ERRORS OF TARGETING – MISAPPROPRIATION

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Apart from technical diffi culties in identifying who the poor actually are,

governance issues are raised in all the country cases to explain relatively

high levels of leakage as funds intended for the poor are diverted to others.

This is brought out in a number of evaluation reports on the various

targeting schemes. Food and credit subsidy programs and employment

creation schemes, in particular, offer considerable scope for malpractice.

India may not be the worst of the country cases studied here, but various

evaluation reports, both official and unofficial, have documented the

problem clearly.

Apart from the early days of the Maharashtra Employment Guarantee

Scheme, employment creation and food-for-work programs are judged to

have fared poorly.12 An assessment of the Employment Assurance Scheme

(EAS) found that the rules were being broken (for example self-selection was

undermined by the use of contractors who hired local labor, and the norm

that 60 per cent of costs should be on labor was often ignored). Nationally

it was estimated that only 15 per cent of expenditure on the scheme was

going as benefi ts to workers, against a target of 60 per cent. Another wellstudied

scheme has been the Comprehensive Rural Employment Scheme

formed by a merger of the EAS with another scheme. Here poor workers

are to receive foodgrains as payment in kind for wages, as well as some

money income. There is an estimate that due to malpractice amongst local

government administrators and contractors no more than 25 per cent of

the wage fund that the poor are entitled to actually reaches them (Nayak

et al., 2002). Another study drawing on a village-level survey in Andhra

Pradesh fi nds local elites controlling the implementation of the scheme at

the village level, with benefi ciaries (that is those who would obtain work and

food) selected at local meetings. Contrary to the guidelines of the scheme

the use of contractors was widespread. The contractors were often found

to obtain profi ts illegally through a number of means including claiming

the full rice quota for incomplete work, double-claiming to different

government departments, submitting infl ated costs and paying workers

wholly in cash and reselling the rice on the open market (Deshingkar and

Johnson, 2003). A self- employment scheme – the Golden Jubilee Rural Self

Employment Program – was launched in 1999 as a means of consolidating

other programs that encouraged self-employment. An important component

of this program is a credit subsidy for benefi ciaries. Offi cial evaluations

have revealed banks imposing illicit charges on borrowers of up to 20 per

cent of the loan. An offi cial audit of the scheme found that over 50 per

cent of the funds were either diverted to other purposes (state governments

putting the funds in special deposits), mis-utilized or misreported. Here, as

with the employment programs discussed above, there was strong evidence

of benefi ciaries paying bribes to receive funds. It is informative that in the

survey of Indian experience, the scheme that is found to be most closely

targeted is the very modest National Old Age Pension Scheme, which targets

destitute pensioners with a very small monthly pension. Evaluations have

concluded that it reaches the needy with benefi ts, either in cash transferred

directly at village meetings or through deposits in post office savings

accounts. The small amounts and direct transfer are seen as helping avoid

leakage (Srivastava, Chapter 2 in this volume). The point is that even in an

environment of weak governance, modest but well thought-out schemes

can work effectively.

The Indian cases of malpractice in poverty-focused expenditure may be

far from the worst but they are the best documented. In Indonesia there

have been many allegations of corruption and malpractice, but these are less

fi rmly based on evidence. For example, the employment creation programs

through labor-intensive infrastructure schemes, which were one of the key

planks of the response to the impact of the Financial Crisis, were alleged

to have been associated with considerable malpractice by local offi cials

as expenditures designed to cover wages were diverted to materials and

equipment, which could be sold locally (Perdana and Maxwell, Chapter 3

in this volume). As we have noted, food subsidy schemes everywhere provide

an opportunity for diversion of goods for sale at commercial prices. This no

doubt occurred in Indonesia, although the main complaint of evaluation

reports on the rice subsidy scheme, for example, has been that village

offi cials and community leaders chose not to target within their own village

communities but rather distributed more or less equally between families

regardless of apparent poverty status. This is put down principally to social

pressure rather than corrupt practices. The consequence was, however, that

on the basis of selective survey data roughly twice as many families were

receiving subsidized rice as planned by the central government and hence

average allocations per family were well below the target of 20 kg (Hastuti

and Maxwell, 2003).

The Philippines is another case where malpractice is often alleged and

a number of targeting schemes left considerable discretion for politically

determined allocations. For example, in the 1990s under the Care for

the Poor program to meet basic needs of the poor, two-thirds of funds

were allocated on the decision of Congressmen, not on the decision of

government implementing agencies (Balisacan et al., 2000).

Apart from motives of corruption, the institutional objectives of public

offi cials can also create targeting errors. This appears to have been particularly

important in the poor county employment creation and subsidized loan

programs in PRC, where because of the fi nancial constraints they faced,

local offi cials had incentives to divert funds to projects capable of generating

revenue rather than funding projects with the greatest direct poverty impact

(Wang, Chapter 4 in this volume). Similarly with micro-credit schemes,

the offi cials of the implementing banks were under pressure to lend to the

more credit-worthy customers, who would not be the poorest households

(Park and Ren, 2001).