Chapter One

Technical Cooperation:
Complex Work

Foreign assistance is a controversial topic, to judge by the acrimonious debate about it within Congress and the amount of energy the Administration spends year after year to secure funding. In 1995 the House of Representatives, led by its Republican freshman and sophomore classes, voted major funding cuts and the merging of three specialized federal agencies in the foreign affairs complex with the State Department. At the same time, members such as Lee Hamilton of Indiana, Henry Hyde of Illinois, and Doug Bereuter of Nebraska tried to stem the rising tied of isolationism (Greenberger, 1995). Powerful congressional figures like Senator Jesse Helms routinely attack the foreign aid programs as ineffective and wasteful, while equally powerful members such as Senators Thomas Daschle, Richard Lugar, and John Kerry find merit in these expenditures and argue for maintaining foreign aid if not increasing it to the levels of earlier years.

Foreign aid has numerous parts, including humanitarian aid, inkind assistance such as food transfers, funds to help with macroeconomic stability, and technical cooperation programs. The complaints often concentrate on the last category; programs that aim to improve the effectiveness of government institutions and programs or likewise help the private sector, such as the restructuring of banks and enterprises in Central and Eastern Europe. These programs require the delivery of expert advice and close work with local counterpart individuals and agencies. To be successful the tasks have to be done very well and the client has to be receptive to the advice and willing to make changes--a combination that has been exceedingly difficult to realize in practice.

In the case of the United States, the task of managing aid programs falls primarily to the U.S. Agency for International Development (USAID). All bilateral donors have similar agencies and the European Union has a large bureaucracy to manage its programs for Eastern Europe (PHARE) and the Newly Independent States (TACIS). Without exception these agencies find themselves under pressure from their governments to have more success stories to report.

Senator Helms and like thinkers in other countries receive help episodically in their efforts to portray foreign assistance as wasteful and ineffective (and therefore not deserving of funding) form journalists who write stories about the high living and lack of productivity of consults engaged to provide expert advice to recipient countries. Typical of these is the article in the October 16, 1995 International Herald Tribune, in which Justin Keay reported:

Whether advising on privatization in Poland, suggesting how best to reform Hungary's banking system or revamping Romania's tourist industry, consultants have been in the front line of the West's efforts to help post-Communist Europe help itself.

But where they were once welcome as saviors imbued with special knowledge, they are now increasingly reviled as overpaid--an average daily rate for a Western consultant in the region is 1,000 European Currency Units ($1,315)--ill-informed or under equipped to deal with the problems.

Resentment has been fueled by the knowledge that this army east into the West's aid programs--taking up as much as 40 percent of last year's 2 billion ECU's disbursed by PHARE, the EU's assistance program for Eastern Europe--and its soldiers rarely stay in one place, prompting critics to use the phrase, "consultancy tourism." (p.11)

A February 1994 Wall Street Journal article about U.S. assistance to Russia sounded a similar theme:

...With cash-starved Russians trying to jump-start their fledgling businesses and economy--and antireform politicians gaining ground--"we don't need 90% of ‘technical assistance' money going to American experts," says Aleksander A. Jlnikov, head of Russian commission coordinating foreign aid.

Some U.S. policy experts share those concerns. Marshall Goldman, a Russia specialist and professor at Wellesley College, recently told the Senate Banking Committee that Russian aid in the hands of U.S. consultants and "beltway bandits" benefits Russians "minimally, if at all." He added, "I look for a scandal down the road that's going to upset the American taxpayer."

Even the generally positive 1995 article by Fred Hiatt and Daniel Southerland on assistance to Russia included the following critique:

...as the aid program swelled to more than $1 billion last year, the political desire to show support for Russia out-stripped U.S. bureaucrats' ability to dole out aid sensibly and Russian reformers' ability to absorb it, according to people familiar with the program. As a result, more and more money went to American consultants with generous overheads and travel budgets and little knowledge of the Russian scene, and to Russian bureaucrats with little appetite for reform.

