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Transcript of Governance and Development Presented to: Public Sector and Anticorruption Core Course April 23-26,...
Governance and Governance and DevelopmentDevelopment
Presented to:Presented to:
Public Sector and Anticorruption Core CoursePublic Sector and Anticorruption Core CourseApril 23-26, 2007April 23-26, 2007Washington D.C.Washington D.C.
Presented by:Presented by:
Ed CamposEd CamposGovernance Adviser for BangladeshSASPR
The ‘Prohibition’ Era
1980 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003
WDR on Institutions 1982
JDW “Cancer of Corruption” Speech (10/96)
State in a Changing World (97)
• Diagnostic/Data/ Monitoring Tools
• Public Financial Management and Procurement
• Administrative & Civil Service Reform
• Civil Society Voice, Transparency, & CDD
• State Capture
• Legal & Judicial Reform
Broadening & Mainstreaming
The World Bank has come a long way in a brief period of time
TI CPI (5/95)
Anti-corruption Strategy (97)
Governance Strategy (00)
1st set of firms Debarred from WB (99)
Formalization of INT (01)
Strategic Compact (97)
O.P. Mainstreaming AC in CAS (99)Governance
Pillar - CDF (98)
Internal AC unit created in WB (98)
Gov/A-C Diagnostics start (98)
20042005
Board endorses Integrity Strategy (04)
PSG Implementation Update (02)
PW Bank President (05)
2006
Aid, Governance, andDevelopment Outcomes
Governance and Development: Lessons of Global Experience
• An effective state is crucial for growth and poverty reduction (WDR ’97)
• For an effective state, good governance is a cross-cutting priority for:
– Building a sound investment climate for growth (macroeconomic stability, rule of law, regulatory system, physical & financial infrastructure)
– Empowering people to make growth inclusive through effective delivery of basic services (education, health, social protection)
Good Governance matters for Good Governance matters for investment and growthinvestment and growth
10%
15%
20%
High Medium Low
% Investment share in GDP
High Medium Low
-1.5%
0%
1%
2%
1.5%
-0.5%
-1.0%
0.5%
Income per capita Growth Rate
Governance QualityGovernance QualityGovernance Quality measured by perception of 4000 firms in 67 countries on: (i) protection of property rights; (ii) judicial reliability; (iii) predictability of rules; (iv) control of corruption. World Development Report Survey 1997
Corruption and Growth in Bangladesh
For Bangladesh, a reduction of corruption from its observed level (measured by ICRG corruption index) to a level of, say, Poland would increase the annual average growth rate during 1990-97 by 2.14 percentage points (raising average per capita growth rate to 5.5 percent). The latter growth rates, if extrapolated to 1990-2004, would yield a per capita income about 1/3 above the current level.
Source: Extrapolated based on Rahman, Aminur, et al, Estimating the Effects of Corruption: Implications for Bangladesh, PRWP #2479, World Bank, 2000
The direction of causality …
Burkhart and Lewis-Beck (1994) found that while higher per capita incomes foster democracy, democracy in turn does not foster higher incomes
B. Friedman (2005) argues that higher living standards encourage more open, tolerant and democratic societies
Growth causes governance to improve ...
