Going (hyper)local in the Philippines: A case study of USAID Forward

Four years into the U.S. Agency for International Development’s localization agenda called Local Solutions — a key pillar of the USAID Forward reform agenda — the premier U.S. aid agency is a little more than halfway toward its target of funneling 30 percent of its funding to local organizations by the end of fiscal 2015. As USAID missions everywhere struggle to meet the agency’s 30 percent local spending target, the agency’s mission in the Philippines is keen to go even further. Under the leadership of Mission Director Gloria Steele, USAID Philippines has set a goal of channeling 40 percent of its funding locally by next year. “We talk about the importance of sustainability and I think that for something to be truly sustainable, it should be run by, managed by and implemented by the people for whom the programs are intended to benefit,” Steele told Devex from her office in Manila. Steele admitted that her mission may fall short of meeting its 40 percent local spending target by 2015. But she does expect USAID Philippines to come fairly close and to funnel between 33 and 40 percent of its spending to local actors by next year. Our analysis of USAID’s local spending earlier this year revealed that USAID Philippines still has a long way to go — the mission channeled just under 18 percent of its funding locally in fiscal 2013. Since Steele took the helm of USAID Philippines in 2010, her lofty ambitions for USAID’s localization agenda in the Philippines have drawn notice in development circles both in Manila and Washington. Devex has learned that Steele’s term has been extended through 2015. “She’s breaking down barriers. She’s kind of really reorienting even the USAID staff on working with local leaders and local communities,” said Victoria Garchitorena, who has served in senior positions in the Philippine government and philanthropic sector. Casey Dunning, senior policy analyst at the Center for Global Development, who met with Steele in May, remarked that Steele “has been key in conceptualizing and expanding Local Solutions in the Philippines.” While few doubt Steele’s determination to transform the way her mission does business, implementers and aid watchers alike still have many unanswered questions about USAID’s localization strategy in the Philippines. To begin with, does the Philippines’ burgeoning development community have the requisite financial and managerial capacity to manage USAID funding? Plagued by endemic corruption, will the Philippine government claim its share of USAID Philippines’ local spending? To what extent is USAID’s local spending actually informed by local priorities? Over several months, Devex dug into the data and spoke with USAID officials, U.S. and Philippine USAID implementers, and local groups trying to break into the agency in order to shed light on these questions. In Washington, USAID Philippines is increasingly seen as a model for going local, so how it wrestles with these questions could very well influence USAID’s localization agenda elsewhere. Civil society front and center USAID’s leadership emphasizes that it has given its missions the latitude to channel its spending locally through institutions that are best equipped to handle the money and deliver the greatest impact — whether that be host government agencies, civil society organizations or private sector groups. In the Philippines, home to one of the most vibrant civil societies in the world, USAID’s mission has decided that CSOs will be front and center in its localization effort. In fiscal 2013, USAID Philippines channeled two-thirds of its local spending to nonprofits — well above the global figure of 31 percent. For-profit groups — most of which were service providers — claimed the remainder of USAID Philippines’ local spending that year. The five-year, $24 million Philippine-American Fund, a grant facility for nonstate actors that USAID Philippines launched last year, has been the centerpiece of its efforts to channel more funding toward civil society. Managed by the Gerry Roxas Foundation, the fund solicits proposals for projects the applicants themselves design — a break from USAID practice. “All of our projects, as you know, we’d design then we’d compete. [In] the Philippine-American Fund — they decide,” Steele said. “We want to begin to encourage them to come up with solutions that we didn’t think of.” One year into the Phil-Am Fund, the early returns suggest that USAID Philippines’ confidence in Philippine civil society has been well-placed. Garchitorena, who was GRF’s chief of party for the first grant-making round that ended in July, said the fund received 487 applications — far more than was anticipated. “We thought we would get about 100. But we were actually overwhelmed by the response and we were very happy in the sense that there were small NGOs, there were big NGOs, there were [nongovernmental organizations] I’ve never heard of,” said Garchitorena, who added that she found many of the proposals to be innovative. According to Garchitorena, two of the 12 eventual grantees — all of which were civil society groups — had previously received USAID funding either directly or indirectly. She estimated the Philippine-American Fund’s grants to range between $150,000 and $450,000. At the same time, Steele is emphatic that her goal isn’t just to funnel more money to civil society groups, but also to actively engage with them as partners in setting USAID’s agenda in the Philippines. She stressed that this dialogue has continued even after the mission signed off on its current country strategy nearly two years ago. That indeed seems to have been the case. “I was in a USAID Mindanao meeting, [and] there were 60 people in one room and at least a dozen Filipino NGOs — that wasn’t a common sight before,” Joe Curry, country representative for Catholic Relief Services in the Philippines, observed. G2G funding off the table — for now By most accounts, USAID Philippines has also stepped up its consultations with the Philippine government, which seems to have been prompted in part by the Obama administration’s Partnership for Growth initiative. A report by Oxfam America last year found that U.S. engagement with Philippine officials had led USAID to adjust its Philippine strategy, including sharpening its focus on conflict-affected areas in Mindanao. For now, Steele has ruled out any government-to-government funding for the Philippines — citing an assessment of the country’s public financial management systems that was jointly conducted with Philippine officials. In the meantime, USAID will provide financial and technical assistance to the Philippine government to strengthen and modernize its public financial management systems — including through its five-year Integrity for Investments project, which is being implemented by U.S. consulting firm Deloitte. Tellingly, Steele revealed that when USAID channeled post-typhoon assistance through the previous Philippine government back in 2009, it took up to two years for Manila to procure the resources and get them to affected areas. Outside observers say that remains par for the course for the Aquino administration, notwithstanding its efforts to cut red tape within the Philippine bureaucracy. “The Philippine government hasn’t really figured out how to improve our procurement system to allow for money to be used immediately — for us to be able to implement projects immediately,” said Rafael Lopa, executive director of Philippine Business for Social Progress. “You hear horror stories of you know — the budget is there, but it’s not moving.” Steele emphasized that in the aftermath of Typhoon Haiyan last year, Philippine government reconstruction czar Panfilo Lacson had requested that USAID hold on to the tens of millions in U.S. rehabilitation assistance. Even the Aquino administration seems to concede that it can’t move the money quickly enough to respond to the needs on the ground. “He doesn’t want the money,” Steele said of Lacson. “He wants us to hold the money and implement the technical assistance because they need technical assistance to put together recovery plans so that the government funds can be released.” On the week before the first anniversary of Typhoon Haiyan, Philippine President Benigno Aquino III approved a $3.6 billion comprehensive rehabilitation and recovery plan for devastated areas. What about the little guys? Even as civil society emerged as the preferred channel for USAID Philippines’ local spending, it’s also clear that USAID still has much work to do to broaden its base of CSO partners in the Philippines. In each of the two years that USAID has been tracking its local spending at the country level, more than a third of USAID Philippines’ local obligations went to just one Philippine CSO — the Gerry Roxas Foundation in fiscal 2013 and the Philippine Business for Social Progress in fiscal 2012. GRF’s fiscal 2013 obligations were contract funding for the $24 million Philippine-American Fund (2013-2018), while PBSP’s fiscal 2012 obligations were grant funding for the $28 million IMPACT tuberculosis control program (2012-2017). Strikingly, GRF and PBSP won their USAID funding in those years from solicitations that were set aside for Philippine organizations — an approach that seems to be a core strategy for USAID Philippines’ push to channel funding locally. GRF and PBSP, which are both long-standing partners of USAID, subaward the vast majority of their USAID funding to other local groups. Steele admitted that this approach won’t go local far enough in the longer term. “We will have the same problem … [as] in the U.S. where it’s the same group over and over,” Steele explained. “And I want to prevent that. I want to begin incubating new ones.” In a bid to broaden its direct partner base, USAID Philippines has been tapping the Ayala Foundation since 2010 to provide capacity-building assistance — including on USAID’s financial accountability standards — to more than 130 CSOs. Several of those CSOs have already passed the Non-U.S. Organization Pre-Award Survey, a tool USAID uses to determine whether a non-U.S. organization has sufficient financial and managerial capacity to handle USAID funding. “We had a lot of catching up so that we could meet the standards set by USAID. That’s why this capacity-building program that they did for CSOs was really quite valuable,” said Amina Rasul-Bernardo, managing trustee for the Magbassa Kita Foundation, which won its first-ever USAID grant just before participating in the CSO strengthening project. But another participant of