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1 Pradhan Strengthening March32007

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1 Pradhan Strengthening March32007

  1. 1. Sanjay Pradhan Director, Public Sector Governance Poverty Reduction & Economic Management The World Bank Strengthening World Bank Group Engagement on Governance & Anticorruption
  2. 2. Outline Entry Points for Governance Reform Why Focus on Governance & Corruption? Discussion 1. 3. 2. Background The World Bank’s Strategy: Moving Forward 4.
  3. 3. Background <ul><li>Identifies mechanisms to build transparent, accountable, and capable institutions in countries </li></ul><ul><li>Outlines instruments to improve monitoring and curb corruption in World Bank Group-funded projects </li></ul><ul><li>Emphasizes a harmonized approach with other development partners, and strengthens linkages and collaboration with the range of development actors </li></ul>The World Bank’s strategy, Strengthening World Bank Group Engagement on Governance and Anticorruption , was endorsed by the Board of World Bank in March 2007. The strategy:
  4. 4. The ‘Prohibition’ Era Pre-1996 1996-1998 1999-2000 2001-2002 2003-2004 WDR on Institutions (82) JDW “Cancer of Corruption” Speech (10/96) WDR on the State in a Changing World (97) <ul><li>Diagnostic/Data/ Monitoring Tools </li></ul><ul><li>PFM & Procurement </li></ul><ul><li>Administrative & Civil Service Reform </li></ul><ul><li>Civil Society Voice, Transparency, & CDD </li></ul><ul><li>Legal & Judicial Reform </li></ul>Broadening & Mainstreaming Helping Countries Combat Corruption: The Role of the World Bank (97) Reforming Public Institutions & Strengthening Governance: A World Bank Strategy (9/00) 1st set of firms debarred from WB (99) 2005-2007 Public Sector Governance Implementation Update (02) Formal launch of TI (5/93) INT established (4/01) Sanctions Committee established (98) Global Monitoring Report (06) INT 1 st Annual Report (FY04); total sanctions applied reach 236 (FY99-04) Sector Strategy Implementation Update 10/05 Business Environment & Enterprise Performance Survey (BEEPS) developed (99 ) PW “A Time For Action” speech (4/06) Governance Matters V: Governance Indicators for 1996–2005 WDR on Building Institutions for Markets (02) O.P. Mainstreaming AC in CASs (99) Introduction of IDA Performance Based Allocation (PBA) system (03) First Doing Business Report (04) Milestones in Governance and Anticorruption
  5. 5. GAC Consultations (Nov. 2006 – Feb. 2007) AFR Burkina Faso, Botswana, Cameroon, Kenya, Mauritania, Mozambique, Republic of Congo, Rwanda, Senegal, Tanzania, Uganda LAC Argentina, Bolivia, Dominican Republic, El Salvador, Guatemala, Mexico, IACC EAP Australia, Cambodia, China, Japan, Indonesia, Lao PDR, Mongolia, New Zealand, Philippines, Thailand, Vietnam MNA Egypt, Jordan (planned), Morocco, Tunisia (planned), Yemen ECA Albania, Bulgaria, Georgia, Moldova, Russia Europe Brussels, the Hague, London, Madrid, OECD, Paris, Rome, Stockholm North America Ottawa, Washington DC (IMF, MDBs, US Government, CSOs, private sector, unions) SAR Bangladesh, India, Nepal Consultations were held in 35 developing countries, 12 donor countries, and four global events, reaching more than 3,200 stakeholders worldwide.
  6. 6. The World Bank’s Mission & Governance <ul><li>WBG’s Mission: Poverty reduction by creating opportunities </li></ul><ul><li>Poor governance and corruption undermine this core mission </li></ul><ul><ul><li>Poor unable to access critical services because public delivery systems fail, or they will not or cannot pay bribes </li></ul></ul><ul><ul><li>Research shows a long term development dividend from good governance and controlling corruption </li></ul></ul><ul><li>Stakeholders in recipient & donor countries are demanding better governance & corruption control </li></ul><ul><li>Prospect of significant scaling up of aid – requires strengthening governance systems </li></ul><ul><li>Since 1997 – the WBG has a governance & AC strategy </li></ul>
  7. 7. Governance and Anticorruption The manner in which the state acquires and exercises its authority to provide public goods & services Use of public office for private gain Governance Corruption <ul><li>Corruption is an outcome – a consequence of weak or bad governance </li></ul><ul><li>Poor delivery of services and weak investment climate are other outcomes of bad governance </li></ul>
  8. 8. Outline Entry Points for Governance Reform Discussion 1. 3. 2. The World Bank’s Strategy: Moving Forward 4. Background Why Focus on Governance & Corruption?
