Parallel financing is the dominant co-financing modality and is likely to grow in importance as the programme approach is applied more widely. New UNDP-sponsored programmes in the areas of HIV/AIDS, ethnic minorities and public administration reform show early signs of success in attracting other donors. Initial hopes that donors could be enticed to collaborate in a financially and operationally integrated programme with funds administered by UNDP have been largely disappointed as donors choose looser cooperation arrangements, preserving their separate identities. In terms of donor coordination and mobilization of aid resources for priority areas of concern, the programme approach in Viet Nam is yielding positive results.

The situation looks even less promising for the other co-financing modalities. While during the recent past of Viet Nam's isolation from the international community UNDP has been a privileged channel of donor contributions to Viet Nam, the situation has changed considerably over the past few years as major donors (Australia, France, Japan, Sweden) have established their own offices and programmes using development cooperation to strengthen bilateral relations. This interest in bilateralism is reciprocated by the Government (see also Government Views on Co-financing).

Australia. Until 1991, Australia used UNDP and the UN specialized agencies to implement projects in Viet Nam. Since then, bilateral aid has been resumed with a staff of four in the Australian Embassy. While bilateral aid is regularly disbursed under Australian leadership, some reciprocity is also expected if Australian funds are channelled through, and administered by, multilaterals (20-30 per cent of their global aid budget), including UNDP and the World Bank. Short of explicitly tying aid, Australia likes to have a say in the selection of inputs. Private-sector pressures on the Australian Government are strong and seek to subordinate development aid to national commercial interests. The projects selected for Australian co-financing are revelatory in this respect: Land Management System, Mineral Law and Sea Dyke Engineering Services. Australia reports resistance by the Viet Nam Government State Planning Commission to converting bilateral funds into multilateral ones.

Denmark. As a major contributor to UNDP's core budget, Denmark policy negates additional co-financing agreements with UNDP. The Danish cost-sharing contribution of $150,000 to UNDP's project in support of aid coordination therefore reflects the exceptional importance attached to aid coordination and to UNDP's role in that domain.

The Netherlands. The Netherlands concentrates its co-financing with UNDP in Viet Nam in the areas of economic transition and institutional development: $0.85 million have already been committed to projects; an additional cost-sharing contribution of $3 million to the UNDP-sponsored Public Administration Reform Programme is being considered. In order to be eligible for co-financing from the Netherlands, UNDP projects must fit one of that country's existing thematic budgets (children, environment, etc.).

Since cost-sharing in Viet Nam is less than 25 per cent of the total IPF, UNDP does not levy charges for field office administration (budget line 158). There are doubts as to whether such fees would be easily accepted by donors who argue that they are already paying for UNDP's administrative overhead as contributors to UNDP's core funding. Even normal agency overhead charges (AOS) are being opposed.

The UNDP country office considers aid mobilization (i.e., helping the Government to mobilize development assistance) integral to its core mandate of supporting aid coordination and aid management.21 Aid coordination and aid management, in turn, are believed to be UNDP's principal raison d'être, fundamental to SHD in Viet Nam and critical to the survival of the organization as a whole. Owing to its effective mobilization of aid resources for the country in the past, the Government of Viet Nam has asked UNDP to be the lead organization in aid coordination and capacity-building, a role that is also widely recognized by donors. In this respect, the first donor conference for Viet Nam organized by UNDP in 1993 deserves special mention.

Despite a certain skepticism22 as to whether extensive focus on co-financing is at all healthy for UNDP, the country office has clearly adopted a much more active approach to attracting additional project-/programme-based resources. Re-cognizing that donors cannot be forced into collaboration, a measured constituency-building approach has been adopted with the quality of UNDP's developmental services as the main argument for winning over co-financing partners. By supporting the donor community through information and coordination services,23 UNDP expects to create a favourable environment for co-financing activities. The recently established electronic network "NetNam", which houses the UNDP-administered Aid Information Sharing Facility, is a noteworthy new initiative in that environment.

