Decentralizing Rural Development

Because of these concerns, among international agencies the emphasis in rural development has shifted to decentralized and participatory approaches, including 'demand-driven' investment programs in rural areas. Increasingly, communities are asked to take the lead in defining or selecting the programs they will participate in, and the role of local governments is being put in higher relief. The distinguishing characteristic of demand-driven investments is that communities propose or choose them. Chile, for example, created an irrigation development fund that is devoted to financing projects proposed by communities or groups of farmers (see Chapter 6). In Paraiba, in Brazil's northeast, greater community participation and better co-ordination of central agencies' efforts have created successful rural development projects with World Bank funding.74 In Nicaragua and Honduras, the Inter-American Development Bank has financed rural development projects which are entirely composed of small projects that are proposed by communities and screened at the level of county governments (rural municipalities). While in most cases it is impossible to estimate a rate of return on such proposed projects, for use as a screening criterion, the presumption is that communities will have a relatively accurate perception of the bottlenecks to their development, and hence of the investments needed for releasing them.

However, complementary kinds of criteria or filters also can be used for screening small projects, including cost guidelines (a maximum cost per kilometer of feeder road built or rehabilitated, for example), a restricted definition of the categories of investment that will be funded under the program, a requirement that a community contribute at least a specified minimum percentage of the cost of each project selected,75 and a requirement of follow-up over time with the community in the case of training projects. In Paraiba, the formula included giving communities the right to propose projects and the right to elect half of the members of a committee that would make the final selection of one group of projects, leaving

74. A summary of this experience and the reasons for its success is found in Maximiliano Cox, Mejores prácticas en políticas y programas de desarrollo rural: implicancias para el caso chileno, CEPAL, Naciones Unidas, Serie Desarrollo Productivo No. 86, Santiago, Chile, March 2001.

75. 'Successful community-driven projects have been those in which funds were locally generated to cover the ongoing operational costs of the project'. (From Operations Evaluation Department, 'Lessons on Community-Driven Development', Lessons and Practices No. 12, The World Bank, Washington, DC, USA, August 1, 2000, p. 2.)

the final choices on another group to municipal (county) authorities, and allowing State (provincial) leaders to select yet another group of projects.76

This approach represents a particular kind of fiscal decentralization. As well as empowering local communities (villages), it also strengthens the role of municipalities and, in some cases, NGOs (although care should be taken to ensure that NGOs do not come to dominate community decision making). Apart from supporting rural development more effectively, fiscal decentralization has powerful appeal on other grounds, and at the same time it presents complex issues to be dealt with if it is to be successful. A number of countries have legislated a requirement that a given share of central government revenues be transferred to local governments, but concerns have arisen about the capacity of local governments to manage the funds well and the effects of the transfers on the budgetary balance of the central government. Such transfers can also weaken the will of local governments to collect the taxes that fall under their jurisdiction. Nevertheless, the consensus appears to lie on the side of greater decentralization if it is properly handled. A primary requisite is a greater effort in training local officials.77

Colombia has successfully placed agricultural research and training expenditures in the hands of producers through the mechanism of 'parafiscal' funds for selected crops. Producers pay fees to support those funds and in turn decide how they are to be used. This model could be extended to wider classes of development expenditures at the local level, with participation of producers as well as local governments in the decision-making process. It should be noted that the parafiscal model has worked well in Colombia when the crops are relatively homogeneous and the producers well organized, as in the cases of coffee, oil palm and rice, but it has not worked so well for heterogeneous crops or producers, as in the case of the parafiscal fund for fruit and vegetables and the fund for artesanal raw sugar ( panela).

The main points here are that rural development projects need to be conceived and carried out in a decentralized fashion,78 but that there is no single approach that is universally applicable. The most appropriate approach will depend on the political and institutional circumstances of the country concerned. Equally, care must be taken to avoid domination of decision making by local leaders or elites.79 The basic rationale for decentralization has been stated by Lawrence Smith in terms of accountability:

Decentralization of the public administration is expected to improve the system of incentives, which confronts suppliers of goods and services where provision is not dictated entirely by market forces. The closer the administration of the service is to the clients, then the greater the likelihood that decisions about which services should be provided, how much, where, and to whom, will be more responsive to the demands

77. Two good surveys of the issues involved in decentralization, one addressing mainly economic questions and the other mainly political and institutional issues, were published in Michael Bruno and Boris Pleskovic (Eds), Annual World Bank Conference on Development Economics 1995, The World Bank, Washington, DC, USA, 1996. The first one is by Vito Tanzi, 'Fiscal Federalism and Decentralization: A Review of Some Efficiency and Macroeconomic Aspects' (pp. 295-316), and the second is by Rudolf Hommes, 'Conflicts and Dilemmas of Decentralization' (pp. 331-349). Lawrence D. Smith provides a very useful discussion of many issues in decentralization, including definitions of different degrees and types of it, in his Reform and Decentralization of Agricultural Services: A Policy Framework, FAO Agricultural Policy and Economic Development Series No. 7, Policy Assistance Division, Food and Agriculture Organization of the United Nations, Rome, 2001.

