players Lesson 2: Involve key stakeholders throughout thepolicy process

Lesson 3: Coordinate with other donors

Lesson 4: Adapt policy dialogue to specific political,Conduct Open and economic, and cultural contexts Flexible Policy Dialogue Lesson 5: Promote a flexible approach to policy

dialogue

Lesson 6: Approach policy change as a continuing

Get the Timing Right process

Lesson 7: Time policy:Work Strategically

Lesson 8: Know the context in managing and

Communicate EffectivelyLesson 9:

communicating information

Communication legitimizes the policyprocess and reinforces policy change

WORKING WITH THE POLICYPROCESS Thirteen lessons are drawn from the four stages in the policyprocess. The four stages are comprised of several steps. Table

2 summarizes the actions and steps ofthe policy process and the relatedlessons.

Diagnose the problem. Duringproblem diagnosis, activities areundertaken to identify those policyreform opportunities that emerge fromthe identification of particulareconomic development problems. It ishere that attention is focused on theplausible causes of—and reasons for—particular development issues. It ishere that impediments to policy reformwill be identified. If recent policyreforms are in place that havenonetheless failed to solve particulardevelopment problems, then anevaluation of those existing policies willblend into a process of re-defining theproblem and starting anew to seeksolutions to this persistent problem.

Design the policy. Policy design (formulation) is a process inwhich feasible options for resolving obstacles posed by aparticular development problem are identified, analyzed,assessed, and developed into a plausible and coherentprogram of future work (and donor assistance). The processof design also entails a review and assessment of: (1) possibleentry points: (2) appropriate and cost-effective policyinstruments; and (3) implementation strategies. Forexample, if an opportunity to improve the value chain forthe milk market is identified, the policy design stage mayindicate several entry points, including improving thebreeding stock, addressing inadequate sanitary standards,adding or improving collection points, the cold chain,processing plants or improving distribution and retailing.The policy instruments might include investment incentivesfor the use of improved stock, improving the cold chain andmilk processing; standards that require milk producers tomove towards pasteurization, use sell-by dating andregulations that permit the development of dairy producercooperatives, which can provide inputs, training andmarketing support to members. Once the list of entry pointsand policy instruments has been formulated, additionalanalysis and information might be developed and presented

to decision-makers for further refinement of the bestapproach to be pursued. Lessons 11 through 14 illustrate theimportance of policy design.

Implement the policy. Policy implementation, explored inlessons 15 through 19, entails introduction of newlegislation, possible restructuring and reform of specificgovernment organizations, pursuit of judicial decrees ifexisting institutional arrangements (laws and administrativerules) are being ignored, or training of ministerial staff tomake them more effective in carrying out existingresponsibilities.

Evaluate the policy. Evaluation, which appears in lessons 20through 22, entails a careful review and analysis of data andpertinent information concerning the performance andimplementation of the policy. Although evaluation is oftenpaired with monitoring (referred to as "M&E") the term"monitoring" is more appropriately used to describe the typeof analysis carried out as a routine implementation activity.

4 INTRODUCTION POLICY REFORM LESSONS LEARNED

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Table 2 Actions and Steps in the Policy Process

HOW DO

YOU DO IT?STEPS LESSONS*

DIAGNOSE

Identify Issues: What are the problems to beaddressed by new policies?

Identify barriers to addressing them: Whatare the constraints and other factors that mightimpede new policies?

Lesson 10: Problem diagnosis depends on solidanalytics and a credible analyticalprocess

DESIGN

Identify policy options: What are theappropriate intervention points, tools, andapproaches?

Assess policy choices: Formulate pros and cons,analyze costs and benefits, and elaborate culturalpreferences

Select the best policy: Establish the process,venues, and participants for the vetting of policychoices and selection of the policy

Lesson 11: Help donor partners to supportpolicy efforts

Lesson 12: Account for a variety of factorswhen helping design policy

Lesson 13: Analyze the incentive structures of policy instruments

Lesson 14: Anticipate barriers to policyimplementation

Legalize the selected policy (legislation,decrees, and regulations): What legislativedecrees or regulations need to be enacted?

Develop an implementation strategy: Clarify,assign, and formalize institutional roles,responsibilities, and relationships

Strengthen institutional capacity: Identify andrecruit staff, provide training andawareness/education to staff and stakeholders

Mobilize resources for management: Whatare the staff and resource costs; what are thefinancing sources?

Implement policy and monitor foreffectiveness: Set benchmarks, establishindicators, and begin implementation

Lesson 15: Be alert to policy implementationrealities

Lesson 16: Develop an implementation strategy

Lesson 17: Identify financing sources for short-and long-term implementation

Lesson 18: Plan to help build the capacity ofstakeholders

Lesson 19: Delegate implementationresponsibility to local authorities

IMPLEMENT

Frame the Evaluation: Establish performancecriteria, select methods and data requirements,and determine when evaluations will beconducted

Evaluate implementation performance andcapacity: Use selected evaluation methods toconduct evaluations

Evaluate economic impacts: Determine theeconomic benefits achieved by the policy

Lesson 20: Evaluate policy performance

Lesson 21: Tell a story—Process and results

Lesson 22: Learn to track what is important

EVALUATE

*Many lessons cut across and are designed to encompass the steps in each stage.

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POLICY REFORM LESSONS LEARNED6

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POLICY REFORM LESSONS LEARNED 7

SECTION I:MANAGING THE POLICY PROCESSInvolve the Players

Conduct Open and Flexible Policy Dialogue

Get the Timing Right

Communicate Effectively

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8 POLICY REFORM LESSONS LEARNED

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POLICY REFORM LESSONS LEARNED INVOLVE THE PLAYERS 9

INVOLVE THE PLAYERS

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LESSON 1: FIND A POLICY CHAMPION

WHAT HAS BEEN LEARNEDPolicy reform requires effective leadership at each stage of theprocess. The policy "champion" (or champions) bringspolitical insight, charisma, and good sense to the difficulttask of institutional change. Policy champions exist innational or local government bodies, NGOs, or variousinterest groups. It may happen that the specific policychampion is less important than the particular position thatindividual occupies in a ministry, agency, local governmentbody or NGO. Problems arise when policy reforms arecontroversial and result in significant economic tradeoffs orlarge groups of winners and losers. In these circumstances, itmay be futile to expect a policy champion to overcomeserious opposition. This reminds us that "good" policies andreforms must be judged not merely by their technical andeconomic merits, but also by their political feasibility. IfHerculean efforts are necessary to get new policiesintroduced, such policies are not likely to endure, and thusthe process will be ineffective.

KEY UNDERLYING ISSUESLeadership in the policy process. At every stage of theprocess, different policy champions contribute familiaritywith the issues and solutions, have the personal and politicalskills to move the policy reform agenda, and perhapscommand respect among key interest groups andgovernment officials. These champions typically will comefrom the official ranks of government. However, it is notunusual for local NGOs also to champion policy reform atvarious stages in the process.

Identifying champions. It may happen that policy leadersare the product of prior programs intended to strengthentechnical skills, general knowledge, and the analyticalfoundation needed to improve the policy credentials of aministry. Placement of advisers, and the development ofpolicy analyses, will be ineffective forms of assistance unlessthere is a policy champion to utilize these contributions.

Assessing commitment. A first step in determining whetherthere will be adequate support for a particular stage of the

policy process is to assess the government's motivation forleading or participating in the process and discussions. Agovernment ministry may be participating because ofpolitical pressure, fulfillment of campaign promises orbecause an economic assistance package offered by a donor iscontingent on the country adopting certain policy reforms.

Elevating the process to include high-level policymakers.Interested parties that are effective champions at an earlystage of the policy process may be unable to remove keyobstacles to reform once later stages of the policy process—design or implementation—are reached. This is commonwhen various policies are in sharp conflict with each other,or when new policies engender significant budgetaryrequirements. At times, it may be necessary to involvedecision-makers at a higher level of government — forexample, at the ministerial level rather than a lower technicalstaff level — to ensure that a broader perspective of benefitsand costs are considered. This is an example of adaptivemanagement in the policy reform process. Management ofthe process using a participatory and consultative processwill more easily enable policy reform managers to anticipateobstacles to policy adoption and bring in additionalchampions.

PROGRAMMATIC IMPLICATIONS1. Conduct an analysis of the degree and extent of political

commitment to policy reform measures, includingidentifying factors in the lack of commitment and thefeasible options for increasing commitment.

2. Engage higher level policymakers when the support ofan implementing ministry is not adequate to promotethe policy. The danger here, however, is that once thepressure is gone, implementation may suffer.

3. Monitor progress of the reform process, includingassessing the effectiveness and commitment ofchampions, participating ministries, and organizations.

10 INVOLVE THE PLAYERS POLICY REFORM LESSONS LEARNED

4. Help create a pool of potential leaders and policychampions by building the capacity of ministry staff,policy analysts, and local academic or research institutes.

5. Engage key players at the level closest to where thechanges will be felt most, as well as at higher decision-making levels in order to bridge potentially conflictinginterests early in the policy process.

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POLICY REFORM LESSONS LEARNED INVOLVE THE PLAYERS 11

LESSON 2: INVOLVE KEY STAKEHOLDERS THROUGHOUTTHE POLICY PROCESS

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WHAT HAS BEEN LEARNEDAs countries adopt democratic processes, they also learn toinvolve key interested parties in important policy dialogue.Participatory processes provide opportunities andmechanisms for discussing, formulating and debating policyreform and, as noted, permit policy managers to adapt andrespond to opportunities and obstacles to reform andcapacity building. Reforms emerging from this process maybe perceived as more legitimate by all interested parties, thusenhancing the prospects for successful implementation.Consensus building at each stage always involves individualsand groups with different motivations, visions, andexpectations about policy reform.

KEY UNDERLYING ISSUESConsensus building in the policy process. Effective policyreform formalizes an emerging political consensus to modifyinstitutions (rules) that now inform and guide the choices ofindividuals, households, informal groups, and firms. Tobuild an understanding of incentives, constraints, andtechnical relationships and dependencies, all interestedparties and decision makers should review and endorseanalyses of current policies and their problems. Theseindividuals must then participate in the determination offeasible policy options, appropriate time frames, andimplementation approaches. Also, effective policy reformdepends on clarity regarding compliance mechanisms —markets, regulatory systems, informal social enforcement,and judicial processes.

