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Governance and Development. Presented to: Public Sector and Anticorruption Core Course April 23-26, 2007 Washington D.C. Presented by: Ed Campos Governance Adviser for Bangladesh SASPR. The World Bank has come a long way in a brief period of time. State in a Changing World (97).

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Governance and Development

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Governance and Development

Presented to:

Public Sector and Anticorruption Core Course

April 23-26, 2007

Washington D.C.

Presented by:

Ed Campos

Governance Adviser

for Bangladesh


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The World Bank has come a long way in a brief period of time

State in a Changing World (97)

O.P. Mainstreaming AC in CAS (99)

PSG Implementation Update (02)

Governance Pillar - CDF (98)

Strategic Compact (97)

Governance Strategy (00)

  • Diagnostic/Data/ Monitoring Tools

  • Public Financial Management and Procurement

  • Administrative & Civil Service Reform

  • Civil Society Voice, Transparency, & CDD

  • State Capture

  • Legal & Judicial Reform

JDW “Cancer of Corruption” Speech (10/96)

WDR on Institutions 1982

Anti-corruption Strategy (97)

Gov/A-C Diagnostics start (98)

TI CPI (5/95)

Broadening &Mainstreaming

The ‘Prohibition’ Era

1st set of firms Debarred from WB (99)

Internal AC unit created in WB (98)

Board endorses Integrity Strategy (04)

Formalization of INT (01)

PW Bank President (05)















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Aid, Governance, andDevelopment Outcomes

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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 priorityfor:

    • 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)

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Good Governance matters for investment and growth

Income per capita Growth Rate

% Investment share in GDP










Governance Quality

Governance 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

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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

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The direction of causality …

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 …

  • 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

… but the debate on causality continues …

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Reduction in the percentage of population living on less than $2/day due to the increase in the quality of governance (ICRG composite index)

Additional annual income growth due to an increase in the quality of governance (ICRG composite index) by 1 point

Governance & Growth

Good governance is pro-poor

Source: Knack, 2002

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Good Governance has many dimensions


  • Political Accountability

  • Political competition, broad-based political parties

  • Transparency & regulation of party financing

  • Disclosure of parliamentary votes

  • Civil Society & Media

  • Freedom of press, FOI

  • Civil society watchdogs

  • Report cards, client survey

  • Effective Public Sector Management

  • Ethical leadership

  • Public finance management & procurement

  • Civil service meritocracy & adequate pay

  • Service delivery and regulatory agencies in sectors

  • Formal Oversight Institutions

  • Independent, effective judiciary

  • Legislative oversight (PACs, PECs)

  • Independent oversight institutions (SAI)

  • Global initiatives: UN, OECD Convention, anti-money laundering

  • Private Sector Interface

  • Streamlined regulation

  • Public-private dialogue

  • Extractive Industry Transparency

  • Corporate governance

  • Collective business associations



  • Decentralization and Local Participation

  • Decentralization with accountability

  • Community Driven Development (CDD)

  • Oversight by parent-teacher associations & user groups

  • Beneficiary participation in projects

Outcomes: Services, Regulations


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The Bank operations focus only on some


  • Political Accountability

  • Political competition, broad-based political parties

  • Transparency & regulation of party financing

  • Disclosure of parliamentary votes

  • 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

  • Effective Public Sector Management

  • Ethical leadership

  • Public finance management

  • Civil service administration

  • Sector management:

  • Service delivery

  • Regulation

  • Formal Oversight Institutions

  • Independent,effective judiciary

  • Legislative oversight (PACs, PECs)

  • Independent oversight institutions (SAI)

  • Global initiatives: UN, OECD Convention, anti-money laundering


  • Private Sector Interface

  • Streamlined regulation

  • Public-private dialogue

  • Break-up of monopolies

  • ICA/Doing buisness

  • Extractive industries

  • Corporate governance

  • Collective business associations


  • Local Participation & Community Empowerment

  • Decentralization with accountability

  • Community Driven Development (CDD)

  • Oversight by parent-teacher associations & user groups

  • Beneficiary participation in projects

Outcomes: Services, Regulations, Corruption

Primary focus of WB operations in governance


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Management of Public Finances

Tax/Customs Administration

Budget Formulation

Public sector accounting

Budget Execution

Integrated FMIS

Cash/Treasury Mgmt



Internal Controls


Public Financial Management

Raising Revenues

Allocating Revenues

Using Revenues

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Career management


Internal Restructuring


Executive Agencies



Administrative and Civil Service Reform

Personnel Management

Organizational Design

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Governance and Corruption Not the same thing!


