Bridging the donor-decentralization gap: Rethinking incentives and institutional impacts in control-oriented bureaucracies

Some important studies suggest that the organizational imperatives of donor agencies explain the tendency of foreign aid to reinforce institutional centralization rather than to support the development of decentralized institutions in recipient countries. This article shows that certain design features of two decentralized USAID projects completed in Peru during the 1980s facilitated achieving donor objectives, decentralized institutional development, and national-level reforms favoring decentralization. Analysis of this experience reveals that these design features reduced the costs and increased the benefits of decentralized implementation for the donor, while allowing synergies between implementation and institution building to be exploited. Indeed, in the context of Peru’s highly centralized, control-oriented public sector, bypass mechanisms traditionally used by donors to expedite implementation and insulate projects from uncertainty also generally enhanced the development of decentralized institutions. The lessons distilled in this case study have broad relevance since the sorts of administrative obstacles encountered by USAID in Peru—excessive centralization, disbursement bottlenecks, and onerous bureaucratic controls—are all too frequently found in other developing countries. Gregory D. Schmidt is an associate professor of political science at Northern Illinois University and an associate ofSeguimiento, Análisis y Evaluación Para el Desarrollo (SASE), a Peruvian nongovernmental organization specializing in grassroots development. He is the author of a book and various journal articles on development issues, and of a forthcoming book on the 1990 Peruvian presidential election.