OED IDA REVIEW

GOVERNANCE — THE CRITICAL FACTOR, IDA10-12

May 1, 2001

Operations Evaluation Department

Document of the World Bank

Director-General, Operations Evaluation : Mr. Robert Picciotto Director, Operations Evaluation Department : Mr. Gregory Ingram Operations Adviser, OEDDR : Mr. Nils Fostvedt Task Manager, IDA Review : Ms. Catherine Gwin

GOVERNANCE — THE CRITICAL FACTOR, IDA10-12

May 1, 2001

This report was written by Pierre Landell-Mills with the assistance of George Khalaf who prepared the annexes and conducted the survey of World Bank staff. Alex McKenzie and Maria Mar provided technical support for the staff survey.

Acronyms and Abbreviations

ACBF African Capacity Building Fund AFR Africa Regional Vice Presidency APC Adjustable program credits CAE Country assistance evaluation CAN Country assistance note CAR Country assistance review CAS Country assistance strategy CDF Comprehensive Development Framework CEM Country economic memorandum CESP Country environmental strategy paper CFAA Country financial accountability

assessment CIDA Canadian International Development

Agency CODE Committee on Development Effectiveness CPAR Country procurement assessment report CPFA Country profile of financial accountability CPIA Country performance and institutional

assessment CSR Civil service reform DAC Development Assistance Committee DEC Development Economics Vice Presidency DFID Department for International

Development (U.K.) DRG Development Research Group EAP East Asia and Pacific Regional Vice

Presidency EBRD European Bank for Reconstruction and

Development ECA Europe and Central Asia Regional Vice

Presidency EDI Economic Development Institute (now

WBI) ESW Economic and sector work EU European Union FPSI Finance, Private Sector and Infrastructure

Network GAO General Accounting Office (U.S.) GDP Gross domestic product GNP Gross national product IBRD International Bank for Reconstruction and

Development ICT Information and communication

technology ID Institutional development IDA International Development Association IDF Institutional Development Facility IGR Institutional and governance review IMF International Monetary Fund

IT Information technology JSA Joint strategy assessment (of the PRSP by

the IMF and World Bank) LAC Latin America and Caribbean Regional

Vice Presidency LACI Loan Administration Change Initiative LLC Learning and Leadership Center (WBI) MNA Middle East and North Africa Regional

Vice Presidency NGO Nongovernmental organization OED Operations Evaluation Department OPCS Operation Policy and Country Services

(formerly OPS) PA Poverty assessment PACT Partnership for Capacity Building in

Africa PER Public expenditure review PERC Public expenditure reform credit PFA Public financial accountability PREM Poverty Reduction and Economic

Management Network PRMPS Public Sector Group in PREM PRSC Poverty reduction support credit PRSP Poverty Reduction Support Program PSAC Public sector adjustment credit PSB Public Sector Board PSD Private sector development PSM Public sector management QAG Quality Assurance Group RPSIG Reforming Public Sector Institutions and

Governance (report) SAC Structural adjustment credit SAL Structural adjustment loan SAR South Asia Regional Vice Presidency SIDA Swedish International Development

Agency SIP Sector Investment Program SOE State-owned enterprise SSR Social and structural review SWAP Sectorwide adjustment program TA Technical assistance TAL Technical assistance loan TI Transparency International UNDP United Nations Development Programme USAID U.S. Agency for International

Development WBI World Bank Institute WDR World Development Report

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Table of Contents

Executive Summary................................................................................ v

1. Purpose and Approach ...................................................................... 1

2. The Governance Challenge and IDA’s Role ...................................... 2

Governance Matters .................................................................................................2

What Is Governance? Clarifying Some Concepts and Definitions....................3 Is the Bank Well Placed to Address Issues of Governance? .............................6

3. Commitments, Policies, and Guidelines Related to Governance........ 8

The Bank’s Policies and Guidelines on Governance ...............................................10

Corruption and Human Rights ........................................................................11 Recent Milestones in Governance and Institution Building ............................12

Governance and Lending Levels.............................................................................14

Rating Governance Performance in Allocation Decisions..............................14 IDA Lending to Countries with Weak Governance .........................................16

The Importance of Equity … and Donor Coordination..........................................18

4. Building Capacity for Governance Work ........................................ 19

Addressing Public Sector Reform....................................................................19 Legal and Judicial Reform Work ...........................................................................20

E*governance—A Neglected Topic .........................................................................20

Rebuilding the Bank’s Skills in Public Financial Accountability ............................21

Capacity for Public Sector Management in the Bank’s Regions .............................22

Pioneering Support from the World Bank Institute................................................23 Staff Training .........................................................................................................24

5. Instruments for Promoting Governance Reform............................. 26

Diagnostic work ......................................................................................................26

Lending Instruments and Approaches....................................................................28 The Emerging Bank Approach to Assisting Low-Income Countries.......................30

Collaboration among Development Partners ..........................................................31

6. Assessment of Performance with Undertakings at the Country Level33

Increasing Awareness of the Relevance of Governance...........................................34 A Sea Change in Coverage of Governance Issues in Country Assistance Strategies34

Expanded Lending for Public Sector Reform.........................................................34

Improved Quality of Lending for Public Sector Management ................................37

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Increasingly Candid Country Reports ....................................................................38

Shortcomings in Capacity-Building Strategy..........................................................39

Limited Country Work on Rule of Law..................................................................40

Increased Attention to Corruption .........................................................................42 Extensive but Uneven Work on Management of Public Expenditures ....................43

Strengthening Public Financial Accountability.......................................................44

Limited Work on Tax Administration....................................................................47

Civil Service Reform...............................................................................................48

Technical Assistance ...............................................................................................48

Borrower Ownership in Doubt...............................................................................49

7. Pointers for the Future: Emerging Issues ........................................ 50

Annex 1. Governance Undertakings Implementation Matrix............... 55

Annex 2. Distribution of PSM Staff by Specialization (as of February 2000)................................................................................................. 59

Annex 3. Programs in IDA Countries to Strengthen Governance (under implementation or active preparation, FY98-FY00)........................ 61

Annex 4. IDF Grants Supporting Governance and PSM Programs in IDA Countries (FYs 94-00) ............................................................. 79

Annex 5. PREM Professional Development on PSM........................... 81

Annex 6. Documents on Governance and Institution Building ............. 83

Tables and Boxes

Table 5.1. Economic and Sector Work on Public Sector Management and Reform In IDA countries, by Region (Fiscal 1994–99) ............................................................................ 26

Table 6.1. Lending for Public Sector Reform by Lending Instrument, Fiscal 1997–99............... 35 Table 6.2. Public Sector Management Components by Type, Fiscal 1997–99 ........................... 35 Table 6.3. Business Plans in IDA Countries by Category and Region, Fiscal 2000–01 .............. 36 Table 6.4. Types of Grants Made by the International Development Facility (Fiscal 1997–99) .. 36 Table 6.5. OED Ratings of Completed Projects in Public Sector Management and Bankwide

(percent)....................................................................................................................... 37 Table 6.6. QAG Ratings of Ongoing Projects in Public Sector Management and Bankwide

(percent)....................................................................................................................... 37 Table 6.7. Financial Accountability, Fiscal 1997–2000 ........................................................... 46

Box 2.1. The Governance Lexicon...........................................................................................4 Box 2.2. Governance Work in the Bank—A Historical Perspective............................................7

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Box 3.1. References to Governance in the IDA Replenishment Reports .....................................9 Box 3.2. Kenya: A Case Study of Withholding Lending to Foster Governance Reform............. 17 Box 4.1. E*government in Andhra Pradesh............................................................................ 21 Box 5.1. Analytic Toolkits Developed by the Institutional Analysis Thematic Group ................ 27 Box 6.1. Building Capacity in Africa ..................................................................................... 40 Box 6.2. Judicial and Legal Reform in Tanzania ..................................................................... 41 Box 6.3. Uganda’s Client-led Public Expenditure Review Process........................................... 44

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Executive Summary

i. Governance was an increasingly important topic in the tenth, eleventh, and twelfth replenishments of the International Development Association (IDA10, IDA11, IDA12).1 This paper—one of several thematic studies supporting the Operations Evaluation Department’s (OED) review of IDA performance during the period covered by the replenishments—deals broadly with all aspects of public sector reform except privatization and participation, which are covered by other reports. The paper addresses three main questions: How has the World Bank performed in implementing the IDA replenishment undertakings related to governance? Has the Bank’s work on governance been relevant, effective, efficient and sustainable? What are the lessons for future replenishments?

What Were the IDA Replenishment Undertakings?

ii. The IDA10 Replenishment Report noted IDA’s identification of four major dimensions of governance that are critical to development and the effective use of IDA resources in its borrowing countries: accountability, transparency, rule of law and participation. It looked to IDA to support better governance through dialogue, ESW and lending operations. The report stressed the need to build government ownership of projects and to assist capacity building and institutional development. It emphasized the importance of public expenditure reviews (PERs) to help ensure that social sector and other development expenditures were not crowded out by non-development outlays. Finally, the report confirmed that country assistance strategies (CASs) would address governance matters.

iii. The IDA11 report, which called for the further strengthening of the IDA10 governance agenda, stressed the value of good macroeconomic and structural policies within a framework of good governance. It reiterated the importance of sound public expenditure management and called for IDA to identify the investments and recurrent expenditures needed in each sector, and to consider whether non-development spending was consistent with the borrower’s development objectives. Moreover, the report stressed the importance of linking lending levels to countries’ performance on governance matters.

iv. The IDA12 report reinforced and deepened the emphasis on transparency, accountability, rule of law, and stakeholder participation, and gave explicit emphasis to corruption as a constraint on development. The report also called for the further strengthening of the link between lending and borrowers’ governance performance and it enjoined IDA to address the quality of governance explicitly and systematically in CASs and in the design of lending and nonlending services.

How Did IDA Comply with its Undertakings?

v. The Bank’s involvement in governance matters was guided by an opinion of the General Counsel and a management paper which were discussed by the Board in 1991. The IDA10 Replenishment Report (1992) gave additional impetus to improved governance as a priority development objective for the Bank. Yet by the end of the IDA10 period, IDA involvement in governance matters was still limited as was involvement in capacity building and institutional development.2 PERs gradually became a regular staple of IDA advisory services but their quality

1. Additions to IDA Resources: Tenth Replenishment (Report No. IDA/R92-168) December, 1992; Additions to IDA Resources: Eleventh Replenishment, Interim Trust Fund for FY97 and Termination of the FY84 Special Fund (Report No. IDA/R96-64) April, 1996; and Additions to IDA Resources: Twelfth Replenishment, A Partnership for Poverty Reduction, December 1998.

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was mixed. Only with the arrival of a new President in October 1995 did a major shift in operational priorities take place. In particular, strong management signals were sent to staff about the need to combat corruption. Governance was given increased attention and country teams were instructed to address corruption and give public sector reform priority attention.

vi. The last three years have seen exponential growth in governance work, and a serious effort has been made to give governance the priority called for in the replenishment reports. Because it has important political dimensions, governance is a complex, difficult, and sensitive matter for the Bank. It can only be properly addressed in a long-term framework and only after the Bank has acquired an in-depth understanding of the issues in each country. At present that knowledge is incomplete. However, appropriate methodologies and toolkits are gradually being refined for the diagnostic and analytical work that must underpin an effective country dialogue on improving governance.

Staff Guidance Related to Governance

vii. Although no detailed guidelines have been issued to staff on governance issues, the Bank has prepared a series of reports on governance, public sector reform, and related topics. The role of good government in development had been highlighted by the World Development Report 1983: Managing Development. The Bank’s approach to governance work was first set out in a 1991 report entitled Governance and Development, which built on the General Counsel’s legal opinion. An update was issued in 1993. The paper entitled Helping Countries Combat Corruption: The Role of the World Bank appeared in 1997 and was updated in April 2000. Similarly, World Development Report 1997: The State in a Changing World brought institutional economics to bear on country analysis. The most recent strategy paper, Reforming Public Sector Institutions and Strengthening Governance, issued by the Public Sector Group (PRMPS) of the Bank’s Poverty Reduction and Economic Management Network, makes clear that governance has become a central concern of the Bank.3 Two years in the making, the strategy paper fulfils an important IDA12 commitment.

viii. Although the Bank has been slow to put in place a systematic approach to assessing and helping to strengthen borrowers’ public finance accountability systems, it has recently given increased attention to accountability of public funds, and guidelines have been issued on the preparation of country financial accountability assessments. A number of papers on legal and judicial reform have also been issued to provide guidance to staff for addressing these issues in Bank projects. Moreover, three of the Bank’s regions—Africa, Europe and Central Asia, and Latin America and the Caribbean— recently produced regional studies related to governance.4 In general, these three regions have done more extensive work on governance than the other three regions.

ix. The expansion of governance work has also been reflected in the research program. The World Development Report 1999/2000: Entering the Twenty -first Century and World 2. A summary assessment of IDA’s implementation of replenishment undertakings arising out of the three replenishment reports is given in Annex 1.

3. World Development Report 1983: Managing Development, (Washington, D.C: The World Bank, 1983); Governance and Development, Report No. SecM91-820 (Washington, D.C.: World Bank, 1991); Helping Countries Combat Corruption: Progress at the World Bank since 1997 (Washington D.C.: World Bank, 2000); World Development Report 1997: The State in a Changing World (New York, N.Y. : Oxford University Press, 1997); Reforming Public Institutions and Strengthening Governance: A World Bank Strategy , (Washington, D.C.: World Bank, 2000, R2000-91/1).

4. Beyond the Washington Consensus: Institutions Matter (World Bank 1998); Can Africa Claim the 21st Century? (World Bank 2000); Anti-Corruption in Transition: A Contribution to the Policy Debate (World Bank 2000).

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Development Report 2000/2001: Attacking Poverty are both heavily oriented to institution building. The former focuses on nurturing market institutions, the latter on institutions needed to tackle poverty.

x. Staff guidance on the treatment of military expenditures in Bank work was issued in 1991. It emphasized the need for caution in light of (a) the Bank’s articles, which prohibit interference in the borrower’s political affairs; (b) limited data availability; and (c) lack of comparative advantage.5 It emphasized that the Bank’s objective in this area is not to assess military expenditure per se, but to assess a country’s efforts in funding development expenditures and to pinpoint unproductive expenditures where they are significant, as part of its country dialogue and in PERs. Accordingly, in this highly sensit ive area, the Bank has been circumspect. With regard to human rights, the Bank has, in light of its mandate, limited its assistance to activities that are economic and social in nature. The Bank has left police reform and improved law enforcement to other development assistance agencies given its lack of comparative advantage and the reputational risks associated with such work.

Building the Bank’s Capacity to Do Governance Work

xi. The first public sector management team was established in the early 1980s within central project staff, and later in the decade in the Africa and Latin America and the Caribbean regions. However, beyond legal opinions and operational policy documents, systematic management attention to this critical development theme only became evident after 1996. The last three years have seen a serious and sustained effort to build the Bank’s competence in public sector reform and to increase the budget and lending resources assigned to public sector management. Prior to this the init iative to address governance issues was often left to individual staff members and mid-level managers.

xii. The Africa and Latin America and the Caribbean regions had a significant group of public sector specialists all through the 1990s, and in the last two years the two regions have consolidated their strength in that area. The Europe and Central Asia Region has built up a strong team in the last three years, and South Asia has started to do so recently. East Asia and the Pacific and Middle East and North Africa continue to lag, although a Public Sector Group has now been in existence in EAP for two years and its work is expanding.

xiii. At the center, the Public Sector Group in the Poverty Reduction and Economic Management Network (PRMPS), established in 1997, has been proactive in leading the thematic groups and in developing toolkits and practical guidelines on best practice. PRMPS needs to do more in this area to support country departments to comply with the IDA replenishment requirements, especially since tried and tested methodologies are not yet readily available.

xiv. Following the General Counsel’s 1990 legal opinion on governance, which clarified the Bank’s role in addressing governance issues, the Bank produced papers and developed toolkits. More recently, stand alone projects have been financed that address legal and judicial reform issues, Legal Department and other Bank staff is being built up, and a law and judicial reform Network is being established. Thus, the operational work with respect to legal and judicial reform and judicial administration has newly gained momentum.

5. Military Expenditure (SecM91-1563) December 1991; Military Expenditure, Statement by Vice President and General Counsel (SecM91-1563/1) December 1991.

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xv. The least developed thematic areas have been public financial accountability and e*government.6 The Bank failed, until recently, to build its competence in public financial accountability. Although a recent report by the U.S. General Accounting Office acknowledged the serious efforts made by the Bank over the last two years to strengthen its tracking of IDA funds, it stressed the urgent need to enhance accounting systems in borrowing countries. Despite the recruitment of a large number of financial management specialists staff with commercial accountancy skills, the Bank still lacks staff with experience in public accounting and auditing.

xvi. The Bank also has been slow to appreciate the potential of e*government which entails uses of the internet for transparency, service delivery, and procurement. The IDA replenishment reports did not identify e*government as an area for IDA attention, and the Bank, like other assistance agencies, has only geared up in the last year in this area -- with the support of a grant from the Netherlands. Recent experience shows, however, the potential of the internet to support dramatic improvements in public sector management even in very poor countries.

xvii. The World Bank Institute has made a significant contribution to the development of governance-related staff skills within the Bank and in borrower governments. Its contribution has been notable in the preparation of anticorruption action plans, especially in Africa. The Institute has pioneered the use of corruption perception surveys and public service delivery surveys. Its staff have also contributed to the literature and to the dissemination of good practice.

Country-Level Compliance with IDA Undertakings

xviii. The last few years have seen a marked increase in the treatment of governance in country assistance strategies. Still, given the lack of Bank priority accorded to the topic until recently, governance and related public sector reform topics have to-date been covered only partially at the country level. Any one topic associated with governance, other than public expenditure reviews, has been addressed in only a minority of IDA borrowers.

xix. From 1997 onwards, treatment of governance in CASs became more systematic and the extent and quality of coverage began to improve steadily. Today, almost without exception, governance figures prominently in CASs, and the contents of the CAS are now widely discussed with all the main stakeholders within each country. This open, transparent, and participatory approach is consistent with the CDF principles.

xx. During the same period, the Bank has greatly expanded its analytical work and its lending for public sector reform in IDA countries. The number of public sector reform components in public sector management and multisector credits rose from 45 in fiscal 1997 to 96 in fiscal 1999.

xxi. Coverage across the topics specifically mentioned in the IDA replenishment reports was uneven in fiscal 1997–99. Considerably more attention was given to PERs than to any other matter. Judicial reform was addressed in only a minority of IDA countries, in part due to the challenges inherent in, and time required for, developing country buy-in in this area. Administrative reform was given modest attention, though in a selective way, and downsizing bloated civil services was seen as a priority mainly for financial reasons. Issues related to the structure of government were addressed only rarely and then superficially. Recently, however, IDA has begun to give greater attention to public administration reform.

6. PRMPS now has three people working on public expenditure issues but no staff skilled in accounting and auditing, which are handled in the financial management division of Operations Policy and Country Services (OPCS). Increased collaboration between PRMPS and the OPCS financial management division, as well as the envisaged integrative fiduciary assessments, are expected to enhance this work.

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xxii. With the flurry of work on governance over the past three years, considerable experimentation has been taking place to adapt the Bank’s lending instruments to the special requirements of public sector reform. These recognize that the reforms will need to be spread over a longer period; large investments are not needed; technical assistance is hard to manage; and participation and ownership are paramount. For example, in Uganda work has started on a series of programmatic credits to support public sector reform. In Uttar Pradesh a program credit has been used to support the first phase of a comprehensive public sector reform program. In other countries, adaptable program credits have been used. In Indonesia the Bank has helped to establish a governance partnership involving civil society, the government, the private sector, and the development partners. These innovations represent a serious effort by the Bank to evolve new modalities to address more effectively complex governance issues.

xxiii. The IDA replenishment reports have stressed the need for the Bank to link levels of lending to governance performance. To do this, the Bank has used the “country performance and institutional assessment” (CPIA) rating system.7 During IDA10, although governance was included in the rating system, its weight was relatively trivial—about 3 percent. Because governance performance correlates closely with other indicators, it is arguable that the precise weight of governance did not much matter. With the modified CPIA rating system introduced in 1998, governance was given a 30 percent weight. To this was added a governance discount for countries with an exceptionally poor governance score. In the case of 10 countries in 1999 and 2000, this has led to a reduction of as much as half in the normative IDA allocations; but there are issues in the application of the system which suggest that the discount needs to be rethought.8 Beyond this, in the case of Kenya, lending was suspended for a period in recognition of the country’s serious governance problems.

xxiv. Overall, the Bank’s country dialogue on governance has become increasingly candid, but the treatment of the subject has not been uniform across countries. Equity in the treatment of countries remains an elusive goal.

Was the Work on Governance Relevant and Well Done?

xxv. Recent research has underlined the relevance of governance to economic development. World Development Report 1997 demonstrated the close link between the capability of the state and the level of economic growth. And subsequent research has shown that growth and poverty reduction has a one-on-one relationship. But the quality of governance is also more directly linked to the quality of life of the poor since, as World Development Report 2000 explains, poor governance leads to the abuse of the poor more than any other group.

xxvi. Quality ratings for public sector reform work have improved noticeably over the past five years. For example, OED rated over 90 percent of public sector management projects “satisfactory” in fiscal 1998–2000, compared to 54 percent in fiscal 1995. QAG’s ratings of ongoing public sector management projects are better than the average for all Bank projects in 2000 and have dramatically improved since 1997.

7. See the OED IDA Review background paper, Review of the Performance-Based Allocation System: IDA10-12 (February 2001).

8. Management believes that the governance discount serves an important function. Lending has been sharply reduced in countries with very weak governance. In addition, the process has served to highlight governance weaknesses in countries that do not actually receive a governance discount. While all parts of the performance-based allocation system are reviewed systematically for possible improvements, including the governance discount, Management does not believe it needs to be substantially altered. Management will continue to work to refine the system, in consulttion with IDA Deputies and others, including donors that have similar systems.

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xxvii. That said, there remain issues related to the quality and relevance of governance work that require further attention.

• IDA’s efforts to build capacity and institutions at the project or sector level have lacked a well-articulated and appropriately sequenced country strategy for institution building. This has led to some incoherence across sectors in the approaches adopted. Since most institutional issues have their roots in systemic problems, the lack of a well-articulated strategy has undermined the effectiveness of the Bank’s interventions.

• Public expenditure work has been of uneven quality, focusing excessively on issues of composition and neglecting institutional issues affecting public expenditure management. A strenuous effort has been made over the past two years to overcome these defects.

• Assistance for tax administration reform has concentrated too much on computerization while neglecting diagnosis and a range of institutional and management issues. Recently, steps have been taken in a number of countries to correct these weaknesses.

• Civil service reform has proved elusive and intractable. IDA has given too much attention to downsizing and too little to incentives and issues related to the structure of public administrations.

• Technical assistance is potentially an important tool for capacity building, but it requires careful design and close supervision, conditions that often are not met due to insufficient country budget resources.

Pointers for the Future: Emerging Issues

xxviii. This review has identified important pointers for improving the effectiveness of IDA assistance in the area of governance. These merit consideration in the negotiation of the next IDA replenishment.

Lend in response to sound reforms, not promises. Allow governments the time to develop a consensus on needed reforms, and build greater donor cohesion.

xxix. There is a wide consensus that unless a government “owns” the reform program, implementation will falter, and the changes will not be sustained. To ensure the necessary ownership, governments, not their development partners, must define the reform programs with partners providing technical assistance when requested to do so.

xxx. At the same time, corrupt public officials who serve entrenched interests are not likely to be enthusiastic about reforms aimed at greater transparency and accountability or in promoting the rule of law. Putting such officials in the driver’s seat will lead to stalled reforms unless some strong incentives can be created to encourage them to move forward. A major internal or external crisis often provides the necessary incentive. In the absence of such a crisis, donors need to be patient but firm as the reforms will take years to be put in place. What matters is that at each stage reasonable and credible progress be made. Where lending has been suspended, resumption should follow, not precede, the implementation of substantive reforms. Promises alone should not trigger donor support. From that point on, assistance should be offered in step with the achievement of agreed, monitorable reform milestones. Much more resolute donor coordination is crucial for this approach to succeed.

Give priority to promoting the rule of law.

xxxi. The rule of law is fundamental to good governance. IDA should therefore give attention to legal and judicial reform in every IDA country where feasible. Although IDA is not well suited

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to support the law enforcement (including police reform) dimensions of this issue, it is important that they be addressed within a CDF context.

Give governance reform more effective treatment in the allocation of IDA allocations.

xxxii. Without good governance IDA assistance has limited impact. Consequently, IDA resources should be used to support good governance and should be reduced in circumstances of poor governance. The present IDA allocation system needs to be modified to facilitate achievement of this objective in a more effective and more transparent fashion.

Treat sound public financial accountability as a sine qua non for IDA lending.

xxxiii. Accountability is a key part of good governance. Weak public financial accountability systems in many IDA countries undermine development efforts. Both fiduc iary and development effectiveness concerns call for more attention to this matter. Given agreement on the objective and a firm borrower commitment backed by a credible, detailed, time-bound, monitorable action plan to achieve the objective, IDA lending should continue so long as implementation remains on track. Financial accountability is, of course, only the first step in ensuring that public resources are well used. Monitoring and evaluation of the impact of public expenditure are also needed. But credibility rests on sound financial management.

Promote far greater transparency in the provision of public services.

xxxiv. In good systems of governance, every public agency and government department is publicly accountable. Transparency is one of the most effective tools for achieving accountability. Although public agencies assisted by IDA report back on their use of IDA funds, most agencies are not publicly transparent. Henceforth, IDA should insist that each and every public agency and government department it assists should issue regular (at least once a year) public reports on its performance over the previous period and set monitorable performance targets for the following period. Such reports should be posted on a Web site wherever practical.

Encourage the donor community to support civil society organizations in promoting good governance.

xxxv. The ultimate foundation of good governance is public opinion. As Jeremy Bentham wrote of public opinion in his Constitutional Code, “To the pernicious exercise of the power of government it is the only check.” Organizations interested in advocating reform, contributing to policy research, and monitoring public agency performance should be nurtured in order to build a stronger and more self-confident civil society voice in public affairs. The African Capacity Building Foundation, the Asia Foundation, and other private foundations have made important contributions in this area, but civil society’s voice remains weak in many IDA countries. At present the aid resources devoted to this objective are relatively modest. They should, consistent with donors’ respective mandates, be significantly raised.