These general initiatives are complemented by specific research and communication efforts aimed at promoting UNDP as a co-financing partner. To this end, UNDP has recently published an information booklet, "Co-financing with UNDP in Viet Nam," that contains information on co-financing modalities and procedures to help its staff better pursue possible co-financing opportunities with other donors. Donor focal points have been designated among the programme staff to identify opportunities for co-financing. A donor database containing information on donor aid policies and programmes is being maintained to assist programme staff in their resource mobilization efforts. In cooperation with the State Planning Commission, UNDP has also prepared Viet Nam Donor Profiles, containing information on donors' aid policies and current and future programming orientations in the country. The office intends to continue the donor interviews started by the evaluation mission to determine the conditions and prospects for co-financing with individual donors.

Not all donors are equally likely to enter into co-financing arrangements with UNDP. Given the sizeable effort involved in enlisting co-financing partners, the country office approaches donors on a selective basis. On a wider scale, it has started publicizing programme strategies in its principal areas of involvement-social policies and development, environment and natural resources management, public institutions and legal reforms-with the simultaneous goal of achieving better coordination and getting donors interested in collaborating with UNDP in programmes and projects.

Next to its strong country presence, UNDP's primary comparative advantage is believed to lie in its neutrality or impartiality, which other bilaterals are not able to emulate. The latter support UNDP's role in increasing the country's capacities to manage development, including aid coordination and management, and prefer that UNDP lead sensitive initiatives, such as public administration reform and assistance to ethnic minorities. Neutrality has made UNDP a trusted partner of Government with better access and influence than other bilateral donors. On the other hand, corporate priorities not withstanding, UNDP is not en route to becoming the "preeminent poverty alleviation agency"24 in Viet Nam even though it is developing a special programme for poverty alleviation.

The programme approach and its corollary, parallel financing, are probable cornerstones of UNDP's future development cooperation in Viet Nam, yet the parallel financing mode does not get proper recognition within UNDP as a valuable modality for mobilizing resources for UNDP's programme goals. In addition to misguided corporate emphasis on financial control, the modality suffers from the absence of a clear definition. For the country office, programmatic ownership and the existence of a joint management and coordination mechanism are defining characteristics of parallel financing.

Compounding the less favourable external conditions for co-financing, UNDP's financial make-up does not facilitate country office efforts to obtain complementary donor funding: multiple, not always easily accessible and unpredictable internal funding sources limit the Resident Representative's ability to make firm commitments to potential co-financing partners.25 It is therefore not a surprise that the new TRAC for decreasing the country's resource entitlement (hence increasing the share of contingent funds which perpetuates this handicap) is greeted with apprehension. TRAC is also criticized for boosting the country office's transaction costs owing to the additional efforts required to secure those funds in a competitive process. Finally, plans to make the amount of cost-sharing mobilized one of the criteria for getting complementary financing under TRAC are expected to hurt Viet Nam.

For the country office, the term "resource mobilization" implies not only efforts to attract re-sources outside UNDP but also includes efforts to appropriate funds from the various special facilities administered by UNDP itself. Special approval, administration and reporting procedures associated with the separate facilities consume a significant amount of country office staff time. To inform itself, the Viet Nam country office has compiled a list of existing internal funding sources, which includes: subregional IPF, regional IPF, interregional IPF, technical support services (type I), technical support services (type II), savings on AOS, Global Environment Facility (GEF)26 , GEF regional, Capacity 21, Agenda 21; Management Development Programme (MDP), various topical SPR resources, subregional SPR, Resident Coordinator funds, Project Development Facility (PDF); UNCDF, UNIFEM, Danish and Norwegian Trust Funds for Services and Equipment; interest on cost-sharing, Development Support Services, ESCAP advisers and regional funds. In Viet Nam, some 40 per cent of the resources administered by the UNDP country office are non-core (over and above the country IPF entitlement).