Of course, there are success stories, some striking, to balance the criticisms, among them those of small grassroots projects cited by Hiatt and Southerland. But even among proponents there is a sense that improved performance must be possible, that better organization or a different philosophy will yield visibly enhanced achievement. "High living" consultants would receive less attention if the impact of their work were greater and more visible to recipient country officials and its business community, as well as to outside observers.

This book is about how to improve the performance of technical cooperation programs in Eastern Europe and the Newly Independent States of the former Soviet Union. (Below I typically refer to these countries as the former Soviet block.) fundamentally, the objective of the book is to lessen the dependence of project success on a brilliant performance by the chief-of-party by retailing a set of practical steps for donors, project managers, and recipients of aid.

Conceptually and practically one can divide the task of providing assistance to any country among strategy, tactics, and execution. With respect to strategy, numerous statement have been made about what type of assistance might be provided to the countries of the former Soviet bloc, the goals of such assistance, and the extent to which bilateral assistance should be altruistic or self-interested. The "trade versus aid" debate falls into this category. Tactical discussion focuses on what could work in practice and what is affordable. If economic stabilization is determined to be the foremost objective, are donors' funds better invested in a currency stabilization fund for advice to the Central Bank, the Ministry of finance, and the Office of the Prime Minister?

Execution, the third level, is the subject of this book. To take a military analogy, after the generals have mapped out the strategy and the division commanders have determined the tactics of the battle, it is up to the battalion and company commanders to create success on the ground. In the present context, given that a donor has decided to provide technical assistance in a particular sector in Eastern Europe or the former Soviet Union, what lessons have been learned about how to increase the likelihood of success? Execution is fundamental. If the troops on the ground fail to deliver, the best strategy and tactics are meaningless.

The subject I address is how to improve the return on investment in sectoral technical cooperation or assistance programs. By "sectoral" I mean blocks of economic activity such as the agriculture, housing, transportation, banking, energy, health, and education sectors. This definition excludes macroeconomic restructuring. Thus, the productivity of advisors stationed at the Central Bank, for example, is beyond my purview.

The boundaries of sectors can be flexibly defined for the case at hand. The main point is that sectoral projects work with whole blocks of activity--reforming the health sector, not only hospitals; the agricultural sector, not just rural credit. The advantage of working at the sector level is that the project is much more likely to address the core policy issues. A rural credit project could be undermined by a government policy of price controls for farm products. Farmers could have a severely limited ability to pay market interest rates for credit because the prices for their products are restricted. Without addressing price controls, the credit project has a major problem in pushing for market interest rates.

Despite several years of experience in the region, many sector reform technical cooperation projects are patently wasteful. The efficiency with which millions of dollars are spent on technical cooperation projects could be measurably increased. This may seem unimportant at a time in which USAID is talking about wrapping up its assistance to some Eastern European nations. Far form it. While USAID is "graduation" a few of the most advanced countries, many countries to the east and south, particularly the republics of the former soviet Union outside the Baltics, will need a minimum of several more years of assistance with sectoral reform. The unexpected difficulty of economic transformation is the one truth in this region upon which everyone agrees. Moreover, while the U.S. may wish to view its role as relatively shorter, some other bilateral donors and the European Community see providing assistance as a longer-run task. For some countries in Eastern Europe the European Union sees its task as helping prepare them for accession to the Union. In short, the stakes are high to the donors seeking to improve efficiency of sector reform in the former Soviet bloc. the states are clearly even higher to the recipient countries, who badly need to improve the efficiency of their social economic, productive, and industrial sectors.

Technical Cooperation In Aid To The FORMER Soviet Bloc

Technical What?