… and better governance causes growth
Using measures of rule of law, bureaucratic quality and corruption, Chong and Calderon (2000) found significant causality from good governance to growth and vice versa – i.e. “good governance” both contributes to and results from strong economic performance
Other studies have dealt with the potential for reverse causation by using exogenous instruments for the governance indicators and concluded that good governance has a significant and strong causal impact on economic performance …
… … but the debate on causality continues …but the debate on causality continues …
Good governance is pro-poor
Source: Knack, 2002
12
18
24
0 10 20 30
increaseby 10points
increaseby 15points
increaseby 20points
Reduction in the percentage of population living on less than
$2/day due to the increase in the quality of governance (ICRG
composite index)
0.33
0.21
0.21
0.22
0.16
0 0.1 0.2 0.3 0.4
1(poorest)
2
3
4
5 (richest)
inc
om
e q
uin
tile
s
Additional annual income growth due to an increase in the quality of governance (ICRG composite index) by 1 point
Gove
rnan
ce &
Gro
wth
Political Accountability• Political competition, broad-based political
parties• Transparency & regulation of party financing• Disclosure of parliamentary votes
Formal Oversight Institutions
• Independent, effective judiciary
• Legislative oversight (PACs, PECs)
• Independent oversight institutions (SAI)
• Global initiatives: UN, OECD Convention, anti-money laundering
Citizen
s/Firm
s
Citizens/Firms
Cit
izen
s/F
irm
s
Citizens/Firms
Decentralization and Local Participation• Decentralization with accountability• Community Driven Development (CDD)• Oversight by parent-teacher associations & user groups• Beneficiary participation in projects
Civil Society & Media• Freedom of press, FOI• Civil society watchdogs• Report cards, client survey
Private Sector Interface• Streamlined regulation• Public-private dialogue• Extractive Industry
Transparency• Corporate governance• Collective business
associations
Effective Public Sector Management
• Ethical leadership• Public finance
management & procurement
• Civil service meritocracy & adequate pay
• Service delivery and regulatory agencies in sectors
Good Governance has many dimensions
Outcomes: Services,
Regulations
Political Accountability• Political competition, broad-based political parties• Transparency & regulation of party financing• Disclosure of parliamentary votes
Formal Oversight Institutions
• Independent, effective judiciary
• Legislative oversight (PACs, PECs)
• Independent oversight institutions (SAI)
• Global initiatives: UN, OECD Convention, anti-money laundering
Citizen
s/F
irms
Citizens/Firms
Cit
izen
s/F
irm
sCitizens/Firms
Local Participation & Community Empowerment• Decentralization with accountability• Community Driven Development (CDD)• Oversight by parent-teacher associations & user groups• Beneficiary participation in projects
Civil Society & Media• Freedom of press• Freedom of information• Civil society watchdogs• Public hearings of draft
laws• Report cards, client surveys• Participatory country
diagnostic surveys
Private Sector Interface• Streamlined regulation• Public-private dialogue• Break-up of monopolies • ICA/Doing buisness• Extractive industries • Corporate governance• Collective business
associations
Effective Public Sector Management
• Ethical leadership• Public finance
management• Civil service
administration• Sector management: Service delivery Regulation
The Bank operations focus only on some
Primary focus of WB operations in governance
Outcomes: Services,
Regulations, Corruption
Public Financial Management
Raising Revenues
Management of Public Finances
Tax/Customs Administration
Allocating Revenues Budget Formulation
Using Revenues Budget Execution
Cash/Treasury MgmtProcurement
AuditingInternal Controls
Reporting
Public sector accounting
Integrated FMIS
Administrative and Civil Service Reform
Personnel ManagementRecruitmentPromotionTransfersCareer managementTraining
Organizational Design
Internal RestructuringCorporatizationExecutive AgenciesOutsourcingPrivatization
Governance and Corruption Not the same thing!
The manner in which the StateStateacquires and exercises itsauthority to provide public goods and services
Using publicpublic office for privateprivate gain
GovernanceGovernance
CorruptionCorruption
•Corruption is an outcome – a consequence of weak or bad governance
•Poor delivery of services and weak investment climate are other outcomes of bad governance
Reputational RiskReputational Risk
That Bank lending in countries with corrupt leaders will tarnish the
Bank’s reputation
Fiduciary RiskFiduciary Risk
That Bank resources will be misappropriated
and in some cases loans may not be
repaid
Development Effectiveness Risk
Development Effectiveness Risk
That corruption will undermine the impact of development efforts in general and in Bank-supported projects
Corruption poses three risks
CorruptionCorruption
Administrative CorruptionAdministrative Corruption::Private payments and other benefits to public officials in connection with the implementation of government policy and regulations
State CaptureState Capture::Influence of powerful economic interests in the public and private sectors in the formation of laws, regulations, policies through illegal provision of private benefits for public officials
Nepotism & PatronageNepotism & Patronage::
Favoritism shown to narrowly targeted interests by those in power such as granting favors, giving contracts or making appointments to office in return for political support
Poor Governance
Lack ofTransparency
Weak Voice &Accountability
Monopoly Power
Wide Discretion
Inefficiency
Corruption
When Governance Breaks Down . . .