Co-financing efforts are also hampered by current UNDP rules and regulations. The approval authority granted to resident representatives is presently set at $1 million, including cost-sharing, without headquarters approval. This causes delays and limits the resident representative's power to commit UNDP to co-financing collaboration with donors.27 Absence of proper information, inadequate training, and unclear co-financing rules and procedures further impede co-financing efforts. Limited familiarity with trust funds appears to have been one of the reasons why this modality has not been actively promoted as a means of project co-financing in spite of its obvious appeal to donors (separate accounting, distinct identity, etc.). Relevant information is not systematically made available to the country office: the existence of a master agreement on cost-sharing between UNDP and the Dutch is a case in point. Interest on cost-sharing and charges for field office administration are grey areas in which the country office needs authoritative guidance since rules, procedures and practices have taken on separate lives.

The 1988 UNDP co-financing guidelines no longer equip practitioners to do co-financing. The brochure "Co-financing with UNDP in Viet Nam" (May 1995) is an attempt by the country office to redress this shortcoming. Similarly, the UNDP corporate management information system is not presently able to manage co-financing data.28 To assure the proper management of its co-financing operations, the UNDP country office in Viet Nam has developed its own local system. Still, much of the relevant information that is available cannot be accommodated by headquarters' existing systems. In this connection, a comprehensive review of UNDP's corporate information tools, including Country Programme Management Plans, which fail to capture the operational reality in the country (now 40 per cent non-core) and have ceased to serve a useful function in the management dialogue between headquarters and the country offices is considered overdue. Headquarters has increasingly become a bottleneck for information-processing. As a result, the Viet Nam office resorts more and more to horizontal information-sharing with other offices in the region and beyond through electronic mail and the Internet, thus abandoning the traditional hub-and-spokes structure. UNDP's future information structure is anticipated to involve specialized information functions among the country offices.

The Government of Viet Nam acknowledges the important role UNDP has played in the country's past development efforts. As one of the few resident donors and moreover the only multilateral one, UNDP was until recently a preferred channel of bilateral aid because (a) the latter did not know much about the needs, priorities and problems of Viet Nam, and (b) owing to the embargo, they were not allowed to assist the country directly.

While cost-sharing of UNDP projects was common, the State Planning Commission sees a clear trend towards more parallel financing. After long years of isolation, the Government wishes to intensify its bilateral contacts through bilateral development cooperation; commitment of bilateral funds for multilateral activities (e.g., in the rural employment programme) is discouraged. The Government also maintains a policy that no IFI loans-currently used primarily to address urgent infrastructure needs-be used for technical cooperation. UNDP is still considered one step ahead of other donors in recognizing the Government's critical needs and is well positioned to initiate appropriate projects and programmes and to prepare the ground for further assistance. The Government gives UNDP credit for both mobilizing resources for particular purposes (such as land management and public administration reform) and helping it to mobilize additional resources for the country.

The Government of Viet Nam sees the area of aid management and coordination, to assist the Government in developing a framework for promoting its collaboration with donors and in formulating programmes, as UNDP's proper competency on which it should concentrate. This specialization, along with quality products, is expected to help UNDP generate additional resources for itself since donors would have an intrinsic interest to contribute.

Australia. Australia sees certain practical difficulties in co-financing with UNDP. The latter's programming may not always be in tune with the planning cycles and funding windows of the bilateral donor. Also, UNDP requests are by nature more ad hoc, making it difficult to link them to the donor's own long-term programming. The donor representative indicated that Australia required a minimum of six months' advance notice. For the near future, however, there will not be much room for financial cooperation with UNDP since from 1997 onwards, a major portion of Australian funds will be tied to the large Mekong bridge construction project. While Australia is not against future cooperation, much will depend on the budgetary situation of its development cooperation programme.

In co-financing, UNDP has a handicap compared to organizations such as UNICEF whose programmes-child vaccination, for example-have a much higher publicity value. Still, good initiatives such as the UNDP-sponsored HIV/AIDS programme, for which Australia provided consultancy inputs during formulation, are likely to attract donor funding. Above all, UNDP is valued for its support of aid coordination in Viet Nam.