Strengthen monitoring and evaluation.

xxxvi. Governance reform requires careful monitoring and evaluation. The general lack of both is partly traceable to poor knowledge of the links between inputs and outcomes in the governance arena. Fortunately, the Bank is contributing to research that will help provide robust governance indicators. Such work should be strongly supported, as should other efforts to improve monitoring and evaluation systems related to governance reform.

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Develop integrated, multisectoral, multidisciplinary country assistance strategies for institution building and recognize that this is a long-term process.

xxxvii. At present the Bank’s country teams tend to operate in isolation. They tend to treat institutional development as an add-on rather than as a central concern. A need exists for good, country-specific strategies for institutional development that incorporate the perspectives of public sector specialists, legal and judicial reform specialists, social and political scientists, economists, financial analysts, and technical specialists. Such strategies need to be cast in a long-term framework—10–20 years or longer—and, if they wish to see sustainable results, development partners must commit to assisting for however long it takes.

Build up the Bank’s public sector reform expertise.

xxxviii. If it is to respond effectively to the wishes of the IDA deputies, the Bank should hire more public sector reform specialists especially in the area of judicial administration and institution building, public sector accounting and auditing, information technology applications to public management, tax administration, social dimensions of institutions, and public administration and civil service reform.

Provide adequate budget resources.

xxxix. Of the many lessons to be drawn from this review, perhaps none is as important as the need to provide adequate funding for the in-depth analysis of governance issues and for assistance to governments in the preparation of public sector reform programs. This relatively new field is complex, and its methodologies are not well established. Efforts to develop and pilot new approaches cannot be rushed. The necessary allocation of more resources to governance work is not an issue that can be settled at the level of the country director, or even at the regional level alone. It must be recognized by the Bank’s senior management and Board of Directors in determining the annual administrative budget. The IDA deputies have correctly asked for many aspects of governance to be covered in the Bank’s lending and nonlending operations. All of these aspects are relevant to achieving faster development and more effective poverty reduction. The constant paring back of the administrative budget is inconsistent with this new mandate. The vital goals of good governance—like the other requirements of the IDA replenishment reports—have to be adequately resourced if they are to be accomplished.

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1. Purpose and Approach

1. Governance was an increasingly important topic in the tenth, eleventh, and twelfth replenishments of the International Development Association (IDA10, IDA11, IDA12).9 This paper—one of several thematic studies supporting the Operations Evaluation Department’s (OED) review of IDA performance during the period covered by the replenishments—deals broadly with all aspects of public sector reform except privatization and participation, which are covered by other reports. It deals with transparency, decentralization, corruption, management of public finance, public administration and civil service reform, accountability and the rule of law, and institutional development and capacity building at the national, local, and project levels.

2. The review is based largely on a desk study of relevant documents—including a commissioned study of the Bank’s treatment of public financial accountability in IDA countries—and extensive interviews with involved Bank staff. Two hundred randomly selected staff were surveyed by email to ascertain views and perceptions of the Bank’s work on governance.10 The review also benefited from field visits to seven countries representative of IDA borrowers as a group.

3. The review addresses three main questions:

• How has the Bank performed vis-à-vis the governance undertakings arising from the IDA10, IDA11, and IDA12 replenishment reports? Did the Bank establish a clear policy framework to guide country work on governance in the areas noted in the IDA reports? Did management provide staff with clear guidelines? Were sufficient human and financial resources allocated to do the work? To what extent have the deputies’ requirements been fulfilled at the country level?

• What have been the relevance, efficacy, efficiency, and sustainability of the Bank’s work on governance?

• What conclusions drawn from the experience of recent years are relevant for future IDA replenishments?

4. The next section discusses the centrality of governance in determining development outcomes, clarifies the definitions and concepts of governance used in this assessment, and discusses the role of IDA in helping low income countries to improve the quality of their governance. Section 3 summarizes the requirements relating to governance set out in the IDA10, IDA11, and IDA12 replenishment reports and reviews the Bank’s policy framework and staff guidelines related to governance, including the weight of governance in the system used to determine IDA allocations. Section 4 describes the Bank’s efforts to build the capacities of its staff and of IDA borrowers to do governance work. Section 5 reviews the instruments available to the Bank to promote governance reform. Section 6, which is based largely on available OED and QAG assessments, assesses borrowers’ compliance with the specific governance concerns identified in the IDA reports. Finally, section 7 offers some pointers for the future.

9. Additions to IDA Resources: Tenth Replenishment (Report No. IDA/R92-168) December, 1992; Additions to IDA Resources: Eleventh Replenishment, Interim Trust Fund for FY97 and Termination of the FY84 Special Fund (Report No. IDA/R96-64) April, 1996; and Additions to IDA Resources: Twelfth Replenishment, A Partnership for Poverty Reduction, December 1998.

10. OED/IDA Staff Survey of Governance conducted in July 2000.

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2. The Governance Challenge and IDA’s Role

“Good governance is critical to sustainable, broad-based economic development and improvements in human well-being. Poor governance, including corruption, undermines the efficient and equitable provision of public services and blocks opportunities for the poor and weak to benefit from the development process. Key components of good governance are: good public sector management with accountable public institutions that give priority to productive social programs and to policies designed to reduce poverty and support sound fiscal choices; transparent policy-making and implementation; clarity, stability, and fairness in the rule of law; openness to the participation of affected citizens in the design and implementation of policies and programs that impact them.”

—Excerpt from the executive summary of “Partnership for Poverty Reduction: IDA12 Report to the Executive Board,” December 23, 1998

Governance Matters

5. Recent Bank research as well as work from the World Bank Institute 11 underline the importance of good governance, state capability, and institutions in achieving rapid growth and poverty reduction. Although indicators of good governance correlate with past development, they may not accurately predict where development will occur in the future.12 Nonetheless, there can be little question that the emphasis now being given to governance by the Bank is highly relevant to achieving IDA’s objectives.

6. Once the components of good governance are defined, however, their relative importance becomes more controversial. Recent research has striven to measure these components and to estimate statistically their link to development outcomes—not an easy task. World Development Report 1997: The State in a Changing World, summarizing the results of much of the recent work, found a strong positive correlation between growth in per capita income and attributes such as the predictability of court decisions, low levels of corruption, the competitiveness of civil service salaries, and low distortions in development policies.13 Although not above criticism, this type of analysis has been increasingly used by researchers to give a strong quantitative and analytical underpinning to the proposition that governance matters.14

7. Until recently, the World Bank’s interest in governance, like that of other multilateral agencies, has been limited, cautious and technocratic. For example, judicial reform has been viewed in terms of better selection and training of judges and improved management of the courts. Civil service reform has been pursued through measures such as downsizing, merit-based

11. World Development Report 1997: The State in a Changing World. (Oxford: Oxford University Press, 1997); Dollar, David, and Lant Pritchett, Assessing Aid: What Works, What Doesn’t, and Why (Oxford: Oxford University Press, 1998); World Development Report 2000/2001: Attacking Poverty (Oxford: Oxford University Press, 2000).

12. Stephen Knack and Philip Keefer, “Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures,” Economics and Politics 7, 1995. See Mauro (1995); Robert Hall and Charles Jones, “Why Do Some Countries Produce So Much More Output Per Worker Than Others?” Quarterly Journal of Economics 114(1): 83–116; and Daniel Kaufman, Aart Kraay and Pablo Zoido-Lobaton, Governance Matters, World Bank Policy Research Working Paper 2196, 1999.

13. World Bank. World Development Report 1997: The State in a Changing World. (Oxford: Oxford University Press, 1997).

14. Dollar, D., Assessing Aid: What Works and What Doesn’t (World Bank 1998); Reforming Public Institutions and Strengthening Governance: A World Bank Strategy (World Bank 2000); “Supporting Country Development: World Bank Role and Instruments in Low and Middle Income Countries,” Operations Policy and Strategy, discussion draft dated July 14, 2000.

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recruitment, and better salaries. But the frequent failure of the projects that rely on such measures reveals that weak political commitment undermines their effectiveness. The source of those weaknesses is often the personal motivations and political agendas of the individuals who wield power in borrower countries.15

8. These are sensitive matters. However, as noted above, a growing volume of research indicates that the efficacy of aid is heavily dependent on the quality of governance. While careful not to infringe a country’s sovereignty, the donor community has come to realize that it cannot ignore this reality. And the more that programs and projects are hostage to poor governance, the less avoidable the issue of governance becomes. This dilemma lies at the very core of the development challenge.

What Is Governance? Clarifying Some Concepts and Definitions

9. Although long current in the academic political science literature, the term “governance” was rarely used in the context of development before 1990. It first entered the Bank’s vocabulary in 1989 with the publication of “From Crisis to Sustainable Growth: Sub-Saharan Africa” on the recommendation of the Bank’s Council of African Advisers, who candidly rejected economic explanations of Africa’s plight.16 The root cause of the region’s difficulties, they pointed out, was that kleptocratic elites were enriching themselves and their clans by looting public funds rather than striving to alleviate poverty. The advisers criticized the Bank for its blindness to political realities. In response to the advisers’ critique, the Bank’s 1989 report openly addressed the problems of governance, defined as “the exercise of political power in managing a nation’s affairs.”

10. At that time, the Bank was uncertain as to how it might address governance issues in light of its mandate. In a legal opinion prepared for the Board of Directors in 1990, the Bank’s General Counsel detailed the extent to which the Bank might address governance matters.17 The opinion focused on the extent to which governance affected the Bank’s mission of promoting development and reducing poverty. That focus allowed the Bank over the following decade to expand its work into the new area of governance and to begin questioning the role of the state and raising issues of corruption, transparency, accountability, rule of law, and the participation of civil society in the development process. With the broadened agenda, confusion arose about the terms governance, institutional development, capacity building, and public sector management. Definitions had not been clearly established, and the directions of causality were far from agreed. For example, did poor governance lead to the weakening of institutions, or did weak institutions result in poor governance? Although it seemed much more feasible to try to limit political abuses by strengthening institutions than the other way around, the Bank quickly found that efforts to help strengthen institutions were of little avail if political leaders rode roughshod over constitutional limits to their power. Meanwhile, work on governance within the Bank was held up by the lack of an agreed conceptual and methodological framework.

15. See, for example, the recently completed institutional and governance reviews for Bangladesh and Bolivia (World Bank 2000).

16. The International Bank for Reconstruction and Development/World Bank, From Crisis To Sustainable Growth - Sub Saharan Africa : A Long-Term Perspective Study, (Washington, D.C.: World Bank, 1989) ISBN 0-8213-1349-5.

17. A key part of the opinion stated that “the Bank is prohibited from taking political factors into account in all its decisions. However, when such political factors lead to direct and obvious economic results relevant to the Bank’s work, the Bank may properly take such results into account as economic considerations which only happen to have political causes or origins.” Issues of “Governance” in Borrowing Members—The Extent of Their Relevance under the Bank’s Articles of Agreement (SecM91-131) February 5, 1991, p. 57.

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11. While the Bank continued to fund projects with old-style public management components through the mid-1990s, an increasing volume of research strove to improve the analytical framework and to integrate the new institutional economics into the Bank’s toolkits.18

12. The research conducted since the mid-1990s has contributed to some sharpening of governance-related definitions and concepts, although consensus on the use of governance terms is still lacking. Governance itself has been defined in various ways in Bank documents. The 1991 Board paper entitled Managing Development: The Governance Dimension, A Discussion Paper (SecM91-820) defined governance as the manner in which power is exercised in the management of a country’s economic and social resources for development. A 1993 report to the Board, entitled Governance: The World Bank’s Experience, defined it as “managing economic and social resources for development.”19 That formulation was used to conform to General Counsel’s 1990 guidance on the subject. The 1993 report went on to explain that “good governance is epitomized by predictable, open, and enlightened policy making (that is, transparent processes); a bureaucracy imbued with a professional ethos; an executive arm accountable for its actions; and a strong civil society participating in public affairs; and all behaving under the rule of law.”

13. Since then the term governance has sometimes been used loosely and misleadingly to refer to the problem of corruption, even though corruption is just one aspect of governance, albeit one with a high social and economic cost. The conflation of governance and corruption is especially prevalent in Bank documents in the period 1996–98. In practice governance encompasses a much larger set of issues, including the processes by which rulers are chosen, the rule of law and the functioning of systems of public accountability, and the participation of citizens in making decisions that affect them (box 2.1).20 Governance concerns intrude into many aspects of public sector management, and a sharp differentiation is neither easy nor necessary.

Box 2.1. The Governance Lexicon

Capacity building : Narrowly defined, the development of skills and competencies and related equipment within organizations. Commonly used more broadly as synonymous with institutional development to cover all aspects of the development of the capacity of public agencies to perform their designated roles.

Governance: The exercise of the power of the state in managing a country’s social and economic resources, as well as the related mechanisms for public accountability, rule of law, transparency, and citizen participation.

Institutions: The formal and informal rules, processes, laws, norms, and incentives that govern the way people cooperate together to achieve shared goals.

Public sector management: The technical aspects of managing the public sector, including public administration; the civil service; public agencies; state-owned enterprises; public finance; public procurement; systems of monitoring, evaluation, and accountability; capacity building; decentralization; linkages between core public institutions and sectoral institutions; and structure of government.

18. Reforming Public Institutions and Strengthening Governance (World Bank 2000) for a detailed listing of empirical studies of governance and development.

19. Governance: The World Bank’s Experience (R93-203) November 30, 1993. Published by the Bank in May 1994 (ISBN 0-8213-2804-2).

20. In the World Bank’s most recent report on Africa, Can Africa Claim the 21st Century? (April 2000), governance is somewhat awkwardly defined as “the institutional capability of public organizations to provide the public and other goods demanded by a country’s citizens or their representatives in an effective, transparent, impartial and accountable manner, subject to resource constraints.” The report goes on to point out that economic and political governance matters are inseparable. It defines “good governance” as empowering the citizens, enabling governments (through capacity building), and enforcing the rule of law.

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14. Corruption is only one form of abuse of public trust. The inefficiency of public management is another that leads both to massive waste and lost opportunities. The latter, though less ethically reprehensible, may obstruct development and poverty reduction even more than corruption. Governance encompasses both concerns.

15. Two other concepts that arise in any discussion of governance are institutional development and capacity building. That the concepts occur together is hardly surprising, since any initiative aimed at improving governance would, if it were to be successful, also have to strengthen the institutions through which political rulers and the public officials who serve them were held accountable for their actions. The two concepts are so closely related that they are frequently used interchangeably, although capacity building is perhaps more properly used to refer to training and technical assistance.21

16. Another distinction made in the social science literature, but often ignored by others, is that between institutions and organizations. The term “institution” correctly refers to a group of people governed by accepted rules of the game (the group may be as small as a few individuals or as large as a nation), while an “organization” is a specific structured entity with staff and resources. Institutions may be informal (for example, social networks bound together by group norms enforced by group sanctions) or formal with rules enforced administratively or by the courts. Strictly speaking, the World Bank and International Monetary Fund are the Bretton Woods organizations, not institutions. Since common usage routinely confuses these two, there is little point in insisting on differentiating them.

17. One more term in the governance lexicon is public sector management. Institutional development and capacity building aimed at improving governance are part of public sector management, but the term covers additional ground, encompassing all initiatives aimed at improving the performance of the public sector, whether strictly technical—for example, the introduction of a local area network for government email—or having a governance dimension. Inevitably, most measures in public sector management have some governance aspect. Within the Bank, the term has become associated with public management specialists and is disparaged by some public sector economists as tending to ignore new institutional economics. More particularly, economists often stress solutions to poor public sector performance that reduce the role of government in favor of markets or private sector service providers.22

18. More recently, the Public Sector Group (PRMPS) within the Poverty Reduction and Economic Management Network has made a major effort to draw all these strands together to find balance among the factors that influence the performance of public agencies, particularly in their delivery of services to the public. Its extensively debated strategy paper, Reforming Public Institutions and Strengthening Governance, which represented an attempt at synthesis, was considered by the Bank’s Board in July 2000. 23 At the country level, guidelines for the preparation of country assistance strategies (CASs) now require country teams to lay out a clear governance strategy. No simple answers or approaches exist; each country has its own peculiar circumstances that call for specific strategies to strengthen public accountability, build

21. In the PACT program supported by the Africa Region, for example, capacity building has been given a broad definition that encompasses institutional development.

22. In this context, it is significant that World Development Report 1997: The Role of the State in a Changing World focused on the role of the state and gave relatively little attention to the more traditional aspects of public sector management. World Bank. World Development Report 1997: The State in a Changing World. (1997).

23. Reforming Public Institutions And Strengthening Governance : A World Bank Strategy, (Washington, D.C.: World Bank, 2000). ISBN 0-8213-4875-2

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institutions, and improve public sector management. The need for a customized solution for each country is consistent with the Bank’s Comprehensive Development Framework (CDF), which stresses country leadership and ownership.

Is the Bank Well Placed to Address Issues of Governance?

19. During the IDA10 period the Bank was reticent about addressing borrowers’ weak governance directly. The second half of the 1990s saw a turnaround in the Bank’s posture; governance issues were placed squarely on the table and a serious effort was initiated to confront the social and economic damage done by corruption. The lead from the top has been effectively communicated down through the organization. For example, of the staff surveyed for this review, more respondents agreed or strongly agreed (45 percent) than disagreed or strongly disagreed (27 percent) that senior management’s emphasis on the importance of governance issues is being effectively reinforced by regional managers.

20. During the 1990s, the Bank demonstrated its ability to gain the trust of countries such as Vietnam, Tanzania, and various Indian states, which has allowed it to engage in a dialogue on governance issues that ten years ago would have been unthinkable (box 2.2). In countries where the leadership is less committed to governance reform, the dialogue has been more difficult. Other development partners face the same difficulties.

21. The Bank, along with the rest of the aid community, has taken time to appreciate the central role of governance in determining development outcomes. Dominated by economists and financial analysts, the Bank has been slow to evaluate the social and political factors at work. Nonetheless, the staff survey carried out in support of this review found that 63 percent of respondents agreed or strongly agreed that IDA had a comparative advantage over other developing agencies in addressing governance.

22. Although the bilateral aid agencies often have fewer inhibitions about intruding into the political sphere—and in a number of cases are active in pursuing human rights concerns—their assistance is influenced by their own political agenda, a clear disadvantage.24 The United Nations Development Programme (UNDP) recently decided to give governance issues priority attention. However, UNDP is constrained in resources.

24. During the country visits this point was raised by officials, NGO representatives, and donor representatives.

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Box 2.2. Governance Work in the Bank—A Historical Perspective

By the early 1980s the Bank had initiated programs aimed at strengthening public sector management. A public sector management division was created in 1981 as part of the Bank’s central policy staff. World Development Report 1984: Managing Development included a discussion of the impact of corruption on development. Substantive diagnostic studies focused on Thailand, Indonesia, and other countries, and several public management reform projects tackled issues such as administrative reform, privatization, decentralization, procurement, and public expenditure management. In Africa, particular attention was paid to civil service reform. Overall, the record of such projects was poor, discouraging managers from expanding work in the area. At the same time, it was recognized that the problems ran deeper than had been assumed and were not amenable to a quick technocratic fix. The deeper political dimension came to be called “governance.” Those working on the issues often identified the problem as a lack of political will.

The Bank’s management was initially cautious in confronting problems of governance, even though it became increasingly evident that poor governance and weak institutions were the central development challenge. Not surprisingly, governments in borrowing countries were hostile to the Bank’s attempts to start a dialogue on matters that touched so many raw nerves. For many Bank managers, denial was often the easy way out. They preferred to disregard obvious abuses and took at face value borrowers’ claims of dedication to honest and efficient government. Signs of poor governance tended to be treated as though they were the outcome not of lack of commitment, but rather of weak capacity, which was to be tackled by structural reforms, technical assistance, and training.

From time to time, faced by program or project failures, the country teams would bemoan the lack of political commitment. This they sought to address through various forms of conditionality, most often unsuccessfully because the political leaders had other priorities or were simply unable or unwilling to overcome the opposition of entrenched vested interests. Staff continued to be judged by their ability to deliver projects and everyone was aware that raising fundamental questions related to poor governance would simply lead to delays. Corruption, which the Bank preferred to call rent-seeking, was seen as a particularly touchy subject and staff was given little real encouragement to tackle the matter until a new president arrived in 1995.

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3. Commitments, Policies, and Guidelines Related to Governance

“Holes in institutional development and governance and lack of adequate and fairly paid staff gnaw destructively at policy making, service delivery, and accountability.”

—J. D. Wolfensohn, September 28, 1999

23. Although much conceptual confusion has surrounded the discussion of governance, the IDA10, 11, and 12 replenishment reports were clear on specific concerns (box 3.1).

24. Noting that “effective policy-making and implementation require good governance,” the IDA10 Replenishment Report enjoined IDA to help “strengthen the capacity of governments in the areas affecting good governance,” placing special emphasis on greater accountability, transparency, the rule of law, and participation.25 Acknowledging that IDA’s articles “prohibit interference in political affairs,” the report calls for IDA to focus on the “economic aspects of good governance within the limits of its Articles of Agreement.” Significantly, the report then added that “in the Deputies’ view certain issues, such as democratization and respect for human rights, can have important long-term implications for the capacity of a country to initiate and sustain programs for effective poverty reduction, economic adjustment and growth, and environmental sustainability.” However, the Deputies presumably did not expect IDA to address such matters given the limitations imposed by its Articles of Agreement.

25. The IDA10 report asked IDA to “address the question of whether adequate levels of development expenditure are being crowded out by the weight of large or rising non-development expenditures, including military expenditures, and to take up the question with the government concerned wherever appropriate.” Finally, it indicated that “the Deputies were pleased to note that IDA’s management has instructed staff to pay explicit attention to consultation with NGOs and groups affected by projects, in defining performance.”26

26. The IDA11 Replenishment Report devoted less space to matters of governance than the IDA10, report but emphasized the importance of “good performance,” and for the first time referred to linking allocations to “a framework of good governance,” which was seen as a precondition for good performance.27 This theme was even more prominent in the IDA12 report, which called for country assistance strategies (CASs) to “systematically include consideration of governance” and noted for the first time that “weak governance, including corruption,” was a significant development constraint that required “explicit treatment,” including specifying the implications for IDA lending levels and types of project interventions.”28

25. Additions to IDA Resources: Tenth Replenishment (Report No. IDA/R92-168) December, 1992, paragraph 17.

26. Ibid, paragraph 35.

27. Additions to IDA Resources: Eleventh Replenishment, Interim Trust Fund for FY97 and Termination of the FY84 Special Fund (Report No. IDA/R96-64) April, 1996, paragraph 33.

28. Ibid, paragraph 53.

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Box 3.1. References to Governance in the IDA Replenishment Reports

IDA 10

• Systems of public accountability.

• The transparency of public agencies and of policymaking for development.

• Rule of law.

• Participation in policy formulation and project design and implementation.

• National ownership of project performance.

• Capacity building institutional development with respect to the above.

• Public expenditure management to meet the needs of the poor and avoid crowding out by nondevelopment expenditure.

• Country assistance strategy (CAS) to state how governance matters are being addressed.

IDA 11

• Public expenditure, using public expenditure reviews (PERs) as an instrument to strengthen budget planning and expenditure review capacities. Reviews should identify the investments and recurrent spending needs in each key sector, and consider whether military expenditures, subventions to state-owned enterprises, and other nonproductive spending was consistent with the country’s development objectives. The findings should be integrated into the CAS and indicate how changes in spending patterns might improve poor peoples’ access to services.

• Ways to enhance tax collections.

IDA 12

• Ways to make public institutions accountable and competent, policies transparent, legal frameworks predictable and stable.

• Enhancing stakeholder participation.

• Elaboration of a new Bank public sector development strategy focused on institutional development and capacity building.

• Systematically assessing the quality of governance for all countries and linking the quality of governance to the determination of IDA lending levels, scaling back where governance is weak, or stopping lending entirely.

• Including governance explicitly in the country dialogue, in CASs, and in the execution of lending and nonlending services.

Source: IDA10–12 replenishment reports.

27. The reports also mentioned topics important for establishing good governance, such as promoting participation, undertaking public expenditure reviews (PERs), with an emphasis in the IDA12 report on processes, and involving civil society. Although the important message (quoted in the executive summary of this paper) was not further developed in the body of the IDA12 report, it is clear that the report, like the previous two, saw good governance as critical in determining development assistance outcomes. Furthermore, the report seems to have shifted IDA’s central objective from poverty reduction, unqualified, to poverty reduction “within a framework of good governance.”

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28. IDA’s compliance with the undertakings in the three replenishment reports is summarized in annex 1.

The Bank’s Policies and Guidelines on Governance

29. The Bank’s regional managers received the IDA10 Replenishment Report, but no explicit staff guidelines were issued detailing how the report’s requirements were to be implemented. On August 27, 1996, after the IDA11 negotiations, one of the Bank’s managing directors circulated a note to staff summarizing the specific commitments made in the replenishment and noting that “Regions are responsible for ensuring that our country assistance strategies take explicit account of these commitments.”

30. The note did not mention governance, nor did it recapitulate commitments made in earlier IDA replenishments that were still relevant, but it did contain references to participation, inclusion of non-governmental organizations (NGOs), and PERs (including “whether military expenditures, subventions to state-owned enterprises, and other non-productive spending could contribute to ensuring that the overall pattern of spending meets the development needs of the poor”). The note also mentioned that performance should be taken into account in the allocation of IDA resources.

31. Regional managers were similarly briefed on the outcome of the IDA12 replenishment negotiations, and a monitoring matrix was circulated. Nonetheless, the staff survey carried out for this review in June–July 2000 revealed that fewer than one-fifth of the Bank’s staff believed that they had received clear guidance on the implementation of the governance aspects of the IDA10–12 commitments. Fewer than one-third of respondents considered that they had clear guidelines on how to address governance issues generally in their country work.