Participatory decision-making. As participatory decisionmaking evolves and strengthens, there will be betteropportunities to alter and refine policy initiatives. Incontrast, interested parties are excluded from the policyprocess with top-down approaches to policy reform. In thesesettings, reform is likely to fail. While early success usingtop-down approaches may give the impression ofeffectiveness in adopting new institutions (laws and rules),ultimate success is invariably reduced because of a lack ofparticipation. And even if one governmental regimemanages to implement successful policy reforms, a newgovernment may face abrupt policy reversals if resentmentand opposition linger.

Accounting for various interests. The policy process is moreeffective if key participants represent a range of interests:

Government. If local officials are required to play a pivotalrole in implementing policies, their early involvement inthe reform process can help to identify implementationoptions, constraints, and resource needs.

Private sector. The private sector, through tradeorganizations and chambers of commerce, often plays akey role in policy dialogue. These private entities may beable to influence governments to adopt flexible and cost-saving policies, rather than relying solely on regulatory orcommand-and-control approaches. Also, electedrepresentatives often join with industries to supportpolicies that have economic and social benefits. Manypolitical problems arise from self-interested actions thatshift costs to others; when this occurs, private-sector firmswill not necessarily find it in their interest to undertakereform.

NGOs. These groups can represent the interests of a widerange of different "publics," drawing domestic andinternational attention to issues, communicating newpolicies to their constituencies, and serving as watchdogsonce policies are adopted and implemented.

Accommodating special interests. While consultation withall key parties is integral to successful policy dialogue,unanimous support is not required for all reform; someaccommodations can be made for some affected groups ifthis will help to get reforms moving in the right direction.

PROGRAMMATIC IMPLICATIONS1. Ensure that key parties are present in the policy process

to provide support to those organizations with limitedcapacity to participate in policy reform.

2. Recognize the trade-off between the number ofparticipants and prospects for reaching agreement on themost contentious elements of policy reform.

3. Nurture a broad-based constituency within government,various NGOs and PVOs, the private sector, and otherorganizations, to ensure exchange of ideas, especiallywhere there are crosscutting issues, as well as positiveand negative impacts, to consider.

12 INVOLVE THE PLAYERS POLICY REFORM LESSONS LEARNED

LESSON 3: COORDINATE WITH OTHER DONORS

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WHAT HAS BEEN LEARNEDSpecial problems arise when several donors are working in aparticular country to solve related policy problems. Theseparallel activities are often based on differing assumptions,goals, and approaches that emerge from bilateral dialogue.Multilateral policy dialogue requires greater donorcoordination than do other types of assistance activities.Policy reform initiatives will be more successful if they sendconsistent signals concerning the need for modified choicesand actions with respect to preferred outcomes.

KEY UNDERLYING ISSUESNational strategies versus donor strategies. Since effectivelocal leadership is essential for successful policy reform,donors must unite around a single coherent nationaldevelopment strategy. This is preferred to a situation inwhich line ministries participate in specific but isolateddonor agendas. Unfortunately, the policy priorities andorganizational imperatives of various donors often make thisintegrated approach difficult. A donor's willingness to fundparticular policy reforms may be tied to the adoption of aspecific institutional change. This can inhibit openness andit pre-empts national or local leadership in the reformprocess. More seriously, when donors have different visionsof the appropriate reform goals and strategies, resultingpressures on host-country policymakers are generallycounterproductive.

Cross-sector consistency. The need for donor coordination isfurther heightened by the importance of policy consistencyacross sectors. For reasons of efficiency and nationalpriorities, donors may allocate priority sectors amongthemselves, with one donor taking the lead in the healthsector and another in policy reform. However, policymeasures across all sectors must be linked by the underlyingprinciples on which the policies are based. For example,market-based approaches for private enterprise developmentmay be undercut if the government simultaneously resorts toprice controls or rationing in the energy or water sectors. Ifthese instances arise, great care will be required to explainand justify the reasons for conflicting approaches to policyreform.

Proactive donor coordination. Policy reform andinstitutional change in any sector will often coincide with

broader policy and institutional capacity changes acrosssectors—and will likely involve multiple donors. In suchcircumstances, donor coordination creates opportunities formore deep-seated and lasting reforms. Often, withoutproactive donor coordination, no single donor can engagethe government in a serious dialogue about the full set ofpolicy reform and institutional changes needed to bringabout coherent solutions.

Breaking bad habits. Both donors and host governmentshave engrained habits that reduce prospects for enhanceddonor coordination. Paramount among these bad habits isthe project-driven approach to addressing development andinstitutional capacity issues. This approach can underminethe evolution of collaborative relationships among donors.In fairness to donors, many governments also prefer to dealwith each donor separately. Nevertheless, a number ofimportant and promising innovations in the last five to tenyears have increased the prospects for effective donorcoordination as part of the policy reform process:

The structural adjustment process—driven by fiscal andeconomic crises in host countries—places a greaterpremium on program and project consistency;

Tight donor budgets have forced many donors to tieindividual program components to an integrated packagejointly funded by multiple organizations. Donorsincreasingly try to "leverage" each others resourcesthrough formal partnerships or program coordination;

Increased domestic pressure for tangible resultsattributable to individual donors and donor programsforces explicit consideration of "who is doing what;" and

Increased emphasis on effective policy change—of gettingthe "rules right"—has improved the nature and extent ofthe policy dialogue among donors and host governments.

PROGRAMMATIC IMPLICATIONS1. Employ informal and formal mechanisms that facilitate

the coordination among donor programs, and theexchange of information, to ensure that assistanceresources are used effectively and strategically withminimal duplication of effort.

POLICY REFORM LESSONS LEARNED CONDUCT OPEN AND FLEXIBLE POLICY DIALOGUE 13

CONDUCT OPEN AND FLEXIBLE POLICY DIALOGUELESSON 4: POLICY DIALOGUE MUST ADAPT TO SPECIFIC POLITICAL,

ECONOMIC,AND CULTURAL CONTEXTS

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WHAT HAS BEEN LEARNEDAn open and flexible policy dialogue is essential forexchanging ideas, information, and alternative visions at eachstage of the policy reform process. To be effective, dialoguemust take place in a wide variety of settings, and it mustinclude a diversity of parties. Policymakers must beencouraged to engage these diverse interests at all steps in theprocess. Effective donor involvement in this process requiresdonor familiarity with the specific political, economic, andcultural contexts within which policy reform will occur.Such knowledge can be gained by forging respectfulpartnerships and alliances with key members of localorganizations and other independent experts. Using anadaptive management and participatory approach to policydialogue, donors can strengthen these partnerships in themechanics and processes of policy dialogue, by sharing andlearning about appropriate analytical (diagnostic) methods,and by informed interaction in evaluating policy options,donors can play a more effective role in this process.

KEY UNDERLYING ISSUESUnderstanding local interests. Diverse and broad-basedfactors—government goals and objectives, private-sectorinterests, specific political agendas, and grassrootsconcerns—drive the political process in every country. Given this background, donors must explore opportunitiesto collaborate with key individuals or small groups toenhance the policy process. The turnover in politicalleadership—and thus centers of influence—makes it prudentto engage diverse constituencies for reform. In addition, acritical aspect to understanding local interests is recognizingthat policy and institutional reform creates “winners” and“losers” by changing the status quo. Hence, an importantcomponent to any dialogue is structuring it to anticipate andaddress the concerns and perceptions of the “losers” andfinding ways to get them to support the reform process.

Adapting dialogue to changes in context. Changes in thepolitical, economic, or cultural contexts can lead toimportant changes in the nature and scope of the policydialogue. Changes in economic factors such as market prices,new products (e.g. corn or oil palm used for biofuels) fromnatural resources or changes in inflation or exchange ratesalter the value of land and related resources, and in theprocess also change the level of interest in the process ofpolicy reform. All participants in policy dialogue, fromdonors to donor partners must understand how thesechanges affect the climate for policy reform. In particular,policy reforms, even modest ones, usually entail costs as wellas benefits, which change the social, economic andinstutional context and so alter the previous policy andinstitutional context. Since some parties and individualsmay benefit more than others or be perceived to bepreferentially benefitted, it is important to keep the policydialogue as transparent as possible and to keep open goodlines of communication with all stakeholders.

Informal information exchange. In addition to customarychannels for accessing government officials, other avenues ofdialogue such as round-table discussions with governmentalofficials can build consensus on various elements oflegislative proposals before final drafts emerge. Exchangeprograms among countries have had great success allowingpolicymakers to view a proposed policy in action. In recentyears, several forestry exchange programs involving India,China, Nepal, and Kenya, among others, have resulted inincreased policy dialogue and publications that hadimportant influence on policymakers.

Using local settings. Cooperation with local universities andpolicy analysis institutes that advise key government decisionmakers can benefit the process of policy reform. Thisinteraction often takes place through informal opportunitiesfor policy dialogue in the context of training courses andother settings. An academic setting can provide a lessintimidating and more open exchange of ideas.

Innovation in community involvement. Local communitiesand NGOs can contribute important insights and leadership

14 CONDUCT OPEN AND FLEXIBLE POLICY DIALOGUE POLICY REFORM LESSONS LEARNED

to policy dialogue. A variety of communications techniquescan be used to overcome literacy barriers and raise awarenessor to bring together interest groups who are often in conflictover the direction of policy reform.

Nurturing local expertise. Donors often assist instrengthening local government bodies and institutes, achallenge that can entail years of support, training, technicalassistance, and financing. Once established, these localentities can be highly effective and credible agents of policychange. For example, they can carry out studies that bear onpolicy issues, and if they have done sound work localpolicymakers and key interest groups will have an easier timeextending trust and credibility.

PROGRAMMATIC IMPLICATIONS1. Employ participation panels and focus groups to reflect

the views of a diverse set of interests in policy dialogue.

2. Forge partnerships with local universities and researchorganizations, senior advisors, NGOs, and local expertsto articulate the various local contexts and help localorganizations to build their capacity.