  9. 9. Where is the development ‘nexus’? Policies? Governance? Business climate? Institutions? Productivity?
  10. 10. Inequality Corruption is a regressive tax: Poor & small firms pay more in bribes <ul><li>WBI diagnostics. % of gross monthly revenue paid in bribes, as reported by managers 2001. </li></ul>Exclusion Corruption restricts access of poor households to public services WBI diagnostics. Discouraged Poor Users Due to Bribes, 2001. Why? Quite simply, corruption is a development issue ... Service delivery Bribery is associated with bad quality of service WBI diagnostics. Citizens’ Responses, Ecuador 2000. Growth Negative impact on competitiveness
  11. 11. Policies matter for aid effectiveness and growth Good policies enable aid to have an impact on growth Source: Burnside, Dollar, 2004.
  12. 12. Outline Background Why Focus on Governance & Corruption? Discussion 1. 3. 2. Entry Points for Governance Reform The World Bank’s Strategy: Moving Forward 4.
  13. 13. The World Bank is helping countries to improve governance through various ‘entry-points’ Public Management Public financial management & procurement, monitored by PEFA Administrative & civil service reform Governance in Sectors Transparency & participation Competition in service provision Sector-level corruption issues (EITI, forestry) Civil Society, Media & Oversight Institutions State oversight institutions (parliament, judiciary, SAI) Transparency & participation (FOI, asset declaration, user participation & oversight) Civil society & media Local Governance Community-driven development Local government transparency Downward accountability Private Sector Competitive investment climate Responsible private sector Coalition building across stakeholders B2,
  14. 14. Improving PFM – A Platform Approach Platform 1 A credible budget delivering a reliable and predictable resource to budget managers Platform 2 Improved internal control and public access to key fiscal information to hold managers accountable Platform 3 Improved linkage of priorities and service targets to budget planning and implementation Platform 4 Integration of accountability and review processes for both finance and performance management <ul><li>Integration of budget (recurrent & capital budgets) </li></ul><ul><li>Strengthen macro and revenue </li></ul><ul><li>Forecasting </li></ul><ul><li>Streamline spending processes </li></ul>Broad Activities <ul><li>Re-design </li></ul><ul><li>Budgeting </li></ul><ul><li>Classification system </li></ul><ul><li>Initial design of FMIS for core business processes </li></ul><ul><li>Strengthen external audit and define internal audit function </li></ul><ul><li>Re-design budget cycle (e.g. MTEF) </li></ul><ul><li>Pilot program based budgeting & budget analysis </li></ul><ul><li>Further fiscal </li></ul><ul><li>Decentralization </li></ul><ul><li>Full design of FMIS </li></ul><ul><li>Develop IT </li></ul><ul><li>Management </li></ul><ul><li>Strategy </li></ul><ul><li>Initial design of asset register </li></ul>Enables a basis for accountability Enables focus on what is done with money Enables more accountability for performance management Cambodia – Sequence of Platforms Broad Activities Broad Activities Broad Activities Source: See “Study of measures used to address weaknesses in Public Financial Management systems in the context of policy-based support,” by Peter Brooke, at www.pefa.org
  15. 15. Tackling Corruption in Key Sectors Manufacturing Registration Selection Procurement Distribution Prescription & Disbursement Random inspections Monitoring based on transparent & uniform standards Tracking systems User surveys Media coverage of drug selection committee meetings Transparency Reference: Jillian Clare Cohen, Assistant Professor, Faculty of Pharmacy and Director, Comparative Program on Health & Society, University of Toronto Tracing Vulnerabilities in Pharmaceuticals
  16. 16. Corruption in the Health Sector Source: Chapter in Ed Campos and Sanjay Pradhan, The Many Faces of Corruption: Tracking Vulnerabilities at the Sector Level (World Bank, forthcoming) Members of the Board of Directors of the Caja Costarricense de Seguro Social (CCSS), skimmed $39 million Finnish government loan and $40 million Spanish loan Grand corruption in Costa Rica Quantified leakage at different levels of government (greater at the higher levels); evidence that poorer municipalities affected the most; diversion of funds to cover operational costs Corruption in local governments in Peru 2.4% of all workers on the payroll at health facilities considered ‘ghosts’. Absenteeism estimated at 27% Corruption and weak controls at central agencies in Honduras Citizens “audits” in Mexico revealed that 90% of government transfer to Provida as part of the women’s health program had been inappropriately used Administrative corruption in Mexico Embezzlement and theft from the health budget or user-fee revenue; corruption in procurement; payment systems; pharmaceutical supply chain; and health service delivery.