The manner in which theState

acquires and exercises its

authority to provide public

goods and services


Usingpublicoffice for


  • Corruptionis an outcome– a consequence of weak or bad governance

  • Poor delivery of services and weak investment climate are other outcomes of bad governance

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Corruption poses three risks

Development Effectiveness Risk

That corruption will undermine the impact of development efforts in general and in Bank-supported projects

Fiduciary Risk

Reputational Risk

That Bank lending in countries with corrupt leaders will tarnish the Bank’s reputation

That Bank resources will be misappropriated and in some cases loans may not be repaid

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Administrative Corruption:

Private payments and other benefits to public officials in connection with the implementation of government policy and regulations

Nepotism & 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

State 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


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Poor Governance

Lack of


Monopoly Power

Wide Discretion

Weak Voice &




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When Governance Breaks Down . . .

State Capture


  • Political Actors & Institutions

  • Political Parties

  • Competition, transparency

Patronage & Nepotism

Executive-Central Govt

  • Civil Society & Private Sector

  • Civil Society Watchdogs

  • Media

  • Business Associations

  • Formal Oversight Institutions

  • Parliament

  • Judiciary

  • Oversight institutions

Cross-cutting Control Agencies (Finance, HR)



Administrative Corruption

Service Delivery & Regulatory Agencies

Outcomes: Services, Regulations, Corruption

Subnational Govt & Communities


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Improving GovernanceAn Overall Operational Approach

  • 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: 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:

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Diagnostics: Drilling Down

  • Diagnosing Governanceas a whole

  • Assessing the incidence ofparticular forms of corruption:where are the most affected areas?

  • Evaluating corruption incross cutting government processes, e.g. procurement

  • Evaluating corruption at thesector level, e.g. education

  • Assessing risks at the project level

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“Measuring” Quality of Governance and Corruption at the Country Level(Kaufmann-Kraay indices:)

  • Rule of law

  • Political stability

  • Voice and accountability

  • Government effectiveness

  • Regulatory quality

  • Control of corruption

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Control of Corruption: Cross country Comparisons

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Governance Indicators: Bangladesh

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“Measuring” Quality of Governance and Corruption at the Country Level: Other Sources

  • The Open Budget Index (

  • Global Integrity Index (

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Forms of Corruption: Assessing State Capture

Proportion of firms affected by capture of …


Parliamentary Votes


Presidential Admin. Decrees

Civil Court Decrees









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Forms of Corruption: Administrative Corruption

Service Delivery: Composition of Total Bribes Paid by Households in Cambodia

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Type of License/Service/”Favor” Average fee required admittingneed to pay (1996)“unofficially”

Enterprise registration$17666%

Each visit by fire/health inspector$4281%

Tax inspector (each regular visit)$87 51%

Telephone line installation$89478%

Lease in state space (square ft. per month)$766%

Export license/registration$12361%

Import license/registration$27871%

Border crossing (lump sum)$211100%

Border crossing (percent of value)3%57%

Domestic currency loan from bank on4%81%

preferential terms (percent of value)

Hard currency loan on preferential4%85%

terms (percent of value)

Forms of Corruption: Administrative Corruption

The “Bribe Fee” List: Unofficial Payments by Firms in Ukraine

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Forms of Corruption: Patronage & the Market for Public Office

Public Officials Surveys: Purchasing Public Positions


Customs inspectors




Tax inspectors




Natural resource licensers









Ordinary police






Investigators/ prosecutors




Local officials



Based on 1998 World Bank surveys of public officials in these countries: 218 public officials in Latvia (with Latvia Facts); 350 public officials in Georgia (with GORBI); and 97 public officials in Albania (with ACER).