Until 15 years ago, technical cooperation as bilateral assistance mostly involved individual training programs and student exchanges. The most widely used practice of technical cooperation in the World Bank was providing training to individuals responsible for executing feasibility studies for investment projects. In the 1980s, however, there was "disappointment experienced by some agencies that merely training certain individuals has failed to bring about substantial strengthening and self-reliance of the agencies or institutions involved" (Muscat 1986: 82-83). This cause rethinking about the purpose and context of technical cooperation. The Bank and other aid deliverers recognized that technical cooperation is more effectively delivered in a sectoral framework. For example, Muscat (1986: 83) on the British case states: "The position of the Overseas Development Administration is particularly instructive in this area, since the UK traditionally has financed a large programme of fellowship training, but now sees a need to rationalize its aid around ‘sectoral' objectives." Similarly, a 1982 World Bank review of program performance stated that "institutional or other development objectives as the project level are increasingly linked to wider sector objectives as both the Bank and the borrowers have become aware that the effectiveness of projects and of institutions which they help to establish or to strengthen, often depends on a sector environment supportive of these objectives.

We define sectoral technical cooperation as a comprehensive, coordinated set of activities carried out jointly with the cooperating country that are designed to improve the efficiency with which a sector operates and possibly improve the equity with which services provided by the sector are distributed. A sectoral technical cooperation program may be composed of several different projects that address different problems, as long as they have complementary sectoral objectives.

This definition is consistent with statement of major donors. The Development Assistance Council of the OECD, in its Principles for New Orientations in Technical Co-operation, sets forth as one principle to "stress the essential importance for effective Technical Cooperation of improved planning in the context of co-ordinated support for sectoral objectives and policies and, in particular, use of a programme rather than a project-by-project approach: (DAC/OECD 1991: 5). The World Bank categorizes technical cooperation as either engineering or institutional; the proportion of Bank technical cooperation directed toward the latter type has been increasing since the 1980'2 (Buyck 1991:v). Institutional technical cooperation is closely related to our definition of sectoral technical cooperation. According to the authors of a World Bank document, institutional technical cooperation:

consists of (a) diagnostic and prescriptive assistance such as advice on institutional or policy matters and studies for national economic management and planning, public administration, or the management and operation of a particular sector and entity; and (b) managerial, technical, or other direct operational support as well as staff training (Lethem and Cooper 1983: 1).

Deliverers of technical cooperation may work primarily with a branch of the government or with enterprises in the private sector. The USAID privatization program in Central and Eastern Europe provides an example of different emphases and partners that together create a comprehensive approach. Among the categories of assistance provided under this program (1) assistance at the policy/program level; (2) assistance to government agencies; (3) specialized transactional support; and (4) firm-specific assistance. Under the first three categories consultants work primarily with the government to create the appropriate polices and to build the institutional capacity for and facilitate the implementation of those policies. The fourth category, in contrast, focuses on a particular firm and its privatization strategy.

To promote sector reform in the former Soviet bloc, I believe a sectoral technical cooperation program must address five key areas.

1. Development of legislation and implementing regulations. Reform means changing old ways of doing things. The former Soviet bloc enshrined a particular organization of activity in detailed laws and regulations. reform is simply impossible without replacing or modifying the inherited legal framework. New laws and new regulations require new thinking about policy. And it is here that outsiders can provide extraordinarily valuable assistance, i.e., by defining the new policy in the specific context of the country, and then working in detail with those drafting the new legislation ton convey the ideas accurately. This is only partially the task of a lawyer; it is more importantly a task of experience policy analysts.
2. Demonstration projects. Experts who have worked in Eastern Europe on sector reform have had the experience of standing in front of a room of career civil servants, trying to explain a new idea, and finding polite but noncomprehending faces before them. I once tried to explain to a group of officials charged with maintaining the municipal housing in the large Russian city of Nizhni Novgorod that in order to improve maintenance, the city administration had agreed to hold competitions among private and public firms for a contract to maintain several thousand units in each of several packages. The municipal firms that had enjoyed monopolies on maintaining packages of buildings could compete, but the monopoly was over. Naturally, there was anger. But mostly there was just disbelief that such a system could work. In this particular case, we had the example of a successful demonstration project in Moscow. We were able to use this as our credential, but without it, the necessary cooperation would almost certainly not have been achieved.

   This is a general truth. Experience has shown that in the former Soviet bloc, if you want to induce many cities or hospital or banks to change the way they conduct their activities, you must convince them with a live example. Demonstration projects are the live examples.