  17. 17. Forestry Sector: The Life of a Log From illegal to legal Local logger: $2.20 Local broker: $20.00 Foreign middle man: $160.00 Foreign lumber processor: $710.00 Exporter of sawn timber: $800.00 US trader: $1,000.00
  18. 18. Satellite monitoring Local communities/ third party Tracking system: timber cut for export vs. exported lumber (value) IKEA Model: Log Certification International Code of Conduct Increase Supply thru Fast Growing Trees Forestry Sector: The Life of a Log
  19. 19. Cost underestimation & escalation in transport projects Source: Flyvbjerg, Bent Underestimating Costs in Public Works Projects, Journal of the American Planning Association, summer 2002; 68, 3. Based on a sample of 258 projects in Europe (181), North America (61) and other countries 16). The authors emphasized that their results should not be interpreted as an attack on public (vs. private) spending, since the data is not sufficient to decide whether private projects perform better or worse in terms of cost underestimate. <ul><li>Cost estimates used in public debates, media coverage, and decision making for transportation infrastructure are highly, significantly and systematically deceptive. </li></ul>Inaccuracy of cost estimates in transportation infrastructure projects 0 5 10 15 20 25 30 35 40 Cost Escalation (%) Frequency (%) -80 0 40 80 120 160 200 240 280 -40
  20. 20. The 2006 Pothole-Patching Operation in Brazil <ul><li>Roads significantly deteriorated in last several years </li></ul><ul><li>A $200 million emergency program was launched in January 2006 to repair 26,440 km of federal roads </li></ul><ul><li>27% to be contracted without competition; 73% as variation orders to ongoing contracts </li></ul><ul><li>A significant amount of works to be awarded to a major contributor to the 2004 electoral campaign </li></ul>Source: Folha de S. Paulo, 13 January 2006, based on presentation delivered during Transport Forum 2006 by Cesar Queiroz, Rodrigo Archondo-Callao and Sachiko Gause, World Bank, Washington, 29 March 2006 Corruption in infrastructure sector affects more than growth
  21. 21. A constellation of checks and balances Executive Subnational governments and autonomous oversight agencies Legislature Judiciary Civil Society Media Broader International Community Building the “Demand-Side”
  22. 22. Strengthening Demand for Public Financial Accountability Participatory Budgeting, Puerto Alegra (Brazil) Civil Society Oversight; transparent, competitive procurement (Slovakia) Strengthening Supreme Audit Institutions (Hungary) Public Expenditure Tracking & Information Campaigns (Ghana, Madagascar, Mozambique, Peru, Senegal, Tanzania, Zambia ) Procurement oversight by CSOs (Philippines) Strengthening Public Accounts Committees of Parliament (India) Transparent, competitive e-procurement (LAC) Strengthening Public Accounts Committees of Parliament (Kenya, Ghana, Zambia -- AFR) Accountability, Transparency & Integrity Project (Tanzania) Key Issue: Instrument to Support Demand-side Interventions
  23. 23. Empowering Citizens with Information Can Reduce “Leakages” 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 1990 1991 1993 1994 1995 Equiv. US$ per student Intended grant Actual grant received by primary school (means) 1999 Source: Uganda Public Expenditure Tracking Surveys Tracking Education Dollars in Uganda Public info campaign
  24. 24. Civil Society Monitoring Service Provision: Bangalore Source: Public Affairs Center, India 5 6 4 9 25 1 14 41 47 42 67 34 34 16 32 32 73 94 73 92 73 78 85 96 77 n/a n/a 0 10 20 30 40 50 60 70 80 90 100 City council Electricity Water supply Telephones Public hospitals Police Land authority Public buses Transport authority Agencies Percent Satisfied 1994 1999 2003