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POLICY REFORM LESSONS LEARNED CONDUCT OPEN AND FLEXIBLE POLICY DIALOGUE 15

LESSON 5: PROMOTE A FLEXIBLE APPROACH TO POLICY DIALOGUE

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WHAT HAS BEEN LEARNEDIn many developing countries, the policy process is too oftenperceived to be a linear, top-down and somewhat inflexibleprocess. This is especially true for governments that havegovernance systems with low levels of participation andtransparency. In these situations, the policy reform process isvulnerable to stalemate and conflict if participants are unableto reach agreement on specific issues or if there is insufficientaccess to the design and implementation process byimportant stakeholders. This may occur at the design stage,but it is especially likely to occur during implementation,which is where so many policies that look good on papernever get implemented or enforced. For example, it isdifficult, perhaps impossible, to initiate creative policyformulation in the absence of a shared and consistent view ofthe precise nature and extent of issues to be addressed.Policy dialogue can advance the policy reform process only ifthe venues, processes, and mechanisms employed in thatdialogue are flexible and if policy reformers are able to adaptquickly to changing circumstances and conditions.

KEY UNDERLYING ISSUESThe nature of dialogue. Open and candid dialogue is thekey to successful policy reform. The plausible componentsof this dialogue can include formal hearings, facilitatednegotiations, informal meetings, observational study tours,workshops, conferences, and more recently, the use ofelectronic forms of dialogue (list serves, web pages, chatrooms, etc.). Dialogue may involve multiple simultaneousactivities. For example, while general issues might bediscussed and debated in large meetings with many interestsrepresented, policymakers may need to resolve the mostcontroversial issues in one-on-one meetings with keyparticipants—including other government ministries.

Selecting the form of dialogue. A key challenge is selectingthe best form of dialogue for the particular issues underdiscussion. Different issues and mooted solutions suggestspecific procedural guidelines and venues for effectivedialogue. Issues to consider are the type of venue, whoshould organize the dialogue activity, whether there is a needfor professional facilitation, and who should participate. Theanswers to these questions will depend on anticipated

obstacles and opportunities in the process of policy reform.Increasingly, online, interactive knowledge-sharingtechnology has significantly improved the exchange ofinformation and experience essential to policy dialogues.While such systems cannot replace face-to-face dialogues,they can greatly assist policy dialogue preparation andfollow-up.

Involving neutral parties. In some cases, the success ofpolicy dialogue depends on who organizes or facilitates theactivities. As noted previously, any significant policy orinstitutional reform creates perceived “winners” and “losers”or at least some degree of stakeholder concern over risk totheir interests. Hence it is essential to avoid policy dialoguesfrom getting stuck at the outset by a retreat to well-established and conflictual stances. One way to avoid this isto structure the dialogue process through the good offices ofa disinterested party, the main concern of whom is to keepthe process moving forward. A neutral party such as auniversity institute, an NGO, or even a donor may be betterpositioned to host meetings or workshops that bringtogether all those with an interest in particular policy issuesand their plausible solution. If the goal of the dialogue is toreach agreement on specific provisions of policy reforms, itmay be beneficial to involve an independent facilitator orarbiter to convene such activities.

Drawing on international experience. In many instances,proposed policy reforms involve approaches or instrumentsthat have not been previously considered or adopted in thehost country, but for which there is considerableinternational experience. Study tours to engage host countrypolicymakers and policy dialogue may provide anappropriate forum for sharing international experience andanticipating problematic issues in the immediate context.

Preparing for dialogue. Policy dialogue can be used tointroduce new instruments or analytical and monitoringtools for evaluating policies and policy impacts. To improvethe effectiveness of dialogue in such cases, preparatoryactivities may be necessary to adapt policy instruments tolocal conditions, or to provide an analytical framework thatcan be used to assess proposed policies. Such preparatorywork is often necessary to focus discussions and to anticipate

16 CONDUCT OPEN AND FLEXIBLE POLICY DIALOGUE POLICY REFORM LESSONS LEARNED

potentially controversial issues such as the probable impactsof particular reforms.

PROGRAMMATIC IMPLICATIONS1. Maintain flexibility in the mode, pace, and level of

dialogue to ensure that local circumstances and lessonsare taken into account.

2. Clearly articulate the goals of policy dialogue and thespecific issues or obstacles to be addressed and resolved.

3. Ensure relevance and effectiveness by remaining flexiblein both process and in content of technical assistanceprograms.

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POLICY REFORM LESSONS LEARNED GET THE TIMING RIGHT 17

GET THE TIMING RIGHT

LESSON 6: APPROACH POLICY CHANGE AS A CONTINUING PROCESS

WHAT HAS BEEN LEARNEDPolicy reform is an evolving, iterative, multistage process thatrequires patience, mutual respect, and enduringcommitment. When one difficulty or problem has beensolved, another will likely surface. Quick and easy progresson one or several fronts does not ensure similar success onother fronts. Nor can we assume that early success ensuresdurability and long-run success in policy outcomes.Similarly, the lack of immediate institutional change(reform) does not necessarily imply failure. The policyprocess is one of incremental changes in ideas, in visions, ingoals, and in objectives of diverse and widely scatteredindividual interests. To support and facilitate such a process,the government and donors must make a long-termcommitment to work with and sustain the entities that mustparticipate in policy formulation and implementation.Working with the host-country government, donors mustdevelop comprehensive and integrated plans and programsemploying a range of targeted delivery mechanisms toanticipate and address barriers to policy reform. Periodicassessment of progress is essential to target resources andmake adjustments in the assistance program.

KEY UNDERLYING ISSUESThe pace of reform. In developed and developing countriesalike, the policy reform process can take years. Thecomplexity and interdependency of biologic, geologic, andatmospheric systems, combined with technological,economic and political issues mean that policy reformcannot be seen as some quick fix. Similarly theidentification and nurturing of the appropriateimplementing entities can take time. Chronic problems inthese implementing entities can include frequentrestructuring, budget shortfalls, staff turnover, and lack ofresources for training, equipment and the staff necessary toformulate, implement and enforce new institutionalarrangements.

Long-Term Engagement. Policy analysis and dialogue mustbe sustained throughout the policy process. Often issues

emerge at one stage that were not foreseen at the previousstage.

One Step at a Time. When working in developing andtransition economies, donors must carefully evaluatepolitical, economic and social circumstances as a precursor torecommending policy reform. Enduring political andcultural traditions naturally influence governmentreceptiveness to new policy proposals. Outside advisors,although prepared and well-intended, cannot always assessall of these circumstances. The "jump-right-in" approach hasa track record of failure, whereas a step-by-step approach isoften greeted with greater receptivity.

Working simultaneously at different stages of the process.Policy analysis and dialogue must be sustained throughoutthe process. Issues often emerge at one stage that were notforeseen at the previous stage of the process, while in othercases it may be necessary to return to a previous stage toaddress a critical deficiency that had not been foreseen.

PROGRAMMATIC IMPLICATIONS1. Allow enough time for key constituencies to participate

in the policy dialogue, to evaluate options, and tobecome fully engaged and invested in the policy process.

2. Recognize that the policy process involves a step-by-stepapproach to institutional change. But institutionalreform also is a dynamic and iterative process involvingcontinuous assessment, adjustment of policies, andrefinement of implementation approaches that requiressome flexibility of approach.

3. Build the capacity for sustained policy change intotechnical assistance programs to increase theireffectiveness, ensure their sustainability, and elevate thepolicy analysis and dialogue through increasedcredibility.

4. Look for opportunities to reach consensus fairly quicklyon some policy reforms, because small victories canprovide the foundation for building consensus on morecontroversial reforms later.

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18 GET THE TIMING RIGHT POLICY REFORM LESSONS LEARNED

LESSON 7: TIME POLICY:WORK STRATEGICALLY

WHAT HAS BEEN LEARNEDEffective policy reform is demand-driven and the mosteffective reforms tend to emerge in response to host-countryinterests, needs and schedules. Natural or human-causedevents can create an immediate interest in institutionalchange. Such windows of opportunity can arise quickly anddrive the policy reform process in promising directions. Inthe absence of such events it may be difficult to engageeither policymakers or various interests in serious discussionsof policy change. On the other hand, if donors or theirassistance partners are engaged with host-country leaders, itwill be easier to anticipate possible opportunities and pitfallsof the reform process.

KEY UNDERLYING ISSUESUnforeseen events. Targets (or windows) of opportunitydramatically increase the interest of policymakers andinterested parties in policy reform and can substantiallyenhance the reform's success. Examples of events that maycreate these opportunities include media exposure of a high-profile economic crisis, a man-made calamity, or a naturaldisaster.

Government changes. Changes of government or seniorpersonnel changes within a government—local, regional, ornational—frequently provide new opportunities forlaunching the policy dialogue. These changes often correlatewith a shift in relationships among interest groups that canremove or greatly modify previous barriers to policy change.

Early and continuous involvement in the process. In manycases the need to develop a consensus on policy reform canbe anticipated early in the process. Donors can takeadvantage of targets of opportunity when they have alreadyestablished relationships of trust with their donor partnerseven if significant and observable results in policydevelopment and reform have not yet emerged. Being "at theright place at the right time" often results from an effort inbuilding relationships over time and bear fruit most visiblyat times of crisis or change.

Linking economic institutional and market reforms. Otherwindows of opportunity can result from a confluence ofchanges. In one instance (Indonesia), a sudden change in

the long-standing, highly-centralized Suharto regime led to asudden and radical decentralization and opportunities fordonors to work directly on locally-determined economicdevelopment strategies and plans. Those donors, which hadlong been pressing for greater local participation indevelopment planning and had developed relationships withlocal governments and NGOs, were able to take advantageof this quick change much more effectively.

Challenges of maintaining flexibility. Workloads andresource requirements can increase dramatically when targetsof opportunity lie outside the parameters of an existing workplan, or when they challenge previously planned activities.This can make rapid redeployment and reallocation ofdonors resources necessary, placing a premium on swift andflexible administrative actions that facilitate effectiveresponse. Administrative challenges may also requireagreement from donor partners to disengage from activitiesthat suddenly have a lower priority.

PROGRAMMATIC IMPLICATIONS 1. Track events in the political, social, and economic arenas

to enhance quick response to targets of opportunity forpolicy and institutional reform.

2. Plan to take advantage of certain foreseeable events suchas elections or cyclical events (droughts and floods) thatconstitute targets of opportunity for promoting change.