Outcomes: Services,
Regulations, Corruption
Political Actors & Institutions• Political Parties
• Competition, transparency
Executive-Central Govt
Service Delivery & Regulatory Agencies
Subnational Govt & Communities
Formal Oversight
Institutions• Parliament• Judiciary• Oversight institutions
Civil Society & Private
Sector•Civil Society
Watchdogs•Media
•Business Associations
Cross-cutting Control Agencies (Finance, HR)
Citizen
s/Firm
s
Citizens/Firms
Cit
izen
s/F
irm
sCitizens/Firms
State Capture
Patronage &
Nepotism
Administrative
Corruption
• Unbundle governance – What are the specific governance problems of concern? (Diagnostics)
– Corruption? If so, where is it concentrated? Health? Education? Financial sector? Procurement? Grand corruption and capture? Administrative corruption?
– Poor delivery of public services? If so, which one?– Insufficient private investment?
(Integrating Governance into the CAS: http://www1.worldbank.org/publicsector/anticorrupt/documents/items of special interest)
• Analyze underlying dynamics – What are the specific drivers of poor outcomes? (Political Economy/Institutional Analysis)
– Powerful interests purchasing state policy for private interest– Lack of citizen voice to influence service delivery– Weak checks and balances to constrain arbitrary action
• Sequence reforms and donor strategies – How to support drivers of change? (Implementation strategy)
– Analyze and support drivers of change– Develop appropriate sequencing of public management and checks & balances– Balance supply side interventions with demand side pressures– Rely on multidonor partnerships, based on mandate & comparative advantage
(Managing the Politics of Reform: http://www1.worldbank.org/publicsector/anticorrupt/)
Improving GovernanceAn Overall Operational Approach
Diagnostics: Drilling Down
• Diagnosing GovernanceDiagnosing Governance as a wholeas a whole• Assessing the incidence ofAssessing the incidence of particular forms of particular forms of
corruptioncorruption: where are the most affected areas?where are the most affected areas?• Evaluating corruption inEvaluating corruption in cross cutting cross cutting
government processesgovernment processes, e.g. procuremente.g. procurement• Evaluating corruption at theEvaluating corruption at the sector levelsector level, e.g. e.g.
educationeducation• Assessing risks at the Assessing risks at the project levelproject level
• Rule of law• Political stability• Voice and accountability• Government effectiveness• Regulatory quality• Control of corruption
“Measuring” Quality of Governance and Corruption at the Country Level(Kaufmann-Kraay indices:)
http://www.worldbank.org/wbi/governance/pubs/govmatters4.htmlhttp://www.worldbank.org/wbi/governance/pubs/govmatters4.html
Control of Corruption: Cross country ComparisonsControl of Corruption: Cross country Comparisons
Governance Indicators: Bangladesh
“Measuring” Quality of Governance and Corruption at the Country Level: Other SourcesOther Sources
• The Open Budget Index (http://www.openbudgetindex.org/OpenBudgetIndex2006.pdf)
• Global Integrity Index (http://www.globalintegrity.org/2004/scores.aspx?cc=id&act=scores)
5
10
15
20
25
30
Proportion of firms affected by capture of …
HungaryHungary EstoniaEstonia RussiaRussia UkraineUkraine
Parliamentary VotesParliamentary Votes
Presidential Admin. DecreesPresidential Admin. Decrees
Civil Court DecreesCivil Court Decrees
Forms of Corruption: Assessing State CaptureForms of Corruption: Assessing State Capture
Service Delivery: Composition of Total Bribes Paid by Households in Cambodia
Forms of Corruption: Administrative CorruptionForms of Corruption: Administrative Corruption
The “Bribe Fee” List: The “Bribe Fee” List: Unofficial Payments by Firms in UkraineUnofficial Payments by Firms in Ukraine
EnterprisesEnterprisesType of License/Service/”Favor” Type of License/Service/”Favor” Average fee required Average fee required admittingadmitting need to pay need to pay
(1996)(1996) “unofficially“unofficially””