  25. 25. “ BIR [Tax Collector] Officials Amass Unexplained Wealth” By Tess Bacalla , Philippine Center for Investigative Journalism CAR MODEL BENEFICIAL OWNER REGISTERED OWNER Nissan Patrol Edwin Abella BIR Reg'l Director, Quezon City Sulpicio S. Bulanon Jr. 1817 Jordan Plains Subd., Quezon City (listed address of Abella in his SALs) Suzuki Grand Vitara Ditto Merrick Abella (son of Abella) 24 Xavierville, Loyola Heights, Q uezon City Nissan Cefiro Ditto Elizabeth S. Buendia 152 Road 8, Pag - asa, Quezon City BMW Lucien E. Sayuno BIR Reg'l Director, Makati City Limtra Dev. Corp. Zone 4, Dasmariñas, Cavite BMW Ditto Marie Rachel D. Mene ses c/o Metrocor and Holdings, G&F, Makati City Honda Accord Danilo A. Duncano BIR Reg'l Director, Quezon City Daniel Anthony P. Duncano 2618 JP Rizal, New Capital Estate, Quezon City Mitsubishi L200 Corazon P. Pangcog Asst. Reg'l Director, Valenzuela City Alberto P. Pangcog (husband) B2 L23 Lagro Subd., Quezon City Honda CR - V Ditto Alberto P. Pangcog 9 Ricardo St., Carmel 1 Subd., Quezon City Owner: Regional Director in the Bureau of Internal Revenue; forced to resign; currently facing corruption charges; other officials suspended, also facing charges Media, Transparency & Combating Corruption
  26. 26. Making the private sector an advocate of governance reform <ul><li>The two faces of the private sector </li></ul><ul><ul><li>Competitive, productivity-focused firms thrive on a level-playing field </li></ul></ul><ul><ul><li>Corrupt, rent-seeking firms thrive in the shadows </li></ul></ul><ul><li>How to support competitive, responsible private sector? </li></ul><ul><ul><li>Create sound business environments, benchmarked internationally </li></ul></ul><ul><ul><li>Showcase examples & evidence that ‘avoiding corruption is good for business’ </li></ul></ul><ul><ul><li>Support initiatives to promote business ethics and voluntary codes of conduct </li></ul></ul><ul><ul><li>Build coalitions of businesses and other stakeholders for anticorruption </li></ul></ul><ul><ul><li>Enforce global/regional laws & regulations (OECD, UNCAC) </li></ul></ul>
  27. 27. Corruption is not just a developing country problem Source: “Are Foreign Investors and Multinationals Engaging in Corrupt Practices in Transition Economies?” by Kaufmann, Hellman, Jones, in Transition , May-June 2000. Note: Survey Question was “How often nowadays do firms like yours need to make extra, unofficial payments to public officials to gain government contracts?” Firms responding “sometimes” or “more frequently” were classified as paying kickbacks. These figures are subject to significant margins of error and thus should be regarded as approximate. Percentage of firms that pay public procurement kickbacks by country of origin of foreign direct investment (2000)
  28. 28. Media Private Sector Municipal Government Military State (Bureaucracy) Political Parties Civil Society International Legislative Branch Judiciary Entrenched Corruption Networks: The 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 1
  29. 29. Outline Background Why Focus on Governance & Corruption? Discussion 1. 3. 2. 4. Entry Points for Governance Reform The World Bank’s Strategy: Moving Forward
  30. 30. Project Level Combating corruption in World Bank Group operations Country Level Deepening support to countries to strengthen governance Global Level Working with development partners, sharing experience & addressing transnational issues Key Elements of World Bank’s Strategy
  31. 31. Governance & Anticorruption <ul><li>The World Bank’s focus on governance and anticorruption (GAC) follows from its mandate to reduce poverty </li></ul><ul><li>A capable and accountable state creates opportunities for poor people, provides better services, and improves development outcomes </li></ul>The Country Has primary responsibility for improving governance : country ownership and leadership are key to successful implementation, and the WBG is committed to supporting a country’s own priorities The WBG Is committed to remaining engaged in the fight against poverty, and seeking creative ways of providing support, even in poorly-governed countries – “don’t make the poor pay twice”
  32. 32. Country-level: More aid allocated to better governance environments IDA performance rating is driven by the governance CPIA indicators Source: World Bank staff estimates IDA Performance-based allocations (PBA), FY05-07 <ul><li>IDA’s Performance-based Allocation (PBA) System accords very significant weight to governance </li></ul><ul><li>IDA per capita can vary four-fold depending on governance performance </li></ul><ul><li>All Country Assistance Strategies (CASs) are required to address governance issues, including corruption; increasingly, CAS’s are centered around governance issues </li></ul><ul><li>Bank-wide, over 25% of all lending operations have supported public sector governance </li></ul>0 2 4 6 8 10 12 14 16 18 20 IDA Performance Rating IDA PBA (US$ per capita per annum) Low High