32. Given these discouraging findings, it is relevant to examine the guidance that has been provided to the staff. The General Counsel’s 1990 opinion and accompanying remarks provided the legal framework for the Bank's involvement with governance issues in general, and confirmed the Bank's role in supporting legal and judicial reform. It was followed by a number of papers written by the General Counsel and other members of the Legal Department, which discussed ways in which the Bank could and should involve itself in these areas. 29 These papers highlighted the fact that legal and judicial reform cannot be imposed from outside and normally require a long-term process of dialogue with the country to develop government commitment, particularly given the involvement of the different branches of government. Judicial reform requires special attention to the integrity of, and access to, the judicial system, especially if the reform is to benefit the poor.30 This latter issue is a quite recent area of growing concern in the IDA program.

33. Following the General Counsel’s 1990 legal opinion, discussed in the previous chapter, the Bank issued a paper entitled Governance and Development.31 That paper was updated in a 1993 report to the Board entitled Governance: The World Bank’s Experience..32 A follow-up 29. See, for example, the compilation of many of these papers in I. Shihata, The World Bank in a Changing World, Vol.2 (1995), I. Shihata, Complementary Reform – Essays on Legal, Judicial and Other Institutional Reforms Supported by the World Bank", Kluwer Law International (1997), "The World Bank and Legal Technical Assistance -- Initial Lessons", Legal Department (1995), "The World Bank and Legal Technical Assistance -- Current Issues", Andrew Vorkink (1997)).

30. Global Synthesis: Consultations with the Poor, PREM, September 1999.

31. Governance and Development, Report No. SecM91-820 (Washington, D.C.: World Bank, 1991).

32. Governance: The World Bank’s Experience, Report No. R93-203 (Washington, D.C.: World Bank, 1994).

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report, “Public Sector Management Report Fiscal 1994,” was never submitted to the Board. Together those papers provided substantial guidance to staff at the start of IDA10, though they were not backed up by formal operational guidelines. The reports spelled out the principal prerequisites for good governance—rule of law, effective mechanisms for public accountability, transparency, and the greater participation of all stakeholders in decision making—and outlined ways to combat corruption and improve public administration, reform judicial and legal systems, and strengthen public expenditure management. They also advocated the use of client surveys, which have become an important addition to the Bank’s public sector reform diagnostic tools. At the same time, the staff received a “sourcebook” on participation that provided ample examples on the techniques and advantages of citizen involvement in programs affecting them. 33

Corruption and Human Rights

34. The next strategy paper, Helping Countries Combat Corruption: The Role of the World Bank, was discussed by the Board in September 1997. 34 The three-year gap reflected the lack of emphasis given to governance by senior management in the intervening years (fiscal 1994–96) prior to the arrival of present president. The 1997 report laid out anticorruption actions to be taken at three levels: (i) projects and programs financed by the Bank or IDA; (ii) the country level; and (iii) internationally. It stated that the Bank would “mainstream” its concern for corruption into its country analysis and lending decisions and declared for the first time that “corruption should be taken explicitly into account in risk analysis, lending decisions, and portfolio supervision.”35 Operational guidelines to implement the report’s prescriptions were issued to staff in the same month the report appeared. The focus on corruption reflects the special attention paid to that aspect of governance at the time, a focus that persists.

35. The “Anti-Corruption Action Plan” issued in January 1999 sought to strengthen the Bank’s fiduciary oversight and extend and deepen its anticorruption country work. In April 2000, the Bank submitted a progress report to the Board entitled Helping Countries Combat Corruption: Progress at the World Bank Since 1997 that was intended in part as a response to a critical report from the U.S. General Accounting Office.36 The Bank report listed some 600 anticorruption actions taken or supported in 95 borrower countries, including 24 IDA countries.37

36. One aspect of governance mentioned in the IDA10 agreement has been treated with particular caution by the Bank. In 1998, the Bank published a paper that recognized that “creating the conditions for the attainment of human rights is a central and irreducible goal of development.”38 Consistent with its mandate, the Bank’s assistance in the area of human rights has been restricted to “rights that are economic and social in nature.”39 Human rights thus construed are an important part of the Bank’s work in several areas, including human resource development; access to credit, land, and markets; ensuring culturally appropriate benefits to

33. The World Bank Participation Source Book, (Washington, D.C.: World Bank, 1996).

34. “Helping Countries Combat Corruption: Progress at the World Bank Since 1997.” (R97-201), September 4, 2000.

35. Ibid, paragraph 1.3.

36. United States General Accounting Office, 2000. “World Bank: Management Controls Stronger, but Challenges in Fighting Corruption Remain.” GAO/NSIAD-00-73, Washington, D.C.

37. SecM2000-191 dated April 12, 2000 to which was annexed the Bank’s Anti-Corruption Action Plan for 2000.

38. Development and Human Rights: The Role of the World Bank (World Bank, September 1998), p. 2.

39. See Governance: The World Bank’s Experience, R93-203, November 30, 1993, p. 52. Published by the World Bank in May 1994 (ISBN 0-8213-2804-2).

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indigenous peoples under Bank financed development projects, and protection of people from impoverishment resulting from involuntary resettlement in the wake of such projects.40

37. Political rights -- "democratic rights" -- generally have been considered off limits, in part because, consistent with its mandate, the Bank has not been able to establish a statistically convincing link between development performance and type of political regime.41 Ultimately, however, the only sure way to protect the interests of the poor is through an effective voice in the decisions of government that directly affect them. Only recently has the Bank started to incorporate these wider aspects of human rights in its policy work.

Recent Milestones in Governance and Institution Building

38. The new strategy paper, Reforming Public Institutions and Strengthening Governance, is a milestone in the Bank’s approach to governance and institution building which proposes a much more proactive effort. Prepared after some two years of internal debate, it summarizes the Regions’ own assessments of their accomplishments in the 1990s and their proposed strategies and work plans for the next several years. Still, a division of opinion on the Bank’s role exits among member countries, primarily between the Part I and Part II countries, with the latter still showing considerable sensitivity to country-specific mentions of governance weakness, especially corruption. Their reaction is hardly surprising, since any discussion of governance is bound to be viewed as a critique of the performance of the political leadership of the country concerned, a critique that may be exploited by the political opposition. There is, therefore, some way to go before governance weaknesses can be addressed by the Bank with the candor that is needed to support substantive reforms developed and implemented by borrowing countries.

39. The three regions in the Bank that have been most active in pursuing the governance agenda—Africa, Europe and Central Asia, and Latin America and the Caribbean—have all recently issued reports of their own that have given prominent attention to governance issues. Beyond the Washington Consensus: Institutions Matter, published by the Latin American region in November 1998, reflected the strong influence of economists in paying special attention to ways to strengthen market mechanisms. Though little mentioned, the report was remarkable for covering the political dimensions of institutional development.42 Recognizing that governments rarely reform themselves, it discussed the factors that increase the demand for institutional change, including opportunities for coalition building in civil society and ways to compensate and thereby overcome the opposition of those who stand to lose from reforms. The report also clarified concepts and provided guidance on analyzing and designing institutions.

40. “Improving governance, managing conflict, and rebuilding states” are key themes of Can Africa Claim the 21st Century?, which appeared in April 2000. 43 The report contains brief sections on “the political dimensions of governance” and electoral systems and, in a section on ways to encourage civil society to demand good governance, addresses the awkward question of how to get reluctant governments to reform themselves. This discussion, although tentative and incomplete, goes to the core of the governance challenge.

40. See OD 4.20 (Indigenous People) and OD 4.30 (Involuntary Resettlement).

41. World Development Report 2000, paragraph 6.92. However, Amartya Sen argues that democracy can make a contribution to development by creating positive incentives for leaders to respond positively to the demands of citizens. Development as Freedom (New York: Alfred Knopf, 1999).

42. Beyond the Washington Consensus: Institutions Matter, Latin America and the Caribbean Region, November 1998.

43. Can Africa Claim the 21st Century? (Washington, D.C.: World Bank, 2000).

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41. The report of the Europe and Central Asia Region, Anti-Corruption in Transition: A Contribution to the Policy Debate, demonstrates a new willingness on the part of the Bank to be candid about profound governance weaknesses afflicting some borrowers. The paper centers its analysis on the results of an extensive business survey that revealed extraordinarily high levels of corruption in many countries of the region.44 The report distinguishes between “administrative corruption” and “state capture,” in which power brokers make the state work to their personal advantage through privileged access to equity stakes in divested state -owned enterprises, control of private monopolies that facilitate rent-seeking, and similar abuses that have generated huge benefits for a few well-placed individuals. The report traces the origins and mechanisms of such abuses and sets out a multipronged strategy for combating corruption in all its manifestations.

42. In addition to these major reports, the Bank has issued a series of “Notes” in recent years that provided informal guidance to staff working on governance, institutional development, and public sector management (annex 6). Toolkits have been prepared to assist staff to undertake a more rigorous and systematic technical analysis of institutional and public management weaknesses. (The toolkits are described in the next section.) These efforts have the potential to tighten the quality of staff work, although the staff survey conducted for this review shows that few staff have used the toolkits; in fact, 72 percent of task managers responding to the survey admitted never having done so. This may be because they have only recently become available. Future training workshops and the availability of the toolkits and related documents on the Web should increase use.45

43. Toolkits on judicial reform have also been prepared, standard issues to be addressed by legal and judicial reform sector assessments have been developed, and research conducted for purposes of assisting the evaluation of the legal and judicial reform projects and activities. This has included studies on corruption and efficiency in the judiciary, as well as the development of a performance indicators for the judiciary. The first global conference on legal and judicial reform was held last year.46 Moreover, a distance learning pilot for Bangladesh, Indonesia, the Philippines, Sri Lanka and Thailand, entitled “Judicial Reform: Improving Performance and Accountability,” was recently designed and launched in cooperation with World Bank Institute, focusing on judges, case management, empirical research and controlling corruption.

44. In collaboration with the Poverty Reduction and Economic Management Network, the Operational Core Services Network recently has given special attention to the fiduciary aspects of IDA lending. This is discussed at greater length in the next chapter. Suffice to note here that several policy papers drafted over the past year address the issue of weak financial accountability (annex 6). In addition, the Bank has produced guidelines that spell out how governance issues should be addressed in country assistance strategies.47

44. Anti-Corruption in Transition: A Contribution to the Policy Debate, (Washington, D.C.: World Bank, 2000).

45. Many of the elements of the Public Sector Group’s toolkits have been incorporated in the toolkit used by the Poverty Reduction Support Program, the new Bank-Fund vehicle for assisting very poor countries.

46. After the June 2000 Global Conference on Comprehensive Legal Reform, the Bank launched an electronic forum to reach those who were unable to attend the conference, as well as to further build on the partnerships forged during the conference. Over 600 subscribers from around the world participated in this virtual discussion on legal and judicial reform. More recently, the launch of the Development Gateway for Law and Justice highlighted insolvency law, judicial and legal reform, child labor law and international environmental law, and has provided a more permanent electronic clearinghouse for legal and judicial reform. In May 2001, a new electronic forum was launched in advance of the July 2001 Global Conference “Empowerment, Security and Opportunity through Law and Justice,” in St. Petersburg, Russia, with the objective of developing momentum for many of the conference’s sessions, as well as providing a forum for those unable to attend the conference.

47. Interim Guidelines for Preparing CASs and CAS Progress Reports, OPS (revised April 9, 1998).

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45. The spotlight on institutions is maintained in World Development Report 2000/2001: Attacking Poverty, thereby underscoring the key role of institutions in determining development outcomes. The report devotes its third part to “making state institutions more responsive to poor people” and “building social institutions and removing social barriers.” What is new for a Bank report is the effort to integrate political, social, and economic analysis to arrive at a multidisciplinary understanding of the nature of the forces maintaining and deepening poverty and the opportunities for breakthroughs.

46. The theme for World Development Report: 2001–02 report continues the Bank’s focus on institution building. It will examine the role of institutions in supporting market development by reducing information asymmetries, enforcing contracts, minimizing transaction costs, and enhancing competition. Attention will be given to the way societal or behavioral norms affect these functions. Most importantly, the report will study how institutional change occurs.

47. The flurry of research and policy activity noted above (and detailed in annex 6) is strong evidence that the Bank has taken governance and the related institutional dimension of development very much to heart. From being a comparative laggard five years ago, the Bank is now easily the most important player in a field that is now becoming crowded. Yet, the fact remains that detailed guidelines on the implementation of the governance injunctions of the IDA10, IDA11, and IDA12 agreements have not been prepared. The staff survey undertaken for this review revealed that most members of the staff were unfamiliar with those undertakings. To track implementation of the IDA12 replenishment agreements, the Bank’s Resource Management Department prepared a matrix in early 2000, a useful innovation, not used in the IDA10 and 11 periods, that is raising staff awareness. However, the topic of governance and the way it should be approached remain controversial among Board members concerned to ensure that the Bank does not infringe national sovereignty.48

Governance and Lending Levels

48. The following section on governance and IDA’s performance-based allocation system complements a longer background paper prepared for the OED IDA review, entitled “Review of Performance-Based Allocation System, IDA10–12,” which is an in-depth review of the system by which IDA credits are allocated.

Rating Governance Performance in Allocation Decisions

49. During the IDA10 negotiations the deputies approved of Management’s instructions to staff to give more attention to governance in defining performance. The factors mentioned included “accountability, transparency, the rule of law, and consultation with NGOs and groups affected by projects.” The deputies acknowledged the steps being taken by the Bank to consider in allocation decisions the extent to which nongovernment expenditures were hampering a borrower’s development efforts. The 1994 guidelines for country performance ratings (which were unchanged from the 1993 guidelines) included three checklists, one of which addressed factors affecting long-term economic management. Of the 12 items on the list, three were related to governance: “governance” itself; public sector management; and the quality and allocation of public expenditures. The governance item was divided into three sets of factors:

48. See Summary of Discussions at the Meeting of the Executive Directors of the Bank and IDA (July 28, 1998); Minutes of the Meeting of the Executive Directors of the IBRD and IDA (July 28, 1998); Report from the Audit Committee and the CODE on the Discussion Draft on Fiduciary Framework for Adjustment Lending—Meeting of May 17, 2000.

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• Accountability, openness, and predictability of government actions. • Community participation in programs and projects. • Diversion of resources from development to non-development purposes, including

military. 50. The weight accorded the three foregoing factors appears to have been no more than 3 percent in total. No reference was made to the rule of law.

51. It seems fair to conclude that at that time the Bank’s management attached relatively little importance to governance and institutional capacity in the allocation process. That conclusion is reinforced by the fact that the 1995 country rating system, which was substantially changed from that of 1994, dropped all of the “institutional capacity” items , including governance. The two governance-related elements in the 1995 factors were (i) public enterprises and privatization, and (ii) public expenditure allocations and management. Together they carried a weight of 14 percent.

52. In 1996, a new sub-element of civil administration was added, giving governance an overall weight of 17 percent. The total was still heavily biased towards public expenditure and public enterprise management. In 1997 tax reform was added, which raised the overall weight of governance to 20 percent.

53. The rating system was revamped again in 1998, with the introduction of the “country policy and institutional assessment” (CPIA) which included 20 elements grouped into four sets. One set was entitled “public sector management and institutions”; it had five elements:

• Property rights and rule based governance. • Quality of budgetary and financial management. • Efficiency of revenue mobilization. • Efficiency of public expenditures. • Transparency, accountability, and corruption in the public sector. 54. Another item—management and sustainability of the development program—may be considered to be related to governance.

55. The 1998 assessment system represented a major turnaround. Its effect was to align the IDA allocation system with the policy directions of the new president, which emphasized the importance of governance in determining development outcomes. At the same time, the 30 percent weight given to the governance elements still failed in practice to reduce allocations substantially to states with very poor governance records. A “governance discount” was therefore added to reduce support to countries judged to have particularly severe governance failings.

56. The governance discount comes into effect if a country is rated ”unsatisfactory” on at least three of the six governance elements in the CPIA or if it is rated unsatisfactory on at least two of the six governance elements, and procurement practices in at least 30 percent of ongoing IDA-supported projects are deemed unsatisfactory.49 In such circumstances, a country is considered to have “severe governance problems” and its performance rating is reduced by one-third.50

49. The scale goes from 1 (the lowest) to 6 (the highest)—1 and 2 are both in the “unsatisfactory” category.

50. This causes the IDA normative allocation to be cut by 50 percent owing to the way the formula is designed. It is thus severe in its effect. See background paper on Performance-Based Allocation System prepared for OED IDA review.

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57. The current discount is not, however, having its intended effect -- except to send the message that IDA takes governance matters seriously. In 1998, 18 countries fell into this category. In 1999, 7 of the 18 escaped it. As the second year experience showed, a small improvement in a rating can bring a country above the threshold, as happened in the case of Cambodia. Four new countries were subjected to the governance discount in 1999: Guinea Bissau, Liberia, Sierra Leone, and Togo, while they had avoided it in 1998. In the 2000 exercise, Comoros came off the list and Zimbabwe went on it, so the number of active IDA borrowers that received a government discount remained at 10 (including nine of the eleven countries with the lowest CPIA scores overall). Yet the discount did not capture some countries with recognized poor governance. In other words, the discount seems, in practice though not intent, primarily to reduce IDA allocations to the lowest ranking performers in the CPIA exercise overall.

58. The correlation is usually close between poor governance and poor economic and social performance usually is close. But this is not always true, as the case of Indonesia demonstrated—although eventually poor governance brought about economic collapse. The development performance of Bangladesh—another country with serious governance problems—is above the average for IDA countries. Nevertheless, IDA lending to the country has been far below its allocation due to the government’s limited capacity to prepare projects which meet IDA financing criteria, including governance-related criteria, as well as slow progress on structural reforms and governance improvements.

59. The system needs further careful study to achieve both equitable outcomes and a more substantial cut in lending for governance non-reformers even if their other performance ratings are average. In particular, further work is needed to establish better governance indicators, and the system needs to be made more transparent.

60. The Bank shares a concern with other aid agencies to improve the quality and objectivity of governance measures, as evidenced by its leading role in deliberations at a recent meeting of the Development Assistance Committee of the Organization for Economic Co-operation and Development (OECD). Work on governance indicators is already underway within the Bank,51 with open discussions with researchers outside the Bank and with IDA's partners, but more work is warranted to better gauge the impact of different public sector reforms on the lives of citizens, especially poor citizens.

IDA Lending to Countries with Weak Governance

61. Although the search for ways to link IDA lending to governance performance is justified on the grounds of effectiveness and fiduciary responsibility, the effort is complex. Not only is it difficult to measure governance performance in the absence of data derived especially for the purpose—data that are not yet available in a form that would allow meaningful cross-country comparisons—but also penalizing a government for poor governance begs a more basic question. While countries may be poor because they have weak governance, it is equally true that they have weak governance because they are poor. To refuse to lend to countries that do not meet minimum governance standards is also to abandon millions of poor people who bear no responsibility for the unsatisfactory quality of governance. Yet neither should IDA continue to lend to governments that make little attempt to prevent the waste of public resources or to discipline public officials who steal public goods or extort bribes.

51. See Why Is It So Difficult to Agree on Governance Indicators? Steve Knack and Nick Manning (World Bank, February 17, 2000); also see Governance Matters, Danny Kaufmann, Aart Kraay, and Pablo Zoido-Lobaton (World Bank Policy Research Working Paper 2169; and Aggregating Governance Indicators, Danny Kaufmann, Aart Kraay, and Pablo Zoido-Lobaton (World Bank 1999).

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62. One way around the conundrum is to relax the lending target. The very existence of country announced lending allocations (the “base case” in country assistance strategies) encourages the notion that allocations are lending targets. Many borrowers have come to believe that once a lending program is announced, the Bank will not walk away regardless of their actions; at worst, they may fall into the “low case” scenario in the CAS. Such assumptions may become a disincentive to reform. If IDA stopped making new commitments, or even halted disbursements, offending borrowers might be obliged to consider reform; such was the case in Kenya (box 3.2), though Kenya still has a long way to go in reforming its governance system.52

Box 3.2. Kenya: A Case Study of Withholding Lending to Foster Governance Reform

The May 1998 OED Country Assistance Note (CAN) concluded that IDA assistance had not been effective in promoting reforms. Given weak compliance with IDA conditionality, and the poor governance situation, the note recommended limiting lending to small poverty-targeted interventions and shifting the focus to non-lending activities.

The September 1998 CAS envisaged Kenya to be in a Low Case lending for the three years FY99-01. Base Case lending levels including budget support were directly linked to improvements in governance. The focus on governance to trigger the Base Case was a first in Bank history. If the Base Case were triggered, the volume of lending in the first year would be around $100 million, but strong progress in implementation would justify increasing annual lending towards the higher end of the range. IDA would invest in non-lending services.

IDA’s stance of suspending new lending to Kenya (coordinated with other donors) led the Government to appoint the Change Team in July 1999 and to initiate economic governance and policy reforms. In August 2000, IDA approved a $150 million loan (the EPSRC) though the conditions for such support, as specified in the September 1998 CAS, were not fully met. Following the EPSRC, two AIDS projects and an Emergency Energy Project were also approved. Total IDA commitments between FY99 and December 2000 have been $362 million of which $322 million were approved in the last six months of 2000.

Although some progress has been made in the design of governance reforms, there has not been progress in terms of effective implementation. Improvements in governance were not sufficient to merit a move to large scale lending because it was predicated on strong progress in implementation. There were also several additional factors. (1) The continuing risk of policy reversals as in the past. This risk has now materialized with a delaying of the sale of Kenya Telecom (a central trigger for Bank assistance in the 1998 CAS), the declaration of Kenya Anti-corruption Authority as unconstitutional, stripping it of powers to investigate or enforce corruption, and the passage of a bill in the Parliament to cap commercial bank interest rates, undoing liberalization in the financial sector. (2) The impact of the governance reforms at the central level had not been felt at the local level of communities. (3) Important laws, bills and circulars expected to be passed have been rejected by Parliament.

Fast-track emergency projects that IDA approved also raise the issue of the role of IDA in a country in a crisis with a poor governance environment. There are good reasons to engage in crisis situations, but rapid disbursing program lending should not anticipate reforms but rather be dependent on solid and evident progress in the implementation of the governance reforms, especially where institutional changes are required. For this reason, IDA has held back the disbursement of both the second tranche of the EPRSC and further disbursements under the Emergency Energy Project.

63. Even if the low, base, and high cases typically presented in country assistance strategies were retained, IDA could make it clear to borrowers that resources were available to support only those countries that had in place credible governance reforms defined and “owned” by the borrower. The Bank’s diagnostic work, preferably done jointly with the borrower, would be available to help pinpoint areas where reform was needed, but it would be up to the borrower not

52. At the end of 2000, Kenya showed signs of backtracking after IDA lending resumed. The signs may indicate an absence of genuine ownership of the reforms by the country’s leadership.

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just to propose credible reforms, but also to start their implementation. Under this proposal, IDA would require significant up-front action on reforms as a condition of making the credit, and acceleration of credit repayments in cases where measures were subsequently reversed in a clear breach of the credit agreement (subject to supporting Bank policy).

64. If such an approach were adopted, the aggregate amount that IDA could hold out to performing borrowers would be much greater than indicated amounts available, since vested interests would inevitably slow reforms in many countries. Stellar performers could thus receive significantly more than they would have been allocated under the present system. The proposed approach has some similarities with that taken in the case of Kenya.

65. Although the regime in that country has taken no action to sanction senior leaders notorious for their corruption,53 the Kenya program nonetheless provides an important lesson on how to deal with governance weaknesses, provided that lending is suspended when reforms stall. The selective approach to supporting home-grown governance reforms at the state level in India is another example of this approach; here it will be important to ensure that funds are indeed disbursed after the genuine implementation of significant, difficult reforms and not before.

The Importance of Equity … and Donor Coordination

66. One function of IDA’s current lending allocation review is to treat borrowers equitably, but it is questionable whether it meets that objective. Despite the clear guidelines, anomalies still arise because of the important element of judgment explicit in the ratings. An example of such anomalies was discussed above in the context of the governance discount. Another example is the much more favorable treatment of Zimbabwe over a period of time compared to Kenya. OED’s IDA review team concluded from a field visit that governance ratings of Ghana’s policy and institutional assessment had been excessively favorable. Such problems could be partly overcome by a more thorough and independent review of the region’s rating proposals, which would require a well documented audit trail explaining the basis for each judgment on each country rating.

67. If the Bank is to take the governance dimension of the allocation exercise seriously, it must be willing to stop lending not just to one offender but to, say, the ten worst performers and to reward the good performers much more than at present. The process must be transparent to the general public in borrowing countries.

68. Lastly, the Bank cannot successfully pursue the proposed strategy alone. It requires close donor coordination, particularly because it meshes with the sectorwide and PER approaches discussed earlier. Donors have worked together well so far in Kenya, but until the principles and practices of coordination have been ironed out in this and other real cases, coordination will remain the Achilles heel of donor effectiveness. In most countries donors have failed to achieve the close collaboration that is essential to tackle weak governance effectively, especially where the incumbent government is fiercely intent on defending the vested interests of those in power and is hostile to donors trying to work together.

53. The leaders in question were recently identified publicly by the Public Accounts Committee of the Kenyan parliament.

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4. Building Capacity for Governance Work

69. Throughout the 1980s and first half of the 1990s, the World Bank’s senior management had an ambivalent attitude toward work in the areas of governance, institutional development, and public sector management. Within the Bank the dominance of economists, many recruited from academia and having little practical experience of government, meant that there was generally a poor appreciation of these noneconomic factors in the development equation. Many Bank staff lacked experience of working within developing country administrations or, indeed, within any public administration.

70. The neglect of issues of public sector management was first raised at the end of the 1970s by a handful of staff who felt that the Bank’s failure to address the institutional dimension of development systematically and professionally was the root cause of IDA’s poor results in many low income countries. In 1979 Robert McNamara, then the Bank’s president, appointed a task force on public sector management. The report of the task force made a strong plea for establishing a public sector management capacity within the Bank. As a result, a central division was created in 1981.