3. Monitoring and evaluation. It sounds obvious. If you are working on reforming the agricultural sector, you had better keep very well informed, systematically informed, or developments in the sector changes in the law, introduction of innovations, changes in general practices. Moreover, if your project has succeeded in changing laws or regulations, you will want to know what the effects have been, so you can correct problems, if necessary, or use the results as leverage in the next round of negotiations for further change. This activity, obviously as it may be, is often missing in sectoral reform projects.
4. Dissemination. Getting the word out about positive changes occurring in the sector is a way of encouraging more administrators in other locations to undertake similar changes. The range of possibilities is nearly endless and well known--mass distribution of brochures to professionals, working with ministries on the publication of "official guidelines," participation in conferences, articles in the trade press, jointly sponsoring conferences with others, mass media events such as public service announcements on TV, or producing draft newspaper stories to be supplied to local papers. Some vehicle work better for some sectors and some are more typically used in certain countries. But to ignite widespread change, "advertising" and informing are essential in any context.
5. Institutionalization. Few reforms are on-off affairs. Rather, a policy reform breakthrough is made--the legislation is passed--then the long road of implementation begins. Similarly, a demonstration may succeed in, for example, certain local water companies or polyclinics, but dozens of utilities and hundreds of additional clinics will need help, if they are to introduce the new practices after the technical cooperation program is gone. A key goal of the technical cooperation program should be to perpetuate those elements of its work for which there is a demand. Examples include training courses offered by local institutions on a fee basis, consulting services provided by a local institution on a commercial basis, or creation of staff in a government office (local, regional, or national) charged with helping service deliverers change their procedures or introduce new activities.

   The easiest way to convince oneself of the necessity of including all these elements is to ask what happens if any one of them is missing from a project. If no monitoring is done, for example, what could be the consequences? Your team will be less effective in drafting legislation and regulations because they will not be informed about shifts in sentiment for or against a provision. If you have implemented a demonstration program and have no hard information on its performance, selling the idea to skeptical national and local leaders will be nearly impossible; even with heard evaluation results, you may not succeed. Real evaluation is novel in the region and hard figures can carry real weight; without this component the project is working under a handicap.

The Volume of Technical Cooperation Assistance

Beginning from the perspective of the total aid program, I define four principal types of assistance:

1. emergency, humanitarian assistance, such as food and medical supplies;
2. balance of payments and convertibility support and assistance with external debt management (Barre et al. 1992: 73);
3. technical cooperation that provides infrastructure support, institution development and capacity building, and, particularly, training and policy advice (Assaf 1994: 243); and
4. project investment in the form of international loans in support of medium-term infrastructure investment (European commission 1995: 3).

Humanitarian assistance responds when war, natural disaster, or economic and social breakdown jeopardize people's lives. Experience has shown that humanitarian assistance can often be delivered efficiently and cost-effectively by charitable or private/volunteer organizations. One benefit of using organizations such as these, which are typically smaller, is that they deliver assistance directly to the beneficiaries. A grant to Project HOPE to deliver donated emergency medical supplies to hospitals in the Newly Independent States is an example. The program's auditors noted that "the recipients (hospital personnel) were also grateful that the products were delivered directly to them and not through a government agency like the Ministry of Health" (Regional Inspector General. 1994: 5). While the principal aim of humanitarian assistance is to reduce human misery, it can also help decision-makers channel energy toward long-term transformative goals instead of being captured by the demands of immediate subsistence needs.

Balance of payments and convertibility support address the macroeconomic stabilization of a country. An institution like the International Monetary fund (IMF) is usually responsible for devising a stabilization strategy and disbursing funds. As a prerequisite for release of funds, IMF officials agree on macroeconomic goals with the government. Achievement of these goals depends largely upon the political will of the country's leaders. The goals do not include the transformation and restructuring of the economy, but rather attempt to create an environment in which it will be possible to begin the stabilization process.

