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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

Presented to:

Public Sector and Anticorruption Core Course

April 23-26, 2007

Washington D.C.

Presented by:

Ed Campos

Governance Adviser

for Bangladesh

SASPR


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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)

1980

1990

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006


Aid governance and development outcomes l.jpg
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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2%

1.5%

1%

0.5%

0%

-0.5%

-1.0%

-1.5%

Good Governance matters for investment and growth

Income per capita Growth Rate

% Investment share in GDP

20%

15%

10%

Medium

Low

High

High

Medium

Low

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 …


Good governance is pro poor l.jpg

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 than $2/day due to the increase in the quality of governance (ICRG composite index)

Citizens/Firms

  • 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

Citizens/Firms

Citizens/Firms

  • 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

Citizens/Firms


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The Bank operations focus only on some than $2/day due to the increase in the quality of governance (ICRG composite index)

Citizens/Firms

  • 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

Citizens/Firms

  • Private Sector Interface

  • Streamlined regulation

  • Public-private dialogue

  • Break-up of monopolies

  • ICA/Doing buisness

  • Extractive industries

  • Corporate governance

  • Collective business associations

Citizens/Firms

  • 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

Citizens/Firms


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Management of Public Finances than $2/day due to the increase in the quality of governance (ICRG composite index)

Tax/Customs Administration

Budget Formulation

Public sector accounting

Budget Execution

Integrated FMIS

Cash/Treasury Mgmt

Procurement

Auditing

Internal Controls

Reporting

Public Financial Management

Raising Revenues

Allocating Revenues

Using Revenues


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Recruitment than $2/day due to the increase in the quality of governance (ICRG composite index)

Promotion

Transfers

Career management

Training

Internal Restructuring

Corporatization

Executive Agencies

Outsourcing

Privatization

Administrative and Civil Service Reform

Personnel Management

Organizational Design


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Governance and Corruption than $2/day due to the increase in the quality of governance (ICRG composite index)Not the same thing!

Governance

The manner in which theState

acquires and exercises its

authority to provide public

goods and services

Corruption

Usingpublicoffice for

privategain

  • 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 than $2/day due to the increase in the quality of governance (ICRG composite index)

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 than $2/day due to the increase in the quality of governance (ICRG composite index):

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

Corruption


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Poor Governance than $2/day due to the increase in the quality of governance (ICRG composite index)

Lack of

Transparency

Monopoly Power

Wide Discretion

Weak Voice &

Accountability

Inefficiency

Corruption


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When Governance than $2/day due to the increase in the quality of governance (ICRG composite index)Breaks Down . . .

State Capture

Citizens/Firms

  • 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)

Citizens/Firms

Citizens/Firms

Administrative Corruption

Service Delivery & Regulatory Agencies

Outcomes: Services, Regulations, Corruption

Subnational Govt & Communities

Citizens/Firms


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Improving Governance than $2/day due to the increase in the quality of governance (ICRG composite index)An 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:

      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/)


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Diagnostics: Drilling Down than $2/day due to the increase in the quality of governance (ICRG composite index)

  • 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


Measuring quality of governance and corruption at the country level kaufmann kraay indices l.jpg

http://www.worldbank.org/wbi/governance/pubs/govmatters4.htmlhttp://www.worldbank.org/wbi/governance/pubs/govmatters4.html

“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 Comparisonshttp://www.worldbank.org/wbi/governance/pubs/govmatters4.html


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Governance Indicators: Bangladeshhttp://www.worldbank.org/wbi/governance/pubs/govmatters4.html


Measuring quality of governance and corruption at the country level other sources l.jpg
http://www.worldbank.org/wbi/governance/pubs/govmatters4.htmlMeasuring” Quality of Governance and Corruption at the Country Level: Other 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)


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Forms of Corruption: Assessing State Capturehttp://www.worldbank.org/wbi/governance/pubs/govmatters4.html

Proportion of firms affected by capture of …

30

Parliamentary Votes

25

Presidential Admin. Decrees

Civil Court Decrees

20

15

10

5

Hungary

Estonia

Russia

Ukraine


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Forms of Corruption: Administrative Corruptionhttp://www.worldbank.org/wbi/governance/pubs/govmatters4.html

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


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Enterpriseshttp://www.worldbank.org/wbi/governance/pubs/govmatters4.html

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

60

Customs inspectors

48

41

52

Tax inspectors

41

25

43

Natural resource licensers

33

27

39

Judges

32

16

Albania

25

Ordinary police

40

Georgia

23

Latvia

32

Investigators/ prosecutors

33

14

24

Local officials

21

18

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).

5

Ministers

10

19

0

20

40

60

80

Percent of public officials believed to have purchased their positions


Sector level the value chain corruption risk mapping l.jpg
Sector Level: OfficeThe Value Chain& Corruption Risk Mapping

Health Sector -- Delivery of Essential Drugs


Health sector delivery of essential drugs l.jpg
Health Sector: OfficeDelivery of Essential Drugs

Tackling decision points vulnerable to corruption

Competition & Transparency

Registration

Tracking systems

Selection

User surveys

Procurement

Monitoring based on transparent & uniform standards

Distribution

Media coverage of drug selection committee meetings

Prescription & Disbursement


Stages of the procurement process l.jpg

Procurement Planning Office

Preparation

Advertisement

Pre-qualification

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 Office

Lack of Transparency

Procurement Planning: Corruption Vulnerabilities

Problem Area

Possible Distortion

Mis-governance

  • 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 Office

Lack of Transparency

Preparation: Corruption Vulnerabilities

Problem Area

Possible Distortion

Mis-governance

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

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


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Freedom Office

Of

Information


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Media Freedom Office

Why isn’t this man smiling?




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Strengthening Demand for Public Financial Accountability Office

Civil Society Oversight; transparent, competitive procurement

(Slovakia)

Transparent, competitive e-procurement

(LAC)

Strengthening Supreme Audit Institutions

(Hungary)

Strengthening Public Accounts Committees of Parliament

(Kenya, Ghana, Zambia -- AFR)

Procurement oversight by CSOs (Philippines)

Accountability, Transparency & Integrity Project

(Tanzania)

Strengthening Public Accounts Committees of Parliament

(India)

Participatory Budgeting, Porto Alegra

(Brazil)

Public Expenditure Tracking & Information Campaigns

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


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PEFA Indicators: Monitoring Progress Office

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 & Office Reducing Discretion


Public procurement l.jpg

Using ICT: OfficeChile

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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Reducing corruption in high-risk countries: OfficePriorities 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 Systems OfficeMatching 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 Coalitions OfficePhilippines: Procurement Reform

Transparency and Accountability Network (20+ member groups)

Walang Ku-Corrupt Movement

(Youth)

Procurement Watch:

Drew other civil society groups

into the advocacy efforts and

coordinated the activities

PAGBA &

AGAP

(w/in Gov’t)

CBCP

(Church)

Philippine Contractors Association

(private sector – main takeholder)

Local chambers of Commerce

(Private sector)


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1 Office

Entrenched Corruption Networks:

The Case on Montesinos in Peru

Judiciary

Civil Society

Legislative Branch

International

Alberto Fujimori

State (Bureaucracy)

Political Parties

Vladimiro Montesinos

Media

Military

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 Office

TV: Raising the ante

Reaching Out

Print Media: Amplifying the problem

Advertising: Creating a ‘brand name’

Using Communications Strategically


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