Addressing Public Sector Reform

71. As operational work in public sector management expanded through the 1980s, management interest and support waned, so much so that when the Bank underwent a major reorganization in 1987 the central public sector management division was omitted altogether from the initial organization chart. The eventual solution was to merge public sector management with private sector development in a single division. Ironically, the private sector concerns were allowed to preempt work in public sector management, even though public sector weaknesses—weak judicial systems, poor utilities and transport services, cumbersome regulatory agencies, unpredictable decision making, obstructive bureaucracies, and the like—were the main obstacles to development of the private sector. The Bank’s leadership in public sector work remained weak over the next five years, with the public sector management staff orphaned within a division devoted essentially to the private sector.

72. The next reorganization, in 1992–93, brought little improvement in the status of governance work within the Bank. The public sector management group within what became the Public Economics Division of the Development Economics Vice Presidency was eliminated, and the one remaining specialist in public sector management was relocated to the Human Resource Development and Operations Policy Vice Presidency. The 1994 report to the Board on public sector management was never completed, an indication of the low level of attention being paid by senior management to governance and public sector management at that time, notwithstanding the requirements set out in the recently concluded IDA10 agreement.

73. The situation improved dramatically in 1997 with the creation of the PREM Network. Four groups were established within the network, covering economic policy, gender and development, poverty reduction, and the public sector, each headed by a director and having its own sector board. The term “public sector management” was replaced by “public sector reform” to encompass issues related to redefining the role of the state and to denote the emphasis on the application of market-based solutions to public sector weaknesses.

74. The staff of the network’s Public Sector Group (PRMPS) was steadily built up and now numbers some 15 specialists in public expenditure management, tax administration, judicial and legal reform, public administration and institutional assessment, and decentralization. Thematic groups in these areas hold regular seminars, and a staff training program has been established.

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Legal and Judicial Reform Work

75. The Bank’s early involvement in legal reform issues started with structural adjustment operations when the programs included legal reforms. Initially most of the Bank’s work on legal reform issues was in the context of technical assistance operations. The Bank’s engagement in this area broadened in the 1990s, particularly after the Board’s endorsement of the Bank’s role in governance related work in 1991. The breakthrough took as the Bank’s point of departure the need to reform the drafting and enforcement of laws governing economic activities. However, in the early 1990s several Latin American countries, including Bolivia, requested the Bank to assist with judicial reform.

76. The dramatic political changes in Eastern Europe and the former Soviet Union led to fundamental changes in the legal framework necessary to underpin (and to transform) the political and economic systems of these countries. The Bank’s involvement focused primarily on assisting countries to develop environments which would encourage local and foreign private investment, including stable and predictable systems to protect and honor property and contractual rights. Judicial reform issues began to be addressed in the wake of these developments, with the increasing recognition that enactment of legislation would not yield the desired reforms if the infrastructure for the implementation of laws in cases of disputes was inadequate. Attention thus turned to building and reforming the institutions needed for dispute settlement and other issues related to the administration of justice. To-date, only one judicial reform project has produced an implementation completion report (Bolivia), which makes it difficult to evaluate the experience in this area. However, it is clear that such reform requires a long-term commitment and constant supervision.

77. Borrowing countries have been encouraged to develop a dialogue within their countries with all relevant stakeholders as a basis for defining judicial reform programs to be supported by the Bank. Task managing these operations requires skills to balance the interests of the different branches of government involved and to ensure that the reforms are truly home-grown, and an ability to bring together the lessons of experience worldwide, to obtain specific legal/judicial expertise on particular issues, and to coordinate assistance from many donors.

78. In the last few years, the Bank has taken steps to build staff in both areas of legal and judicial reform. The Legal Department has newly established a legal and judicial reform practice group and is in the process of hiring additional staff with relevant expertise in legal and judicial reform issues and project management. In 1998, the Public Sector group established a focal point for judicial and legal reform, recruiting staff with experience in reforming legal and judicial institutions in a variety of countries, and it has created a thematic group focused on matters of legal and judicial reform. A law and justice Network is also now being established to bring together diffused efforts with the Bank on these issues. These developments should provide more specialized expertise and greater consistency and quality assurance in this growing area.

E*governance—A Neglected Topic

79. One obvious gap in the Bank’s capacity to address governance issues has been in the area of electronic government, which entails uses of the internet and the latest information management techniques for transparency, service delivery, and procurement. This application of the internet revolution is distinct from IDA's overall work on information communication technology (ICT), which has been going on for a long time and has involved over $2 billion of investment lending (for example in tax, expenditure, and financial management systems). While some of the ICT work has been too supply driven, in the last few years programs have become more successful and grounded in a better understanding of the institutional underpinnings of

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successful ICT innovations. Nonetheless, IDA has some way to go to fully integrate ICT expertise with public management.

80. In contrast, "e*governance" is a more recent area that promises dramatic improvements in the technology available for strengthening transparency and public sector management in very poor countries (box 4.1). The Bank (as well as other agencies) has only geared up in the last year on this topic -- with the support of a Dutch grant. This area of activity should be mainstreamed into IDA assistance and not left dependent on trust fund financing.

Box 4.1. E*government in Andhra Pradesh

Andhra Pradesh’s radical program of e*governance is being keenly watched by other states in India. The goal is to connect the state secretariat and the offices of 23 district collectors by next year. In the second stage 112,000 centers with an average population of 30,000 will be added to the network. Eventually all 19,499 panchayats will be brought into the system to create India’s first wired state.

Andhra Pradesh has also formed a joint venture with Singapore Network Services to cover 30 departments under a pilot network. The resulting system will assist citizens in paying their utility bills and in obtaining certificates, permits, licenses, and information 24 hours a day, 7 days a week.

Already achieved since the launch of the project in 1998 are computerized registration of land deeds, land transfers, valuation of properties, and imaging of documents to replace the corruption-infested manual system previously used in subregistrars’ offices. Citizens now complete registration formalities in less than an hour, whereas previously it took up to seven days. Certified copies of documents now take 10 minutes, compared to 1–3 days. About 80 percent of all transactions are now done electronically at the 214 functioning sites across the state.

The initiatives in Andhra Pradesh have set other state governments thinking about the possibilities of e*government. Karnataka, Tamil Nadu, West Bengal, and Maharashtra are planning proactive information-technology policies.

Source: Andhra Pradesh’s official website, http://www.andhrapradesh.com, and IT site, http://ap-it.com.

Rebuilding the Bank’s Skills in Public Financial Accountability

81. The Bank’s work on budget analysis carried out in the context of public expenditure reviews has been the strongest part of its public sector analysis. The Bank’s strong cadre of economists is at home in this area of work. Increasingly, PERs have paid attention to the institutional aspects of budget management. The story relating to other aspects of public financial management is much less satisfactory.54

82. In the Bank’s early days much attention was given to sound accounting for Bank and IDA funds, but little was done to strengthen the accounting and auditing standards and systems of the Bank’s borrowers. During the 1980s and early 1990s, the Bank lost many of its experienced professional accountants. In their place it assigned recent business-school graduates to conduct financial analysis, while the follow up review of project accounts and audits was given a low level of attention.

83. The staffing biases drew criticism in the mid-1990s, and senior management took steps to recruit experienced staff with accounting expertise. Between 1997 and 1999 the number of audit specialists tripled from 25 to 78. However, most of the new accountants were recruited from the

54. See Mimeo Public Financial Accountability by Deepa Chakrapani, Bernard Donges and Vinod Sahgal, prepared for the OED review of IDA (December 2000). This item is available upon request.

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private sector. Although they were well versed in commercial accounting, they were generally not knowledgeable about public accounting and auditing practices. The new staff is not well prepared to advise borrowers on strengthening and reforming their public accounting and auditing systems. This weakness persists.

84. Procurement is another aspect of financial accountability that drew increasing Bank attention during the second half of the 1990s. The number of qualified procurement specialists increased from 46 to 82 between August 1997 and June 1999. A gradual effort has been made to transfer day-to-day oversight of procurement to the field offices and to train national staff to do the work.

Capacity for Public Sector Management in the Bank’s Regions

85. During the 1980s, the Africa and Latin America regions established public sector management divisions that lasted until the mid-1990s. Latin America and the Caribbean reassigned the staff of its division to the country teams in 1995, just two years before establishing a sector unit devoted to public sector management. That unit, staffed mainly by economists rather than institutional or public sector specialists, now has about 35 staff members (approximately 10 of whom are consultants). In Africa, the public sector management team was divided between those working on the capacity building initiative that led to the Partnership for Capacity Building in Africa (discussed elsewhere in this review), while the remainder were merged with the staff working on social development to form the Institutional and Social Policy Division, a vast and unmanageable group of some 70 staff. The group was subdivided in 1997 to create a new Capacity Building Unit, which included public sector specialists. In mid-1999, the new unit was reorganized, and many of the staff was transferred. It now has some 20 specialists and an expanding demand for its services.

86. This brief account reveals earlier indecision in the Africa and Latin America regions about how best to manage public sector reform work. Since 1997 the situation has gradually clarified, and over the last two years solid competencies have been established to do public sector reform and institutional development work in both regions and operational activities are picking up. In Africa, the HIPC and PRSP processes, and associated efforts to increase programmatic lending, are giving impetus to participative in-country processes for building a shared vision, strengthening accountability for development objectives, and bringing the quality of countries’ public expenditure accountability systems to the forefront of the development dialogue. Also, new community-driven development initiatives are being tested as a way to strengthen community control over resource use and participation in oversight.

87. The Europe and Central Asia Region recognized early on that institutional development is central to assisting the transition economies, but it was slow to gear up for the necessary work. By 1997 just six staff members were working in the region’s Public Sector/Institutional Reform unit, several of whom were information technology specialists. Since then, under strong leadership, the unit has expanded rapidly to include more than 30 specialists working in about 20 countries, with a work program that is growing fast even with a severely constrained budget. The unit has demonstrated how the core issues of public sector reform can be successfully addressed. As a result, the region’s country directors now make frequent requests for work on governance and institutional development.

88. In the other regions the response has been less impressive. In the 1980s the Asia Region briefly established a small public sector management unit, but it closed down for lack of demand from the country program managers. For most of the 1990s, East Asia did not see the Bank as

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having much of a role on matters of governance, and this attitude is only gradually changing. 55 As a consequence of the Indonesia debacle of 1997–98 and poorly implemented public sector reform programs in other countries,56 management is more aware of the need to build up competence in this field. Recently, a senior staff member has been appointed governance adviser in the Indonesia field office and a substantial governance agenda has begun in sectoral programs such as forestry and through decentralization activities. The Indonesia country team plans to make governance reform a central plank in upcoming country assistance strategy (CAS). The East Asia and Pacific Region has established an anticorruption advisory group with distinguished outsiders, and a group of five public sector specialists was been established. 57 A few new public sector specialists have been added to the regional Poverty Reduction and Economic Management unit, which is both managing work and undertaking research in the governance area. The group has pioneered formal political stakeholder political analysis in the Bank ( with application in Cambodia) and developed new tools for civil service reform.

89. In the first half of the 1990s, much of the South Asia Region’s work on institutional development and public sector management was carried out on a sectoral basis in areas such as power sector restructuring. In recent years, governance work has expanded. A Regional Advisor for Governance and three specialists have been recruited. Responsibility for public sector work has been divided between the Finance, Private Sector, and Infrastructure Network sector unit and the PREM Network, with the first two handling issues such as financial management and pensions and the latter handling core governance issues such as civil service reform, judicial reform, public expenditure management, anticorruption, and deregulation.58

90. Staff in the South Asia Region have undertaken some interesting and innovative work, including, as discussed elsewhere in this paper, support for public sector reform in Andhra Pradesh and Uttar Pradesh59 and an institutional and governance review in Bangladesh. Most recently, the Region has played a pioneering role in integrating core governance reforms within sectoral programs.

91. With few specialist staff, the Middle East and North Africa Region has done the least in governance and institutional development. For most of the 1990s, the region depended on Europe and Central Asia for staff assistance in the area. However, the country team for Yemen—the only IDA borrower in the region—has been active in pursuing public sector reform.

Pioneering Support from the World Bank Institute

92. The World Bank Institute—like its predecessor, the Economic Development Institute—has reinforced IDA’s operational work by focusing policymakers on the importance of addressing governance issues and placing governance high on its agenda. Starting in fiscal 1994 in Tanzania and Uganda, the institute has mounted anticorruption programs in some 15 IDA countries and helped launch a national integrity strategy in Bolivia. The institute’s emphasis on the importance 55. N. Hanna prepared a major study of the Indonesian public administration. See Nagy Hanna, Indonesia Management Development, Report No. 4965IND (Washington, D.C.: World Bank, 1985). There was little effective follow up to the studies within the region.

56. See, for example, Supervision Quality In FY99 - A QAG Assessment, October 14, 1999.

57. Members of the new anticorruption advisory group include Sir Timothy Lankester (director of the London School of Oriental and Africa Studies), Peter Eigen (chairman of Transparency International), and Tunku Abdul Aziz (chairman of the Kuala Lumpur Society for Transparency and Integrity).

58. In fiscal 1998–99, the infrastructure sector unit managed supervision of a public accounts and audit reform project in Pakistan.

59. Uttar Pradesh Fiscal Reform and Public Sector Restructuring Project (Credit No. 33410).

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of surveys and diagnostic tools has made a major contribution to effective policy dialogue. Its interactive, action-oriented courses have used the tools of distance learning to address corruption in seven African countries in an initiative that has enabled representatives of government and civil society to work with lawmakers on issues of governance and public sector reform. Regional courses on improving public sector management have emphasized the importance of participation by intended beneficiaries of services and programs. Special attention has been given to training in public expenditure management, which was particularly emphasized in the IDA10 agreement.

93. The impact of this work over the medium to long term has not yet been evaluated in depth. It would be useful to gain some insight into the cost-effectiveness of World Bank Institute programs compared to other ways of approaching governance issues in IDA countries. From interviews with operational staff, it is evident that integrating World Bank Institute programs with those of the country departments remains a challenge.

Staff Training

94. Until quite recently, the Bank’s investment in development of its staff’s skills was limited. That changed after 1996 with the twin recognition that the staff’s expertise was the Bank’s major asset and that managing—and developing—knowledge were crucial tasks. Training of staff working on public sector reform is now principally the responsibility of the Poverty Reduction and Economic Management Network. The objective of the network’s Public Sector Group (PRMPS) is to develop and manage a set of targeted and cost-effective short courses and workshops that introduce operational staff to new diagnostic tools and best practices. The programs, which vary between a half day to two or three days, are supplemented by frequent, informal lunch-time seminars where information on new initiatives is shared and debated, often with outside speakers (annex 5).

95. Although a commendable effort in the light of the resources available, the present level of training and knowledge sharing is hardly commensurate with the need, given the rapid expansion of work in this area. The short programs offered by the Poverty Reduction and Economic Management Network can do no more than provide a brief overview of what may often be a complex topic. They are therefore not substitutes for more solid training in what are often new areas for staff who are not public sector reform specialists. In the staff survey conducted for this review fewer than one in five task managers agreed that IDA had sufficient staff specialized in institutional work. Similarly, when asked whether more or less budget was needed for IDA’s work in governance, capacity building, and public sector management, relative to other work, most of the staff responded “more.” If the Bank is serious about being at the cutting edge in a field where knowledge and practice are expanding rapidly, then more resources must be devoted to staff development.

96. It is noteworthy that expenditure on public sector training jumped from $88,000 in fiscal 1998 to $427,200 in fiscal 1999. However, the budget allocation fell to $198,000 in fiscal 2000 and dropped further to $100,000 in fiscal 2001. 60 It is hard to escape the conclusion that staff training in this new area of work is less than needed to handle the growing attention being given to governance work.

60. These figures are not strictly comparable because of internal structural and managerial changes. In fiscal 1998, the Leadership and Learning Center had the main responsibility for internal staff training as well as control over the budget. During fiscal 1999 the Center and the Economic Development Institute merged to become World Bank Institute. The networks took over full responsibility for staff development.

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97. The issue here is one of a la rger problem of insufficient budgets across the Bank for governance and institutional development work—insufficient to provide PRMPS with the resources to do the thorough job of staff training that is essential for mainstreaming public sector management work, and insufficient to allow staff enough time to be trained. The problem emerges clearly from the staff survey. Only a third of the staff questioned felt they had sufficient opportunities for training on governance and institutional issues, and only 13 percent considered the Bank to have enough specialized staff to do the required work.61

61. “Lack of opportunity” often means insufficient time, which translates into an apparent lack of demand.

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5. Instruments for Promoting Governance Reform

98. For many years the Bank has pursued its country assistance objectives with a mix of program and project lending, economic and sector studies, technical assistance (in the form of credits and advice provided in preparation for lending), freestanding studies, and training programs mounted by the World Bank Institute. Growing recognition of the impact of poor governance and institutional weaknesses has resulted in an effort to modify these modalities to achieve greater borrower commitment to reform.

Diagnostic work

99. Good diagnostic work helps a government define a public sector reform strategy that sets out goals and a program for building the capacity of the country’s institutions and strengthening its public accountability systems. This objective has not been achieved in practice, except in a few cases, such as Bangladesh in 199662 and Uttar Pradesh in 2000. 63 The Bank’s recent economic and sector work on the public sector is summarized in table 5.1 and catalogued in annex 3.

Table 5.1. Economic and Sector Work on Public Sector Management and Reform in IDA countries, by Region (Fiscal 1994–99)

Region 1994 1995 1996 1997 1998 1999 Total

Africa 12 16 22 21 18 10 99

East Asia and Pacific 1 2 6 2 6 7 24

Europe and Central Asia 1 0 3 3 2 7 16

Latin America and Caribbean 0 2 0 1 2 0 5

Middle East and North Africa 0 1 0 1 1 1 4

South Asia 3 4 6 4 3 7 27

Total 17 25 37 32 32 32 175

Note: This includes economic and sector work related to public sector and multi-sector projects only; it does not include analysis related to sector-specific work. Source: Institutional Business Warehouse.

100. In 1999–2000, IDA pilot institutional and governance reviews were prepared for Armenia, Bangladesh, and Bolivia, and begun for Indonesia. In 2001, reviews are also planned or under way in Benin and Southeast Europe. The new form of review was intended to result in in-depth diagnostic studies, but the resources allocated for the tasks did not permit comprehensive documents to be prepared. Consequently, for most IDA borrowers, diagnostic work is limited. Between fiscal 1994 and fiscal 1999 the Bank produced 77 public expenditure or investment reviews and a total corpus of 175 public sector studies. That amounts to little more than one report per IDA borrower over the six years. Although those figures do not include informal reports or sector assessments, they are strongly indicative of the paucity of diagnostic work on public sector reform (other than that related to public expenditure management).

62. Government That Works: Reforming the Public Sector (1996), which has only recently been followed up by the Public Administration Reform Commission.

63. President’s Report for the Uttar Pradesh Fiscal Reform and Public Sector Restructuring Project (Report No. P7365-IN, March 29, 2000) contains annexes setting out the state government’s policies on public sector reform.

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101. The most recent internal Bank review of economic and sector work distinguishes between “due diligence” work and demand-driven work.64 The first addresses core accountability systems, including public expenditure reviews (PERs), country financial accountability assessments, country procurement assessment reviews, country profiles of financial accountability, and poverty assessments. Only six active Bank borrowers have a full set of due diligence reports that are less than six years old. The review rightly concludes that resources need to be found to enable all country teams to achieve this minimum standard of coverage.

102. The Public Sector Group (PRMPS) within the Poverty Reduction and Economic Management Network has recently developed a set of nine toolkits to assist staff in carrying out diagnostic work (box 5.1). The staff survey conducted for this review revealed that few members of the staff had so far made use of the toolkits, but it is too early to form any judgment on their utility. Toolkits are an alternative to the more familiar sourcebooks that identify and summarize examples of best practice. A sourcebook on participation prepared in 1993–94 proved highly useful to staff in demonstrating best practice methodology. 65 The production of sourcebooks on public administration reform and institution building merits consideration.

Box 5.1. Analytic Toolkits Developed by the Public Sector Group

Standard diagnostic tools for assessing institutional settings have been developed within the World Bank in recent years. Toolkits:

• Set out the principles that should underpin public sector governance arrangements.

• Provide methods for assessing the degree to which specific country arrangements are consistent with those principles.

• Present those assessments in a format that readily contributes to the dialogue between the government, donors, and civil society on reform priorities.

The following is a list of the different toolkits being developed:

• Central government policymaking institutions in cabinet government.

• Constraints on service delivery.

• Civil service institutions.

• Commitment to reform.

• Diagnostic framework for revenue administration.

• Governance and poverty.

• Intergovernmental relations.

• Legal and judicial institutional reform

• Public expenditure.

Source: Public Sector Group, World Bank.

64. World Bank, Fixing ESW: Where Are We? (CODE2000-76) July 2000.

65. Also, Transparency International has produced a comprehensive sourcebook on ways to tackle corruption. See Transparency International Web-site, http://www.transparency.de.

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Lending Instruments and Approaches

103. A variety of lending instruments has been used to support public sector reform. Although institutional reform has been included in investment projects since the earliest days, the main vehicle in recent years has been a combination of various types of structural adjustment lending and technical assistance. Many studies of past structural adjustment credits have reached fairly negative conclusions about their effectiveness as a vehicle for promoting governance reform and institutional change.66 The problem, in part, is the inherent political difficulties in carrying out such reforms and the related frequency with which past structural adjustment programs broke down or had to be repeatedly renegotiated. In addition, the time horizon of traditional adjustment credits has been too short to support the longer-term nature of governance and institutional reforms. Both problems have led to the recent introduction of alternative lending instruments that are discussed below.

104. At the heart of the matter is a growing appreciation of the complex political economy of reform. Once the public comes to believe that reforms are needed—and policymakers and Bank staff have tended to underestimate or overlook the public education effort required to create a consensus on the need for reform—reformers must then overcome the opposition of powerful interest groups that perceive change as disadvantageous. Groups that perceive themselves as losers may be won over by being compensated or their opposition overcome by some other means.

105. Structural adjustment credits have frequently been disbursed in tranches that are backloaded, with many of the difficult reforms being postponed and made conditions of subsequent tranches. Policy statements, promises of action, and even legislation are not true tests of commitment, however, especially in the case of governments which enact laws that are not implemented. The Bangladesh Jute Structural Adjustment Credit was a case in point. After the first tranche was released in 1994 the critical steps of divestiture were not taken, even though another $200 million hung in the balance. The undisbursed balance was canceled in 1996—a huge loss for a poverty-stricken country.

106. New lending instruments, including adaptable program credits, programmatic structural adjustment credits, and the new poverty reduction support credits (PRSCs) are responses to the past experience and growing emphasis on governance and institutional development.67 The first PRSC is being tried in Uganda.68 This supports the borrower’s reforms to put in place a sound public expenditure management system, including credible budget procedures to prioritize both recurrent and capital expenditures. It has been prepared consistent with the principles of the 66. See, for example, The World Bank: Its First Half Century, Volume 1: History, Devesh Kapur, John Lewis, and Richard Webb, The Brookings Institution, 1997, pp. 541–44; OED Higher Impact Adjustment lending: Initial Evaluation (Report 19797) 1999; Lessons from Large Adjustment Loans, PREM Note 27 (1999). However, as pointed out in the World Bank Adjustment Lending Retrospective” (SecM2001-2015, April 2001) recent years show: 1) a rising quality in the outcome ratings of adjustment operations, 2) growing emphasis on public sector reform in conditionality; and 3) growing emphasis on governance, transparency and accountability as issues to be addressed in programmatic credits.

67. Adaptable program credits, introduced in 1997, provide phased support for long-term development programs and involve a series of credits that build on the lessons of the previous loans in the series. They have been used recently in Bolivia, Ghana, Tanzania, and Zambia to support public sector reform. In Bolivia, the institutional reform credit is the first of three phases. Over a ten-year period the credit project will pilot organizational restructuring and change management in selected agencies, including human resource management, budgeting by results, and anticorruption measures.

68. While budget management is sound in Uganda, much remains to be done on the public accounting and audit side. These weaknesses suggest that the use of public resources is still not fully transparent, an issue which underscores the importance of the monitoring procedures that need to be part of the PRSC process.

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Comprehensive Development Framework (CDF). With the borrower in the driver’s seat and increased coordination with other donors.

107. A constant theme—one underscored in the CDF—is that whatever the lending instrument, the beneficiary country must be in the driver’s seat. This is rightly seen as instilling commitment to the reforms funded by the credit. Unfortunately, true ownership of reforms is probably unlikely in cases where a country, desperate for funds, is willing to say what the Bank wants to hear in order to trigger release of a tranche, and then to lapse into inaction or even reversal of the reforms. To avoid such situations, reforms must be specific and concrete, sustainable, and irreversible, and implementation must be required before disbursement. Such principles recognize that powerful vested interests are not easily overcome and will fight to reverse measures they regard as being to their disadvantage.

108. Sector-wide approaches, initiated in the early 1990s, are devices to move away from the donor-driven project approach in a way that recognizes the importance of institutions, builds on country ownership of sector priorities and expenditure plans, and coordinates external assistance in support of an agreed sector strategy. As a program framework -- that can be supported by investment or programmatic lending -- sector-wide programs are intended to involve all stakeholders in an in-depth process of defining a sector strategy, including institutional and sector management reforms, and a related implementation program with well-defined, monitorable benchmarks. Extensive participation by key actors builds widespread commitment, as recently demonstrated in the Uganda health and population sector. Normally sector-wide approaches include all the main donors active in the sector and, ideally, funds are pooled, as has occurred to-date in a few cases. IDA’s brief experience with the approach suggests that, while it is not without problems, it may be more successful than previous approaches. Its success ultimately depends on the borrower’s capacity to play its lead role and the donors' willingness to fund within an agreed budget framework.69

109. As in the case of earlier structural adjustment credits, weak capacity can be tackled by making available a parallel credit for technical assistance.70 In recognition of the fact that institutional change is a long-term process, technical assistance credits cover a longer period than the corresponding structural adjustment loan. This approach has been used in Albania to tackle patronage-related corruption in the judiciary and civil service. The risk is that once the structural adjustment credit is fully disbursed, the borrower may lose interest in the capacity building task, which requires long term perseverance. The problem could perhaps be averted by a sequence of structural adjustment credits, an adaptable program credit backed by technical assistance, or a sector investment program with a technical assistance component. No record yet exists to be assessed.