Enterprise registration $176 66%Each visit by fire/health inspector $42 81%Tax inspector (each regular visit) $87 51%Telephone line installation $894 78%Lease in state space (square ft. per month) $7 66%Export license/registration $123 61%Import license/registration $278 71%Border crossing (lump sum) $211 100%Border crossing (percent of value) 3% 57%Domestic currency loan from bank on 4% 81% preferential terms (percent of value)Hard currency loan on preferential 4% 85% terms (percent of value)
Forms of Corruption: Administrative CorruptionForms of Corruption: Administrative Corruption
Albania
Georgia
Latvia
00 2020 4040 6060 8080
Customs inspectorsCustoms inspectors
Tax inspectorsTax inspectors
Natural resource Natural resource licenserslicensers
JudgesJudges
Ordinary policeOrdinary police
Investigators/ Investigators/ prosecutorsprosecutors
Local officialsLocal officials
MinistersMinisters
Public Officials Surveys: Public Officials Surveys: Purchasing Public PositionsPurchasing Public Positions
Percent of public officials believed to have purchased their positionsPercent of public officials believed to have purchased their positions
Based on 1998 World Bank surveys of public Based on 1998 World Bank surveys of public officials in these countries: 218 public officials in these countries: 218 public officials in Latvia (with Latvia Facts); 350 officials in Latvia (with Latvia Facts); 350 public officials in Georgia (with GORBI); and public officials in Georgia (with GORBI); and 97 public officials in Albania (with ACER).97 public officials in Albania (with ACER).
48486060
4141
52524141
2525
43433333
3939
2727
32321616
2525
1010
40402323
55
1818
2424
33333232
1414
2121
1919
Forms of Corruption: Patronage & the Market for Public OfficeForms of Corruption: Patronage & the Market for Public Office
Sector Level: The Value Chain & Corruption Risk Mapping
Service Delivery
Registro Adquisici ón Registration Procurement Distribution Selection
• Efficacy
• Labeling
• Marketing
• Use
• Warnings
• Full registration
• Reevaluation of older drugs
• Determine budget
• Assess morbidity profile
• Determine drug needs to fit morbidity profile
• Cost/benefit analysis of drugs
• Consistency with WHO criteria
• Determine model of supply/
• distribution
• Reconcile needs and resources
• Develop criteria for tender
• Issue tender
• Evaluate bids
• Award supplier
• Determine contract terms
• Monitor order
• Make payment
• Quality assurance
• Receive and check drugs with order
• Ensure appropriate transportation and delivery to health facilities
• Appropriate storage
• Good inventory control of drugs
• Demand monitoring
• Consultation with health professional
• In-patient care
• Dispensing of pharmaceuticals
• Adverse drug reaction monitoring
• Patient compliance with prescription
ServiceDelivery
DistributionSelection ProcurementRegistration
Health Sector -- Delivery of Essential Drugs
Health Sector: Delivery of Essential Drugs
Registration
Selection
Procurement
Distribution
Prescription & Disbursement
Monitoring based on
transparent & uniform
standards
Tracking systems
User surveys
Media coverage of drug
selection committee meetings
Competition & Transparency
Tackling decision points vulnerable to corruptionTackling decision points vulnerable to corruption
Stages of the Procurement Process
Contract Implementation
Procurement Planning
Preparation
Pre-qualification
Bid Evaluation
Award of Contract
Advertisement
Public Procurement: Process Flow &Corruption Risk Mapping
Procurement of goods and civil works
• Lack of PlansLack of Plans
Mis-governancePossible Distortion
Problem Area
• Purposeful Purposeful delay of delay of procurement to procurement to feign “urgency” feign “urgency” and go to direct and go to direct negotiationnegotiation
Lack of Lack of competitiocompetitionn
Procurement Planning: Corruption Vulnerabilities
• Unclear Unclear Criteria for Criteria for Project Project SelectionSelection
• misallocation of resources
Lack of Lack of TransparenTransparencycy
Procurement of goods and civil works