3. Make long-term commitments to assist and strengthenthe technical, managerial and governance skills of localpartners, establish good working relationships, anddevelop a record of responsive support. This willenhance chances to take advantage of targets ofopportunity. Note, however, that this also requiresflexibility to deviate from accepted work plans and toreallocate resources on short notice.

4. Allow sufficient time in policy—assistance efforts for keyconstituencies to become involved, to evaluate options,and to become participants who feel they are beingbrought into the dialogue—and that their concerns arebeing considered.

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POLICY REFORM LESSONS LEARNED COMMUNICATE EFFECTIVELY 19

COMMUNICATE EFFECTIVELYLESSON 8: KNOW THE CONTEXT IN MANAGING AND

COMMUNICATING INFORMATION

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WHAT HAS BEEN LEARNEDDonors and their partners need to understand the politicaland social context in managing and communicatinginformation central to the process of policy reform. The dataand information to be collected, processed, andcommunicated should not only contribute to—andinform—the policy process, but should also reflect the needsexpressed by various participants in the process. Indesigning information systems, it is critical to ask the rightquestions about the scope of information-gathering efforts,methods for disseminating information, and resource andtime requirements. Also, criteria should be applied to ensurethat information gathered and offered for use meets the goalsand objectives elaborated by the designers and implementingentities.

KEY UNDERLYING ISSUESInformation needs in the policy process. In many countriesgovernment ministries are legally required to provide certainnon-proprietary information to the public, and to respond torequests for information. There is also a considerable amountof information collected, processed and communicatedinformally, particularly within implementing ministries. Theeffective use of this information will facilitate the policy-reform process.

Dimensions of context. The context for managinginformation involves a range of interrelated factors. Foremostare the specific elements of the policy process and details oftheir development: what does the policy call for in terms ofchanges in the behavior of industry, groups, and individuals;who are the probable winners and losers; how did the policycome into existence — did it result from government-initiated analyses or were changes tied to pressures fromdonors and others? While the policy process provides theprimary context for the collection of information,information systems must also respond to a variety ofinterrelated and changeable non-economic factors such asfiscal and monetary conditions, the political situation, andsocial and cultural settings.

The value of information. Information collection andanalysis is often under funded and under appreciated. Inpart, this is due to the difficulty of valuing information oreven in determining how its availability influences the paceand outcome of the policy process. This arises becauseinadequate attention had been paid to the essential role ofdata and information in the reform process. In manycountries, policy often has been made informally rather thanon the basis of empirical data and analysis and so the use ofdata and formal analysis has been relatively devalued.However, since the collection of data and analysis ofinformation is relatively expensive and can be time-consuming, it is essential to provide efficient and timelymethods of using information. As noted previously, newonline-accessible sources of knowledge can help inform thepolicy process at several stages. Donors' needs forinformation will often relate to accountability; they mustdemonstrate what has been accomplished as a result of theirassistance programs, and information in the form ofperformance indicators will often be required.

Designing information systems. The design of theinformation system must address a number of questions:

What types of information are needed?

How will the information be used in the policy process?

Who needs the information and how will it be transferredto users?

What are the constraints on funding, staffing and accessto data to undertake information collection and analysis?

How will the information be collected?

Where and how often will it be collected?

How will its quality be controlled and assured?

How it will be archived?

20 COMMUNICATE EFFECTIVELY POLICY REFORM LESSONS LEARNED

PROGRAMMATIC IMPLICATIONS1. Invest appropriate resources in designing information

systems to analyze the context and to establish crediblebaselines for the policy and the expectations of the usersof the results.

2. Establish a regular process to evaluate the need forchanges in information management in response topolicy shifts and exogenous factors. For informationmanagement, establish clear goals and objectives,identify, analyze and select indicators, and prepare adetailed plan for collecting, evaluating, anddisseminating information. (e.g., USAID's Center forDevelopment Information and Evaluation, CDIE,provides a number of useful tips for monitoring andevaluation of assistance programs

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POLICY REFORM LESSONS LEARNED COMMUNICATE EFFECTIVELY 21

LESSON 9: COMMUNICATION LEGITIMIZES THE POLICY PROCESSAND REINFORCES CHANGE

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WHAT HAS BEEN LEARNED A system of clear and open communication using a variety ofinstruments will simultaneously promote transparency andimprove accountability of policymakers and implementingministries. Effective communications may also help improveeconomic performance.

KEY UNDERLYING ISSUESScope of communications. Communication within thegovernment, among policymakers and implementingministries, and between the government and various interestgroups is essential at each stage in developing andimplementing policy reforms. In addition, information onthe nature of reforms and progress in implementing themwill have value in legitimizing the policy process to thegeneral public. A variety of formal and informal mechanismsare used to communicate information. Some are mandatedby statute and regulation, such as "state of the economy"reports and announcements of rulemaking, public hearings,and public disclosure.

Accountability. Communication is important indemonstrating policymakers' accountability for the policiesthey develop and for the manner in which they areimplemented. Where policy reforms are controversial,communication of the results or impacts to those favorablyor adversely impacted by the reforms can help build broadersupport for the reforms, foster dialogue, and lay thefoundation for subsequent policy reforms.

Transparency. Transparency refers to the openness andclarity of the process of policy reform. Transparency andaccountability are mutually reinforcing: the more transparentthe flow of information, the easier the task of government inaccounting for and enhancing perceived legitimacy of thereforms. However, for individual interested parties (and thegeneral public) to use this information effectively, there mustbe provisions for access to the policy process includinginvolvement in dialogue, public hearings, and opportunitiesto provide written and oral comments on policiesthroughout the process. One danger of a commitment totransparency is that some participants may wish to provideinformation that only supports their positions. To overcomethis tendency, the general public and the various interested

parties must be firmly grounded in understanding policies.NGOs and trade associations can play a role in monitoringgovernment on behalf of these groups, conductingindependent assessments of policy performance, and byeducating their members so they can effectively confronttheir officials, raise these issues, and hold governmentaccountable.

Improving policy performance through public awarenessand education. The communication of information can bean important component of policy implementation. If thepublic understands the implications of information that isprovided to them, these shared perceptions can pressureindustries within the various sectors to redouble their effortsto improve their public image both locally and abroad.Public disclosure laws, such as toxic releases inventories, canpressure factories to improve their performance, in somecases.

PROGRAMMATIC IMPLICATIONS1. Encourage policy partners to support communication of

information and resources with staff and to ensure thepublic's access to the policy process, extolling thepotential benefits to the government of legitimizing thepolicy process and garnering support for reforms.

2. Support capacity building efforts among NGOs, localresearch and training institutes, and relevant interestgroups to ensure these groups can analyze informationeffectively and educate the public.

3. Make information available through public disclosuredocuments and lists, economic quality indices and goodinformation can help increase policy compliance in theabsence of adequate capacity for monitoring andenforcement


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SECTION II:WORKING WITH THE POLICY PROCESSDiagnose the Problem

Design the Policy

Implement the Policy

Evaluate the Policy

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25POLICY DIAGNOSISPOLICY REFORM LESSONS LEARNED

DIAGNOSE THE PROBLEMLESSON 10: BE SURE ANALYSES ARE SOLID AND CREDIBLE

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WHAT HAS BEEN LEARNEDAccurate and comprehensive problem diagnosis is essential indeveloping a shared understanding that existing institutionalarrangements are the plausible cause of unacceptable policyoutcomes. From this understanding, it is then possible tobegin initial efforts at developing policy options to rectifythe identified issues. Careful analysis of issues and theirpossible solutions are central aspects of establishing essentialcredibility for policy reform.

KEY UNDERLYING ISSUESHaving strong analytics. While good analysis does notalways lead to good policy, constructive policy is a rarity inthe absence of reliable analysis about the reasons forparticular issues, assessment of feasible solutions to thoseissues, as well as the most plausible reform strategies.

Drawing on local expertise. Involving local experts indiagnosing issues can help donors identify and gatherinformation that is not easily collected by foreigners, as wellas provide critical insights about the feasibility of policydesign options and implementation mechanisms. Thedialogue process also serves as an important, if informal,capacity-building technique, and offers important long-termresults. Further, it can help persuade local interests andpolicymakers of the usefulness of the analysis.

Conventional wisdom. Local decision makers and interestedparties previously may have reached conclusions based onanecdotal or incomplete information. In cases where highlyvisible issues create pressures to find quick solutions,interested parties and policymakers might need convincingthat more empirical and rigorous analytical approaches areboth valid and necessary.

Time and resource commitments. Although "quick anddirty" studies are easier, they can lead to misleadingconclusions when the issues are complex and dynamic. Timeand money need to be committed to discover and documentthe central issues and underlying causes. Gaining the supportof in-country donor partners to carry out rigorous analysis,

though often challenging, is the key to successful policyreform. One way to improve analytical rigor whileshortening the time frame is to leverage as much existing,reliable information and expertise as possible to servediagnostic or design studies.

Drawing on experiences in other regions and countries.Where experience with a certain type of policy is limited ordoes not exist, important insights may be gained by drawingon analyses and experiences in other regions or countries.The introduction of new policy instruments or the creationof new institutional mechanisms will often benefit fromanalyses based on other countries' experiences.

Multidisciplinary perspectives. Frequently multidisciplinaryanalysis is required, whether from science, engineering,economics, law, institutional analysis, and other socialsciences — to identify and include all of the relevant facetsof policy issues and the likely impacts of possible approachesand solutions and their applicability to the local context.

Information dissemination. Effectively communicatinganalytical results is as important as the analysis itself. Ifresults are poorly communicated and not understood byother participants in the policy dialogue, the probability ofacceptance and desired impacts are greatly diminished.

Where evaluation ends and problem diagnosis begins. Inmany cases, evaluation and problem diagnosis are part of thesame analytical effort. This may occur when there iswidespread agreement that current policies are performingpoorly, even if this agreement is based on anecdotal orqualitative evidence. The analysis then might include arigorous quantitative evaluation to: a) reinforce or affirm theconventional wisdom related to current policies; b) be acatalyst for serious discussions with policymakers andinterested parties on policy reforms and the issues orobstacles that have to be overcome; and c) identify criticalinformation gaps.