110. Past evaluations of technical assistance loans have indicated that the operations generally yielded poor results because neither the borrower nor the Bank has had the vision and tenacity of purpose essential for successful capacity building.71

111. Perhaps the most successful examples of technical assistance have come in settings where lending was not taking place—either where the assistance was provided on a reimbursable basis, as in Saudi Arabia, or where it preceded a decision to lend, as in Vietnam in the period 1990–93.

69. In Bangladesh, assistance to the health sector now involves a first attempt at a sectorwide program. In Cambodia, a sectorwide health program is in preparation.

70. Perspectives on Technical Assistance Loans (CODE98-4) February 1998, paragraph 1.7.

71. OED Technical Assistance: Lessons and Practices (Report 98007) May 1996.

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In such circumstances, the beneficiary is more likely to be committed to the process; otherwise it would not have initiated the technical assistance.

112. Efforts to “buy” reform where political and bureaucratic commitment is lacking have typically failed. 72 This is especially true in the case of governance measures and institution building, for the simple reason that those in power, both politicians and bureaucrats, tend to perceive the reforms as threatening.

113. In summary, a great deal of innovative lending has been initiated in the past few years to address problems of weak governance and inefficient public agencies. It is too early to judge whether the new approaches will prove successful, but they certainly represent a serious effort to make breakthroughs in the core constraint to development—weak institutions. It will be important to track these programs carefully to draw new lessons for the next generation of project and program support.73

The Emerging Bank Approach to Assisting Low-Income Countries

114. A reappraisal of Bank assistance instruments is under way, knitting together many initiatives and ideas currently circulating in the Bank.74 Its context is the CDF, which places governance center stage. Within this framework complementary and partially overlapping instruments—the CAS, the poverty reduction strategy paper, the country policy and institutional assessment, and the joint World Bank–International Monetary Fund strategy assessment—underpin decisions about lending levels. The strategy instruments are backed by diagnostic economic and sector work.

115. The country financial accountability assessments, country procurement assessment reviews, country profile of financial accountability, and the PER are the only governance-related reports highlighted in the reappraisal. No mention is made of the institutional and governance review, although that instrument is listed as a key diagnostic instrument in the recent public sector strategy paper.75 Nor is mention made of the Bank’s anticorruption work. Yet studies related to the financial, social, and rural sectors are all mentioned, as are country environmental strategy papers, poverty assessments, and social and structural reviews.

116. It is not clear that the new approach takes sufficient account of the importance of political commitment to reform and accountability, whereas the experience of recent years makes it abundantly clear that the most basic issue to be faced is that of state capture by elites and public bureaucracies pursuing their personal agendas, both of which thoroughly undermine the effectiveness of IDA. How the centrality of institutions and governance is brought into the newly proposed integrative diagnostic work is critical to IDA's further governance effort.76

72. Dollar and Pritchett, Assessing Aid: What Works, What Doesn’t, and Why, 1998.

73. For a fuller discussion of the use of new lending instruments for public sector reform, see Reforming Public Institutions and Strengthening Governance: A World Bank Strategy, pp. 38–42. (Washington, D.C.: World Bank, 2000)

74. Supporting Country Development: World Bank Role and Instruments in Low and Middle Income Countries, Operations Policy and Strategy, July 14, 2000.

75. Reforming Public Institutions and Strengthening Governance (World Bank 2000).

76. Management fully recognizes, as articulated in Supporting Country Development, the importance of government commitment and strong institutions to the goal of poverty reduction. As such, ESW that assesses institutional and governance strengths and needs, such as institutional and governance reviews, will be an important element of the Bank’s ESW program, as appropriate to individual country circumstances, taking into account the work available from other development partners. However, at this time, it is clear from Bank and Fund analysis and donor concerns that

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Collaboration among Development Partners

117. The Bank cannot succeed in its mission on its own. As the CDF stresses, it must work closely with its development partners—the borrower’s government, civil society, and other aid agencies. The sensitive nature of governance reform makes such collaboration even more essential—if donors are to avoid being played off against one another—and even more problematic. Donors may not share objectives; or, if they do, those objectives may be interpreted in markedly different ways.77

118. Governance systems vary significantly across countries depending on history and other circumstances. Former colonial territor ies have a superimposed inheritance that heavily influences the country’s administrative and legal systems. Likewise, bilateral assistance is strongly influenced by the donor’s own administrative and legal traditions. Each has a tendency to believe that its own system is best and to resist compromise. For example, in Cambodia in the early 1990s two different legal systems were being promoted concurrently, potentially leading to considerable confusion.

119. Despite these awkward differences, a shared concern emerged in the 1990s about the need to make government accountable to its public, open and transparent in its operations, and participatory in making decisions that directly affected groups of citizens. Along with shared concern there grew a shared commitment to collaboration among donors.

120. The challenge is two-fold: to establish effective donor coordination on specific reform programs and to persuade governments to work with civil society groups in a participatory rather than a paternalistic or authoritarian way. Both run counter to past practices.

121. Recent mapping of development assistance in countries piloting the CDF has revealed substantial gaps in the governance assistance being offered to IDA borrowers. Those gaps are particularly serious given the integrated nature of accountability systems. For example, public financial accountability requires attention to budgeting, accounting, auditing, legislative oversight, legal framework, and law enforcement; if one element is missing the entire system may fail. Even if all the elements are in place, but civil service salaries are inadequate, the system still may fail. Lastly, adequate incentives must also be established to motivate officials at each stage in the process to make the system work.

122. In several IDA countries, including all those selected as focus countries for this review (see section 6), a major effort is being made to establish an effective field coordination mechanism involving thematic coordination committees or groups operating within a consultative group framework. The groups usually include government officials and NGO representatives. Unfortunately, they have mainly limited their activities to exchanges of information on their respective programs and related policy issues. This falls far short of the ideal, which is to collaborate effectively under government leadership to arrive at agreed sector strategies and action plans that the development partners (both local and foreign) can jointly support through sectorwide and similar operations.

123. The coordinated approach would be particularly valuable in pursuing governance reforms, but this requires much greater cooperation among donors than is present today. The

fiduciary assessments and the underlying analysis of public expenditures, procurement, and financial management are the critical priority.

77. This section complements the report entitled, “Review of Aid Coordination in an Era of Poverty Reduction Strategies,” an OED IDA Review background paper.

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needed cooperation will emerge only if clear policy guidance at the highest level is implemented in a similarly coordinated and scrupulously monitored manner. The first step should be a meeting of the heads of the multilateral financial institutions, the United Nations Development Programme, and ministers responsible for development cooperation. Without determined leadership from the highest level little will change on the ground.

124. In the many instances where borrower governance is highly defective, donor collaboration needs to be particularly tight, especially when assistance is to be paced with the implementation of agreed governance reforms. The development community’s experience in Kenya has demonstrated the effectiveness of this approach, the sensitivity of the issues it raises, and the need for determination and persistence over an extended period.

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6. Assessment of Performance with Undertakings at the Country Level

125. This assessment of IDA's performance at the country level with the governance-related undertakings in the replenishment reports is based on a review of (i) a broad sample of country assistance strategies (CASs), country assistance reviews, country evaluations, and country assessment notes, as well as other economic and sector work (especially public expenditure reviews, PERs); (ii) projects devoted to public sector management and institutional development, particularly those recently issued; and (iii) related evaluations made by OED, Quality Assurance Group (QAG), and the Operations Policy and Country Services Vice Presidency (OPCS).

126. The sample of documents studied was heavily biased toward more recent reports, as OED’s principal concern was to determine present performance, with less attention to the progress of compliance over time. We examined in detail the Bank’s performance in seven focus countries—Bangladesh, Bolivia, Cambodia, Ghana, Kyrgyz Republic, Mozambique, and Vietnam—and, with less thoroughness a second group of countries—Albania, Azerbaijan, Chad, Côte d’Ivoire, Ethiopia, The Gambia, Honduras, India, Kenya, Laos, Mali, Moldova, Tanzania, and Zambia. Some attention was given to the treatment of governance in Cameroon, China, Guatemala, Indonesia, and Zimbabwe.

127. An important caveat is that robust comparative data is hard to derive owing both to changes in or vague definitions related to governance and to administrative changes that make it hard to track changes over time. The limited resources available for this study did not allow us to derive new data sets; consequently, the evaluation is obliged to depend on existing data, which are often fragmentary, and on existing OED, QAG, and OPCS reports. The exercise is further complicated by the fact that most Bank evaluations combine data relating to IBRD and IDA operations. A great deal of judgment is necessarily involved in interpreting the data and in evaluating the relevance, depth, and quality of coverage of topics.

128. Unavoidably, a great deal of judgment is involved in interpreting the data and in evaluating the relevance, depth, and quality of coverage of topics and the responses of the staff who were interviewed. The question of “reasonable expectations” about the degree of compliance is heavily influenced by the need for country teams to be selective in the coverage of topics in light of specific country circumstances and highly constrained administrative budgets. Given these constraints, it would not have been possible for all of the requirements of the IDA10–12 reports to be fully met in the case of any IDA borrower.

129. Of 79 countries eligible to borrow from IDA, 8 were in political turmoil and not ready for an active dialogue on governance issues, namely: Angola, Burundi, Central African Republic, Congo (Kinshasa), Congo (Brazzaville), Haiti, Liberia, Sierra Leone, and Somalia. In several others the political situation was such that only a limited dialogue on governance matters was possible. It could not be expected that the requirements of the IDA replenishment reports would have been met in those cases. The main findings of this review of IDA performance at the country level, set out below, highlight the need for a continued expansion of research and diagnostic work to underpin the increased focus on governance in operations, the relevance of new lending instruments and approaches, and the large remaining challenges in such areas as capacity-building, rule of law, and public expenditure management and accountability.

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Increasing Awareness of the Relevance of Governance

130. IDA’s task at the country level is to select from a broad array of options the most relevant, effective, and sustainable actions to promote better governance. Research work to date provides only vague guidance for the selection process and, in any event, each country has its own peculiar set of circumstances that will largely determine IDA's assistance priorities. Given the importance of country ownership, much will depend on the priorities and interest of the governments. But to date the Bank has completed institutional and governance reviews in just three IDA countries and otherwise lacks well articulated institutional and governance assistance strategies for most IDA borrowers. Refining the methodology and expanding the coverage of such reviews should be a priority in IDA’s work program.

131. Knowledge constraints must be kept in mind in making an assessment of IDA’s governance interventions. Without question, more research is needed. OED is currently undertaking an assessment of the Bank’s work on corruption. PRMPS has sponsored an important study, still incomplete, entitled “Assessing the Institutional Impact of IDA Lending.” Still, overall, the planned assessment of governance interventions is modest when account is taken of expansion of governance-related tasks in operations and the pilot nature of so many of the interventions.

A Sea Change in Coverage of Governance Issues in Country Assistance Strategies

132. There has been a sea change in the coverage of governance issues in CASs over the past six years from hardly being mentioned to often being one of the central themes. Fifteen CASs selected from fiscal 1992–94 were compared with 15 CASs produced in fiscal 1997–99. The coverage of the specific IDA10, IDA11, and IDA12 concerns78 were each scored on a scale 0–3, with 3 being the highest level of coverage. Overall, the later batch had an average coverage score of 1.82 as compared to 0.95 for the earlier batch—a clear improvement.

133. It is not surprising that the earlier CASs scored poorly, because they were assessed on governance components only to provide a baseline for the coverage at the end of the period. It would not be reasonable to expect uniformly high coverage, even in the later batch, because of budget constraints and because the Bank’s ability to address the various components varies with country circumstances.

134. All of the CASs for IDA borrowers issued in fiscal 2000 were reviewed. Almost all gave extensive attention to governance, but the number of issues that country teams can reasonably be expected to tackle is limited. The complete set of CASs for IDA countries during the review period appears in annex 6.

Expanded Lending for Public Sector Reform

135. IDA greatly expanded its lending for public sector reform over the past six years, especially after 1996, when the Bank’s new president gave the work strong endorsement and new impetus. The number of stand-alone public sector management projects and multisector projects with a significant public sector reform component rose from 16 in fiscal 1997 to 47 in fiscal 1999 (table 6.1). It is particularly noteworthy that the number of structural adjustment operations 78. The IDA10 concerns were rule of law, transparency, accountability, institutional development, participation national ownership, capacity building, and development expenditure versus non-development expenditure. The IDA11 concerns were public expenditure targeting the poor, military expenditure, budgeting and planning, subventions for state-owned industries, and tax collection. The IDA12 concerns were public sector development strategy, corruption, and the link between governance and lending levels.

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addressing public sector reform in IDA countries more than doubled between fiscal 1998 and fiscal 1999 to 22. Over the same period, the number of IDA public sector management projects and components in multisector projects rose from 45 to 96 (table 6.2).79

Table 6.1. Lending for Public Sector Reform by Lending Instrument, Fiscal 1997–99

Major Lending Instrument 1997 1998 1999

Structural adjustment credit 10 8 22

Technical assistance credit 3 5 5

Learning innovation credit 0 2 5

Sectoral Adjustment Credits 0 3 5

Economic reform credit 1 1 4

Special Investment Loan (SIL) 2 4 4

Adaptable program credit 0 0 1

Financial Intermediary Loan (FIL) 0 0 1

Rehabilitation Loan (RIL) 0 1 0

Debt Reduction Loan (DRL) 0 1 0

Total 16 25 47

Source: Institutional Business Warehouse Note: The data relate only to self -standing public sector management projects and public sector management components in multisector projects.

Table 6.2. Public Sector Management Components by Type, Fiscal 1997–99

Component 1997 1998 1999

Public expenditure and financial management

11 14 18

Legal institutions 6 13 17

Regulation of the private sector 4 2 14

Civil service and administrative reform 7 2 12

Public enterprise reform 6 6 10

Tax policy and administration 6 9 10

Policymaking 1 4 6

Corruption n/a n/a 6

Decentralization 4 2 3

Total 45 52 96

n/a = Not applicable. Corruption was not a component in fiscal 1997–98. Note: The data relate only to self -standing public sector management projects and public sector management components in multisector projects (such as structural adjustment operations). Source: PRMPS portfolio database.

79. This is exclusive of sector-specific projects. Comparable figures for the period fiscal 1994–96 are not available.

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136. The coverage of public sector reform topics in the fiscal 2000-01 work programs of the Bank’s regions shows continuing substantial planned expansion, but the scale of lending and nonlending services still has a ways to go to meet the considerable, long term challenge of public sector reform and institution building (table 6.3).80

Table 6.3. Business Plans in IDA Countries by Category and Region, Fiscal 2000–01

Category/Region AFR EAP ECA LAC MENA SAR Total

Public finance management 36 8 6 7 2 16 75

Administrative reform 8 8 4 8 2 1 31

Service delivery/decentralization 21 4 3 2 2 3 35

Legal and judicial reform 4 1 2 2 1 3 13

Broader governance 10 15 12 4 6 16 63

Total 79 36 27 23 13 39 217

Source: Public sector board, May 2000. Based on initial business plans, subject to subsequent modifications. The table does not include the work plans of the World Bank Institute and research department.

137. Even with the recent build-up of IDA efforts, the number of activities, especially in the area of judicial reform, undertaken through FY00 is limited. Current aid flows do not suggest that this area of work will be substantially picked up by other aid agencies. Even in the area of budget analysis and management, which is relatively well covered, weaknesses exist (see next section). Hopefully, the preparation by IDA and its partners of the matrices of assistance activities called for under the CDF will reveal the gaps and stimulate further action.

138. To complement IDA lending for public sector reform, the Bank made effective use of grants from the Institutional Development Facility. These grants have helped IDA countries to institute sound public procurement rules, improve debt management, undertake legal and civil service reform, and establish better accounting and auditing systems, among other governance reforms (table 6.4). The grants are intended to complement IDA assistance by supporting flexibly and with a minimum of red tape innovative institution-building activities that are not part of a larger project but merit prompt assistance.

Table 6.4. Types of Grants Made by the International Development Facility (Fiscal 1997–99)

Component Number

Capacity building 18

Public expenditure and financial management 14

Legal institutions 6

Civil service and administrative reform 5

Institution building 5

Corruption 4

Tax policy and administration 3

Total 55

Source: Bank Core Database

139. The Institutional Development Facility is funded through contributions from IBRD net income. During fiscal 1997–99, it supported 55 programs on governance and public sector 80. This analysis is based on work programs prepared prior to the start of the current financial year. Actual activities undertaken are typically fewer than those first set out in business plans.

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management in IDA countries. The facility’s grants ranged from $50,000 to $500,000, with additional mandatory local contributions. Details appear in annex 4.

140. In summary, despite the positive developments described above, the dialogue on public sector reform is still at an early stage in most countries, and much remains to be done to fulfill the requirements of the IDA10–12 reports and to extend coverage to all IDA countries. No consensus yet exists on approach or methodology, particularly with regard to building national ownership of and political commitment to governance reform.

Improved Quality of Lending for Public Sector Management

141. The overall quality of IDA lending for public sector management work has improved in recent years. Because the resources available for this review did not permit an in-depth evaluation of IDA’s governance interventions over the IDA10–12 period, this section relies on a desk study of earlier evaluations conducted by OED and QAG.81 Those evaluations analyzed references to governance in recent country assistance notes and evaluations, performance audits, and implementation completion reports of governance-related projects completed in the last two years, as well as several thematic reviews. Only a few public sector reform projects initiated since fiscal 1994 (other than adjustment operations) have been completed and audited. These projects were checked in seven brief country visits.82

142. Public sector management projects rated by OED as satisfactory or better rose from 54 percent in 1995 to 94 percent in 1998, with a small drop to 91 percent in 2000 (table 6.5). In the 1998–2000 period over 75 percent were considered likely to have a sustainable impact, and around two-thirds were considered to have had a “substantial impact.” In all categories the outcomes were noticeably better than the average for all Bank projects. Similarly, QAG ratings show significant improvements in all categories as well as better than average scores (table 6.6).

Table 6.5. OED Ratings of Completed Projects in Public Sector Management and Bankwide (percent)

1995 1996 1997 1998 1999 2000

Rated “satisfactory" or better

Public sector management 54 71 67 94 95 91

All Bank projects 68 69 74 73 72 77

Rated likely to be sustainable

Public sector management 38 57 67 78 75 100

All Bank projects 46 46 53 49 54 72

Rated to have substantial impact on institutional development

Public sector management 23 29 17 67 55 64

All Bank projects 25 35 36 38 40 50

Source : Operations Evaluation Department.

Table 6.6. QAG Ratings of Ongoing Projects in Public Sector Management and Bankwide (percent)

81. Related work in progress includes the following: OED is currently assessing the Bank’s work on corruption. PRMPS has sponsored an important study, still incomplete, entitled “Assessing the Institutional Impact of IDA Lending.” The expansion of governance-related tasks in operations and the pilot nature of so many current interventions mean that much more research will need to be done.

82. The countries visited were Bangladesh, Bolivia, Cambodia, Ghana, Kyrgyz Republic, Mozambique, and Vietnam.

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1997 1998 1999 2000

Projects at risk

Public sector management 24 20 9 11

All Bank projects 26 25 19 15

Commitments at risk

Public sector management 42 26 7 5

All Bank projects 24 21 20 16

Realism

Public sector management 53 59 86 100

All Bank projects 66 68 74 79

Proactivity

Public sector management 88 70 80 100

All Bank projects 70 72 83 84

Source : Quality Assurance Group.

Increasingly Candid Country Reports

143. Country reports are increasingly candid in addressing governance issues. The country dialogue is difficult, which is not surprising since governance reforms inevitably touch on politically sensitive vested interests. This is particularly true when the topic is corruption. The Bank has attempted to bring the issue into the open through devices such as the surveys of corruption and public service delivery pioneered by the World Bank Institute.

144. By the end of the IDA11 period, issues of poor governance were being increasingly discussed in country dialogues. For example, the Bangladesh country economic memorandum submitted to the Development Forum in 1999 contained a detailed account of police extortion from motorists. At the April 2000 Development Forum, the two main documents submitted by the Bank presented detailed accounts of corruption and governance and the measures needed to bring about improvements.

145. The Bank suspended lending to Kenya in 1998 because of the lack of financial accountability. In Indonesia, after failing to address the problems of corruption for years, poor governance has become one of the central themes of the Bank’s dia logue since 1998 and has intensified since the ousting of President Suharto in 1999. The 1999 institutional and governance review for Bolivia presents a detailed analysis of the governance consequences of the entrenched system of political patronage. These and a number of similar studies represent a remarkable breakthrough in confronting a topic that only a few years earlier would have been referred to, if at all, indirectly in technical documents as “rent seeking.” For the most part, governance would not have been broached directly with the political leadership. However, there is still considerable variation in the degree of candidness among countries; for example, until recently, in dialogues with Zimbabwe, Ghana, Cameroon,83 the Bank has been far less frank and direct than in Kenya84 or Bangladesh. Such inconsistencies are hard to explain and risk undermining the dialogue in those cases where a firmer stance has been adopted.

83. At the upstream review of the Cameroon CAS earlier this year, the Africa Region’s vice president instructed the country team to be much more forthright in the discussion of governance.

84. However, the recent decision to resume lending to Kenya in the absence of decisive action taken to deal with the well known cases of grand corruption and no solid assurance of improved financial accountability undermines the credibility of the Bank’s stance on corruption.

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Shortcomings in Capacity-Building Strategy

146. IDA’s efforts to build capacity and institutions have lacked a well-articulated strategy in most borrower countries. Capacity and institution building has been on the IDA agenda for a very long time. Over the past decade most projects have included components related to institutional development, and a considerable amount has been spent on technical assistance ($115.9 million was committed for public sector management projects in fiscal 1999, up from $53.6 million in fiscal 1997). A detailed analysis of the outcome of institutional development components of projects in Bangladesh completed in the period fiscal 1990–98, as reported in project completion reports and audit reports, revealed that two out of three had little or no impact.85

147. Rarely do the institutional development components of projects form part of a comprehensive long-term strategy for institution building. Instead, they stand alone. To address this issue, the Africa Region joined with the executive directors from Africa in 1996 to launch an institution building initiative called the Partnership for Capacity Building in Africa. The partnership produced several reports on country needs but fell far short of yielding fully owned national strategies.86 The effort absorbed most of the Africa Region staff working on public sector management during the IDA11 period (box 6.1). After a long and tortuous evolution, the outcome of the partnership seems promising. The recent decision to integrate it with the African Capacity Building Foundation seems eminently sensible.87 The challenge for donors now is to continue to be proactive in monitoring and supporting the Foundation.

85. Taming Leviathan: Better Governance for a Better Future—Reforming Institutions in Bangladesh (World Bank 2000).

86. Partnership for Capacity Building in Africa: Strategy and Program of Action: A report submitted to Mr. Wolfensohn by the African Governors of the World Bank (September 28 1996); A Proposed Partnership for Capacity Building in Africa (PACT), Board Paper R99-69 (April 27, 1999).

87. Progress Report on Partnership for Capacity Building, (SecM2000-319) June 6, 2000.

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Box 6.1. Building Capacity in Africa

Recognizing that their governments lack the capacity to analyze, plan, implement, and sustain development programs, the Bank’s African governors proposed a new capacity building initiative in October 1995. The outcome was the Partnership for Capacity Building in Africa (PACT). In 1999, the Bank made a $25 million grant to help launch the partnership and a $5 million grant to support the African Capacity Building Fund (ACBF), which was to administer the partnership from an office in Harare. The Institutional Development Facility (IDF) has furnished grants to support the establishment of several national secretariats.

The ACBF was itself the result of an earlier African request for help for capacity building. Launched in 1991 as a collaborative effort between the African Development Bank, the United Nations Development Programme, and the World Bank, the ACBF had a rocky start but has now established itself as an effective organization with 32 active programs in 22 countries. These include policy analysis and research institutes, advisers, and regional and national training programs.

PACT’s mandate is primarily to support activities that will strengthen countries’ capacity for effective policy planning, analysis, and decisionmaking; improved financial and development management; and better legislative, judicial, and regulatory frameworks. A secondary focus will be training private businessmen and women, promoting business innovation, strengthening business organizations, and building effective civil society organizations. Finally, PACT will help to establish regional training centers.

Because the mandates of the two organizations overlap, it makes good sense for PACT to be administered by ACBF to avoid confusion and duplication. In preparing for PACT, IDF grants have been provided to help establish a number of national secretariats. Whether these will be able to make a real difference remains to be seen.

The distinctive new feature is the intention of PACT, which has been launched as an African initiative rather than a donor initiative, to integrate what have been hitherto largely uncoordinated donor-driven technical assistance programs and to do so on the basis of an in-depth, comprehensive country assessment of needs. The expected outcome will be better-focused capacity building programs. In this task, PACT will provide the “federative framework” complementing, rather than competing with, other capacity building programs. PACT is advertised as “an innovative framework for tackling old problems” based on a “continent-wide review.”

So far, ACBF has committed $16 million on behalf of PACT, and another $550,000 for “National Focal Points” where capacity building may be promoted. A Bank assessment submitted to the Board in June 2000 (SecM2000-319) reports favorably on the integration of PACT into ACBF and on the quality of the 15 projects so far being assisted. A more in -depth OED evaluation should be planned in a year’s time.

Source: “Partnership for Capacity Building in Africa: Strategy and Program of Action: A report submitted to Mr. Wolfensohn by the African Governors of the World Bank” (September 28 1996); “A Proposed Partnership for Capacity Building in Africa (PACT),” Board Paper R99-69 (April 27, 1999).

Limited Country Work on Rule of Law

148. Country work on the rule of law is relatively limited and has grown slowly, despite the fact that the IDA deputies underscored its importance for effective poverty reduction programs in 1994. In most IDA borrowing countries, the judicial systems are highly defective—courts are clogged, judges are corrupt, and the poor have little access to justice.

149. In three-quarters of its eligible borrower countries, IDA has not supported and is not planning to support a substantial program of legal and judicial reform. There have been seven IDA stand-alone legal and judicial reform projects (not including components of other projects) approved since 1994; and another 7 are currently under preparation. These projects are in Albania, Armenia, Azerbaijan, Bangladesh Benin, Bolivia, China, Georgia, Guinea, Sierra

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Leone, Sri Lanka, Tanzania (box 6.2), and Yemen. To date, there has been no OED assessment of the Bank’s lending for legal and judicial reform.