Technical cooperation and project investment aim to transform and restructure particular social, economic, production, and industrial sectors of the country that is in transition. The technical assistance aspect involves "building the institutional, legal and regulatory infrastructure underpinning a modern market economy" (CCET/OECD 1994:2). The project investment aspect involves providing the funds to upgrade the country's physical and technical infrastructure.

Much sector aid to Central and Eastern Europe (CEE) has been in the form of technical cooperation. In the education and public administration sectors, technical cooperation constituted four-fifths of the total aid over the 1990-1994 period (table 1.1). In the health, environment, agriculture, and other social and economic infrastructure sectors, technical cooperation accounted for more than one-third. Only in the sectors demanding a very high level of physical infrastructure development--such as transport, communications, and energy--did technical cooperation account for less than 10 percent of the total aid provided for the sector. Even so, sector technical cooperation constituted only about 9 percent of total aid to the region during the 1990-1994 period, because physical infrastructure projects, when they occur, are so huge.

Once stabilization and technical cooperation programs have begun to build up financial and institutional capacity, a country can become eligible for physical infrastructure and project loans from international financial institutions and individual countries. Before this strategy is reached, donors may have legitimate doubts about whether the country is able to service the loans, and recipients may lack the information to know whether they really need them.

The record of the G-24 group of countries' assistance to Central and Eastern Europe from 1990 through 1994 attests to this order of aid priorities. In the first stage, macro-financial assistance and debt reorganization represented the largest share of aid by far. In the year 1991, for example, these two categories of aid constituted more than twice the funds of all the other categories (emergency aid, technical cooperation, project investment and other) combined. Emergency humanitarian assistance became larger and then stayed relative constant as more needy countries were consistently added to the beneficiary pool. Technical cooperation to the region was highest in 1992 and 1993, once other forms of aid had provided some financial and economic stability. Technical cooperation, in turn, built institutional capacity, which made it possible for physical infrastructure loans to be productive. From 1990 to 1994, project investment in Central and Eastern Europe was at its highest levels in the last two years (European Commission 1995:5).

Assistance can be provided through the following vehicles: (1) cash grant assistance; (2) in-kind grant assistance; and (3) loans or lines of credit. Assistance for balance of payments and convertibility support is usually in the form of loans, lines of credit, or forgiveness of loans. The latter category was very important in the assistance package to Poland in the early 1990's. Emergency humanitarian assistance is often in the form of in-kind grant assistance such as food or medical supplies. Donors also provide cash grants and loans to purchase the necessary supplies for such assistance. The primary vehicles for project investment are loans; however, the projects will often have a supplementary technical cooperation package, which may be paid for by a loan or grant. Technical cooperation projects that stand alone are most often financed partially or fully by grants, depending on the donor and the capacity of the beneficiary to pay for the services.

The grant component of G-24 assistance to the Central and Eastern Europe from 1990 to 1994 was less than the loans or lines of credit component. Grant aid peaked at 36 percent in 1992, but in 1994 represented 26 percent of overall assistance provided to the countries of Central and Eastern Europe (European commission 1995: 6). If the loans from the international financial institutions are excluded, grants composed 40 percent of the assistance provided from 1990 through 1994.

The share of grant assistance provided by G-24 countries to the countries of Central and Eastern Europe varies widely by donor country (table 1.2). Four out of the 15 major donors (countries that committed more than 500 million ECU equivalent ($165 million) to the region from 1990-1994) provided more than half their funds in grant assistance: Denmark, Canada, the United States, and the Netherlands. Most of the other countries provided between one-fourth and one-half of their aid package in grants. Spain, the United Kingdom, and Japan provided a smaller share of their aid in grant assistance. In total, the European Union provided over 13 billion ECU ($16 billion) in grant assistance, 38.7 percent of its total aid package (European Commission 1995: 13). According to Hutchings (1994: 185) one of the strengths of the U.S. programs is their reliance on grant assistance rather than loans or lines of credit.

