Two profound and related changes are reworking the rural economy of the Andean region today. These must necessarily be central considerations in the search for sustainable forms of development in this area. The first is institutional change, comprising reform of the state, increased assertiveness of civil society, and ever increasing space being given to, and expected of, the private sector. The second is economic liberalisation, comprising the progressive removal of subsidies, tariffs, quotas and trade barriers. The aim is to create a more favourable environment for investment and private sector activity. These two types of change are closely linked. Together they represent an attempt to increase the role of the marketplace in mediating patterns of development, whilst concurrently reducing the relative importance of the role of government in this mediation process.
Within this context, non-governmental organisations (NGOs) are being asked to assume some of the roles traditionally performed by the state and even commercial organisations - all in the name of more sustainable, participatory, and efficient development. Yet this new context, and the deeper change in development thinking of which it is indicative, present important - indeed penetrating - challenges to Latin American NGOs working in rural development. Furthermore, these challenges are presented at a time when NGOs are faced by a series of institutional problems, characterised in this paper as crises of legitimacy, identity and sustainability.
Recent discussions have begun to raise some of these issues at a general level (Edwards and Hulme, 1995; Hulme and Edwards, 1996). This paper takes the discussion to a more specific level, focusing on the Andes and Chile in particular. The thesis is that changes in the political economy of Andean America have demanded that NGOs rethink their relationships with the state and market. In turn, this rethinking has triggered general uncertainty about the role of NGOs in development. This uncertainty is part of a larger crisis in alternative development thinking (both normative and analytical). It relates, in particular, to questions about the legitimate (and most effective) role of civil society, the state and the market in development.
The paper argues that - in the context of a funding crisis - this uncertainty is fostering a set of institutional changes among NGOs. Though painful, these changes offer the possibility of re- rooting civil society institutions into the societies of the countries in which they operate such that they are better adapted to the conditions of their own political economies, and less distorted by the incentives and agendas fostered by foreign aid. This has implications for how we think of the role of civil society in development and, more practically, for how donors might best support the process of institutional adjustment.