Box 6.2. Judicial and Legal Reform in Tanzania

The Tanzanian government’s commitment to legal and judicial reform dates back to 1993 when the prime minister appointed a task force to undertake a comprehensive review of the sector. Ten expert studies were commissioned covering law reform, judicial administration, training of lawyers and judges, the bar association, the Ministry of Justice and Constitutional Affairs, the ombudsman, registrars of land and companies, collection and dissemination of legal information, and poor people’s access to justice. The studies were supported by several aid agencies that provided international expertise for what was a locally owned and the locally led process. The champions for the reform were the country’s chief justice, minister of justice and constitutional affairs, and deputy attorney general (now attorney general)—an ideal combination.

In 1996, the task force published a final report containing comprehensive and detailed recommendations. The cabinet accepted the recommendations, identifying one set for immediate implementation and another subject to funding. These were presented to donors with a total price tag of $300 million. The donors requested the government to prepare a reform strategy and phased implementation plan with clearly established priorities. The plan took nearly three years, but eventually consensus was reached. A strategy and action plan was presented to donors at a meeting in December 1999. The document was well received and is attracting support. The Bank is now working with the Tanzanian authorities on IDA funding for a judicial reform project that should be finalized soon.

Danish International Development Assistance is committed to funding a commercial court division of the country’s high court, a strengthened Law Reform Commission, the establishment of a Commission for Human Rights and Administrative Justice, and a network of nongovernmental organizations for legal aid.

Seven years in the making, the Tanzanian effort is a pioneering operation that has enjoyed full participation by all key stakeholders from the beginning. The strategy paper defines a well-articulated vision statement that establishes the relative priority of the various components of the reform.

Source: Legal Department, World Bank; Legal Sector Reform Programme: Medium Term Strategy and Action Plan, Tanzania Ministry of Justice and Constitutional Affairs, October, 1999.

150. The assistance being provided to Tanzania for legal and judicial reform (see box 6.2) is in many respects a good model, even though the process has been long drawn out and is still only in the preparation phase. The program, which has been supported by several donors, is an example of partnership consistent with the principles of the CDF. It also is exemplary in the way the Tanzanians have taken the lead. A similar though less ambitious program has been initiated in Ghana.

151. In addition, there have been a considerable number of legal and judicial reform components in other IDA projects. These components include such things as drafting specific legislation, providing legal training, and developing alternative dispute resolution mechanisms. In Mozambique, for example, funds were provided to create a legal and regulatory framework for the coastal shipping industry. Most have minor ramifications in terms of broad reform of legal and judicial systems, though some of these measures have significant systemic ramifications in specific areas.88

88. Also, the Africa Region has supported the implementation of the 1992 treaty of OHADA, the French acronym for the organization devoted to harmonizing commercial, company, and contract law in 15 francophone countries in West Africa. These countries have since adopted uniform laws on bankruptcy, debt collection, and arbitration. They have established a court of final recourse in Abidjan and a regional law school in Porto Novo, Benin, with assistance from France and the United Nations Development Programme. IDA has assisted Benin, Côte d’Ivoire, Gabon, Mali, and Togo with the dissemination of the OHADA legislation.

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152. For the most part, however, IDA’s assistance for legal and judicial work is insufficiently backed by diagnostic work. The likely consequence is that the impact may well be below expectations and will not result in significant sustainable institutional development. As an example, the implementation completion report (ICR) for a judicial reform project in Bolivia (approved in 1995 and closed in 2000) found that the outcome of the project was satisfactory, although sustainability was unlikely. As the ICR stated, weaknesses in project design were largely explained by the Bank’s limited (though emerging) technical capacity in terms of political, institutional, and operational aspects of judicial reform. 89 Underscoring the importance of adequate diagnostic work in this area, a 1999 review of judicial reform projects by the PREM Network found that “little is known about the actual effects of judicial reform on economic performance or even what elements constitute a sound reform project.”90

Incre ased Attention to Corruption

153. Country work focused directly on corruption gained momentum after 1996. In the early years of the decade the main thrust of public sector reform programs centered on redefining the role of the state—reducing its discretionary regulatory activities through economic liberalization, lower and simpler customs tariffs, the removal of import quotas, privatization, and the downsizing of the civil service consistent with its diminished role. These measures were all seen as having the additional benefit of reducing the scope for officials to be corrupt. The Bank also promoted the “enclaving” of revenue authorities (with small staffs paid competitive salaries) and set tough performance targets in Tanzania, Ghana, Uganda, and elsewhere.

154. In a few countries (for example, Uganda and Tanzania) studies of corruption were prepared in the mid-1990s. After 1996, the Bank started to mainstream this work. Currently, the Bank is engaged in a dialogue on ways to reduce corruption with many of the active IDA borrowers. This dialogue is supported by diagnostic work that is often backed by surveys.91 In the Africa Region, diagnostic work was initiated in 1998 in six countries. In Uganda, a survey has traced the movement of public funds allocated for local school and health programs; as a consequence, steps were taken to reduce dramatically the level of leakage.

155. The World Bank Institute assumed a leading role in pioneering the use of surveys to assess corruption. In addition, with the Global Coalition for Africa, the Institute is organizing in-country teams in nine African countries to prepare anticorruption programs supported by distance learning methods. These teams typically involve representatives of government, the private sector, and nongovernmental organizations.

156. In the Europe and Central Asia Region, the results of a major survey of business perceptions of corruption have raised awareness of the extent and consequences of the high level of corruption, leading in some cases—such as the Kyrgyz Republic—to a strong public demand for corrective action. The region’s work has focused on the distinction between grand corruption—or “state capture”—and minor bureaucratic corruption. Different approaches are needed to deal with each.

89. World Bank, Implementation Completion Report (IDA-27050; PPFI-P8251), Report No: 21162 (Washington D.C.: the World Bank, October 31, 2000).

90. Richard Messick, “Judicial Reform and Economic Development: A Survey of Issues,” World Bank Research Observer 14, 1 (February 1999): 117–36.

91. For example, in Cambodia in 2000 the Bank sponsored an independent survey of corruption and has submitted to the government a detailed analysis of the corruption situation with recommendations for action. In Bangladesh, the Bank presented a similar report to the government which was also shared with the consultative group in April 2000.

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157. OED’s in-depth evaluation of the Bank’s work in the area of corruption will soon be completed. It raises doubts about the effectiveness of the Bank’s work to date. A major concern is the sequencing of actions in countries with weak institutions. The task is immense and will require a long and sustained effort. An example of success comes from Cambodia, where IDA and the International Monetary Fund took a very strong position against illegal logging that led the government to curb the practice in 1999. Global Witness, an international NGO on which the Bank and the IMF depended to monitor the situation on the ground, reported that these measures were largely successful.

Extensive but Uneven Work on Management of Public Expenditures

158. Public expenditure management has received considerable attention, but here too the task is immense and the quality of work uneven. The IDA10 report called for analysis of public expenditures. IDA11 laid particular stress on IDA reviewing borrowers’ budgets to determine whether priority was being given to “development” expenditure as against “nonproductive” expenditures and whether sufficient allocations were being made for social services for the poor. IDA12 returned to the same theme. Given the complexity of government accounts, meeting the review requirement would necessitate far more staff resources than are conceivably available. Far more effort has been given to this topic than to any other—public-expenditure-related work constitute about one-quarter of all economic and sector work—but still the coverage is incomplete.

159. The Bank’s economists find the preparation of PERs to be the most familiar aspect of public sector work. Not surprisingly, being economists, they have given most attention to the level and composit ion of public expenditure and related macroeconomic issues. The narrow focus of their work has been questioned by the Public Sector Group Network, and by QAG and OED, 92 particularly as actual spending often differs markedly from approved budget allocations. Rightly, therefore, IDA is increasingly switching its attention to the institutional aspects of public finance management. Consensus on what constitutes best practice is evolving, with a declining emphasis on detailed reviews of budget allocations.

160. The concern about “where the money goes” is particularly justified in allocations for improving service delivery owing to the generally murky process by which funds are transferred from a ministry of finance to a school or clinic. IDA deserves credit for pioneering procedures to trace and publicize the flow of funds. This work was piloted in Uganda, where a tracer study showed that only a few cents of each dollar allocated actually reached the intended destination (box 6.3). To tackle this problem information is now posted at local facilities informing the villagers of the amounts allocated; the pressure on local officials to explain the whereabouts of the funds has resulted in a dramatic reduction in “leakages.”93

92. Reviews by OED and QAG concluded that the quality of past PERs was often unsatisfactory and recommended that greater attention should be paid to the institutional dimensions of public expenditure management. OED’s 1998 evaluation of PERs pointed out weaknesses in quality, form, process, and cost effectiveness. The Impact of Public Expenditure Reviews: An Evaluation, OED, World Bank, November 1998; and QAG Evaluations of Public Expenditure Reviews, Fiscal 1999–00, QAG, November 2000.

93. “Using Surveys for Public Sector Reform,” PREM Note 23, May 1999.

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Box 6.3. Uganda’s Client-led Public Expenditure Review Process

Over the past several years, Uganda has developed a greatly improved annual and medium-term budget process. The donor community plays an important role in sharing information and in providing technical assistance and resources. The World Bank’s public expenditure work for the last two years has focused on supporting the government’s budget preparation process. In a departure from typical practice, the Bank’s fiscal 2000 public expenditure review (PER) for Uganda describes the government’s annual budget process as well as the seminars and workshop the government organized with World Bank support.

The contribution of the PER process to domestic capacity building is in many ways a model for Africa, and Uganda is now considered to have one of the best public expenditure management systems on the continent, thanks in part to sustained donor support. To consolidate the gains, however, the Bank and Ugandans must undertake periodic assessments of how budgets are spent and whether such spending is resulting in anticipated levels of economic growth and poverty alleviation. Other donor-financed activities, including budget tracking and service delivery surveys, are contributing separately to this end.

Source: QAG Evaluation of Public Expenditure Reviews (November 2000).

161. Therefore, in the last few years, considerable efforts have been made to produce better guidance and training for staff engaged in such work. Public expenditure management and related institutional issues are now receiving special attention. There is growing consensus that the Bank should not attempt to use PERs to micro-manage borrowers’ spending patterns. Instead, governments should be assisted to acquire the capacity to better manage public expenditure. The most recent QAG review found that the quality of 6 out of 11 recent PERs evaluated was satisfactory or better, though only 4 scored satisfactory or better on the adequacy of the process followed.94 The review brought out the importance of involving the borrowing country’s officials as much as possible in this work with a view to building both ownership and capacity.95 This may hopefully lead governments to conduct their own in-house reviews with IDA providing technical assistance if requested, as has now been done in a few cases.

162. The Bank and the Fund have a joint interest in public expenditure analysis, but cooperation over the years has not always been smooth. Recently, in the context of the initiative for highly indebted poor countries (HIPC) and PRSPs, a renewed effort has been made to strengthen this cooperation. Still, while public expenditure reviews are steadily improving in relevance and impact, IDA has given relatively little attention until recently to the related need to improve accounting and auditing.

Strengthening Public Financial Accountability

163. Much more needs to be done to strengthen public financial accountability (PFA). IDA has been slow to recognize that budgets are only the first stage in public expenditure management. There are often large discrepancies between the amounts budgeted and actual expenditure. These may often not be known for several years because of weak accounting and auditing. And, even when known, governments rarely take action to sanction those responsible for misuse of public funds.

94. QAG Evaluations of Public Expenditure Reviews, Fiscal 1999–00, QAG, November 2000.

95. The recent Vietnam public expenditure review is a good example of country officials’ participation; however, this review continued to focus on budget allocations and management. The question of how public funds were actually spent was left to a parallel country financial accountability assessment. The challenge is to find mechanisms to ensure that the two exercises are well coordinated.

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164. The IDA10, IDA11, and IDA12 reports all highlighted the need to build borrower capacity for improved financial management and accountability. The overarching objective is to enable borrowers to meet their fiduciary obligation to the public through honest, effective, and answerable government. Because of the importance of this topic, a separate detailed evaluation of IDA’s assistance in strengthening borrowers’ PFA systems was prepared as an input into this assessment.96 What follows is a summary of the main findings of that study.

165. Over the years, IDA’s main concern in the area of financial accountability has been to ensure proper financial management for IDA-financed projects, recently through its loan administration change initiative. The emphasis was on the borrower’s fiduciary accountability to IDA for the use of project funds, and while the task of improving the borrower’s system of PFA was relatively neglected. A recent study by the U.S. General Accounting Office concluded that “the Bank has undertaken an ambitious and systematic effort to identify and correct key weaknesses in its system of management controls, though further action will be required before the Bank can provide a reasonable assurance that project funds are spent according to the Bank’s guidelines.” 97 The report noted, in particular, that the Bank had improved its internal oversight mechanisms, hired an additional 90 finance and procurement specialists, established a fraud and corruption hotline, and strengthened risk assessment procedures and monitoring tools. The challenge, the report noted, was to assist its borrowers to strengthen their own capacity.

166. As noted earlier, during IDA10 the Bank’s chief interest in the area of public financial management was public expenditure analysis and, to a lesser extent, budget management. More recently, the realization that actual spending often deviated substantially from approved budgets drew increasing concern, but little attention was given to strengthening systems of financial checks and balances—public accounting, reporting, and auditing—and even less to the effectiveness of the audit review function (for example, legislative oversight). Typically, the accountability of public officials was not insisted upon; officials were often not forced to answer audit queries, and they were rarely sanctioned for misuse of public funds. Yet this is a core part of any financial accountability system and central to improving governance and reducing corruption and wastage.

167. Since 1997, IDA has begun to give more attention to PFA. Its knowledge of borrowers’ PFA systems developed rapidly in fiscal 1999 and fiscal 2000, but large gaps remain. During the same period, IDA’s interventions to improve borrowers’ PFA systems have been limited. IDA has made few significant investments in building borrower capacity in this area, and it is too soon to judge their effectiveness. Most investments and other efforts that have the potential to make a lasting impact are recent.

168. The obvious starting point of any effort to help strengthen PFA is to do basic diagnostic work. The key tool for this—the country financial accountability assessment—was developed in fiscal 1998 in response to criticism that the Bank had given these matters too little attention. This tool replaces the country profile of financial accountability, which was more limited in scope. So far assessments have been completed in only 6 of the 79 IDA countries, including just 1 of the 10 largest IDA borrowers. At the end of 2000, 11 more assessments were underway or planned (table 6.7).

169. Borrower governments need more help to bring their procurement procedures up to the minimum standard necessary to justify confidence that development assistance and other public 96. See Chakrapani, Donges and Sahgal (Mimeo) , 2000.

97. Management Controls Stronger, but Challenges in Fighting Corruption Remain, U.S. General Accounting Office, April 2000.

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resources are not being misappropria ted or wasted through faulty procurement. Sound procurement procedures are an important aspect of internal controls and a key part of any PFA system. Yet IDA has placed most of its effort on ensuring that procurement financed by its credits is not subject to abuse and has been slow to assist in strengthening national procurement procedures. The diagnostic tool for this is the country procurement assessment report (CPAR). So far CPARs have been undertaken in only 21 IDA borrowing countries. But the Bank, in particular the Legal Department’s Procurement Unit, has over the years provided significant advice on strengthening borrower procurement legislation. Moreover, there are examples of IDA assistance to countries in this area through TA credits. An example is the China Economic Law Reform Project (Credit2654 CHA) which financed and provided TA to the Chinese government in developing its procurement legislations. This occurred despite the absence of a completed CPAR, which historically had a more narrow focus on assessing acceptability of procurement practices for Bank financed projects.

170. In short, the level and adequacy of IDA's knowledge of its borrowers' PFA systems are incomplete. There are relatively few programs to work with borrower governments to bring their procurement procedures up to a minimum standard that would give confidence that, by and large, procurement is not resulting in public resources being misappropriated or wasted.

Table 6.7. Financial Accountability, Fiscal 1997–2000

CFAA CPFA CPAR

AFR 2 25 12

EAP 0 3 0

ECA 1 1 3

LAC 1 0 3

MENA 2 0 0

SAR 0 7 3

TOTAL 6 36 21

Source: OCSFM website

171. Standards and practices of accounting, reporting, auditing, and financial oversight are often very weak in the private sectors of IDA borrower countries, and those weaknesses often extend to state-owned enterprises and other public entities that use corporate accountability systems. In this area, IDA’s country knowledge and involvement are even more limited.

172. The Bank’s internal management processes and capacity to assist in PFA are in need of attention—in terms of formulating priorities and communicating them to staff, providing direction, developing and refining methodologies, developing effective risk management practices, and devising effective monitoring and evaluation systems. Currently, no common standards or benchmarks of good practice exist to guide the nature and extent of reforms.

173. Moreover, while the Bank’s stated desire to fight corruption and implement the zero-tolerance policy has raised awareness of the impact of poor accountability systems on development effectiveness and poverty reduction, it has been constrained by the lack of borrower commitment and weak management processes to deal with this complex and sensitive issue. Borrower commitment and receptivity are critical to succeed in moving from diagnosis to action to the reform of the PFA system. Global experience provides conclusive evidence that governments rarely reformed unless strongly pressed by the media, the legislature, and civil society. Thus, incorporating these partners is an essential part of a successful reform process. Recognizing this, the World Bank Institute has organized seminars—for example in South Asia in

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1999—to bring together journalists, finance officials, auditors general, and legislators serving on public accounts committees.

174. In summary, IDA has focused belatedly and only partially on the undertakings under the IDA replenishment reports on PFA. Moving from a narrow focus on accounting for IDA funds to helping to improve a country’s PFA system is the crux of the issue. This is a step IDA still has to take in the case of most of its borrowers. There are no specific mechanisms dedicated to providing quality assurance on IDA’s knowledge, strategies, or action plans in this area. Fulfilling replenishment undertakings in the area of capacity building will require time, resources, and sustained effort. In preparation for IDA13, action should be taken to build consensus and commitment among IDA borrowers and within the Bank about the importance of PFA. That sense of importance should be reflected in the Bank’s administrative budget allocations.

Limited Work on Tax Administration

175. Work on tax administration is limited. Perhaps conscious of the “Please effect,”98 which states that government expenditure tends to expand to use up available revenue, the Bank has preferred to concentrate on public expenditure management rather than revenue enhancement and has tended to defer to the IMF on questions of tax administration. Yet the Fund has limited resources to provide tax advice and is not equipped to support major tax administration reform projects. Consequently, there is a role for the Bank in this area, although the needs at present far exceed IDA’s ability to assist.

176. Several IDA-assisted projects have addressed tax administration reform, some with IMF assistance. Six tax-related project components were funded in fiscal 1997, nine in fiscal 1998, and ten in fiscal 1999 (see table 6.2). In Albania, IDA financed the construction of tax offices and the computerization of tax systems. In Bangladesh, there has been a sustained effort to reform customs and income tax administration, but the task is immense. In order to achieve sustainable improvements, the Bank will need to remain engaged for another decade.

177. A 1999 review of 120 tax administration reform project components by the Poverty Reduction and Economic Management Network concluded that there was a tendency to focus on the computerization aspects, while giving insufficient attention to policy and institutional building. 99 The review found that “in the average project less than 40 percent of diagnostic categories considered in this review were included in the diagnosis” and argued for the development of a standard diagnostic tool and for the development and use of a standard set of performance indicators. It also noted that reform programs often failed to incorporate innovative features pioneered elsewhere and concluded that project design could be improved by ensuring that accountability, cost of administration, managerial autonomy, and performance incentives for staff would draw more systematically on lessons from previous experience.

178. A 1997 OED study found that the tax reform components of structural adjustment operations would have benefited from greater attention to the legal environment, taxpayer education, information systems, and audit functions.100 Although both reviews discussed above covered both IBRD and IDA lending, there is no reason to believe that the findings were different for IDA-supported projects. Overall, the Bank has put far more effort into improving the work on 98. Named after Stanley Please who was chief economist in the Africa Region in the 1970s.

99. L. Barbone, A. Das Gupta, L. De Wulf, and A. Hansson, Reforming Tax Systems: The World Bank Record in the 1990s, World Bank Policy Research Working Paper 2237, November 1999. The 1999 QAG Rapid Supervision Assessment reached similar conclusions about the relative emphasis given to computerization and other issues.

100. Jayati Datta-Mitra, Fiscal Management in Adjustment Lending (Washington, D.C.: World Bank, 1997).

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public expenditure management than it has on tax administration reform. Over the past year, both the country teams and PRMPS have given the work on tax administration greater attention, and the lessons noted above are being incorporated in these new initiatives.

Civil Service Reform

179. Civil service reform has proved elusive and intractable. In fiscal 1997–99, IDA supported 21 new civil service reform projects. Their outcome has been largely disappointing. A recent OED study concluded that only one-third of the civil service reform projects it evaluated were successful.101 The high failure rate reflects the sensitive nature of such reforms, which tend to be perceived as threatening by the civil servants concerned, especially since the focus has often been on downsizing. Too little attention has been given to devising change-management strategies to overcome resistance within civil services. In some cases—for example, in Uganda and Cameroon—the Bank repeated previously unsuccessful efforts to promote downsizing, with similar results.

180. The OED report mentioned above credited the Bank for pioneering the notion that countries could both limit the size of the civil service and perform better. While correctly stressing the emphasis on pay, the Bank at the same time gave insufficient attention to nonwage incentives and to finding ways to link incentives to performance. The OED report concluded that in the mid-1990s the Bank “remained fixated on the budgetary, organizational, and compensatory symptoms of dysfunction instead of addressing its institutional causes.” There was, the report said, a lack of “open discussion and systematic analysis of patronage and corruption.” The report noted that some task managers felt undermined by the project review process, which “tended to discourage innovations” in dealing with institutional and political factors. The report also found that the Bank tended to adopt a narrow technocratic approach, dealing with a small group of decision-makers rather than viewing civil service reform as a dynamic process influenced by multiple stakeholders.

181. Recently, PRMPS has prepared a toolkit on civil service reform to assist staff in this work. The toolkit stresses the need for good data and a thorough diagnosis of institutional constraints and the incentive system. It requires the user to confront the issue of patronage and understand how both formal and informal rules operate. The toolkit—used successfully in a recent report on the Indonesia civil service—is a helpful aid to improving the quality of civil service reform operations. At the same time, however, the Bank needs more staff with experience addressing civil service reform in developing countries.

182. Despite the difficulties encountered to date, the Bank should not shy away from civil service reform. Poorly functioning bureaucracies lie at the heart of the governance problem in most developing countries. Reform is imperative, however difficult it may be. The Bank should join hands with other donors, such as the U.K. Department for International Development, which have had more hands-on experience in the area. Such cooperation has been notably successful, for example, in Bangladesh in the health, agriculture, fisheries, and transport sectors.

Technical Assistance

183. Few areas of assistance are as contentious as technical assistance. But technical assistance and training are the only ways to enhance capacity. Technical assistance—most of it in one way or

101. Civil Service Reform: A Review of World Bank Assistance, OED (March 1999)

49

the other related to institution building and public sector management—has been the subject of numerous evaluations over the years.102

184. Technical assistance can succeed if well managed. The Bank loaned $53.6 million in fiscal 1997 for technical assistance related to public sector projects. That figure rose to $130.1 million in fiscal 1998 before dropping to $115.9 million in fiscal 1999.

185. The most recent of the numerous evaluations of technical assistance performed over the years found that only 43 percent of technical assistance projects in public sector management were successful, compared to 65 percent for all technical assistance projects.103 The analysis was not disaggregated between operations supported by Bank loans and IDA credits, but there is no evidence that IDA-supported operations were any more successful than the others.

186. The principal shortcoming of technical assistance operations has been the lack of local ownership. Technical assistance is frequently pressed on reluctant borrowers as a condition for a credit and often generates resentment among local counterpart staffs who are paid a fraction of the technical assistance staff salaries (whether local or foreign). This problem is compounded when objectives and terms of reference are poorly specified and when experts are badly selected and inadequately supervised—all of which seem to occur all too frequently.

187. The objective of technical assistance can be two-fold: the first is to bolster the short-term performance of an agency that lacks critical skills; the second is to build local capacity. The latter may involve, to different degrees, designing new systems, organizational structures, and processes, and providing training to local staff. It is the latter that is least well managed and yet is most important for long-term sustainability. Managing technical assistance requires a high level of skill—to understand motivation and build teams. The design of assistance operations needs to be built on thorough diagnoses done jointly by the receiver and the provider. For the Bank, such operations demand more staff time than administrative budgets normally allow—so failure seems almost guaranteed except when managed by exceptionally dedicated staff.

Borrower Ownership in Doubt

188. National ownership of governance reform is still modest. IDA has greatly increased its efforts to build ownership of reform programs within both government and civil society, and most of the CASs prepared over the past year involved extensive consultations with civil society representatives. However, the effect of such efforts has been modest except where the political leadership in the borrowing country has been willing to embrace reforms. It is far easier to make progress where win-win opportunit ies are clearly apparent than where reforms threaten strong vested interests. Alas, the latter is far more common than the former.

189. It is not surprising that governments generally resist reforms designed to hold them accountable. Nor is it surprising that where civil society is struggling to promote governance reforms—as in the vast majority of IDA borrowers—the Bank’s support is welcome. This was the case when the IDA review team visited Bangladesh, Ghana, and Kyrgyz. In Mozambique, civil society sees the representative institutions as functioning well and therefore has its own effective channels for pressing for reforms. In Cambodia and Vietnam, civil society is only slowly beginning to emerge and to form independent institutions. In this situation the Bank has potentially an important role to play in sharing its unique command of global knowledge of development. 102. Technical Assistance, OED (Report 98007) May 1996 and Perspectives on Technical Assistance Loans (CODE98-4) February 1998.

103. Perspectives on Technical Assistance Loans, (CODE98-4) February 1998.

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7. Pointers for the Future: Emerging Issues

190. Governance has become a salient topic among donors recently as recognition has grown that poor governance is a major reason for the low impact of development assistance in so many low-income countries. Now that the centrality of good governance in effective development is better understood—the accomplishment of the 1990s—the willingness of donor countries’ taxpayers to continue to support IDA will depend in part on aid recipients’ willingness to address the shortcomings of governance. IDA can facilitate the process by drawing lessons from its successes and failures and consolidating its considerable recent gains in the governance area.