Other decisions involved in creating an overall aid strategy include the composition of the assistance package and the speed with which it is delivered. Rapidity of disbursement is commonly viewed as one measure of the efficiency of an aid program. The United States has focused on economic growth and private sector development, whereas the EU's preference has been for "social market" programs in public infrastructure, industrial restructuring, and social welfare (Hutchings 1994: 185). The American government's decision to focus more on the private sector has allowed it to deliver aid more quickly than other major donor countries. According to a letter from the Department of State in response to a GAO report, this approach has left the United States disburse funds at about twice the rate of the EAU (GAO 1992: 42). This may be an overstatement. Doubtlessly, differences in contract administration procedures are also important.

The nations of the former Soviet Union have also received significant aid from the West for technical cooperation (table 1.3). In general, the data on assistance to these countries are less well organized than those for Central and Eastern Europe. Even so, the aggregate figures convey important information. For 1990-1994, the CEE countries received ECU 6.7 billion and the FSU nations ECU 5.1 billion in technical assistance funding--or ECU 61 and ECU 18 on a per capita basis, respectively. Over the five-year period, donors' average contribution for technical assistance to the combined region was ECU 2.3 billion. These are substantial amounts year in and year out. In both the CEE and FSU countries, the programs of the European Union, Germany and the United States have been the largest.

Note: This table does not include assistance to the Baltic countries. On 30 January 1996, 1 ECU was equal to $1.23 a. Bilateral assistance from all members of the European Union except Germany. Germany is enumerated separately because of its large level of assistance. b. European Free Trade Association. During this period its members included Austria, Iceland, Norway, Finland, Sweden, and Switzerland.
Source: European Commission Directorate General IA. October 1995. Towards Greater Economic Integration: The European Union's Financial Assistance and Trade Policy for Central and Eastern Europe and the Newly Independent States.

THE STAKES IN IMPROVING PERFORMANCE

Given these substantial amounts, donors certainly have interest in improving the productivity of funds spent on technical cooperation projects. In an era of fixed or declining aid budgets, doing more with less is a commonly stated imperative.

But the gains from better designed and executed projects go well beyond the money involved. Badly performing projects are a drag on further reform. First, good projects can accelerate the transition process. Poorly designed and executed projects can impede it. Failure of a demonstration program at the municipal level designed to show the virtues of replacing state provision of services with private sources may well make municipal and national officials wary of trying this approach again. Unproductive projects that place significant time demands on senior local officials will make these same officials reluctant to invite more foreign advisors to their cities or ministries.

Second, poorly performing projects produce problems for donor agencies as well because failure to produce results inevitably reduces the enthusiasm and interest in support technical cooperation. For this reason alone donors also want to see demonstrable progress. This is particularly the case in the former Soviet bloc, where the view was that the transition would be short and quick assistance decisive. While the donors may realize they were overly optimistic at the outset of the transition, they still sense that real progress should be evident from their investment in these countries.

Last, there are significant potential benefits to future recipient countries from "getting the technical cooperation model right." To extend the military analogy, this book is a dispatch from the front lines. From a perspective of a seasoned implementer of technical cooperation projects in Hungary and the Russian Federation, as well as several Asian countries previously, the objective of the books is to lay out clearly the lessons learned for structuring a successful program. Stated alternatively, my goals is to lessen the dependence of program success on good luck and particularly strong performance by the chief-of-party implementing the program.

The lessons are for both the donor community (i.e., those individuals at USAID, the European Union's PHARE and TACIS programs, the British Know How Fund, and other who define and manage technical cooperation programs) and for the firms and individuals who actually implement the programs. I realize that donor agencies' behavior is substantially determined by the legislatures, governments, and commissions to which they are responsible. Therefore, the lessons are addressed to them as well.

I do not address explicitly possible changes in the contracting and management procedures employed by the donor agencies. As might be expected, these procedure differ substantially among donors. I am acutely aware that bureaucratic rules and an agency's imperative to control the technical cooperation process may thwart giving contractors greater freedom of action or defining individual projects more broadly so as to encompass more of the five elements in a successful program. I hope that my statement of the lessons is sufficiently clear that the specific administrative changes needed for their realization can be readily deduced.