Mis-governancePossible Distortion
Problem Area• PMO given sole PMO given sole
responsibility responsibility over the over the determination of determination of contract contract packages and packages and preparation of preparation of specifications specifications (for civil works)(for civil works)
• Contract Contract splitting to allow splitting to allow unqualified unqualified bidders to bidders to participate or to participate or to revert to revert to “simplified” “simplified” biddingbidding
• tailor fitting to tailor fitting to favor a preferred favor a preferred bidderbidder
• BAC BAC members members designated designated solely by Head solely by Head of agency of agency
• BAC members BAC members chosen to stack chosen to stack deck in favor of deck in favor of Head’s choice of Head’s choice of contractorcontractor
Lack of Lack of competitioncompetition
Lack of Lack of TransparencyTransparency
Preparation: Corruption Vulnerabilities
How can we improve governance and reduce corruption?
Enhancing Enhancing TransparencyTransparency
The Power of Transparency and Monitoring: PETS & Primary Education in UgandaPETS & Primary Education in Uganda
Source: Reinikka and Svensson (2001), Reinikka and Svensson (2003a)
BIR Officials Amass Unexplained Wealth
by Tess Bacalla Philippine Center for Investigative Journalism
The three-part series concludes by looking at the breakdown in the system of checks and balances in the BIR and the lack of transparency, oversight and accountability that contribute to making the bureau one of the most corrupt government agencies.
Lucien Sayuno, Makati regional director of the BIR lives in this
house in posh Ayala Alabang Village. Parked in his garage are a
Ford Expedition, a Toyota Land Cruiser, and a brand new BMW.
[PCIJ Photo]
LIKE MANY of its neighbors, the house at 266 Cuenca St. in posh Ayala Alabang Village looks like a multimillionaire's home. Expensive orchids adorn its landscaped front lawn while the house itself is imposing, the use of the best materials evident.
Recently seen parked in its garage were luxury vehicles, including a white Land Cruiser, a blue Ford Expedition and a new blue BMW. The occupants of 266 Cuenca, however, are not movie stars or business moguls. Instead, it is the home of a government official whose annual salary is less than P300,000.
FreedomOf
Information
Why isn’t this man smiling? Media Freedom
Strengthening Strengthening AccountabilityAccountability
The Report Card: Improving Public Services in Bangalore
5 6 49
25
1
14
4147
42
67
34 34
16
32 32
73
94
73
92
7378
85
96
77
n/a n/a0
10
20
30
40
50
60
70
80
90
100
Agencies
% s
atis
fied
1994 1999 2003
Source : PAC
Strengthening Demand for Public Financial Accountability
Participatory Budgeting,
Porto Alegra(Brazil)
Civil Society Oversight; transparent, competitive
procurement(Slovakia)
Strengthening Supreme Audit Institutions
(Hungary)
Public Expenditure Tracking & Information Campaigns (Ghana, Madagascar, Mozambique, Peru, Senegal, Tanzania, Zambia)
Procurement oversight by
CSOs (Philippines)
Strengthening Public Accounts Committees of
Parliament(India)
Transparent, competitive e-procurement
(LAC) Strengthening Public Accounts Committees
of Parliament (Kenya, Ghana, Zambia --
AFR)
Accountability, Transparency & Integrity
Project(Tanzania)
PEFA Indicators: Monitoring Progress
Predictability and Control in Budget Execution
Transparency of taxpayer obligations and liabilities
Effectiveness of measures for taxpayer registration and tax assessment
Effectiveness in collection of tax payment
Predictability in the availability of funds for commitment of expenditures
Recording and management of cash balances, debt and guarantees
Effectiveness of payroll controls
Competition, value for money and controls in procurement
Effectiveness of internal audit controls for non-salary expenditure
Effectiveness of internal audit
Credibility of the Budget
PI-1
Aggregate expenditure out-turn compared to original approved budget
PI-2
Composition of expenditure out-turn compared to original approved budget
