 HOW TO GET THE MOST OUT OF INTERNATIONAL LOANS AND LOCAL
FUNDS
By: Joaquin Caraballo, Consultant
There seems to be no hard evidence that the current use of
the monies from international loans actually generate sustainable development and the
expected benefits are finally achieved as estimated in the economic feasibility studies. A
great deal has to be done to reorient the use of the international (and national)
resources in order to promote better standard of living for the local (and poor) people,
improving their financial status (reducing their debt), getting more work, and obtaining
the expected reductions in passenger and cargo fares to be generated by the reduced
transport costs.
Following, are some ideas of how to get most out of
international (and local) funds.
If the objective is to provide work for the locals, promote
bidding of small contracts (you can always divide a big project into several small ones).
Local firms would have a better chance of winning. Disregard the argument, usually brought
up by foreigners, that "you can get cheaper prices if you bid large projects".
What is cheaper: costs in foreign currency without local content or costs in local
currency, providing jobs to local people for a long period of time?
Stand for bid comparisons not in financial terms, but in
terms of social components (or economic costs). This would be solely for comparison
purposes, the financial offer remains the same. You multiply every work item for its
"efficiency factor" in order to translate it into social cost. The result would
be that bids with a larger content of local resources (labor, materials, equipment) would
stand a better chance. You could negotiate a margin of say 15% for national firms, for
awarding purposes. This has been done in several countries before (Colombia Feeder Roads,
World Bank, for instance)
Stabilize ( pave) roads when you do any other work on them.
Keeping the roads unpaved is one of the worst strategies for developing countries, both in
terms of economics and finance. This could be one of the major causes for
underdevelopment. If you maintain the geometric standards and design for a short to medium
life cycle, the additional cost of paving the roads is justified under a life-cycle cost
analysis. Wonder: why do all developed nations try to pave their roads right of way? Even
with higher costs than ours? Is the recurrent expenditure in highway maintenance (year
after year) the best long term policy for our poor nations? A recent study in Guatemala
(done by planning and road works experts) showed that paving roads with as low as 18 vpd
is economically justified, and that economic indicators are improved when the road is used
for other agricultural or social uses, such as collecting and distributing water?
Switch from the traditional
design/construction/supervision/"nobody is responsible" scheme, to a better
"design-construction-maintenance" under performance standards scheme, where
previous design and parallel supervision are underscored, favoring "legal
responsibility" backed by insurance policies. Under the traditional scheme, nobody
seems be responsible in case of road failure, while under the proposed one, the contractor
is responsible for the condition of the road for a period of say 5 to 10 years, backed by
an insurance policy. In addition to better roads, you can get a reduction in design and
supervision costs, which traditionally end up costing a great deal and are very little
related to road quality. This scheme has proved implementable and successful in countries
like Colombia, Peru and Panama. Determine a few parameters to be complied with
periodically, such as Road roughness, road cracking, rutting, skid resistance and sign and
pavement marking reflectancy.
Start works with "preliminary designs" whenever
possible. Under the current practices, even after detailed and lengthy studies are carried
out, one of the first activities of the contractor and/or the supervision is to change the
original designs. Sooner or later they tend to be changed. So, if this is what´s done,
what is the point of having detailed engineering studies, if they are not going to be
used?
Perform "standard" works, in order to save time in
details and procedures. Keep most of your projects under a certain framework, so that both
studies and works are simple. Keep rehabilitation works as overlays, having the Agency do
the patching on its own (preferably with intl. Financing if desired). This would reduce
both the final cost and the "time cost" of project preparation, financing, etc.
If you keep your works simple, you will save substantially in project execution costs,
obtaining basically the same objectives – improved transportation conditions. Strategies
promoted by construction companies, such as "removing all the existing pavement
because the base is contaminated" as a general rule, tend to greatly increase the
costs and duration of the projects, without assuring a better road (life-cycle costs).
This strategy also seems to be favored by supervision firms, who get their bills increased
due to increased work, involving redesign, unexpected work items, and so forth.
Shorten the length of the cycle to bid and contract studies
and works. This is one of the majorsources for delays for project execution, while paying
commitment fees on the loans. You can overlap certain activities, if you negotiate
correctly with the International Institutions. Try to use "open prequalifications
schemes" whereby you do not do any specific activities for any project, but you keep
your record open. If you combine the size of the individual subprojects to be bid with
this strategy, you sure can get shorter preinvestment processes.
Commit foreign consultants and contractors, as well as Bank
officials, to share experiences with Ministry´s and local consulting and contractor
groups. Under any contract, participants should be committed to teaching short courses
(according to the length of their stay). This strategy, besides promoting technology
transfer, warrants "better personnel" from the foreign companies. It is usually
the case that in the terms of reference of the studies it is required that foreign
specialists should speak the local language, but it is never specified how good they
should speak it. The results is that you get underqualified foreign personnel who do not
speak nor write the language properly. In order to promote a "credit history" of
these firms and consultants, agencies could grade their presentations and performances,
building a data bank that could be available to other agencies, while studying bids.
History and remembering are very short in most of LAC countries, so the result is that you
get the same firm doing bad studies all around, without anybody noticing. The Officials
from the Intl Organizations could play an important role on this, but they rarely get
involved with these issues, for fear of retaliation. So, the initiatives should come from
within.
Improve your Loan negociating skills and increase your
knowledge of "what the Banks accepted some place else". Whatever is signed under
an Agreement is supposed to be the real desire of both parties involved. There are no bad
Agreements. There are bad negotiators. For this, fortunately or unfortunately, most
countries need international consultants. Remember that the political benefits (in the
good sense of the word) are needed soon and timely. Getting approvals for reimbursable
expenses and prompt withdrawals and Bank approvals of procedures and requests are one of
the best strategies in economic, political and social terms. Of course, many local
officials may think they can do this as well, but it is their choice. You can not play
smart if you do not know how.
Do not fall under the recent "World Bank versus
IDB" race for lending. Whenever you have plenty of availability of foreign resources,
you tend to overspend. Overspending is the major cause of the greatest environmental and
social impacts. Try to get financing for the projects (not necessarily only works) you
(your people, I mean) need most. Do not forget rural transport, do not invest only on
roads. Think of managerial strategies, which can be more efficient.
Seek for professional advise. It is unexpensive compared to
the benefits you can achieve. Expert advise is costly (as when you go for coronary
surgery, which you would not leave to general practitioners), but economic in the long
run. Just find out how many problems have been caused by people who lack experience. Also,
remember that "years of service" is not the same as "years of
experience". Cheap advise tends to be highly costly. But be careful with the
consultants you hire. There are all sorts of them. Consult your fellow officers from
neighboring countries. Being big not necessarily means being good. Experience has shown
that when consulting firms become large, they loose the sense of ethics. Request
references, and check them, even though thay may come from Bank officers. They do not
always know all the truth. Professional advise seems costly to government and Bank
officials because they relate it to their own salaries (which is not that case for road
works and big contracts, where there is no comparison line) and apparent technical
possibilities. Beware of this believe.
Apply and consult any other idea you may want to add to this
short list, that you think may work for you.
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Contribution