the project, Joy Cevallos-Garcia, chief operating officer of Tahanang Walang Hagdanan, urged USAID Philippines to break down its typically multimillion-dollar projects into more manageable solicitations so that smaller, grass-roots CSOs like hers could have a fighting chance against the bigwigs like GRF and PBSP. Steele, however, indicated that for now, she believes USAID’s small, indirect grants through the Philippine-American Fund should suffice — her mission is not keen on reducing award size just to get smaller CSOs a foot in the door. “You know we don’t decide on the basis of large or small, but on the basis of what we need,” Steele said. “The money is not the dog that wags the tail.” Perhaps unsurprisingly, PBSP’s Lopa echoed this sentiment. He argued that it would have been foolhardy for USAID to break up the $28 million grant awarded to PBSP for tuberculosis control, which he stressed required a systemic, locally led response. “What PBSP does is to determine what are the key intervention points that need to be put in place so that you allow for the systemic problem-solving to actually happen,” Lopa said. “And in identifying [that], you identify the kind of stakeholders you need.” PBSP estimated that it currently has between 10 and 15 subgrantees and subcontractors under the IMPACT tuberculosis control program, including U.S. implementer FHI 360. A cautionary tale As USAID Philippines makes a final push to meet its 40 percent local spending target, Steele further stressed that she has no intention of lowering the agency’s rigorous — others would say overly complex — financial accountability controls and standards in order to attract more local partners. “We set the same standards for them as we do for Chemonics,” said Steele, who added that her mission provides extensive training to current and prospective local partners on how to adhere to USAID’s financial accountability standards. Case in point: The Ayala Foundation’s CSO strengthening program, which concludes this year. Both GRF and PBSP emphasized that just as USAID-accredited auditors are expected to examine their own finances, they have also imposed the same requirements on their subawardees. GRF has tapped the Philippine affiliate of Ernst and Young as external auditor for the Philippine-American Fund, while PBSP relies on its internal audit capacity. USAID regulations stipulate that prime recipients are ultimately responsible for subawardee performance. “When we release the funds to them, each time they send another request for another release of funds, they have to liquidate what they’ve spent. So they have to put all their receipts on the vouchers that have the checks that they released,” PBSP’s Lopa explained. But some observers in the Philippine aid community told Devex that despite these safeguards, they had less than full confidence in USAID Philippines’ financial accountability controls. They point to the cautionary tale of the Visayan Forum case. In 2012, USAID accused Visayan Forum — perhaps the Philippines’ most celebrated anti-trafficking organization — of embezzling millions in USAID funding. Prompted by USAID’s accusations, Philippine investigators raided Visayan Forum’s office in Manila and carted off boxes of receipts — an incident that predictably drew widespread media attention in the Philippines. “How can USAID say that they're hands-on when they don’t closely monitor their partners until there’s a problem?” asked a senior manager from a USAID implementing partner covering the Philippines who asked not to be named due to the sensitivity of the subject. In a previous interview with Devex, Visayan Forum Executive Director Cecilia Flores-Oebanda denied USAID’s fraud charges but conceded that there may have been “procedural” lapses. In the two years since the accusations were first made public, Philippine investigators seem to have put their case against Visayan Forum on the backburner. USAID, however, has proposed Visayan Forum for debarment. When Devex broached the subject of the Visayan Forum case to Steele, she stressed that while she is willing to tolerate honest bookkeeping mistakes, she will have “zero tolerance” for malfeasance. “Just don’t steal money,” Steele said. “If those who have been in the business for years, for decades, make mistakes, why wouldn’t new ones?” The jury is still out on whether the Visayan Forum case was a matter of mistake or malfeasance. But clearly, the case illustrates the risks of USAID’s localization strategy; Visayan Forum likely won’t be the last of USAID Philippines’ local partners to stand accused of fraud. Most development experts, however, would rather take the long view. If the end goal of Local Solutions is to help put local communities in the driver’s seat of their own development and pave the way for more sustainable development results, then those are risks well worth taking — in the Philippines and beyond. "This is the peril of development work,” said Gregory Adams, director of aid effectiveness for Oxfam America. “The successes take years to come to fruition. The failures are going to come fast and quickly.” Check out more insights and analysis provided to hundreds of Executive Members worldwide, and subscribe to the Development Insider to receive the latest news, trends and policies that influence your organization.