Denmark. Co-financing with UNDP has an obvious attraction for donors who are not represented locally, yet this comparative advantage disappears once donors set up shop in the country, as is the case with Denmark whose embassy in Viet Nam opened last year. This trend is apparent in the fisheries sector, for example, where bilateral programmes have succeeded the previous trust fund programme with UNDP. Still, UNDP continues to provide valuable services to the Danish development cooperation by providing information, advice and forums for thematic discussions with Government, e.g., in the area of aid coordination. UNDP's role may have to adjust, however, to the increasingly crowded and complex development cooperation environment by facilitating a more decentralized structure of aid coordination based on a system of sectoral lead donors.

Beyond its role in aid management and coordination, the Danes consider UNDP's neutrality a major asset, qualifying it to help the Government find decentralized solutions to governance, such as the Public Administration Reform Programme. On the other hand, UNDP's recent attempts to establish itself as a specialist in poverty alleviation or in providing administrative services to the donor community are seriously questioned. Despite the disappointing global operational experience of UNDP, the office in Viet Nam is seen by this donor as exemplary.

Japan. Japan's co-financing with UNDP is through global thematic trust funds on human resource development ($2.5 million) and women in development ($1 million) managed by UNDP headquarters. Access to those trust funds is facilitated if they are associated with Japanese bilateral cooperation projects, hence combined with parallel financing. In addition, those funds are meant to be used for Japan-related activities such as training in Japanese training institutions. In order to use those funds, a request needs to be addressed to the Japanese Embassy for endorsement of the project by its headquarters, which ultimately decides after annual in-country consultations (in September). In short, the chances for collaboration with the Japanese are slim and probably limited to parallel financing. The Japanese appear to have a policy that implies that their funds should not be mingled with UNDP funds.

Japan, the biggest aid provider to Viet Nam, has problems in disbursing loans and recognizes that more effective implementation systems are needed, but it is unlikely to consider UNDP's assistance in facilitating disbursements. On a global scale, Japan's multilateral aid is less than 10 per cent of its total aid. Commercial interests are very pronounced. Thus the fact that only 27 per cent of Japanese ODA loans go to Japanese contractors is deplored.

The Netherlands. Unlike most other bilaterals, the Dutch Government regularly works through the multilateral system. Co-financing with UNDP enables the donor's participation in high-profile interventions such as the public administration reform programme despite limited local administration capacities. With a view to leveraging their contribution into bilateral foreign relations capital, the Netherlands is interested in gaining visibility within UNDP projects. Press coverage and the prominent display of the donor's name on project-related documents are conducive to donor visibility. While representation on project committees would further increase visibility, a more active involvement in the execution of projects is deemed unnecessary and too time-consuming. On the other hand, the Dutch do want a say in the formulation of co-financed programmes and like to have somebody who is familiar with the system of Dutch development cooperation, although not necessarily Dutch, on the formulation team. Project payoffs, particularly through tied aid, are not expected.

In general, the Dutch believe that not all donors should be involved in everything and that too few synergies are exploited when it comes to development cooperation. Hence, there is need for more coordination in which UNDP could and does play a useful role, but UNDP is perceived to have expensive projects. The Dutch would like to see more cost-effectiveness in UNDP's interventions and more transparency in its non-project, behind-the-scenes activities.

International Financial Institutions. Most IFIs operating in Viet Nam (World Bank, Asian Development Bank (AsDB)) have their proper tech-nical cooperation funds (trust funds from donors) and hence less interest in cooperating with UNDP. A possible exception is IFAD, which cooperated with UNDP because it needed technical cooperation complementary to its capital development programme. Yet this cooperation can hardly qualify as parallel financing since UNDP has no say whatsoever in the implementation of the larger programme. The investment activities of both AsDB and the World Bank under loans that started disbursing as recently as 1994 mainly cover infrastructure needs and give UNDP few opportunities for co-financing.