26 POLICY DIAGNOSIS POLICY REFORM LESSONS LEARNED

PROGRAMMATIC IMPLICATIONS1. Include solid analyses in the policy dialogue process,

with the support of many interested parties, even if thereis intense pressure for rapid solutions, or where a sharedconsensus on causes and impacts already exists.

2. Work collaboratively with local experts to test newtheories and approaches, e.g., market instruments andfrequently brief policymakers and interested individuals.This also is important for capacity building.

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POLICY REFORM LESSONS LEARNED DESIGN THE POLICY 27

DESIGN THE POLICYLESSON 11: HELP DONOR PARTNERS TO SUPPORT POLICY EFFORTS

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WHAT HAS BEEN LEARNEDDonors' assistance partners are often protective of their rolein policymaking. While they usually welcome projectassistance, especially during implementation, they may resistactivities aimed at designing policy as this can be perceivedas an infringement on sovereignty. Helping with policydesign may be perceived as too intrusive a role for donororganizations, signifying the recipient's weakness anddiminishing the credibility of the government'spolicymakers. Donors must break down barriers to policysupport and seize opportunities for intervention.

KEY UNDERLYING ISSUESSovereignty. As steward of the economy, governments areaccountable for decisions that contribute to economicgrowth and sustainability. By their nature, policies(institutions or rules) establish the "rules of the game" for allstakeholders in the economy from households to multi-national corporations. Donors' partners are often concernedabout compromising their sovereignty if they permit foreignparties to put new institutional arrangements in place, evenwhen a compelling case can be made that the country willbenefit from the institutional changes. Policymakers mustestablish their credibility both within the government andamong parties affected by their policies. This credibility iseasily undermined if donors are perceived to be "leading"rather than "supporting" policy reform and implementation.

Resistance to change. Donor organizations often encounterbureaucratic resistance to rapid change in institutionalarrangements. Protocols for revising legislation andregulations must be respected, even if the process is slow anduncertain. At times, government officials may want to slowdown reforms because of opposition within the governmentor within the ministry that will be responsible forimplementation.

Projects vs. programs. "Brick and mortar" projects yieldtangible, visible, and immediate benefits and may bepreferred by donors' partners to assistance in reformingpolicies. In these circumstances, governments can readilytranslate visible project results into political credibility and

leverage. Policy reform—institutional change— is a slowerand more uncertain process that may create losers as well aswinners and yield benefits that may only be realized overseveral years. However, "brick and mortar" projects withoutthe underlying policy and institutional support will likelyresult in a wasted effort.

Barriers to policy assistance. Donors can help to promotethe legitimacy of its assistance in several ways. Mostimportantly, existing policies that appear to be the plausiblereason for unwanted policy outcomes must be carefullyanalyzed and feasible reforms need to be identified andassessed. Partners will be more receptive to outsideinvolvement if the proposed institutional changes seem toyield important benefits relative to current policies and theassistance is viewed as a partnership.

Tying assistance to performance. Recognizing that thepolicy process may move very slowly as a result of changes ingovernment and shifts in policy champions from one stageto the next, it may be useful to introduce incentives forreaching policy milestones. Such milestones may includecompletion of background reports, development of draftlegislation, or achieving different levels of compliance.

PROGRAMMATIC IMPLICATIONS1. Encourage donor partners to establish their credentials

and make a commitment as early as possible in thepolicy process. Donor partners can get involved initiallyin policy dialogue by supporting analyses of existingpolicies and by participating with other donors inworkshops and roundtables, which can help identifyhow the donor can become more involved andsupportive of the policy process.

2. Encourage donor partners to avoid "pushing" the policyprocess: the host government's leadership role in settingthe schedule and the agenda should be respected; donorsshould expect to play a supporting role.

3. Emphasize to donor partners the win-win nature of thepolicy assistance effort.

28 DESIGN THE POLICY POLICY REFORM LESSONS LEARNED

LESSON 12: ACCOUNT FOR A VARIETY OF FACTORS WHENHELPING DESIGN POLICY

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WHAT HAS BEEN LEARNEDGiven pressing financial needs for a variety of social services,many developing countries and economies in transition willsuggest that they are unable (or unwilling) to bear mucheconomic sacrifice to enhance institutional capacity and thequality of governance. Thus, some policy objectives are moreeasily advanced if they contribute to the attainment of otherpressing international and government goals, or byenhancing perceptions of economic progress. For instance,improvements in bankruptcy law and other commercial lawstructures may be easier to accomplish if it is clear that doingso is more likely to result in increased foreign trade andinvestment. Even so, certain policy reforms may entailtrade-offs and require careful analysis of the economic andsocial costs, and the development of actions that will reducethese costs as much as practicable.

KEY UNDERLYING ISSUESMarket Failures. Feasible policy options depend on asociety's broader economic, political, and governanceconditions. The integrative perspective of economics focuseson trade-offs between externalities, resource managementand demands for conventional goods and services. "Marketfailures" result when prices reflect only private costs,ignoring the significant public costs to society or theeconomy. A lack of effective regulatory monitoring orenforcement capacity permits producers and consumers toneglect the potential, external social and economic impactsof production, consumption, and other activities. Anintegrated policy perspective includes an examination oftaxes, regulations, and other policy instruments that agovernment can apply to rectify economic externalities(market failures).

Policy failures. While externalities are often pervasive indeveloping countries, excessive pollution and resourcedepletion will also result from distortion of market forces,scarce human capital, and weak institutional underpinningsof a market economy. Policy reform can address such policyfailures by focusing on increased awareness of flawedincentives in the realms of both production andconsumption.

Appropriate resource pricing and cost recovery.Opportunities exist to increase efficiency, promote equity,and conserve natural resources through appropriate pricingand cost recovery. For example, higher prices (or reducedsubsidies) can induce water users (both consumers andirrigation farmers) to use water more judiciously.

Macroeconomic linkages and incentives. Micro-levelincentives must reflect the macro-level options available. Forexample, if a policy change aims to slow the rate ofagricultural expansion into forested lands, macro-economicpolicies must be revised to encourage alternative incomesources for farm households. Access to fertilizer and credit,market infrastructure, imported or domestic availability ofagricultural machinery, and foreign exchange policies mayhave as much influence on deforestation rates as forestrysector policies.

Spatial and temporal dimensions of policy issues. Today'smajor global and local policy issues — global climatechange, trade liberalization, product sanitary and phyto-sanitary standards, unsustainable land use, natural resourcedepletion, air and water pollution, the demographic resourceimbalance — all require action that cuts across national,sector, and organizational boundaries.

PROGRAMMATIC IMPLICATIONS1. The key in policy analysis is to search for opportunities

for policy reform that will improve sustainability andsimultaneously contribute to economic development.

2. Carefully appraise the potential effects of policy changeon different stakeholders, both public and private.

3. Account for the underlying causes of policy issues andthe role of individual action when helping to preparelocal, regional or national policy action plans or strategy,policy, and institutional reforms. Policy reform requiresa strong consensus that the social private and publiccosts of mismanagement may be large indeed.

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LESSON 13: ANALYZE THE INCENTIVE STRUCTURES OF POLICY INSTRUMENTS

WHAT HAS BEEN LEARNEDIt is important to assess the structure of existing incentivesand the factors that may reduce a new policy's effectiveness.Ideally, new institutional arrangements will result in certainand predictable directional changes in individual choice andaction. Flaws in the design of new institutional arrangements(new rules), or weak implementation will most certainlyundermine the goals and objectives of the policy process.Some of these issues can be anticipated and corrected at thedesign stage, while others will require adjustments duringimplementation to overcome design flaws.

KEY UNDERLYING ISSUESThe Nature of Incentives. Policy reforms alter the incentivestructure of firms and individuals by compelling behavioralchanges, or by establishing new prices for inputs, outputs, orpollution that induce new behaviors. For some policy issues,altered rules giving rise to new incentives may be adequate tobring about new behaviors. In other settings, the new rulesmay require new behaviors.

Economic and Market Assumptions. Designers of policiesmust be aware of uncertain macro-economic and marketconditions that make it difficult to predict how and whenfirms and individuals will respond to policy changes.

Conflicting Policies. Trade policies, general fiscal policies,and sector policies must be considered when attempting topredict the individual responses to sanctions and incentivesembedded in new reforms. Policy reform will need to beaware of these confounding influences.

Benefits and Costs. The presumption of policy reform isthat, overall, the beneficial impacts will be positive, but, infact, it is rare for there to be no loss to some parties from thereform process. The distribution of gains and losses frompolicy reform will engender some degree of political concernand perhaps opposition. Some key characteristics of thisstructure of benefits and costs must be recognized informulating policy:

Most new policies benefit a relatively large group forwhich benefits per beneficiary are small. On the otherhand, the financial and other costs of new policies cansometimes fall disproportionately on particular industriesor facilities.

Benefits from some policy reforms may occur quickly.However, in other instances, benefits may not be fullyrealized for several years, while the costs are often bornesoon. Benefits may not occur until the affected industryhas had a chance to respond with investment in newtechnology, resources or trained labor.

The benefits of policy reforms are often indirectly relatedto the affected industry or economic sector (e.g. resultingin cleaner water and air, reduced soil erosion ordeforestation). On the other hand, the costs of policyreforms can be both direct (i.e. the cost to business) andindirect (i.e. cost to society and the economy fromstructural changes in consumption, production andemployment).

Powerful stakeholders can be expected to exert pressure inthe reform process to alter incentive structures in theirfavor, dilute enforcement, or derail the policy entirely.

Those interested parties that will be affected negatively bya policy outcome are often better organized than thoselikely to benefit from change because the beneficiaries ofpolicy reform are often the public at large.

PROGRAMMATIC IMPLICATIONS1. Carry out analysis that identifies key assumptions linked

to how interested parties will likely respond toincentives, so that the impacts of policy reform can beassessed.

2. Identify potential conflicts with other policies early inthe design process to determine the extent to whichother policies will adversely affect the proposed reform,and to determine how the proposed policy affects sectorpolicies.

3. Ensure that the new policy is clearly and publiclyarticulated during design so that the impacts on allmembers of society can be assessed.

4. Anticipate and be ready to address the political pressuresthat aggrieved and powerful interests may exert on thepolicy process. This will require careful design of policiesand implementation strategies, possibly using phasedrequirements.