191. IDA needs to agree with both borrowers and other key development partners on a well-articulated strategy for promoting and assisting governance reform. Governments invariably resist pressure, internal or external, to make them more accountable and transparent. Historically, they have yielded to discipline only when forced to do so by the people, speaking through the ballot box or through their actions in the streets, or when the cost of resisting reform has become too great. Many IDA borrowers are sufficiently dependent on aid to be nudged to undertake reform by means of well-articulated conditions linked to lending, but even then reforms are typically not comprehensive or sustainable unless the campaign to introduce them is particularly carefully conceived or fortuitously timed to coincide with political transition.

192. To be sustainable, the reforms must be formulated by the borrower (who may ask for external assistance) and must result in a time-bound program of monitorable measures.

193. If the reforms proposed by a government seem appropriate and adequate, sequenced assistance should be provided. Successive operations should be approved only after specified measures have been implemented. The continuance of lending programs must be made dependent on progress on key reforms such as those related to financial accountability, transparency, and action to deal with identified corruption. The entire donor community needs to be solidly behind this approach and link aid to the same agreed reforms. The heads of aid agencies should meet to establish the framework and provide top-level guidance for the new approach.

194. Will it be possible to mobilize the aid community behind such a concerted approach? Will IDA be willing to withhold lending from countries that refuse to make themselves more accountable and transparent, or at the very least to hold the lending program to a “low case” allocation?

195. No miracles should be expected. Governance reform is a difficult political process that takes time. What should be sought from the borrowers are, first, a commitment to reform; second, a specific set of goals; and, third, a phased program of clearly defined and monitorable actions. Each phase may be modest, provided it is substantive and not merely promises and gestures. The whole process should be transparent and engage civil society as well as the state.

196. Public financial accountability should be viewed as a precondition for external assistance. All aid agencies have a right to expect borrowers to have systems of public accounting and auditing sufficient to give reasonable assurance that aid resources will be used for the purposes set out in the credit or aid agreement—transparently and in accordance with law. Because external assistance is fungible, IDA and other funding agencies must no longer be content to track only their own funds in a limited and formalistic way. Development effectiveness as well as fiduciary concerns call for more attention to this matter.

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197. In practice, few aid recipients today have in place sound public financial accountability systems, and the period required to create one may be as long as 7–10 years in the case of borrowers who have to revamp their accounting and auditing systems. All necessary assistance should be offered to achieve this objective.

198. Specifically, as an underpinning for future IDA lending, borrowers should commit to sound public financial accountability systems and agree to put in place -- with external assistance if needed -- monitorable plans for achieving them. Since establishing such systems will take time, the commitment should be to make steady steps toward a robust and transparent system. In its dialogue with each borrower, IDA should agree on the precise steps needed to bring the country’s system to an acceptable standard, and should establish monitorable milestones that would enable the borrower’s own public to track their government’s progress in implementing the action program. In particular, borrowers should be assisted to meet their own national standards for accounting and auditing before moving to international standards. However, failure to achieve established milestones should result in the cut-off of new lending until the program is brought back on track.

199. IDA should strengthen its own management processes by setting clear standards for performance and benchmarks of progress; mobilizing adequate resources to assist borrowers to strengthen their public financial accountability systems; identifying related constraints, risks, and capacity gaps; and developing an adequate process for quality assurance, monitoring, and evaluation.

200. Give governance reform more effective weight in the allocation of IDA resources. Although IDA has introduced governance considerations into the country performance and institutional assessment, lending allocations for several countries noteworthy for their poor governance have not been decisively reduced, nor has the “governance discount” worked uniformly or consistently to reduce support to countries with especially poor governance. Some countries have escaped sanction, while others have been penalized more than their assessment rating would seem to warrant.

201. It is clear that the allocation process needs further study to achieve greater equity and a more substantial cut in lending for governance nonreformers even though their other ratings may be average. The task is very complex. Should measures of governance performance be absolute or expressed in terms of progress from a given baseline? Is it unfair to penalize a country with very weak governance if it is making reasonable efforts to improve? Would it not be fairer to penalize countries with the least improvement in governance (for example, those ranked in the lowest ten percent in terms of their improvement in governance performance) and use the resources “saved” for those with the most improved governance performance (for example, those in the top ten percent in terms of their improved performance)? Initial experience suggests that the governance discount needs to be rethought and that work underway on improving governance indicators is important to improving the effectiveness of linking lending to governance performance.

202. Linked to the above issues is that of ensuring national ownership of governance reforms and programs—an established prerequisite for achieving sustainability. In short, who will bell the cat? So when IDA talks of putting the government in “the driver’s seat,” why would it expect the government to “drive” in the direction of governance reform? The only workable approach is one of dialogue and partnership, which would include representatives of civil society, where the outcome is an agreement by which the government pledges to become more accountable and transparent and IDA and other donors pledge to make available resources to support the

52

governance reforms. This implies a very carefully balanced three-cornered partnership that includes civil society as the trustee and eventual beneficiary.

203. Make the rule of law a central concern of IDA. The Bank’s published statements make it clear that the absence of the rule of law is a major constraint to development. But IDA is supporting a major overhaul of the legal and judicial system in a mere handful of cases, while in most IDA countries the judiciary is dysfunctional. This was a major theme of consultations on governance under the Comprehensive Development Framework (CDF) in the Kyrgyz Republic in May 2000. The problem is equally severe in most other transition economies. It was also a key theme in the Bangladesh institutional and governance review just completed.

204. Judicial reform alone will not establish the rule of law. Unless laws are enforced, the effort will be wasted. The Bank has generally conceived the rule of law in terms of establishing an environment conducive to investment, but rule of law also includes personal security and police reform. As noted in World Development Report 2000/1: Attacking Poverty, personal security is the principal concern of poor people, a concern shared by investors in areas where businessmen are targets of kidnapping and extortion. Although IDA is not well suited to support the law enforcement (including police reform) dimensions of this issue, it is important that support for those matters be addressed within a CDF context.

205. Much more can be done to promote public sector transparency. Ultimately, governance reforms depend on the pressure of public opinion, and informed public opinion depends on transparency in the conduct of public business. IDA can and should do more to promote public accountability and transparency. In part, it should encourage the public agencies it assists to issue public reports on their activities at least annually. Such reports should include measurable and monitorable performance targets for the upcoming period and an account of whether performance targets for the previous period were met. IDA should encourage borrowers to take measures to ensure that public accounts are properly maintained and promptly published, together with an independent audit, and that the audit findings are acted upon by the competent public authorities.

206. The Bank has yet to recognize the tremendous potential of innovations in information and communications technologies for making government more transparent and efficient. For example, Guatemala has placed the full details of its public budget and accounts on a Web site; other borrowers can and should do the same. Web-based information relating to public procurement should be accessible to anyone interested, as it is in Chile, where bidding is conducted via the Internet. Computerized record keeping and stock control offers another example of how greater transparency can radically upgrade systems of accountability, as the Calcutta municipal government has demonstrated. The Bank urgently needs to catch up in this area. The small Danish-funded project being operated by the Public Sector Group of the Poverty Reduction and Economic Management Network is a start, but it needs to be quickly and substantially backed by the Bank’s own resources.

207. Institution building and governance reform requires vision, a long time frame, and persistence. It is wrong to expect that the complex political and social changes required to improve governance and build institutions can be achieved within the short span of a typical project or adjustment loan. IDA should stand ready to support governance reforms over a 10–20 year time span, sequencing operations and making adjustments year by year to absorb and adapt to lessons learned. For this purpose, adaptable program and programmatic adjustment credits are more suitable than lending instruments with a shorter time horizon. In a long process, mistakes will be made and design changes needed; persistence and flexibility are the keys. IDA

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procedures—including those related to project evaluation and staff performance—need to be adapted to this reality. Unless the Bank’s staff incentives reflect and promote a new way of doing business, change will be rushed, and the Bank’s assistance will be wasted.

208. Encourage the donor community to directly support civil society’s role in promoting good governance. Civil society has a crucial role in advocating governance reform and in tracking the performance of governments. Clearly expressed public concern about curbing corruption, improving the effectiveness and responsiveness of public service delivery, and making government more open and transparent are powerful forces for reform. At present, a relatively small part of foreign aid directly supports civil society initiatives to work on governance matters -- though there has been increasing financing for NGO participation in other areas of operational activities. In most countries, opportunities frequently arise where a small grant could be used to support local civil society efforts. For example, donors could set aside, say, 5 percent of aid transfers to support civil society initiatives to encourage governance in areas that are within their respective mandates. These funds might be used, for example, by some to support a parliamentary oversight function or by others to bolster the capability of a national chamber of commerce and industry to analyze policy so that the private sector could contribute more intelligently to the debate on achieving accountable government. Funds from the same source could assist an independent research institute to conduct a service delivery survey or initiate a governance scorecard system.

209. Country strategies should include a comprehensive institutional development strategy. A comprehensive institutional development strategy is needed that would encompass national, regional, sectoral, and local government as well as business, education, research, and civil society. The strategy should form part of the coordinated country development strategy supported by the development partners.

210. Bank staff has tended to work on different sectors in isolation even when they are assigned to the same country. Although most institutional issues have systemic roots, sector staff tend to ponder the institutional needs of their sector, often oblivious of institutional approaches being followed by their colleagues in other sectors and other countries. Institutional solutions usually have cross-cutting dimensions, however, that need to be tackled with a broad awareness of their systemic implications. As a starting point, each country team should undertake a cross-sector, cross-disciplinary review of the institutional development strategies explicit or implicit in the capacity building activities it has supported over the past decade. Such a review would help the team arrive at a better shared assessment of what works and what does not. Cross-country sharing of this experience would lead to important insights about how to promote more successful and sustainable institution building.

211. Strengthen monitoring and evaluation. Programs of governance reform often have lacked good, results-based monitoring and evaluation, a situation partly traceable to poor knowledge of the links between inputs and outcomes. The Bank is already contributing to research on defining robust governance indicators. This work should be strongly supported, as should other efforts to improve monitoring and evaluation systems related to governance reform.104

104. This review has not dealt at length with the important topic of managing for results using results-based monitoring and evaluation. For a fuller treatment see annex 6 of the 1999 Annual Review of Development Effectiveness, November 1999.

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212. More specialist staff is needed to implement IDA’s governance program. The Bank has been slow to mobilize the specialist skills needed to accelerate its work on strengthening public institutions. The lacunae have been particularly marked in the fields of public audit, public administration, tax administration, and information and communications technology applications to public sector management. If the Bank wishes to be at the cutting edge in governance, as surely it should be, more resources must be made available to hire top-notch public sector specialists.

213. Good governance is a product of complex political, social, economic, and cultural factors. Good analysis of governance problems requires skills in all these areas. However, to date the Bank is preeminently an organization of economists and is dominated by economic thinking. Its 100-odd social scientists are deployed almost exclusively at the project level to undertake beneficiary analysis and oversee work on participation and involuntary resettlement. The Bank’s handful of political scientists are largely marginalized. Consequently , work on governance and institutional issues rarely benefits from their insights.105 This bias has led at times to poor judgments.

214. Budget allocations for governance tasks need to be increased to implement IDA’s governance program. If the wide-ranging governance-related recommendations of IDA10–12 are to be implemented, more resources will have to be provided or expectations lowered. Strengthening public financial accountability, reforming civil services, and other governance tasks are complex and typically face strong resistance from entrenched interests at every step. To be effective, they require careful diagnostic work and a heavy investment in building support. The Bank’s budget is obviously limited, and further substantial new cuts have been made in fiscal 2001. The Board has insisted on selectivity, and it is possible that the Bank will do less, not more, governance work. Priority will be given to supervision of existing projects and completing ongoing lending programs. Not much may be left for economic and sector work in general or for governance work in particular.

215. The drama of constrained country budgets is becoming more evident now that country assistance strategies are required to cost out the their proposed work programs. But that is only a first step; the next is to reconcile the work programs endorsed by the Board at the time of the CAS with actual annual country budget allocations. Until just recently, this was not being done systematically. 106

105. The potential value of the contributions of the Bank’s social scientists can be seen from Joel Barkan’s work in Africa and Robert Ayre’s in Latin America. See M. A. Thomas and J. D. Barkan, Corruption and Political Finance in Africa, PREM, World Bank (September 1998) and J.D. Barkan, Increasing Public Sector Accountability and Transparency in Tanzania: An Assessment of the Political Context of Economic Reform, World Bank (April 2000), both unpublished. Also see chapter 2 in Institutions Matter: Beyond the Washington Consensus, World Bank (September 1998).

106. This year, regional budget proposals were built on CAS programs and moving to a three-year rolling budget was important in this context.

55 Annex 1

Annex 1. Governance Undertakings Implementation Matrix

The IDA12 Replenishment Report requested OED to undertake an independent review of the IDA program during the IDA10-11 period and an interim review of IDA12. The Review concentrates on IDA’s development contribution in six thematic development priorities: 1) poverty reduction, 2) social sector development, 3) private sector development, 4) governance, 5) environmentally sustainable development, and 6) gender. It also addresses four priority process reform objectives: 1) performance based allocations, 2) enhanced CAS design and implementation, 3) aid coordination, and 4) participation.

The following matrix lists the main undertakings of the IDA10,11 and 12 Replenishment Reports related to governance issues and presents comments on the extent of IDA’s implementation. The comments focus on actions taken by IDA during the respective replenishment period and, where appropriate, give a sense of subsequent or on-going actions.

The matrix reports on the extent of compliance, not effectiveness in terms of outputs or outcomes from IDA’s actions. The wide variation in the nature of the undertakings –ranging from encouragement of broad redirections in areas of operations to specific calls for reports – created a challenge for arriving at aggregate ratings. The findings on IDA’s degree of compliance as reported in the IDA Review’s report and this background study made use of a system of ratings on individual undertakings, reviewed with management. This system also served as input into the substantive discussion of implementation that is summarized in the text in this Annex.

56 Annex 1

Undertaking Comments

Incorporate governance issues into CASs

IDA 10: Describe how IDA10 policy and program directions are incorporated into country assistance programs and inform Board about governance… CAS guidelines are to be revised accordingly.

This has been done across the board in the most recent CASs, but implementation was uneven and slow before FY99.

IDA 11: Integrate the findings of PERs into CASs, indicating ways to assist the borrower to implement changes in development expenditures aimed at improving poor peoples' access to basic services. Address enhancement of tax collection in CASs and economic analyses.

CASs generally have drawn on the PERs but the extent to which clear operational measures were specified varies considerably. Significant attention is paid to defining measures to enhance tax collection in about half of the CASs.

IDA 12: Address governance issues that affect economic performance and development effectiveness. Take governance issues explicitly into account in the country dialogue, CASs, and the design and execution of lending and non-lending services. Where weak governance, including corruption, is a significant development constraint, include in the CAS explicit treatment of governance issues, specifying implications for IDA lending.

The attention given to the various dimensions of governance has expanded dramatically over the past three years and is particularly thorough in FY00 CASs. This attention has increased analytical/diagnostic work on issues of corruption and accountability, especially financial accountability, as well as on capacity building, institutional development and public sector management.

(a) Link quality of governance and lending levels

(b) IDA 12: Systematically assess the quality of governance for all countries and strengthen the linkage between the quality of governance and IDA lending levels. Scale back lending to countries with weak governance or, stop it entirely if necessary.

Consolidate assessment of policy areas relevant to governance to facilitate early identification of situations in which governance is a serious constraint to development. Make modifications to CPIA criteria.

In most of the reviewed CASs, governance/PSM factors are significant in determining movement from a ‘base case’ lending level up or down. The Bank has initiated five country institutional and governance reviews which will pilot the kind of assessment mandated in the recommendation. The work on governance is being progressively strengthened through the development of a range of ‘toolkits’. Six of the 20 CPIA components address governance/PSM performance and, in addition, there is now a “governance” discount. (See section below on the performance-based allocation system.)

Attend to rule of law, corruption and accountability issues

IDA10: Enhance the rule of law. Since the 1980s, the Bank has been involved in a number of legal reform activities in the area of private sector development and work in this area has expanded through the last decade. Work on the reform of legal administration and judicial reform has been addressed in only a minority of IDA countries, in part due to the challenge inherent in, and the time required for, consensus building in countries.

IDA10: Enhance accountability. The main component is financial accountability. Though largely neglected in IDA10, there has been a recent upsurge of work in this previously neglected area. One third of IDA countries have undertaken or are planning a country financial accountability assessment which is the starting point for seriously addressing the issue. Other aspects of accountability include service delivery issues where IDA has been encouraging countries to undertake surveys; this is a growing field for assistance, but so far not very extensive. The legislature is a key institution of accountability where IDA assistance is largely absent.

57 Annex 1

Undertaking Comments

IDA10: Increase transparency. IDA has started to encourage governments to become more transparent, e.g. to publish budgets, accounts and audits. But most agencies assisted by IDA do not make available to the public periodic reports on their performance and do not invite public discussion of their operations and future plans. Government secrecy is the norm, and IDA has done little to change this.

IDA12: Address corruption issues. In FY94 there were virtually no anti-corruption programs, even though the Bank had prepared a policy paper on the subject. In the past 2-3 years there has been an explosion of work. Still, IDA generally remains tolerant of countries where corruption is extensive and deep rooted, with the notable exception of Kenya; and does not insist on time bound and monitorable measures to tackle corruption to qualify for assistance. There are, however, a number of innovative initiatives underway in this area (e.g. social expenditure tracking in Uganda, and corruption surveys).

Promote ownership and capacity building

IDA10: Encourage stakeholder participation in the design of governance reforms.

There has been a marked increase in the involvement of stakeholders in the design of governance programs.

IDA10: Assist in fostering of national ownership of reform programs. There is now a better understanding among IDA staff of the importance of building ownership and involving civil society. Review found many innovative examples of involving a wide spectrum of civil society in discussing IDA’s country assistance strategy.

IDA10: Vigorously pursue the possibility of initiatives to support institutional development (ID).

The Bank has been slow to gear up its resources for this task. ECA, followed by LAC, has done the most in this area. Notably, the challenge of assisting in institutional transformation in the transition economies has encouraged ECA to make ID work a high priority.

IDA10: Undertake capacity building efforts. The Africa Region has made a particularly large effort to enhance capacity building, but actual programs and outcomes have been of uneven quality and effectiveness. LAC has made a noticeable effort to strengthen public administration, and ECA in the past three years has built up a large program to help the transitional economies. There are still many countries where IDA’s efforts in this area are modest or weak.

Address public sector management, public expenditure and budgeting

IDA10: Implement adjustment programs to strengthen government capacity, focusing on PSM issues.

The share of structural adjustment and other programmatic credits with PSM components rose from 17% in 1989-94 to 24% in 1998-00.107 Adjustment lending in the majority of IDA countries has now been linked to improvements in various aspects of public sector management. The specific measures relate most frequently to improved public expenditure management, but also to civil service reform and other institution building.

IDA10: Address the question of development expenditures vs. non-development expenditures.

This issue is raised by IDA in its development dialogue; but outcomes and the effectiveness of IDA’s initiatives in this field have been limited. Most countries have had PERs over the past six years which address this matter, and a few have frequent PERs. But unless this diagnostic work is fed into SACs, it is unlikely to have much impact. During IDA10 the progress was mostly slow.

107 World Bank Operations Policy and Country Services. Adjustment Lending Retrospective. Draft Final Report, (SecM2001-0215) April 1, 200l. Washington, D.C.

58 Annex 1

Undertaking Comments

IDA11: Continue to address non-development expenditure issues: military expenditures crowding out development expenditure.

This issue has been a significant part of IDA’s dialogue only in some post-conflict situations (e.g. Chad and Cambodia). Noticeably, this issue has not been raised in several counties (e.g. India, the Gambia, and Vietnam) where the diversion of public resources to the military is clearly at the expense of much needed social development.

IDA11: Strengthen budgeting and planning. Increasingly, PERs are focussing attention on the institutional and management aspects of public expenditure, with some notable success stories (e.g. Ghana). In some countries despite IDA treating this matter as a high priority, there has been only modest outcomes (e.g. Bangladesh, Kenya and Malawi).

IDA11: Indicate in CASs approaches to reducing losses of state-owned enterprises; and address SOE reform and reduction of subsidies.

SOE reform is seldom addressed in any detail. SOE reform is approached primarily by various degrees of private sector participation. The question on how to improve performance of firms not yet privatized is still to be determined. FY99 CASs for Vietnam and Bolivia are good practice examples.108

IDA11: Improve tax collection. Improving tax collection has been a part of IDA’s dialogue with countries on economic management. In a few instances (e.g. Bangladesh) projects are dedicated to this goal; but usually modest components are included in broader projects aimed at improved economic management or made a part of SAC conditionality.

IDA12: Develop a public sector development strategy. Reforming Public Sector Institutions and Strengthening Governance was completed in FY01. 109 The strategy, which took two years to prepare, reviews the Bank work on governance and proposes a much more pro-active approach.

108 World Bank. 1998. Vietnam Country Assistance Strategy, Washington D.C, and World Bank. 1998. Bolivia Country Assistance Strategy, Washington D.C. 109 World Bank. 2000. Reforming Public Institutions and Strengthening Governance: A World Bank Strategy. Washington, D.C.

59 Annex 2

Annex 2. Distribution of PSM Staff by Specialization (as of February 2000)

PREM Public Sector Members as of 2/2000 Department

AFR EAP ECA LCR MNA OED OTHER PRM SAR WBI Grand Total

Total 47 7 43 29 23 8 4 11 19 12 203

1/ Includes all staff associated with public sector

PREM Public Sector Members Disciplines 1/ Department

AFR 2/ EAP ECA LCR MNA OED OTHER PRM SAR WBI Grand Total

Public Institutions 31 24 10 5 3 10 5 8 96

Public Finance (Expenditure & Tax policy 7 21 5 17 7 1 3 17 6 84

1/ Some staff fall under both disciplines, therefore, double counted. 2/ Does not include AFR data — staff working in public sector were not associated to this category.

Public Sector Members by Institutional Reform skills 1/ Department

AFR EAP ECA LCR MNA OED OTHER PRM SAR WBI Grand Total

Financial/public expenditure mgmt. 13 2 9 1 3 6 3 5 4 46

Tax/customs admin 1 7 1 3 1 1 2 16

Civil service/admin 9 6 6 2 3 1 3 1 4 35

Legal/judicial reform 1 4 4 1 2 1 2 15

Decentralization/local gvrn’t admin 2 1 1 6 2 3 4 2 21

Public enterprise reform 1 1 1 3 1 3 10

Integrated instit. Analysis & assessment 15 6 2 1 5 1 3 1 6 40

Sectoral instit. Analysis 1 4 1 1 4 4 15

Accountability instit./anti-corruption 6 11 1 3 4 4 3 3 35

Design technical asst. operations 3 8 11 6 3 1 1 33

1/ Some staff are associated to multiple skills, therefore, counted more than once.

60 Annex 2

Total Public Sector Members by Public Economics skills 1/ Department

AFR EAP ECA LCR MNA OED OTHER PRM SAR WBI Grand Total

a-revenue (tax/tariff) policy 18 2 3 11 6 1 2 6 3 52

b-public expenditure analysis 22 3 18 2 16 7 1 13 2 84

c-decentralization/intergovt FY relations 1 5 3 1 4 1 9 2 26

1/ Some staff are associated to multiple skills, therefore, counted more than once.

61 Annex 3

Annex 3. Programs in IDA Countries to Strengthen Governance (under implementation or active preparation, FY98-FY00)

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

AFRICA

Angola (FY98) CPFA

Benin (FY99) IDF Grant. Reinforcement of Anticorruption Unit in Presidency.

(FY99) CPAR (FY99) Pilot IGR to assess areas of weak governance and poor public sector performance (FY00-01) CFAA

(FY98) Anticorruption seminar (EDI). (FY99) Anticorruption seminar as part of IDF Grant to Anticorruption unit. (FY99-00) Participant in WBI Core Course on Anticorruption. (FY00) Participant in Investigative Journalism Teleseminar Series (WBI).

(FY99) Private sector development and judicial reform project. (FY99) Transport Sector Investment program. (FY00-01) Preparation of PERC with financial accountability components. (FY00-01) Preparation of Legal and Judicial Reform Project.

Burkina Faso (FY00) IDF Grant. Capacity Building to Promote Governance

(FY99) PER IV (FY00) CPAR (FY00) Study on the governance underpinnings of service delivery.

(Approved FY92) Public Institutional Development project. Second Private Sector Development Project

Cameroon (FY00) Development of good governance and anticorruption action plan.

(FY00) Participant in Investigative Journalism Teleseminar Series (WBI).

(FY00) Forest and Environmental Sectoral Program Project (FY00) Petroleum Environment Capacity Enhancement Project

Cape Verde (Approved FY94) Public Sector Reform and Capacity Building project. (FY98) Economic Reforms Support project. (FY99) Privatization and Regulatory Capacity Building project. (FY99) Energy and Water Sector Reform and Development Project

62 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Chad (FY00) CFAA (Approved FY96) Capacity Building project. (FY99) Structural Adjustment Credit III. (FY00-01) Strong transparency components dominate the overall Chad-Cameroon Pipeline package. (FY98) Private Sector Development Capacity Building Pr oject

Côte d’Ivoire (FY98, 99) PER (FY98) CPFA (FY99) Country regulatory framework paper. (FY00-01) CFAA

(FY00) Conference on Good Governance, focusing on corruption (22-24 November 1999). (FY00) Participant in Investigative Journalism Teleseminar Series (WBI).

(Approved FY93) Economic Management Technical Assistance project.

Eritrea (FY99) CPFA (FY00-01) CFAA (FY00-01) CPAR

Ethiopia (New operations are on hold owing to the war with Eritrea)

(FY99) IDF Grant. Civil Service Reform and Capacity Building.