Central America
El Salvador
Context

After twelve years of civil war, the early 1990s ushered in the ending of hostilities. The Government stabilized the economy, reactivated growth, and initiated a systematic attack on poverty. The Salvadoran economy had shown considerable growth potential since the mid-1980s, but it had not recovered the growth rate of the pre-civil war era. Moreover, the hostilities had damaged the infrastructure of the country considerably, weakened the Government's authority outside the capital, and caused misery, especially in the rural areas. Peace returned with the cessation of hostilities and the Government was faced with the challenge of changes in the global social and economic environment. Political plurality and alleviation of poverty through major economic reforms also captured the interest of the donor community.

Contributing to the re-establishment of peace in El Salvador has been one of the major aims of many bilateral donors and international organizations. Among the latter, the United Nations, as an impartial and transparent entity, commanded the respect of both the Government and rebel circles, so much so that in the peace agreement signed in Chapultepec, Mexico, on 27 April 1991, both sides also agreed on a national reconstruction plan and called upon UNDP to assist the authorities to formulate programmes and projects to realize the plan and also to act as a facilitator to mobilize all the technical cooperation from all donors.29 UNDP responded willingly to this call and continues to do so. The World Bank's structural adjustment loans, and IDB's, until then slow-moving project financing resources, and the technical and financial assistance of the bilateral donors found their way to El Salvador at a much faster pace with the return of peace.

The principal challenge El Salvador faces today is a lasting peace with democracy without which sustained development cannot take place. Hence, the Government's priorities are to complete the implementation of the peace agreement, strengthen democratic institutions, accelerate economic growth and competitiveness, invest in human capital, reduce poverty, improve natural resource and environmental management, and modernize the public sector. All these priorities coincide with the priority attention areas of UNDP as well as those of bilateral donors and IFIs.

Current Co-financing and Related Management Modalities: A Quantitative Analysis

Emphasis areas during the fifth programming cycle. Programmes and projects planned and carried out during the fifth programming cycle are concentrated in four thematic areas:

• national reconstruction and strengthening democracy (16% of total resources);
• eradication of poverty and employment creation (60% of total resources);
• modernization of the public sector (23% of total resources);
• environmental management and sustainable development (0.5% of total resources); and
• others (0.5% of total resources).

The IPF of the fifth programming cycle is rather modest: less than $5 million. However, the UNDP country office has succeeded in mobilizing additional resources both within and outside the UN system. This is detailed below.

The UNDP country office was quite successful in mobilizing funds. The office's aggressive search for additional funds was coupled with and facilitated by the Chapultepec Agreement referred to in the introduction. The ratio of IPF to additional funds is 1:20. If other UN system resources are excluded (such as SPR, UNIFEM, UNV), the ratio changes to 1:13. In practically all projects, IPF has been used as seed money either to start up projects or to finance preparatory assistance to important projects that were subsequently financed by the donors (see table 16).

Government of El Salvador as Cost-sharer. The quantitative significance of the Government's cost-sharing is not as great as that of other contributors, but it carries important conceptual connotations. At the early stage following the peace agreement, the Government had few priority projects: clearing the mines and establishing the Social Investment Fund. Using resources from its general budget, it took the initiative to engage UNDP to manage projects the priorities of which coincided with those embodied in the fifth programming cycle, i.e., the establishment of peace. The shortage of qualified technical staff in the Government was a contributing factor in engaging UNDP. For every dollar of IPF funds, the Government allocated $0.80.

Multilateral Donors. The World Bank and IDB are the two major multilateral donors. A third is the Central American Bank for Economic Integration (CABEI) whose cost-sharing with UNDP is minimal simply because its interest has been mostly in infrastructure investments. IDB's in-volvement in cost-sharing is not substantial; it represents about 10 per cent of total cost-sharing with IFIs. IDB contends that up to now, the Bank's emphasis did not fully coincide with UNDP's areas of focus. The Bank's authorities, however, are of the opinion that the projects cost-shared and managed by UNDP have always been satisfactory.