30 DESIGN THE POLICY POLICY REFORM LESSONS LEARNED

LESSON 14: ANTICIPATE BARRIERS TO POLICY IMPLEMENTATION

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WHAT HAS BEEN LEARNEDExperience shows that the best design can fail unlessimplementation problems are anticipated and addressedbefore the final design is approved. Two keys to better designare early, preemptive analysis of potential implementationbarriers by using a participatory process and providing achance for those who will implement the policy toparticipate in finalizing the design of policy.

KEY UNDERLYING ISSUESTaxonomy of Implementation Barriers. Generally, threegroups have a key role in policy implementation, and eachhas the ability to reduce the pace and effectiveness of policyreform. They are:

Governmental power structures. Once a policy has beenapproved, the executive, legislative, and judicial branchesof government all have the potential to derail the policy.Government officials, even if they are not directlyinvolved in implementation, can undermine policythrough the way they allocate budgets to implementingministries, by whether and how they enact laws,regulations and technical guidance to complement policyreforms, or how they adjudicate legal challenges to thepolicy or specific attempts to enforce the policy.

In addition, courts can stall implementation by enjoiningnew legislation. Policy reforms that feature enforcementsanctions as a deterrent to noncompliance often dependheavily on the support of the judicial branch ofgovernment to prosecute violations and to levy sanctionscommensurate with the violation. In many poor countries,officials are unwilling to arrest the poor for crimes theycommit to eke out a subsistence existence, in part becausejudges are often lenient and may reduce or dismissdamages. Similarly judiciaries may be prone to corruptionfrom political or economically powerful violators.

Ministry Reluctance. After legislative approval,responsibility for implementation shifts to governmentministries or, in some cases, to NGOs that may be ill-equipped to carry out the functions of the policy reform.Issues include: unclear delineation of roles andresponsibilities; limited resources or capacity to carry out

the new responsibilities, and lack of commitment to thenew policy on the part of the implementing ministry. Thisis particularly true in countries in which policies aredecided upon by small groups of policy elites in distantcapitals.

Interested Parties. Beneficiary groups are often notempowered to assert their interests in policy reforms. Toensure that implementers are accountable to the public forpolicy reform, appropriate information must be madeavailable to the public. And the public must be able to orhave assistance in assessing this information. In some casesNGOs may have to play this role.

Ex-ante assessment requires early involvement of donors.Ideally, potential implementation barriers are evaluated anddiscussed during the stage of policy dialogue. This requiresthe participation of implementing ministries and interestedparties who are in the best position to identify potentialproblems and to help find solutions. In some cases,implementation barriers may be so difficult to overcome thatan alternative policy, perhaps less complex or relying moreon voluntary compliance, must be considered.

PROGRAMMATIC IMPLICATIONS1. Carry out an analysis of the implementing ministries,

and ensure that important players in implementation areadequately engaged during diagnosis and design.

2. Determine likely policy winners and losers, recognizingthat powerful interests may have supporters in sectoralministries and specialized agencies that may be able toexert indirect influence on the policy through budgetingof financial resources for the implementing ministry, orby reducing political support for enforcement.

3. Strengthen linkages between central and local authoritiesin the implementation process as early as possible,convening workshops to present new policy to localimplementers, and targeting local officials and staff fortraining programs that support effective implementation.

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IMPLEMENT THE POLICYLESSON 15: BE ALERT TO POLICY IMPLEMENTATION REALITIES

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WHAT HAS BEEN LEARNEDA number of factors can impede the implementation of thepolicy as originally designed. Before implementationassistance is provided, it is useful to analyze the policy toidentify barriers that may reduce its effectiveness and assessoptions for overcoming these barriers. This is especiallyimportant when the donor has not been involved in earlierstages of the policy reform process, or donor support isrequested for implementation of an existing policy. Theassessment may indicate the need for changes in the policyor changes in the implementation strategy to overcomeweaknesses in the policy and aid donors in determining thelikely success of the proposed assistance programs, anddeploying these resources strategically.

KEY UNDERLYING ISSUESTo assist or assess? Donors are often asked to provideassistance with the implementation of policies. This mayinvolve training for staff in ministries or technical assistancefor key stakeholders. Possible impediments includeweaknesses in institutional capacity to implement a policy, orthe inability of affected parties to respond to incentivesbecause of their limited financial situation, or poorinformation. The scope of assessment will depend on thenature and timing of the request for assistance as well as theresources the donor can mobilize for the assessment. At oneextreme, the scope of assessment may be quite broad andtake several months to complete. Where the request forassistance focuses on a single policy reform, the scope ofanalysis may be limited.

Changing the policy. If there is agreement that a new orrevised policy is flawed, the next step is to determinewhether the policy can be revised. The donor and itsassistance partners must examine the design process, howlong it took to approve the policy, major issues that had tobe overcome before consensus was reached, and thereceptiveness of policymakers to changes in the originalpolicy. If the policy has been in place for several years,changes are likely to entail a comprehensive assessment andvetting of this analysis at the stage of problem diagnosis.

Again, if the donor has participated in the design process,the prospects for changing the policy prior toimplementation may be greater.

Overcoming bad policy with good implementation. As arule, it is easier to address policy design flaws during theimplementation stage if they relate to institutional capacityissues for implementers and affected parties rather than topoorly designed incentive structures. However, even if thesuccess of policy reform implementation is uncertain, thedonor's effort to support such reform may enhance itscredibility and commitment to assisting the partner, andperhaps provide an opportunity to revise the policy at somefuture date.

PROGRAMMATIC IMPLICATIONS1. Make a careful review of the problem, the process, and

the policy goals before embarking on policyimplementation in order to gauge the host government'sresponsiveness to making additional changes.

2. Plan to implement policy in phases, establishingintermediate goals or benchmarks so that performancecan be evaluated. When skepticism is prevalent thatpolicy change is needed, new policies can be simplified,broken into more manageable components, or piloted inlimited forms to assess implementation barriers, andbuild confidence and trust among the parties that maymake it easier to tackle more difficult policy reforms.

3. Take steps to ensure that donors remain positioned toassist policy change by targeting some assistance toinitial implementation tasks, helping design protocolsfor monitoring implementation progress, maintainingopen dialogue with both policy formulators andimplementers.

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LESSON 16: DEVELOP AN IMPLEMENTATION STRATEGY

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WHAT HAS BEEN LEARNEDAn implementation strategy must be developed early in thepolicy reform process. If that implementation plan revealspossible barriers then specifics of the policy may be adjustedto mitigate implementation issues. Hence, animplementation strategy is a hallmark of the adaptivemanagement approach that is essential to successful policyreform. Such plans serve a useful role in establishingcompliance or implementation schedules and helpingimplementers identify key gaps in ministry or otherimplementation partner's capabilities and funding, thusenabling donors to target their assistance resources moreeffectively and achieve successful policy outcomes.

KEY UNDERLYING ISSUESCapitalizing on the momentum of design. The design stageleading up to approval of a policy may be characterized byintense last-minute negotiations, fine-tuning of laws orregulations, and mobilization of legislative support. Practicalissues relating to implementation budgets, complianceplanning, and capacity building are put aside to concentrateefforts on approval of the policy. Once the policy isapproved, stewardship for the policy shifts to implementingministries. The development of a comprehensive strategy forimplementing the policy may aid in focusing attention onresource needs and ministry strengthening requirements.

Strategy basics. Some issues that need to be addressed indeveloping implementation strategies include the following:

Implementer incentives. One of the major difficulties indeveloping countries is providing appropriate incentivesfor implementing ministries and staff. In addition,understaffing may lead to overworked staff or createsignificant lags in key implementation activities such aspermitting, inspections, and enforcement. Mechanismssuch as self-monitoring and reporting by regulated firms(with appropriate sanctions for non-compliance) mayreduce pressures on ministries and institutes with limitedstaffs and budgets.

Opportunity costs of donor projects for ministry staff. Mostdonors are prohibited from compensating governmentstaff for the time they spend on coordination of donor

projects. Donor coordination activities are often handledby dedicated staff. In some countries, however, ministrystaff receive salary supplements when they participate indonor-financed activities such as training, workshops, andadvisory or steering committees. Such incentives can leadstaff to pursue these financial rewards to the exclusion ofother work. In some cases, training and study tours toother countries can partially compensate for lower salaries.Ultimately, issues of staff incentives and high salarydifferentials can be addressed only through comprehensivecivil service reforms.

Lack of transparency and accountability. The public can bean important ally of ministries in their implementationefforts provided the public has access to information andis allowed to participate in the review of implementationactions. Bilateral assistance programs often featuredemocratization as a key objective, offering significantopportunities for changing the nature of public-privaterelationships. By conducting implementation activitiesopenly and transparently and providing public access toinformation on economic performance to assistmonitoring and enforcement ministries can increase theiraccountability with the public and legitimize theirenforcement role with interested parties.

PROGRAMMATIC IMPLICATIONS1. Support donor partners by providing

constitutional/operational experts outside the ministryand arranging twinning relationships with countries thathave experience in developing implementation strategies.

2. Encourage donor partners to prepare implementationstrategies by promoting strategies as mechanisms thathelp all donors identify and prioritize their assistanceresources.


LESSON 17: IDENTIFY FINANCING SOURCES FOR SHORT- AND LONG-TERM IMPLEMENTATION

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WHAT HAS BEEN LEARNEDDonor financing is often key during the start-up phase ofpolicy implementation, but it may hinder the developmentof domestic funding if support is viewed as a permanentsubstitute for a strong commitment from government tosupport financing when the donor funding phases out.Sustained financing is not limited to expenditures byimplementing ministries. Governments are not expected toshoulder the responsibility for financing in the private ormunicipal sector, but they can play an important role increating new laws and rules, and adopting and enforcingpolicies that will solidify the commitment of affected parties.

KEY UNDERLYING ISSUESDecentralization of management responsibility withoutrevenue authority. Central authorities have increasinglydelegated responsibility for various aspects of nationaleconomic management and governance to localgovernments, community-based organizations (CBOs), oreven occasionally NGOs. Decentralization may be motivatedby a desire to reduce demands on central budgets orrecognition of the comparative political and/or performanceadvantages of local management. In many instances,however, when transfer of these responsibilities has not beenaccompanied by funding to cover costs or authorization toimplement revenue mechanisms, then an unfunded mandatehas been created. As donor support is withdrawn, othersources such as local governments, NGOs or PVOs may beinadequate to cover management costs fully.