Percent of public officials believed to have purchased their positions

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Sector Level: The Value Chain& Corruption Risk Mapping

Health Sector -- Delivery of Essential Drugs

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Health Sector: Delivery of Essential Drugs

Tackling decision points vulnerable to corruption

Competition & Transparency


Tracking systems


User surveys


Monitoring based on transparent & uniform standards


Media coverage of drug selection committee meetings

Prescription & Disbursement

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Procurement Planning




Bid Evaluation

Award of Contract

Public Procurement: Process Flow&

Corruption Risk Mapping

Stages of the Procurement Process

Contract Implementation

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Lack of competition

Lack of Transparency

Procurement Planning: Corruption Vulnerabilities

Problem Area

Possible Distortion


  • Purposeful delay of procurement to feign “urgency” and go to direct negotiation

  • Lack of Plans

  • misallocation of resources

  • Unclear Criteria for Project Selection

Procurement of goods and civil works

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Lack of competition

Lack of Transparency

Preparation: Corruption Vulnerabilities

Problem Area

Possible Distortion


  • PMO given sole responsibility over the determination of contract packages and preparation of specifications (for civil works)

  • Contract splitting to allow unqualified bidders to participate or to revert to “simplified” bidding

  • tailor fitting to favor a preferred bidder

  • BAC members chosen to stack deck in favor of Head’s choice of contractor

  • BAC members designated solely by Head of agency

Procurement of goods and civil works

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How can we improve governance and reduce corruption?

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Enhancing Transparency

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The Power of Transparency and Monitoring:PETS & Primary Education in Uganda

Source: Reinikka and Svensson (2001), Reinikka and Svensson (2003a)

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Media Freedom

Why isn’t this man smiling?

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Strengthening Accountability

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The Report Card: Improving Public Services in Bangalore

Source : PAC

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Strengthening Demand for Public Financial Accountability

Civil Society Oversight; transparent, competitive procurement


Transparent, competitive e-procurement


Strengthening Supreme Audit Institutions


Strengthening Public Accounts Committees of Parliament

(Kenya, Ghana, Zambia -- AFR)

Procurement oversight by CSOs (Philippines)

Accountability, Transparency & Integrity Project


Strengthening Public Accounts Committees of Parliament


Participatory Budgeting, Porto Alegra


Public Expenditure Tracking & Information Campaigns

(Ghana, Madagascar, Mozambique, Peru, Senegal, Tanzania, Zambia)

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PEFA Indicators: Monitoring Progress

Note: The scores range from A (highest) to D (lowest). Shaded patterns indicate a “+” score (e.g. PI-4 is a B+). PI-19 is not scored. This Table is based on PFM Performance Indicator Table in Annex A.

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Increasing Competition & Reducing Discretion

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Using ICT:Chile

Engaging CSOs:Philippines

  • 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

  • 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

Public Procurement

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Emerging Issues

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Reducing corruption in high-risk countries: Priorities for action

Better understanding and management ofpolitical economyof reforms

Tackle governance challenges in sectors (e.g., power, ports, extractive industries)

Partnerships and new instruments to support demand-side initiatives: working with civil society, media, parliamentarians

Tackling political corruption(e.g. party finance, electoral corruption, etc. ) with partners

Develop operational strategies to engage with corrupt leadership in clientelist, captured states

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Improving Governance SystemsMatching Supply and Demand

  • Supply-side

    Strengthen capacities and organizational arrangements – leadership, skills, human resource & financial management systems – embodied in state institutions to deliver public goods and services

  • Demand-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, judiciaries

    Non-state institutions -- free press/media, civil society organizations

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Creating Reform CoalitionsPhilippines: Procurement Reform

Transparency and Accountability Network (20+ member groups)

Walang Ku-Corrupt Movement


Procurement Watch:

Drew other civil society groups

into the advocacy efforts and

coordinated the activities



(w/in Gov’t)



Philippine Contractors Association

(private sector – main takeholder)

Local chambers of Commerce

(Private sector)

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Entrenched Corruption Networks:

The Case on Montesinos in Peru


Civil Society

Legislative Branch


Alberto Fujimori

State (Bureaucracy)

Political Parties

Vladimiro Montesinos



Municipal Government

Private Sector

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

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Radio: The swath & the dagger

TV: Raising the ante

Reaching Out

Print Media: Amplifying the problem

Advertising: Creating a ‘brand name’

Using Communications Strategically

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