78. Binswanger (1998, p. 294) mentions recent rural development projects in Mexico, Colombia and Brazil that have devolved decision-making authority to municipalities.

of users. It is expected that the quality of service will improve, and that the efficiency of the provider will increase as a result of closer accountability to clients.80

Experiences with demand-driven rural investments illustrate some of the questions that need to be considered in designing decentralized rural development projects. One issue that frequently emerges is whether to use public monies (from an international loan) to make grants for on-farm investments. A decision usually is made to limit the scope of the investments to community-wide projects (e.g. rural roads, training and programs, rural market facilities, and the occasional small-scale irrigation project that has a sufficient number of beneficiaries), and to projects oriented toward co-operatives (e.g. supplying the initial capital for a women's marketing co-operative, or a women's co-operative for raising and selling iguanas). By defining the scope of the program in this way, both on-farm investments and some basic investments in infrastructure (electrification and installation of communications networks) are ruled out. This is not to deny the value of the kinds of investments that are funded by the programs, but rather to point out that an investment package developed through local community decision processes may have inherent limits in its coverage and therefore may need to be complemented by other kinds of actions.

While greater decentralization of decision-making is important, rural development needs to be supported at all levels of policy making, including by appropriate sectoral policies and macroeconomic policies that create growth incentives. A comprehensive approach is required. Appropriate sector policies are also needed to make decentralized approaches effective, including the legal underpinnings for community management:

Sound sector policies enable effective community-driven development. .. . Supportive sector policies need to include financial policies (including on community contributions), sector norms, technology options/standards, and laws supportive of community management and contracting of goods and services by communities themselves.81

Adopting a holistic approach in turn raises a fundamental issue of another kind:

A holistic approach means confronting with more resolve a theme historically viewed in many international agencies as taboo in the development process: politics and its relation to policy. It has become more apparent that success is linked to the quality of governance and the political process. Good political management of technical aspects and good technical management of political ones often form the basis for success and project effectiveness. Demand-driven approaches also are a response to create greater stakeholder involvement and hence greater social accountability in project implementation.82

In some circumstances, demand-driven investment programs have acquired partisan political overtones, as a presidential administration tries to direct the investments toward communities where its supporters are most numerous. Safeguards are required against such tendencies in order to protect the integrity of the programs and raise their effectiveness.

As salutary as decentralization of decision making can be, it also complicates the process of co-ordination among institutions and can make it more difficult to reach a consensus on the priorities for rural development expenditures. In the words of Lawrence Smith:

81. Phillipe Dongier, 'Community Driven Development Principles', Draft, The World Bank, Washington, DC, USA, January 7, 2000, p. 3 [emphasis in original].

82. World Bank Action Strategy, Consultation on Rural Development for Latin America and the Caribbean, Summary Report of Conclusions and Proceedings, CIDER (IICA), The City of Knowledge, Panama, April 2001, pp. 10-11.

Central government, local government, and CSOs [civil society organizations] may agree on goals, but disagree on priorities and strategies. This should not be an issue when provision [of services] is deconcentrated or delegated because, in theory, the central government is firmly in control. The problem emerges with devolution and partnerships. How should central government administrations deal with a variety of different priority rankings by local governments and CSOs claiming public support for their initiatives? What happens if local priority rankings differ from central government priorities established under a development plan? .. .

Central governments can handle these problems in several ways by:

(1) Introducing devolution gradually by giving membership in the elected local government assemblies to officers of deconcen-trated units of the public administration, who can influence decisions.

(2) Transferring the appropriate priority functions outside the public administration to CSOs.

(3) Retaining the management of priority programs under central control while decon-centrating or delegating the production or delivery functions.

(4) Introducing conditionalities in the intergovernmental fiscal transfer.. . .83

In effect, the solution devised in the Inter-American Bank's rural development programs for Nicaragua and Honduras was to have the central government narrow the scope of decision-making for local governments, by defining the fields eligible for funding, and they also imposed technical criteria on the eligibility. Within that set of restrictions, priorities were defined locally.

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