THE FUNDAMENTALS

Donors and contractors are being less effective than they could easily be in conducting technical cooperation projects in the former Soviet bloc aimed at moving economic sectors to the market. The most inept practices include:

Small, typically disconnected short-term projects, who overall impact is less than the sum of the parts. Programs should include the five elements outlined above and have a realistic life span--years, to months. And best performance is much more likely when a single contractor is responsible and a single donor is managing (and funding the project).

Poor use of expertise developed during the project design stage when going to project implementation, which handicaps implementation efforts unduly. Most donors have strong rules prohibiting firms, and in some cases individuals, that help design a project from being part of the implementation team. While the desire to create a "level playing field" for firms competing for the implementation contract is laudable, it come at a high price.

Little imagination in structuring real dialogues between the donors and host country officials in designing projects, with the result that the officials are not strongly committed. Predictably, projects with such antecedents often have lackluster records, even when a strong implementation team is fielded. Real discussions facilitated by the donor can establish in advance the broad boundaries of the work and highlight examples of project components to make the dialogue concrete.

Too slow start-up and too many Phase 1 tasks, which reduce the odds of attaining early credibility. Projects have a much better chance of succeeding if they are organized to start quickly but on a limited number of tasks. Such a strategy increases credibility early in the project with senior host country officials and "service deliverers" (bankers, hospital officials, local government administrators, teachers). Once these credentials are established, branching out into additional areas is comparatively easy, as there will be committed support for the initiatives.

The subject of this book is how to convert inept practices such as those implied in the foregoing into those that will be more effective.

MY CREDENTIALS

My experience as the resident project manager for the Housing Sector Reform Program in the Russian Federation from early 1992 through the writing of this book in 1996 is the primary basis for my observations. This program was carried out by the Urban Institute under contract with USAID. The project was formally evaluated by the U.S. Government Accounting Office in 1994 and rated a clear success in terms of both impact and cost-effectiveness (GAO 1995a). In subsequent reviews by USAID it also received positive marks.

This experience is supplemented with additional information from a review of several other sector technical cooperation programs being implemented in Russia, two earlier years of on-the-ground experience in housing sector reform in Hungary, and discussions on technical cooperation projects with Americans and local staff implementing such projects in the region but outside Russia. I also draw on more general information I acquired during the 15 years before I began work in Hungary--when I was an active consultant in a dozen developing countries, observed scores of technical cooperation projects, and followed the literature on the lessons garnered from conducting such projects.

That most of my examples of success come from the Housing Sector Reform Program does not imply that I regard it as uniquely successful. There are indeed many other solid projects completed and on-going in the region. I simply know the housing project best.

Are the lessons I draw from the examples I highlight here applicable to projects in economic sectors other than housing? Yes. The five components of a comprehensive technical cooperation project listed earlier certainly apply across sectors, even though the relative emphasis on each will vary significantly with the specific sector and country. In addition, my lessons apply to the process of carrying out the assignment, not the technical composition. I address ways to engage local professionals effectively in projects; ways to structure training programs so that they have better chances of continuing to be offered after donor support is withdrawn; and how to create positive incentives to local officials to adopt reforms--a newer precondition for getting reforms to move beyond the pilot stage. None of these points is sector-specific.

THE HOUSING SECTOR REFORM PROGRAM IN BRIEF

Although the lessons are not restricted to the housing sector, the experience of the Housing Sector Reform Program (HSRP) is so central to the presentation that I think it useful, for context, to provide a thumbnail sketch of the program as it existed in the summer of 1995. ( Amore complete description appears in Annex A).

The U.S. Agency for International Development signed agreements in March 1992 with the Russian Federation and the cities of Moscow, Novosibirsk, and Ekaterinburg, and with the Oblast (regional government) of Nizhni Novgorod in November 1993. Resident advisors were assigned to all three cities. The Urban Institute carried out the program for USAID with the Russian Federation, Moscow, the Nizhni Novgorod Oblast, and cities in Central Russia.