The World Bank, which assumed the major responsibility for contributing to El Salvador's reconstruction, opted to collaborate with UNDP basically for two reasons. One is that the World Bank has no representation in the country and it perceived the UNDP country office as a convenient and efficient international organization for monitoring and management. The second reason is not altogether apparent but is equally and perhaps more important than the first: at the preparatory stage of the Chapultepec Agreement, the UNDP country office had actively assisted the Government to formulate projects. In a sense, the country office has become a supporting partner of the Government. This close involvement brought the country office into the picture as the agreement was signed between the Government and the World Bank. The World Bank's modus operandi usually consists of giving the project execution to an entity on a competitive basis. Since UNDP cannot enter into competitive bidding, its involvement with the reconstruction process right from the start gave the UNDP country office an edge to be included as an integral component of the agreement between the Government and the World Bank.

Co-financing and Bilateral Donors. The UNDP country office has been exceedingly successful in El Salvador in bringing bilateral donors into its co-financing modality. For every dollar of IPF money, it has managed to attract $128.60. The bilateral donors have collaborated with UNDP quite willingly for a variety of reasons. Some UNDP projects (93/006 and 93/012, for example) were very sensitive politically. Rather than being directly involved in the settlement of ex-combatants of the civil war, USAID opted to work through a neutral and transparent UNDP. Canada, France, and the Nordic countries were quite interested in the consolidation of peace and human rights; once again, UNDP appeared to be the best vehicle for them. Moreover, with the exception of USAID, none of the bilateral donors maintain large offices in El Salvador that can adequately carry out the management and monitoring functions. The small size of most of the projects-less than $1 million-does not justify representation and office expenses in the country yet most of the bilateral donors were eager to contribute to the peace and reconstruction process in El Salvador. The most convenient and efficient way was for them to co-share projects with the UNDP country office.

Trust Funds. There are two trust funds in El Salvador; one includes eight different projects. Their common objective is to assist ex-combatants (mostly members of the FMLN guerilla organization)to relocate and be incorporated into the mainstream of economic activities. The fund is administered by the UNDP country office, which makes no pecuniary contribution to it. Its total budget is slightly over $6 million, and the contributors are France, Japan, the Netherlands, the Nordic countries, Switzerland and the United States. The second trust fund was also established to contribute to the peace process. It is, in fact, known as "Peace Keeping Activities". This fund was set up by Canada, Holland and the Nordic countries with no contribution from UNDP. Both funds have the common trait of lasting peace expectations, and their contributors desire to maintain a profile in the process of returning democracy to El Salvador while complying with the provisions of the Chapultepec Agreement.

Management Service Agreements (MSAs). At present there are five MSAs. Three amount to about $25 million, or 62.5 per cent of total MSA contracts. These three contracts are for generating Japanese counterpart funds. All MSAs are executed by UNOPS.

Other Co-financing Arrangements. GCCC does not finance any projects in El Salvador. Three relatively small projects refer to UNIFEM and are financed from IPF. One single parallel project is with IFAD for which no IPF funds have been earmarked as yet.

As mentioned previously, the co-financing modality came quite naturally after the Chapultepec Agreement. In more cases than not, the modality was opted for either by UNDP's proper initiative or jointly by the Government and UNDP. The bilateral and multilateral donors take the initiative to do so whenever they prefer UNDP's specific involvement. However, these initiatives, the reasons for which are explained in the previous section, have been more the exception than the rule.

The great majority of the projects are implemented through the national execution modality. Evaluations and monitoring (tripartite reviews, for example) are carried out according to the specifications of the project documents.

