ASi" kUCTURE FlOR DEVELOPMENT

portant that uinstituitional activities suixh as customs to manage hinfrastructure services. Third, external
dlearnce! and initernational communications at the assistan'ce programs can provide financial resources
ports should facilitate, not obstruct, the movement to support countries' sectoral reform-s and to proof
goods. mote sustainable development-for example, by
giving greater priority to maintenance and rehabili-
Payoffs from reform
tation, and by ensuring that the effective demnand of
beneficiaries and concerns of other stakeholders are
Imnplementing reform will not be easy. As discuissed assessed early in project identification. Such actions
in Chapter 2, limproving productivity will often reI- of institution building will take longer to design and
quire firms to shrink workforces. Creating commer- imnplement, and will be less predictable in outcome,
cia enterprises will also mean that prices will rise than traditional development assistance, but they
in many sectors, especially in power and water sup- are essential to foster needed improvements.mn mnplyintcreasest
often reslisted by the powerful frastructure sectors.
m-iddle-class coinstituencies that benefit most from Although countries can acquire the necessary
subsidies. But in many countries, dissatisfaction knowledge, skils, and financal resources for reform
with existing services is so- strong that initiall'- un- from outside, the commritmnento reform must be
popular meas d -es. may become palatable if they are homegrown. But the payoffs are potentialy large,
accompanied by effective efforts to isprove ser- miakng the commitnent well worthwhile.
vices. This provides astute leaders witi an opportu- Reform. wil lead to gains from three sources: renity
to bring about reform. Experience shows that duction in subsidies, technical gains to suppliers,
success requires both a strong commitment from and gains to users. Although the gains wir obvigoverment
and carefurlly designed implementation ously differ from country to country, it is possibe tD
strategies to reduce the costs of refornr-
develop rough estimates of 'the payoffs from re-
Donors can play a role beyond fieancing invest- forms under the first two headings Table 6.7 gives
ments i infrastructe by assisting countries to estimates of the fiscal burden of service provisionstrengthen
their institutional capacity for undertak- costs not recovered fxom users. Even. though (coning
susetain able reform and sectoral development servative) estimates can be made for only iree sec-
Buldingsinstitutional capacity involves formulating torn (power, waterand railways), the total is $123
appmpriate polciest and putting in place mecha- bion annually-representing nearly 10 ptecent of
nisms for their imnplementation, creating etforce- total govenment revenues in develophig countries.*
-able legal and regulatory frameworks, and strength- For some countries, the losses reach remarkable proening
human resources-indluding mianagemnent portions. Before reformi, the subsidy to the Argenexpertise
in the prvate sector and admnistrative tine railway alone reached 9 percent of the total
sla in the public sector. Enhancing histitutional public sector budget, or 1 percent of GDP. Although
capacty in ar of these dimensions implies creaa t eliination of underpricdng would not produce a
a positive ernabling envinronent for the efficient, re- direct resource saving to the econony (as the costs
sponsive delivery of infrastructure services,
would be covered by users), the fiscal relief would
Externmal assistance programs can enhance coun- be eniormous.
tries institutional able Teulatoy egal capacity ftaework, nd by making andstreSect relevant or The somecounrieshelsssrec second source of gains is the remaralepo annual savings
knowledge available; by supplementing poicy ad- to se-vce providers from ihmproving techn.ical effivice
with well-designed programs of technical cooperation
and taining; and by providing financial assistance
for investment and reforl. On the first Table 6.7 Fiscal burden of underpriced
point, donors can help to identify the needs and pri-trs pwre
orities for reform through sectorl analysis and re-
obillion U donr aS. a)
search and by disseminating knowledge of best
Savings fre m
practice across countries. They can also sponsor sys- Befor r m e s tot
tematic data collection and analysis of hiforiation Power 90 Underpricing
about sector performance, both to improve policy- Water 13 UnderprAcong
making wvithiin countries and to proDMOte learing r Illegal connectios
from the successes and failures of others. Second, Railways 5s Underpficed passenger
external assistance can provide training andedun- tecnnni
cal cooperation in support of the efforts of develop- Total 12n
ing countries to design and implement reforms and &rmm Ingam and Fay 199.
121