The Urban Institute began its work in March 1992 and has had resident advisors present since August 1992. The project team is centrally located in Moscow, making frequent visits to other cities. The project began small, with two U.S. and two Russian professionals. in the mature phase of the project, the 25 Russian professionals outnumber Americans six to one.

The principal activities of the Urban Institute program -- upon which this book draws--were three:

1. Acting as the principal advisor to government on housing reform legislation. In addition to working on the Law on Fundamentals of Housing Policy in the Russian Federation (passed December 1992) and the numerous regulations implementing this law, the team, for example, drafted Moscow's regulations on condominiums (the first in the country) and has strongly influenced the content of the Law on Mortgage, which will create the essential legal basis for housing lending.
2. Carrying out a series of demonstration projects. The objective was to create the concrete examples essential to widespread adoption of significant change.
1. Introduction of competitive, private maintenance for municipal housing. In March 1993, three private firms took over management of 2,000 rental units in one Moscow region, following a competitive procurement process.. A second group of 5,000 was placed under management in September of the same year. The results of a rigorous evaluation of the experience of these projects showed that maintenance improved sharply and at no additional cost. By December 1995 Moscow had expanded the program to cover 325,000 units. Mayor Yuri Luzhkov issued a decree in June 1995 requiring the entire municipal housing stock to be placed under private maintenance within three years. Competitions to select maintenance firms for municipal housing have taken place with the Urban Institute help in Nizhni Novgorod, Bor, Arzamas, Vladimire, Ryazan, Petrozavorsk, and other cities.
2. raising rents and implementing housing allowances. On the basis of Federation legislation, the City of Moscow enacted a program of significant rent increases combined with the introduction of housing allowances in November 1993. the design of the program, which was implemented in August 1994, was based on simulations conducted by the Urban Institute team. The team also assisted in development of a detailed procedures manual for administration of the program; this manual has been disseminated by the Ministry of Construction (Minstroi) as guidance to all administrations in the country. The Urban Institute team has worked with Minstroi to prepare instructions to local government on administrative improvements (including verification of application income, quality control, and preparation of performance reports for senior city managers).
3. Introducing condominiums. Beginning in the spring of 1994, the Institute team has been working with about 20 cities, mostly in central Russia, to help them create the necessary regulatory basis for the creation of condominiums in the city. the program includes working out local legislative documents and training local professionals to work with homeowner groups who wish to create a condominium association. The teams helps establish early associations. This includes providing guidance on the contracting for maintenance and management services. Working with the Academy of International Entrepreneurism, a training program for local officials and condominium leaders has been developed and is offered every several months.
4. Long-term mortgage lending. Helping establish long-term mortgage lending is the largest component of the technical cooperation program. Under a November 1992 agreement between USAID and Mosbusinessbank, Russia's third largest commercial bank, the team provided intensive assistance to prepare the bank to make financially responsible mortgage loans. The ban initiated lending in May 1994. Assistance involved all phases of operations (legal documentation, underwriting, and loan servicing, including development of the necessary software; loan instrument development; and risk management)

The Urban Institute team is working with about 20 additional banks to help them begin or expand mortgage lending. More than half are already making such loans. the banks include Stolichni Bank, Tveruniversal, Sokol Bank (Cherprovets), East Siberian Commercial Bank (Irkusk), Inkombank, Pskovakobank, and St. Petersburg Ipoteke Bank.

The materials developed under this assistance program are made available to other banks through the production of the "Mortgage Handbook" series, which facilitates other banks beginning operations

The Institute also works with the Association of Mortgage Banks and the Association of Commercial Bank-Russia to offer a comprehensive training program in mortgage lending. The first course was presented in February 1994, and in 1995 five different courses were offered with a total of 10 offerings. Faculty for most courses was at first a combination of Russian and American experts and later generally exclusively Russian.

.

3. Monitoring and evaluation. This is an active program to document the changes in the sector, including a series of surveys, and the impacts of the work in the project. Several rigorous evaluations of the project-supported demonstrations have been conducted as part of this effort.