The country office does not charge a flat fee for all projects; rather it negotiates the fee with co-financers. During the fifth programming cycle, total fees charged amount to $3.1 million, excluding the fee for the MSA with Japan. Since the total IPF of $6.6 million has not been earmarked because of a number of projects still in the pipeline, it would be more meaningful to compare the fees with the country office's operational budget for the current cycle rather than with total IPF funds. At present, fees that correspond to completed and ongoing projects represent 98 per cent of the country office's operational budget for 1992-1996.

Views of the Country Office According to the UNDP country office, the most important factor that influenced the adoption of the co-financing modality is the Country Office's efficient and effective management skills in project formulation, design, and monitoring. Moreover, UNDP has assisted and continues to assist the Government in conceptualizing and formulating projects that have high cost-sharing probabilities. The very limited experience within the Government in formulating and designing projects has made the UNDP country office almost a natural partner of the Government. Thus the UNDP country office adds a significant value in project conceptualization and formulation in addition to being an impartial and neutral agency, especially during the civil war years.

Moreover, UNDP followed its mandate, as specified in the Chapultepec Agreement, and managed and trained its office human resources well for its realization. The country office also marketed UNDP's comparative advantage and very quickly proved it to multilateral and bilateral donors. The bilateral donors especially quickly grasped that UNDP's norms and procedures projected a feeling of confidence. Although cost-sharing and national execution modalities were fairly new practices for the country office, the rapidity with which it adapted itself to them is admired by Government and donors alike.Given the particular circumstances of El Salvador, UNDP's main interest of sustainable human development had to be pushed to a secondary place. The fifth programming cycle appears to give primary importance to policy dialogue, capacity-building, and aid coordination.30

Views of the Government. From the start, the Government had a great deal of interest in, and high expectations from, UNDP. Especially during the years of civil strife, when some bilateral donors proceeded with extreme caution and IFIs were experiencing considerable difficulties in disbursing the loans, UNDP, with its limited budget, remained a neutral and dependable international agency. The often-repeated Chapultepec Agreement is a clear indication of this dependability. In more cases than not, the Government actively sought UNDP's help in identifying potential projects and their resources, formulating them, and negotiating with the donors. UNDP responded to these requests competently and in a timely manner.

Views of the Donors. The co-financing of projects with UNDP offers several advantages to multilateral donors. In addition to its neutrality and transparency, UNDP was an entity through which slow-moving loans-especially their technical cooperation components-could be speeded up. Another factor that is not to be neglected is that the laws of the country require both ex ante and ex post auditing of the accounts by the Court of Accounts (Corte de Cuentas). This bureaucratic set-up has the tendency to slow down the flow of funds considerably. Here UNDP constituted a viable, transparent, and dependable bypass of this anachronistic audit method and expedited assistance when assistance was needed most. A third advantage relates to fiscal laws. Imports of goods, equipment, etc., are subject to the value-added tax (VAT). Private as well as government entities pay the tax on their imports and subsequently claim a fiscal credit. The bureaucratic nightmare this causes is obvious. To channel such assistance through UNDP provided a relief since UNDP's imports are exempt from the VAT.

These considerations are also valid for bilateral donors. Moreover, in their case, cost-sharing with UNDP liberates them from the burden of management for a very reasonable fee, hence increases the cost-efficiency of their assistance. In addition, as mentioned earlier, many bilateral donors have no representation in the country. For them UNDP thus becomes a dependable and transparent agency.31

It is rather difficult to predict the trajectory of co-financing arrangements in the near future. There are indications that the funds, especially bilateral funds, may not increase at all since the country is over the post-bellicose crisis. Peace appears to be durable, and normalization of public affairs is manifest. Also, the public sector's capacity to formulate and manage projects is being built fairly rapidly. On the other hand, as long as rules and regulations pertaining to VAT and "Corte de Cuentas" continue as they are, UNDP may very well remain a convenient vehicle. Moreover, IDB has in the pipeline an increase in its assistance for social development. Should this materialize, co-financing such projects with UNDP appears to be the Bank's preference. Hence, co-financing may continue at least at its present level.