  33. 33. Sanctions Reform <ul><li>Package of reforms to the Bank’s sanctions regime approved by WB Executive Directors on August 1, 2006 </li></ul><ul><li>Reforms became effective as of October 15, 2006 and will apply to all new IBRD and IDA investment lending </li></ul><ul><li>Main Reforms: </li></ul><ul><ul><li>New definitions of sanctionable practices that expand the reach of sanctions beyond procurement </li></ul></ul><ul><ul><li>Introduction of new “Anti-Corruption Guidelines” to be incorporated into loan agreements </li></ul></ul><ul><ul><li>Strengthening of contractual remedies in General Conditions </li></ul></ul>
  34. 34. Coalitions with civil society, private sector, parliamentarians, and others to combat entrenched corruption networks Donor Collaboration MDB harmonization in high-risk settings to avoid ‘mixed-signals’; coordinated donor action to support demand-side initiatives Global Collective Action Against Corruption Global & Regional Conventions (UNCAC, OECD, AU, OAS, Asia-Pacific Action Plan) need to be enforced to curb transnational corruption & facilitate asset recovery
  35. 35. Moving Forward: Four Key Principals for GAC <ul><li>Stay engaged , even in poorly governed settings; find creative ways to help deliver basic services to the poor — “Don’t make the poor pay twice” </li></ul><ul><li>Strengthen, rather than bypass, country systems – Better national institutions are the more effective and long term solution to governance and corruption challenges and to mitigating fiduciary risk </li></ul><ul><li>Strengthen engagement with civil society, media, parliaments, and the private sector in the Bank’s operational work, while working with governments as the principal counterpart </li></ul><ul><li>Monitor for results – As the Bank implements the strategy, use a mix of indicators (aggregate governance indicators, country monitoring and evaluation systems, specific disaggregated indicators and outcome indicators) to assess progress </li></ul>Customized Approach: The Bank’s engagement on GAC will vary from country to country, depending on specific circumstances—there is no ‘one-size-fits-all’ Engagement:
  36. 36. <ul><li>Governance work where it matters most for development – increase the World Bank’s support to countries to help build capable and accountable states </li></ul><ul><li>Systematically integrate governance in sectoral projects and programs , beginning with the Bank’s main country strategy document, the Country Assistance Strategy, and within sectors such as infrastructure, health, education, forestry, natural resources, and others </li></ul><ul><li>Existing good practice in engaging with multiple stakeholders in its operational work, including by strengthening transparency, participation, and third-party monitoring in its own operations </li></ul><ul><li>‘ Demand-side’ engagement , e.g., with civil society, media, parliaments, local communities in policy making and service delivery </li></ul>Moving Forward: Four Key Principals for GAC (Cont.) Scaling up:
  37. 37. <ul><li>The WBG will work with donors, international institutions, and other actors at the country and global levels to ensure a harmonized approach and coordination based on respective mandates and comparative advantage—“the WBG should not act in isolation” </li></ul><ul><li>Engage systematically with the private sector and industrialized countries to jointly tackle the supply side of corruption , through international conventions such as UN and OECD Conventions and Asset Recovery – “Corruption is a two-way street” </li></ul>Moving Forward: Four Key Principals for GAC Working Together:
  38. 38. Thank You The World Bank 1818 H Street, NW Washington, D.C. 20433 USA “ Working for a World Free of Poverty” For additional information, see: http://www.worldbank.org
  39. 39. <ul><li>OR, another way … </li></ul>