Investments vs. recurring costs. Donors often provideassistance in financing or co-financing infrastructureinvestments or equipment related to public services (e.g.,garbage trucks or trash compactors) or management needs(e.g., computers and other office or technical equipment).Investment financing is often more attractive to donors thansupport for recurring operational costs since the benefits areimmediate and easier to quantify. In addition, "tied" aidsupport provides opportunities for vendors in the donorcountry to enter the market in the recipient country. Thebenefits of these investments will be diminished without acommitment to fund recurring operational costs such asmaintenance, spare parts, fuel and electricity, staff andtraining.

Planning for sunset. Part of the reason for unsustainablefinancing can be traced to the design of donor programs.Project assistance often is not contingent on financialcontributions from the recipients. More recently, donorshave gained a greater appreciation for the use of counterpartincentives, graduation provisions, matching funding, public-private partnerships and diversifying assistance to helppartners develop their own financing to sustain projects andprograms over the long term.

PROGRAMMATIC IMPLICATIONS1. Review and assess the national and local budgeting

process, identify barriers that limit budget increases, anddetermine the stability of earmarks, the nature ofintergovernmental transfers, and any legal constraints onlocal governments' ability to raise revenue, in order topinpoint the support most needed.

2. Frame assistance programs so that they are focused onboth the priority objectives of local as well as nationaldevelopment priorities in order to sustain commitmentto policy implementation at all levels. This is becausenational policy and planning objectives often dependupon local capacity and policy support.

3. Create conditionality for assistance programs throughmeans such as:

- Increase awareness of sustained financing issues byintroducing this component to implementationstrategies.

- Tie assistance efforts to related and mutuallyreinforcing policy measures that will promotesustained financing.

- Incorporate financing indicators into the evaluationprocess.

- Sequence assistance efforts and requiring partners toreach financing benchmarks before "graduating" tothe next phase of assistance.

- Collaborate with other donors and IFIs on tied (orcoordinated) assistance strategies to increasecounterpart incentives for sustained financing.


LESSON 18: PLAN TO HELP BUILD THE CAPACITY OF STAKEHOLDERS

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WHAT HAS BEEN LEARNEDOften the major assistance priorities conveyed to donors areactivities that strengthen the management capacity ofimplementing ministries. While such capacity building isimportant, the need to help a variety of affected parties toparticipate constructively throughout the policy process —especially during implementation — is essential. Civilsociety and private sector stakeholders may often make agreater contribution than government entities to successfulpolicymaking and compliance rates.

KEY UNDERLYING ISSUESThe increasing complexity of policy. Policy reform ofteninvolves the introduction of management approaches oranalytical tools that have not previously been employed inthe partner country. These approaches may necessitate therecruitment of more specialized and skilled staff as well astraining for both existing and new staff. Institutionalcapacity building also entails the costs of policy adoptionand places a premium on the design of good training plansto maximize effectiveness while minimizing costs.

Weaknesses in capacity. A potentially weak link in theimplementation process is the limited capacity of affectedparties to respond to incentive structures associated with thenew policy. Issues that may account for weak capacityinclude limited access to information or skills to evaluatefinancial alternatives, and select a cost-effective strategy orinvestment. Other weaknesses in capacity include:

Limited access to information. In many countries whereWestern compliance rules and standards have beenadopted and regulated firms have been required to developcompliance strategies, it may be difficult for local firms tofigure out how they can be compliant. For smallbusinesses, especially, acquisition of computers forInternet access and the associated training may be beyondtheir means. Implementing ministries and donors can playa constructive role in developing information bases andhelping firms access this information, e.g. through thecreation of business development service centers. At thesame time, implementing ministries must develop thecapacity to respond to compliance questions, reviewcompliance action plans, and assist firms in accessing the

appropriate kinds of information.

Limited capacity to develop projects. A major impediment toinvestment has been limited skills in preparing investmentprojects, including assessing cost-minimizing technologies,developing financial plans, and identifying availablefinancing sources. Several donor efforts to help investorsbuild capacity have been organized through a network ofdonors and international financial institutions. Inaddition, donors have worked closely with ministries, andinvestors to prepare projects, train applicants in thepreparation of applications to obtain financing or grants,and to strengthen institutions and are likely to continue todo so.

Matching technical assistance to educational levels.Assistance programs have often been under-subscribedbecause target groups lack the education and experience tofully utilize the assistance offered. In all cases, assistanceprograms that provide training to affected parties shouldinclude both a needs assessment and a skills assessment.Assistance programs, including small grants programs thathave proven effective elsewhere may need to be tailored toenhance their effectiveness in a new country or region.

PROGRAMMATIC IMPLICATIONS1. Evaluate policies in terms of how affected parties are

likely to respond to incentives and determine if theirresponse could be enhanced through capacity building,as a step in programming assistance resources.

2. Identify barriers that limit the ability of affected partiesto use assistance as a step in programming capacity-building resources (for example, people with limitededucation, living in remote locations or with limitedaccess to various media forms may not be able to takeadvantage of the assistance offered).

3. Take account of cultural differences in programmingpolicy implementation assets.


LESSON 19: DELEGATE IMPLEMENTATION RESPONSIBILITY TO LOCAL AUTHORITIES

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WHAT HAS BEEN LEARNEDLocal actors often can implement changes in the most cost-effective and long-lasting basis. Local incentives are thedriving force for widespread adoption of improved methods,and removing policy obstacles to sound investmentsystematically helps to improve incentives. Delegatingimplementation responsibility to those who are closer to theproblem improves effectiveness because these local partiestend to be more motivated to carry out the policy asdesigned, regularly monitor compliance, and have greatercredibility and accountability with affected parties.

KEY UNDERLYING ISSUESDecentralization. Throughout the developing world, donorshave encouraged governments to decentralize many of thefunctions of government. In part, this strategy has beenmotivated by a political agenda to democratize government,spread power more widely, and lay the foundation for greaterparticipation in the election process. A key issue is whethernational policies can be effectively implemented by centralauthorities. In case after case, devolving responsibilities tolocal authorities has often increased the effectiveness ofpolicy implementation.

Setting the Roles for Central and Local Implementers.Central ministries often contribute to the implementationeffort, taking a lead role in interpreting legislation by writingregulations or more informal procedures. Central ministriesalso may be better positioned to secure financing needed atthe local level, resolve disputes, and monitor and evaluate theeffectiveness of implementation. Local roles inimplementation usually involve direct contact with affectedparties in such activities as development and review ofpermits, monitoring and review of compliance activities, andenforcement. Key challenges:

Selection of local implementers. The selection of the localimplementation partner may depend on what skills andresources the local government body can apply to the task,as well as the degree to which the local authority'straditional jurisdiction relates to the area covered by thepolicy. Devolution to local government bodies may bedifficult if the focus of a policy is a cross-jurisdictionalgeographical area (such as a trading regime or watershed).

In such cases, the creation of new organizations or thedevolution of authority to NGOs may be more effective.Such decisions also must consider the time frame forimplementation and barriers to transfer of managementauthority.

Provision of adequate funding for local staff. In manycountries, local governments have limited authority togenerate revenue to cover staff salaries and related costs.They must often depend on transfers from central budgetsto support these activities. Local entities cannotimplement policies without the financial means to do so.

Local capacity. Lack of local capacity is often the mostdifficult problem to overcome. Implementation,monitoring and enforcement activities require a level ofeducation and training among staff that may be in shortsupply in local jurisdictions. In addition, salaries are oftenlow relative to salaries in the private sector. Thus,recruitment and retention problems may make it difficultto implement activities in local government bodies.

Assignment of responsibilities. Local responsibilities areoften not clearly defined in legislation or regulations.Various local government bodies may have overlappingresponsibilities, or the responsibilities are not clearlycommunicated to local officials or the central governmentfails to help local officials develop the needed capacity.Many countries do not have a clear understanding of theprinciple of subsidiarity, i.e. delegation of responsibilitiesto the lowest effective level, in which national governmentministries play a supportive and coordinating role.

PROGRAMMATIC IMPLICATIONS1. Involve and support local partners and create local

demand for policy implementation, by working withlocal NGOs to monitor implementation of policies withdistinct local benefits.

2. Determine weak links in the implementation processrelated to local government bodies and encouragenational ministries to address legal or organizationalimpediments (such as failure of the courts to prosecuteviolations) and help co-finance capacity-buildingactivities.


3. Demonstrate the benefits of local implementationthrough pilot programs and demonstrations coupledwith public awareness and outreach.

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POLICY REFORM LESSONS LEARNED EVALUATE THE POLICY 37

EVALUATE THE POLICYLESSON 20: EVALUATE POLICY PERFORMANCE

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WHAT HAS BEEN LEARNEDDonors and their partners often are reluctant to undertakeevaluations of policy reforms because it is difficult todetermine unambiguously if the policy is working andmeasure its impact. The potential benefits of evaluation as astrategic stage of the policy process are not alwaysappreciated by donors or their partners. Evaluation is notsimply a document to satisfy a donor's reportingrequirements, but can foster accountability and transparencywhile providing continuous information on theimplementation of the policy. Policy reform can be evaluatedif planned in a careful and timely manner, using a well-conceived participatory process.

KEY UNDERLYING ISSUESEvaluation: a stage of the policy process. Evaluation is oftentreated as a discrete one-time analytical exercise rather than amulti-faceted stage of the policy reform process involving anumber of analytical activities. This misperception ofevaluation as simply a reporting requirement may accountfor the lack of interest among donor partners. A singleevaluation may be of limited use in tracking implementationsuccess or analyzing impacts of policy reforms. In addition, ifevaluation has not been planned from the beginning ofpolicy implementation, the information needed to trackprogress may be limited, making it more difficult still toprepare the evaluation report. While the report may be theculmination of this stage of the policy process, evaluationshould include many intermediate activities to track andanalyze progress.