PI-3
Aggregate revenue out-turn compared to original approved budget
PI-4
Stock and monitoring of expenditure payment arrears
Increasing Increasing Competition &Competition &
Reducing Discretion Reducing Discretion
Public Procurement
Using ICT:Using ICT: ChileChile
All supplier companies register, indicating areas of business (e.g., IT, construction, furniture)
Public agencies submit tenders through internet
Automatic e-mail to all companies in selected area
Online information on name, position of official in-charge
Online information on results: who participated, proposals made, scores received, who won bid, historical record of agency’s purchases and contracts
Engaging CSOs:Engaging CSOs: PhilippinesPhilippines
Legal foundation a mess with over 100 laws and regulations
New omnibus law needed for clarity and predictability in the process
New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests
For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO
Extensive training of CSOs now under way
Legal foundation a mess with over 100 laws and regulations
New omnibus law needed for clarity and predictability in the process
New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests
For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO
Extensive training of CSOs now under way
Emerging Issues
Reducing corruption in high-risk countries: Reducing corruption in high-risk countries: Priorities for actionPriorities for action
Better understanding and management of political economy of reforms
Tackling political corruption (e.g. party finance, electoral corruption, etc. ) with partners
Partnerships and new instruments to support demand-side initiatives: working with civil society, media, parliamentarians
Tackle governance challenges in sectors (e.g., power, ports, extractive industries)
Develop operational strategies to engage with corrupt leadership in clientelist, captured states
Improving Governance SystemsMatching Supply and Demand
Supply-sideSupply-side Strengthen capacities and organizational arrangements – leadership, skills, human resource & financial management systems – embodied in state institutions to deliver public goods and services
Demand-sideDemand-side Strengthen accountability arrangements that enable citizens and firms to hold state institutions and officials responsible for decisions and outcomes:State institutions --elections, political parties, parliaments, judiciariesNon-state institutions -- free press/media, civil society organizations
Creating Reform CoalitionsCreating Reform Coalitions Philippines: Procurement ReformPhilippines: Procurement Reform
Transparency and Accountability Transparency and Accountability Network (20+ member groups)Network (20+ member groups)
Walang Ku-Corrupt Movement Walang Ku-Corrupt Movement (Youth)(Youth)
PAGBA &PAGBA &AGAPAGAP(w/in (w/in Gov’t)Gov’t)
CBCP(Church)
Philippine Contractors Association(private sector – main takeholder)
Local chambers of Commerce (Private sector)
Procurement Watch:Procurement Watch:Drew other civil society groups Drew other civil society groups into the advocacy efforts and into the advocacy efforts and
coordinated the activitiescoordinated the activities
Media
Private Sector
Municipal Government
Military
State (Bureaucracy)Political Parties
Civil Society
International Legislative Branch
Judiciary
1
Entrenched Corruption Networks: Entrenched Corruption Networks: The Case on Montesinos in PeruThe Case on Montesinos in Peru
Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy School of Government Case Program, Case C14-04-1722.0, based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000
Vladimiro Montesinos
Alberto Fujimori
Reaching Out Reaching Out
Radio: The swath Radio: The swath & the dagger& the dagger
Using Communications StrategicallyUsing Communications Strategically
Print Media: Print Media: Amplifying the Amplifying the
problemproblem
TV: Raising the TV: Raising the anteante
Advertising: Creating a Advertising: Creating a ‘brand name’‘brand name’