  40. 40. Seven Guiding Principals <ul><li>The World Bank’s focus on governance and anticorruption (GAC) follows from its mandate to reduce poverty—a capable and accountable state creates opportunities for poor people, provides better services, and improves development outcomes. </li></ul><ul><li>The country has primary responsibility for improving governance —country ownership and leadership are key to successful implementation, and the WBG is committed to supporting a country’s own priorities. </li></ul><ul><li>The WBG is committed to remaining engaged in the fight against poverty, and seeking creative ways of providing support, even in poorly-governed countries—“don’t make the poor pay twice”. </li></ul><ul><li>The Bank’s engagement on GAC will vary from country to country , depending on specific circumstances—there is no ‘one-size-fits-all’ </li></ul><ul><li>Consistent with its mandate, the WBG will scale up existing good practice in engaging with multiple stakeholders in its operational work, including by strengthening transparency, participation, and third-party monitoring in its own operations. </li></ul><ul><li>The WBG will strive to strengthen, rather than bypass, country systems —better national institutions are the more effective and long term solution to governance and corruption challenges and to mitigating fiduciary risk for all public money, including that from the Bank. </li></ul><ul><li>The WBG will work with donors, international institutions, and other actors at the country and global levels to ensure a harmonized approach and coordination based on respective mandates and comparative advantage—“the WBG should not act in isolation.” </li></ul>
  41. 41. Moving Forward: What will the World Bank do differently? <ul><li>Scale up governance work where it matters most for development – increase our support to countries to help build capable and accountable states. </li></ul><ul><li>Systematically integrate governance in sectoral projects and programs, beginning with the Bank’s main country strategy document, the Country Assistance Strategy, and within sectors such as infrastructure, health, education, forestry, natural resources, and others. </li></ul><ul><li>Scale up multistakeholder engagement with civil society, media, parliaments, local communities in policy making and service delivery. </li></ul><ul><li>Systematically scale up engagement with the private sector and industrialized countries to tackle the supply side of corruption, through international conventions such as UN and OECD Conventions and Asset Recovery. </li></ul><ul><li>Work with donors and other international actors to ensure a harmonized approach and collective action based on respective mandates and comparative advantage. </li></ul>
  42. 42. Main Areas Where GAC Will Be Strengthened <ul><li>Engagement in poorly governed settings ; find creative ways to help deliver basic services to the poor – “Don’t make the poor pay twice”. </li></ul><ul><li>Strengthening country systems – Better national institutions are the more effective and long term solution to governance and corruption challenges and to mitigating fiduciary risk. </li></ul><ul><li>Multistakeholder engagement – Scale up existing engagement with civil society, media, parliaments, and the private sector in the Bank’s operational work, while working with governments as the principal counterpart. </li></ul><ul><li>Private sector – Engage systematically with the private sector and industrialized countries to tackle the supply side of corruption, through international conventions such as UN and OECD Conventions and Asset Recovery – “Corruption is a two-way street”. </li></ul><ul><li>Work with donors and other international actors to ensure a harmonized approach based on respective mandates and comparative advantage – “The WBG will not act in isolation”. </li></ul><ul><li>Monitor for results – As the Bank implements the strategy, use a mix of indicators (aggregate governance indicators, country monitoring and evaluation systems, specific disaggregated indicators and outcome indicators) to assess progress. </li></ul>

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