The benefits of evaluation. Donors and their partners donot always appreciate the potential benefits of evaluation.For donors, evaluation may be viewed as the report requiredin order to account for the use of assistance resourcesdevoted to projects and programs. Unless donors areexplicitly required to analyze the results of the policyreforms, it is less costly in time and funds to limit the focusof their evaluations to the inputs and outputs of theassistance program. Also, the policy reform's success mayoccur long after the donor's assistance program is completed.Thus, donors' partners will need to understand the benefits

of evaluation in terms of improved accountability andtransparency and press for evaluations to be planned andperformance indicator data collected during the assistanceprogram.

Policy reform is "noisy." A key challenge in evaluation is to"filter out the noise" in order to focus only on the relevantinformation and analyses that answer the question: is thepolicy achieving the desired results? The noise occurs becausepolicy reforms are not implemented in a vacuum but subjectto dynamic changes in the political, economic, social andcultural context. The political and economic setting forimplementation is similarly dynamic, with ministriesbalancing priorities and budgets for a variety of policyreforms.

Need a chorus, not one voice singing the praises of thepolicy. Many voices will often be more convincing than asingle voice and will lend credibility to the policy as well asthe policymakers. Evaluation results should be generated atfrequent intervals and a dissemination strategy developed toensure the results are shared widely among implementingministries, the general public and affected parties.

PROGRAMMATIC IMPLICATIONS1. Reach agreement with all relevant parties on the

expected results of the policy reform, when they areexpected to occur, how the results might change overtime, the potential obstacles to success and how toaccount for these in evaluation.

2. Utilize the work planning process to engage donorpartners in discussions about what will be achieved bythe assistance program and the policy reforms, decidehow to measure and evaluate success, and discuss thetiming and frequency of evaluation activities.

3. Build performance progress reporting into theimplementation process so that local partners canobserve whether or not the reforms are accomplishingthe goals that were set during the design stage and if not,to make mid-course corrections in the policy or itsimplementation.

38 EVALUATE THE POLICY POLICY REFORM LESSONS LEARNED

LESSON 21: TELL A STORY—PROCESS AND RESULTS

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WHAT HAS BEEN LEARNEDEvaluation must tell a story — in other words, it shouldprovide feedback to policymakers and managers that canguide diagnosis and changes in policy design and itsimplementation. Evaluation will be more useful if care istaken to carefully present the problem statement, establishthe baseline for comparing the "before" and "after" policyscenarios, identify criteria and indicators to monitor change,identify information gaps and plan how to collect data forthe analysis, and establish the monitoring schedule to answerthe various questions that comprise the evaluation.

KEY UNDERLYING ISSUESAnswering the basic policy question. The role of evaluationin the policy process is to answer the question: Is the policyworking as well as it should? To answer this, an evaluationneeds to assess both the effectiveness of implementation as aprocess and the outcome or results of the policy. Theimplementation effort can be evaluated earlier in the processthan results, given the time required for affected parties torespond to the policy change, and for their behavioralresponses to result in improvements.

Planning ahead. An important consideration is tocharacterize the baseline so that evaluators can distinguishthe "before" from the "after." In cases where the policyreform process has involved diagnosis and extensive dialoguebetween policymakers and affected parties, some of therequired baseline information may already be available.

Less than everything you need to know. An evaluation iscostly to conduct and it may not be possible to carry out acomprehensive analysis of all relevant policy questions. Inaddition to cost and resource considerations, there are spatialand temporal dimensions to the policy reform that must beconsidered in prioritizing the policy questions to beevaluated.

Setting the evaluation hypothesis. The goals of the policyreform are often stated in qualitative as opposed toquantitative terms, requiring the analysts to determine whatconstitutes success or effectiveness. Often this reflects theearly stages of our scientific understanding, especially of thenatural systems. It may be necessary to discuss different

specifications of the hypothesis before undertaking theevaluation.

Attributing change. External factors may have both positiveand negative influences on the performances of policies. Itmay be necessary to analyze these factors and attribute resultsto each of the most important factors. For example, periodsof recession, high rates of inflation, or unfavorable costs ofcapital may discourage facilities or other affected partiesfrom undertaking investments in pollution controls,alternative activities, or new methods.

PROGRAMMATIC IMPLICATIONS1. Formulate a set of questions early in the process that will

help assess the use of assistance resources and documentthe results of policy reforms. These questions mayinclude the following:

a. Who will use the results of the evaluation?

b. What types of information and analyses will bestenable users to judge if the policy is successful?

c. When will the evaluation results be needed?

d. How should evaluation results be communicated tovarious audiences?

e. Who will establish performance criteria, developbaselines, collect trend data, conduct the analyses,and disseminate the results?

f. Do the individuals and ministries involved inconducting the evaluation have the appropriate skillsand necessary resources?

2. Revisit the goals of the policy in the course of theevaluation to ensure that the process and resultsassociated with the assistance effort and policy reformsare being assessed accurately.

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LESSON 22: LEARN TO TRACK WHAT IS IMPORTANT

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WHAT HAS BEEN LEARNEDAn evaluation is tailored to answer the set of questions thatdonors, their partners, and other donor partners and affectedparties have identified as being appropriate to measureprogress in achieving policy goals. Just as evaluations do notanalyze every question that could be asked about the policyand its implementation, not all types of information shouldbe monitored and evaluated. The selection of indicators is acritical step in planning and conducting evaluations.

KEY UNDERLYING ISSUESTracking for accountability. For donors or their partners,what is important to track often depends on what theirrespective governments, the general public, or affectedparties expect will be achieved. For donors, accountabilityoften focuses on whether assistance resources are usedeffectively, which may involve monitoring of indicators thatdescribe inputs and outputs to determine how the resourceswere employed. For donor partners, accountability requirestracking of both process indicators and results because oftheir need to demonstrate progress as well as the impact ofpolicy reforms.

Different audiences. For a given evaluation question,different audiences may expect the question to be answeredin different ways. For example, if a policy is designed toreduce nutrient loading, farmer groups will want to knowwhat impact the policy has on farm profits while the public'sinterest in the policy's impact may well concern waterquality. Thus, multiple indicators may be needed to answer asingle evaluation question.

Complex processes. Policy implementation will often occurin many steps, taken by numerous ministries and affectedparties, and involving a variety of activities. While it ispossible to develop indicators to track all of these activities,it may be useful to construct composite indicators or indexesto provide a sense of overall progress in implementing thereform.

Results vs. impacts. Indicators may not be sufficient tomeasure impacts and additional analysis may be required.For example, air quality can be monitored but does notenable policymakers to place a value on the benefits of

improved quality in terms of health effects. While designingmonitoring plans, the acceptance of results indicators assurrogates for impact measures should be discussed and, ifnot acceptable, plans should be made to conductsupplemental analysis.

Unintended successes. Sometimes the policy reforms resultin different types of successes than was originally envisioned,either for the target reform or affected group. For example, adonor-led dialogue related to a specific policy reform maylead assistance partners to adopt and make wider use ofparticipatory processes.

Unintended failures. A policy may be soundly designed andimplemented yet still fail to yield desired results due toexogenous shocks or policy decisions unrelated to thereform. It may be necessary then to document, ex ante, thepotential of these factors to undermine the policy. Some ofthese external factors such as inflation, the strength of capitalmarkets, or trends in weather can be monitored along withindicators more directly related to the policy reform.

PROGRAMMATIC IMPLICATIONS1. Employ USAID's series of guidance documents

including the new Foreign Assistance FrameworkIndicators to support development and implementationof performance indicators or the equivalent for otherdonors.

2. Carefully define indicators that involve threshold termsused to characterize a degree of completion such as"operational," "fully implemented," or "innovationadopted."

3. The ideal or most accurate indicator may not beaffordable or practical to track on a sustained basis,particularly if a donor will later need to shiftresponsibility for tracking the indicator to assistancepartners which lack the required financial or humanresources or commitment.

POLICY REFORM LESSONS LEARNED

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POLICY REFORM LESSONS LEARNED LIST OF CASES 41

LIST OF CASES

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CASE REGION DESCRIPTION

Case 1 ANE Implementing an ambitious structural economic reform agenda in post-suharto Indonesia requires politicalchampions and long-term commitment

Case 2 LAC The importance of building consensus for policy change: Ecuador’s Agrarian Development Law of 1994

Case 3 ANE Donor coordination in Indonesia’s forestry crisis

Case 4 AFR FAO involves women in policy dialogue to better address gender differences in the design of Asian forestryprojects

Case 5 EE Sharing international experience enhances policy dialogue to improve water quality in Romania

Case 6 EE Start small for early successes: a bite-sized approach to tradable permits in the Czech Republic

Case 7 ANE Officials in 10th of Ramadan City, Egypt involve stakeholders at early stage to develop a municipalenvironmental management system

Case 8 AFR Investments in information systems help Madagascar build capacity to monitor and assess development impacts

Case 9 ANE Egypt builds support for agricultural policy reforms by showcasing stakeholder benefits

Case 10 EE Analytical capacity for problem diagnosis may be needed to ensure that investment decisions are sound:Novokuznetsk, Russia

Case 11 AFR Cash transfers are catalysts for Egyptian policy reform programs

Case 12 EE Policy design economic transition: Overcoming the poor climate for investments in Central and EasternEurope and the former Soviet Union

Case 13 LAC Agreement for higher tourism operator fees in Galápagos reached by extolling benefits of protecting ecologicalresources

Case 14 ANE Powerful interests derail regulatory reform of the electric power in India

Case 15 EE Unrealistic ambient standards impede implementation in the former Soviet Union

Case 16 EE Developing investment strategies to support transition compliance schedules in Central and Eastern Europe

Case 17 ANE Revenue enhancement supports Red Sea sustainable tourism development

Case 18 EE Responding to a new Policy in Romania requires capacity building at local and national levels

Case 19 AFR Prospects for improved resource management in Niger enhanced by reforms that generate local benefits

Case 20 ANE FAO: looking for impact beyond the life of the program in India

Case 21 LAC Macroeconomic policies affect the success of forestry policies in Guatemala

Case 22 AFR Use of indicators in monitoring and evaluation: Niger Agriculture Sector Development Grant, Phase II

RegionAFR—AfricaANE—Asia and Near EastLAC—Latin America and CaribbeanEE—Eastern Europe and Eurasia


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U.S.Agency for International Development1300 Pennsylvania Avenue, NW

Washington, DC 20523Tel: (202) 712-0000Fax: (202) 216-3524

www.usaid.gov

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