(FY98) Anticorruption mission and report; Follow -up work is based on decision to designate Ethiopia as the pilot country in Africa for introducing the Anticorruption Clause in Bank procurement. (FY98) CPFA (FY98, 99) PER (FY98-01) PER, conducted annually in Ethiopia (FY98) CPAR (FY99-00) Pilot IGR to assess areas of weak governance and poor public performance. (FY00-01) CFAA

(FY98) Anticorruption Seminar for Parliamentarians (EDI). (FY99) Three Introductory Investigative Journalism Seminars including Radio and Television journalists (WBI). (FY99-00) Governance and Corruption Survey (WBI/DGTF). (FY99-00) Participant in WBI Core Course on Anticorruption. (FY00) Participant in Investigative Journalism Teleseminar Series (WBI). (FY00) Support to GOE/CSR Program, development of Investigative Journalism curricula (WBI).

Gambia (FY98) Improving Cabinet decisions on public expenditure management (EDI).

(Proposed )Capacity Building for Economic Management Project

63 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Ghana (FY00) CFAA and CPAR underway. (FY00-01) Participatory CAS and CDF process consulting government, donors and civil society. (FY00-01) Study to develop a consistent, cross-sectoral decentralisation strategy, following through on anticorruption survey, the institutional reform of ministries, and the development of measures to monitor and evaluate government performance.

(FY98-00) Seminar for Public Accounts and Finance Committees (EDI/WBI). (FY99) Seminar for Economic and Financial Journalists on Transparency and Integrity (WBI and African Virtual University). (FY99-00) Participant in WBI Core Course on Anticorruption. (FY00-01) Governance and Corruption Survey. (FY00) Participant in Investigative Journalism Teleseminar series (WBI).

(FY98/FY99) Economic Reform Support Operation project I/II. (FY99) APL Public Sector Management program. (FY 98) Natural Resource Management Project

Guinea (FY98) CPFA (FY98) Public Investment Review (FY99) Mission to respond to request from President for assistance to fight corruption. (FY99-00) CPAR (FY00) Follow-up to Mission - assistance to develop anticorruption strategy and action plan

(FY00-01) Governance and Corruption Survey. (FY00) Government e-governance initiative that computerizes registration of land deeds, transfers, and valuation of properties.

(FY99) APL. Capacity Building for Service Delivery. (FY02) Judicial Capacity Building Project (FY96) Mining Sector Investment Promotion Project

Guinea-Bissau (FY98) IDF Grant. Notary and Registration Service.

(FY98) Strengthening Customs Administration.

(FY97) Private Sector Development Project

Kenya (FY00-01) Preparation and implementation of IDF Grant for support to the Kenyan Anticorruption Authority.

(FY99) PER (FY98) CAS. Best practice. (FY99) Growth paper for CAS (FY99) CAS. Addressed problem of corruption and public sector management.

(FY99-00) WBI Core Course on Anticorruption. (FY00-01) Governance and Corruption Survey.

(Approved FY93) Parastatal Reform and Privatization Technical Assistance project. (Approved FY95) Institutional Development and Civil Service Reform project. (FY99) Institutional Development and Civil Service Reform project. (FY00-01) Proposed Public Sector Adjustment Credit will focus on accountability and transparency in the use of public resources. (FY00) Privatization & Private Sector Competitiveness Project

64 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Lesotho (FY99) Policy dialogue on Civil Service Reform is part of PFP process.

(FY98) Agricultural Policy and capacity Building Project

Liberia (FY00) Collaborating with IMF to remove monopolies on petroleum products and rice imports.

Madagascar (FY98) CPFA (FY98) Decentralization program (FY 99) PER

(Approved FY97) Public Management Capacity Building project. (FY99) Structural Adjustment Credit II.

Malawi (FY00-01) IDF Grant. Reinforcement of Anticorruption Bureau

(FY98) Anticorruption mission and report.

(FY99-00) Participant in WBI Core Course on Anticorruption. (FY00-01) Governance and Corruption Survey

(Approved FY94) Institutional Development project II. The five major components include: (i) improving civil service policy and information framework; (ii) strengthening capacity of department of personnel management; (iii) strengthening institutional capacity of the Ministry of Finance; (iv) support the Department of Statutory Bodies; and (v) strengthen the Malawi Institute of Management. (Approved FY96) Fiscal Restructuring and Deregulation Program project (FRDP). (FY99) FRDP II. (FY00) Structural Adjustment Credit will support financial management reform, the office of Auditor General, judicial and legal reform, and decentralisation of the administration of the civil service.

Mali (FY99) Anticorruption mission and report. (FY99) CPAR

(FY98) Seminar for Public Accounts and Finance Committees (EDI). (FY99) Seminar for Economic and Financial Journalists on Transparency and Integrity (WBI and African Virtual University). (FY99) Seminar for Public Accounts and Finance Committees of Parliament (WBI).

(Approved FY96) Economic Management Credit project. (FY92)Private Sector Assistance Project (FY00)Financial Sector Development Project (FY98)Telecommunications Sector Reform

65 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Mauritania (Approved FY96) Public Resource Management Credit Project. (FY99)Telecommunications and Postal Sectors Reform Project (FY00)Energy, Water, and Sanitation Sector Reform Technical Assistance Project (FY99)Integrated Development Project for Irrigated Agriculture (first phase) Microfinance Project

Mozambique (FY00) IDF Grant. Supporting the Technical Group for Public Sector Reform

(FY00-01) CPAR (FY00-01) Governance central to CAS. (FY00-01) Report on accountability and transparency in the delivery of public services.

(Approved FY93) Legal and Public Sector Capacity project. (FY00-01) Preparation of multi-faceted public-sector reform project.

Niger (FY99) CPAR (FY99) PER (FY00-01) CFAA

(FY99) Public Finance Reform Credit Project.

Nigeria (FY00) Missions to develop comprehensive approach to anticorruption. (FY00) CFAA and CPAR

(FY00) Preparation of governance and corruption surveys. (FY00) Initiation of training program for parliamentarians and journalists (WBI).

(FY00) Preparation of Economic Management Capacity-Building Project which will have components for strengthening economic and financial management. (FY99) Privatization Support Project

Rwanda (FY98) CPFA (FY99) Economic Recovery Credit project. (Proposed) Competitiveness and Enterprise Development project

66 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Sierra Leone (FY98) PER IV (Approved FY93) Public Sector Management Support project: to strengthen capacity to implement adjustment program and longer-term growth strategy, focusing on fiscal management. (FY94 and proposed) Legal and Judicial Sector project (FY00) Governance and anticorruption component included in the new Economic Rehabilitation and Recovery Credit.

Senegal (FY98) IDF Grant. National Consultation on Civil Service Reform.

(FY99) PER (FY95) Private Sector Capacity Building

Tanzania (FY99/00/01) PER, informal outputs (FY98) Capacity building project (FY98-00) Anticorruption mission and report – follow -up to the mission is the initiation of an accountability and transparency program. (FY00) CPAR

(FY98) Introductory and Advanced Investigative Journalism Seminars – Business Journalists (EDI). (FY98) Integrity Workshop for Parliament (EDI). (FY99) Introductory and Advanced Investigative Journalism including Radio and Television (WBI). (FY99) Strengthening of Parliamentary Oversight (WBI) (FY99-00) Participant in WBI Core Course on Anticorruption. (FY00) Participant in Investigative Journalism Teleseminar series (WBI).

(Approved FY93) Financial and Legal Management Upgrading project. (Approved FY93) Private and Public Sector Management project. (Approved FY97) Structural Adjustment Credit I. (FY99) Tax Administration Program project. (FY00) Public Sector Reform Project focuses on service delivery, meritocratic public service, performance management and budgeting, pay reform, and ethics. (Proposed) Accountability, Transparency and Integrity Program (FY99) Rural and Micro-Financial Services Project

67 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Uganda (FY00) IDF Grant. Strengthening the capacity of the Ministry of Ethics and Integrity

(FY98) CPFA (FY99/00/01) PER, informal outputs (FY98) Capacity building project (FY98) Expenditure tracking project (FY99) Anticorruption mission and report. (FY99) Study on corruption and the financing of politics. (FY99) Anticorruption report on Agenda of CGM and of February meeting of GCA. (FY00) CPAR

(FY98) National Integrity Meeting III (EDI). (FY98) 3 Investigative Journalism workshops (EDI). (FY98) National Integrity Survey (EDI). (FY98) Integrity Meeting and Workshops for Parliament and Judiciary (EDI). (FY99) National Integrity Meeting IV, (EDI). (FY99) National and District Media Training Investigative Journalism – TV & Radio (WBI). (FY99) 10 District Integrity Meetings (WBI). (FY99-00) Participant in WBI Core Course on Anticorruption. (FY00) Participant in Investigative Journalism Teleseminar series (WBI).

(Approved FY95) Institutional Capacity Building project. Includes (i) central government capacity building; (ii) local government capacity -building; (iii) legal sector reform; (iv) accountancy profession; and (v) training funds. (Approved FY97) Structural Adjustment Credit III. (FY99) Education Adjustment Credit allocates funds directly to communities. (FY00) Preparation of Public Expenditure Reform Credit (PERC) with components to strengthen governance and accountability.

Zambia (FY99) Public Sector Reform and Export Promotion Credit project. (FY00) Public Sector Capacity-Building Project to make public service delivery more effective and efficient, facilitate economic growth and thence reduce poverty.

Zimbabwe (FY98) Workshop on Training of Trainers for Development of Local Integrity (EDI).

68 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

EAST ASIA AND THE PACIFIC

Cambodia (FY99-00) IDF-financed TA for financial accountability development.

(FY98) Public Expenditure Review (FY99) Preliminary survey on "the business environment and governance in Cambodia" (Danish Trust Fund) (FY99-00) IDF grant: has surveyed public officials and private citizens as input for upcoming Action Plan for Enhancing Governance and Fighting Corruption. (FY00) Translation of “Parliamentarians Guide to Curbing Corruption” (WBI)

(FY99) PER – Governance, corruption issues discussed up front in the context of estimating the extent of revenue loss (especially from illegal logging) and expenditure leakages/diversions. (FY00) Parliamentarians Workshop

(FY00) Biodiversity & Protected Area Project

China (FY99) Assistance to develop bidding law, procurement regulations, and a National Audit Office with an audit MIS system. (FY99) IDF Grant. Strengthening of Enabling Environment for China's NGO Development.

(FY98) Accounting Reform and Development Project. (FY99) PER

(FY99) Program on Corporate Governance and Enterprise Restructuring with SETC (WBI).

(Approved FY95) Fiscal Technical Assistance project. (FY93-00) Reform, Institutional Support and Pre-investment Project (feasibility of introducing tax police). (FY95-99) Economic Law Reform Project. (FY95-99) Fiscal TA for improving tax administration. (FY99) Accounting Reform and Development Project to strengthen financial management for state enterprises and government bodies. (FY99) SOE Reform Project. (FY99) TCC4 sub-component supporting the National School of Administration in exploring adequate anticorruption measures and mechanisms.

69 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Indonesia (FY98) IDF Grant. Legal Reform. (FY99-00) ASEM Grant. Improving Local Government Expenditure Transparency. (FY99-00) ASEM Grants. Social Safety Net Monitoring with Civil Society and NGOs. (FY00) UNDP/WB Partnership on Governance.

(FY99) Anticorruption Strategy Missions. (FY99) Anticorruption Action Plan for Internal Bank Activities. (FY99-00) Anticorruption Handbook. (FY99) Civil Service Review (draft). (FY00) PER – focus on budget management. (FY99) Governance Baseline (under purview of Partnership). (FY99) IPM Study (FY99) PER (FY99) IDA eligibility for Indonesia (FY00) Translation of “Parliamentarians Guide to Curbing Corruption” (WBI).

(FY99) Regular Meetings with Indonesia Corruption Watch, INFID and other NGOs. (FY99) Procurement Complaint Monitoring System. Wide distribution to the Country Team in FY00. (FY99) Seminar series on Public Sector Reforms. (FY00) CFAA (FY00) Integrity Awareness Seminar. (FY00) Parliamentary Workshop (WBI).

(FY99) Policy Reform and Social Safety Net SALs including transparency and other anticorruption and collusion conditions.

Lao PDR (FY99) IDF Grant. Civil Service Reform.

Mongolia (FY98) Fiscal Technical Assistance project. (Proposed)Legal Reform Project (FY97) Banking, Enterprise and Legal Technical Assistance Credit Project

70 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Vietnam (FY98) IDF Grant. Improve government accounting system. (FY00) The Bank has been providing TA on strengthening procurement since 1996. An IDF in FY00 will extend this, specifically to assist government formulate and implement a public procurement ordinance. The objective is to match standards required for entry to WTO.

(FY99) Fiscal Transparency Study (jointly with IMF); to increase budgetary transparency (at National, Provincial and Commune levels) (FY00) PER will address transparency issues further – reviewing progress on fiscal transparency. (FY00) A Bank paper on Anticorruption will be finalized in FY00, and will contribute to a donor paper on governance – to be discussed with GOVN.

(FY99-00) CDF pilot governance/anticorruption workshops. (FY00) The Bank is strengthening monitoring of Bank-financed contracts. In addition to ex-post reviews for all large Bank-financed contracts, a selection of small contracts is being surveyed. (FY00) Active in donor working group on governance. The Government and National Assembly have identified PAR and anticorruption as key themes. (FY00) Technical advice and back-up to Swedish-funded diagnostic survey of corruption (WBI). (FY99) Workshop on fiscal transparency for government officials (with IMF). (FY00) Two workshops on Analytical Framework and Methodology of the PER for central and local government officials. (FY00) Conference on Project Management and Implementation with session on transparency and anticorruption.

(FY00) Structural Adjustment Credit II (SAC II) includes measures on governance, including expanding budgetary transparency (at local and central levels) and providing an enabling environment for civil society organizations.

71 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

EUROPE AND CENTRAL ASIA

Albania (FY99) TA. Conduct a Unit Cost Comparison Study, donor coordination, tax/customs, and needs assessment to strengthen Judicial Inspection Panel. (FY99) TA. Unit Cost Comparison Study, donor co-ordination, tax/customs mission. (FY99) TA. Judicial Inspection Panel, consolidate Central Budget Office for courts, advance ADR, plan dissemination of published laws and judicial decisions. (FY99) IDF Grant. Public procurement recommendations of A/C program, including private sector outreach. (FY99) TA. Support for small grants to NGOs. Government/civil society roundtables on corruption.

(FY99) Anticorruption mission, report and dissemination. (FY99) Dissemination and monitoring of Government Action Plan, promotion of civil society participation, health services. (FY99) Publication and dissemination of anticorruption conference Report (including Government Action Plan and Survey Results). (FY99) Tax/customs assessment. (FY00) Preparation of anticorruption strategy.

(FY98) Anticorruption seminar (EDI). (FY98) Co-finance diagnostic surveys, support government-NGO working groups, incremental work on administration and judicial reform. (FY98) Diagnostic surveys on education and health. (FY99) Donor/Government Co-ordination Meetings (every three months).

(FY98) Structural Adjustment Credit to improve public administration, de-politicize civil service, improve competence of judiciary (required testing of judges), and strengthen Judicial Inspection Office. (FY99) Judicial Reform & Public Administration Credit to improve (financial, personnel and performance) accountability; increase professionalism of judiciary and access to up-to-date legal information; improve court administration. (FY99) Support for the Center for Educational Assessment and Evaluation (to reduce corruption in higher education sector). (FY00)Legal and Judicial Reform Project (FY00)Financial Sector Institution Building Technical Assistance Project (FY99) Micro-Credit Project

Armenia (FY99) Judicial Assessment (FY99) Civil Service Assessment

(FY00) Judicial Reform Project

Bosnia-Herzegovina

(FY99) Public Finance Structural Adjustment Credit.

72 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Georgia (FY98) IDF Grant. Public Procurement Reform. (FY99) IDF Grant. Approved for Strengthening State Chancellery and Public Service Bureau. (FY99) TA to finance short-term Institutional Reform Adviser for MOF to, inter alia, tackle governance-related issues. (FY00) PHRD Grant. Approved for licensing reform for institutional strengthening of the licensing and regulatory framework, analysis of intergovernmental finance, and strengthening the tax administration. (FY00) CFAA proposed to be conducted.

(FY99) Anticorruption mission and report. (FY99) Public Sector Reform Missions report progress in implementing public service reform-related recommendations from June 1998 Workshop. (FY99) Public Sector Reform missions provided technical assistance to simplify licensing regime (new law on licensing passed April 1999), institutional strengthening of tax administration, and civil service reform. (FY99) Judicial Assessment (FY99) Civil Service Assessment

(FY98) Anticorruption seminars run by EDI. (FY98) Diagnostic work on de-licensing, procurement, and state audit, co-financed diagnostic survey, public workshop. (FY99) Civil Service Reform Workshop. (FY00) Dissemination of Corruption Survey Report.

(FY99) Judicial Reform Program project. (FY99) Transport Ministry Restructuring project. (FY99) Structural Adjustment Credit III addresses licensing and public procurement reform, and action plans for fiscal institutional reform. (FY99) Structural Reform Support project provides for TA to support SAC. (FY02) Public Sector Reform Credit in lending program.

Kyrgyz Republic (FY00) Governance (FY00) Land and Real Estate Registration project

Macedonia (FY98) Pension Reform and Technical Assistance Project

Moldova (FY98) Structural Adjustment Loan II. (FY01) PRSC I.

Tajikistan (FY98) IDF Grant. Public Procurement System.

(FY98) Structural Adjustment Credit (Approved FY96/FY99) Institution Building Technical Assistance I/II.

LATIN AMERICA AND THE CARIBBEAN

Bolivia (FY99) IDF Grant. Strengthen institutional capacity of the Ministry of Finances Internal Auditing Department (SFC). (FY99) Institutional Reform Project.

(FY00) IGR (FY00) CFAA

(FY98) Ministerial Integrity Workshop (EDI). (FY98) Establish a National Integrity Committee and Unit (EDI). (FY98) Household Service Delivery Survey (EDI). (FY98) Private Sector Service Delivery Survey (EDI). (FY99) National Integrity Workshop (EDI).

(Approved FY95) Judicial Reform project. (FY98) Financial Decentralization and Accountability project. (FY99) APL. Institutional Reform. (FY99)Second Judicial Reform Project (FY01)Programmatic Structural Adjustment Credit for Decentralization (FY98)Regulatory Reform and Privatization Technical Assistance

73 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Guyana (FY99) CPAR (Approved FY93) Public Administration project.

Haiti (FY99-00) CPAR

Honduras (FY99-00) CPAR (Approved FY96) Public Sector Modernization Structural Adjustment Credit. (Approved FY96) Public Sector Modernization Technical Assistance Credit. (FY00)Economic and Financial Management Project (Proposed FY04) Indigenous Peoples Development Project

Nicaragua (FY98-99) Two National Integrity Workshops (EDI). (FY98) Household Service Delivery Survey (EDI). (FY99) Disaster Relief Integrity Project (EDI).

(Approved FY95) Institutional Development Credit. (FY98) Financial Sector Adjustment Credit. (FY00) Preparation of anticorruption component of Economic Management Technical Assistance Credit. (FY99) Land Administration Project (FY98)Telecommunications Sector Reform Project

MIDDLE EAST AND NORTH AFRICA

Egypt (FY00) Preparatory work for note on Public Sector – Private Business relationship. (FY99) PER – social sector

Yemen (FY00/01) PER (FY99) Procurement and Financial Management Training.

(FY99) Legal and Judicial Development. (FY99) Public Sector Management Adjustment Credit. (FY00) Civil Service Modernization.

74 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

SOUTH ASIA

Bangladesh (FY99) IDF Grant. Improve government auditing and financial management. (FY99) TA. Assist Controller and Auditor General to develop ability to conduct project audits.

(FY98) CPFA (FY98) PER 1997 Update (FY99) Diagnostic case studies on corruption in government. (FY99) Bangladesh Procurement Assessment Study. (FY99-00) CPAR (FY00) Country paper on Corruption. (FY00) IGR(FY00) CFAA

(FY98) Anticorruption seminar (EDI). (FY99) Survey on corruption by TI-Bangladesh.

(FY01) Legal and Judicial Reform Project.

Bhutan (FY98) CPFA

India (FY99) IDF Grant. Upgrade institutional capacity of Auditor General of India.

(FY98) RD Decentralization Dissemination (FY99) Corruption issues – Country paper. (FY99) Governance issues addressed in state studies. (FY99) UP Economic & Fiscal Study (FY99) Public Enterprise Performance (FY99) CPFA (FY99) Structural Policy Reform (FY99) Debt and Growth Sustainability Analysis (FY99) Corruption Note (FY00) Economic reports with substantial governance component (Rajasthan, Andhra Pradesh) (FY00) CDR

(FY98) Anticorruption seminar (WBI). (FY99/00) Governance and anticorruption components under preparation for Uttar Pradesh Program Loan 1

Maldives (FY98) CPFA

Nepal (FY99) IDF Grant. Third IDF Grant to upgrade institutional capacity of Auditor General.

(FY98) CPFA (FY99) Corruption Issues – Country paper (FY99) CPAR (FY99) Anti-Corruption Initiative

75 Annex 3

Grant-Based Technical Assistance

ESW and Mission Reports In-country workshops, Surveys Governance related lending (active projects)

Pakistan (FY98) CPFA (FY99) Corruption Issues – Background paper. (FY99) PER (FY99) Governance paper for Pakistan 2010. (FY99/00) CPAR

(FY00-01) Pakistan Tripartite Baseline Survey.

(Approved FY96) Improvement to Financial Reporting and Auditing project. (Proposed) Trade and Transport Facilitation

Sri Lanka (FY99) Corruption issues – Country paper. (FY99) Anti-Corruption Initiative (FY99) CPFA (FY00) Governance and Accountability report. (FY00) Report on the media (WBI)

(FY00) Anticorruption workshop and Action Plan.

(FY00) Legal and Judicial Reform Project

76 Annex 3

BANK-WIDE ACTIVITIES

Strategy, Research and “Good Practice” Documents Bank -Staff Training Participation in International Efforts

(FY99-00) Public Sector Strategy Paper: “The World Bank: Addressing the Challenge of Reforming Public Institutions and Strengthening Governance.” PREM Notes: (FY98) PREM Note 4: “Corruption and development” (FY99) PREM Note 7: “New frontiers in diagnosing and combating corruption” (FY99) PREM Note 19: “Using an ombudsman to oversee public officials” (FY99) PREM Note 23: “Using surveys for public sector reform” (FY99) PREM Note 24: “Fostering institutions to contain corruption” (FY99) PREM Note 25: “Assessing borrower ownership using reform readiness analysis” (FY00) PREM Note 26: “The law and economics of judicial reform” (FY00) PREM Note 29: “Assessing political commitment to fighting corruption” (FY00) PREM Note 30: “Mobilizing civil society to fight corruption in Bangladesh” (FY00) PREM Note 31: “Rethinking civil service reform” (FY00) PREM Note 33: “An anticorruption strategy for revenue administration” (FY00) PREM Note 34: “Reducing court delays: Five lessons from the United States”

Training Workshops: (FY99) Anticorruption Diagnostic Tools (PRMPS, WBI). (FY99) Mainstreaming Anticorruption in the CAS (PRMPS, WBI). (FY99) Reducing Corruption: A Search for Lessons of Experience (PRMPS, WBI). (FY99) Regional Orientation Workshops in AFR, EAP, ECA, LAC, MNA (Regions, WBI). Preparation for SAR (FY00). (FY99) Integrity Awareness Seminars; 12 at headquarters, and 4 at Resident Missions in Southeast Asia (OPE). (FY99) New Employee Orientation: Ethics component (OPE).

(FY98-99-00) Observer status at OECD Working Group on Bribery, International Chamber of Commerce Standing Committee on Extortion and Bribery, DAC Experts Group on Monitoring Performance in Good Governance, United Nations Office of Drug Control, and Interpol International Groups of Experts on Corruption. (FY98-99-00) Participation on MDB Working Group on Governance, Anticorruption and Capacity Building.

77 Annex 3

BANK-WIDE ACTIVITIES

Strategy, Research and “Good Practice” Documents Bank -Staff Training Participation in International Efforts

EDI/WBI Books and Working Papers: (FY98) “Curbing Corruption” (EDI Development Series) (FY98) The Importance of Supreme Audit Institutions in Curbing Corruption (FY98) Social Marketing Strategies to Curb Corruption (FY99) New Perspectives in Curbing Corruption (WBI with TI) (FY00) The Role of Media in Curbing Corruption (FY99-00) DRG and other research (papers in final or draft form): “Aggregating Governance Indicators” “Governance Matters” Review paper on the consequences of corruption. “Assessing Political Will and Opportunity for Anti-Corruption” “Corruption and Political Finance in Africa” “Corruption, Public Finances and the Unofficial Economy” “Making Voice Work: The Report Card on Bangalore’s Public Service” “Moral Hazard and Optimal Corruption” “Regulatory Discretion, Corruption and the Unofficial Economy” “Decentralization Data Project” (Danish Governance TF) “Does ‘Grease’ Payment Speed Up the Wheels of Commerce?” “Corruption, Composition of Capital Flows and Currency Crisis” “Rotten Bureaucracy and Endogenous Capital Controls” “Who Must Pay Bribes and How Much?”, draft – under review for publication “The effects of corruption and taxation on growth: Firm level evidence”, draft – under review for publication. Joint with Ray Fisman, Columbia University “The cost of doing business: Ugandan firms’ experiences with corruption” – Africa Region Working Paper Series No. 6 (forthcoming) “Special Governance Zone” concept development in transition & developing economies

(FY99-00) Procurement Innovations Workshop (Danish Governance TF).

79 Annex 4

Annex 4. IDF Grants Supporting Governance and PSM Programs in IDA Countries (FYs 94-00)

Grants from the Institutional Development Fund (IDF – funded through contributions from IBRD net income) support technical assistance for institutional development specifically. During the FY’s 1997-1999, fifty-five IDF programs supporting governance and PSM work were under implementation in IDA countries. In terms of resource commitments, they ranged in value from $50,000 to $500,000, with additional mandatory local contributions.

Close to 100 programs were aimed at improving economic and public management, including governance, in IDA countries. IDF programs have helped to institute sound public procurement rules, improve debt management, undertake legal and civil service reform and establish better accounting and auditing systems.

IDF Programs in IDA countries to Strengthen Governance (1994-2000):

Country IDF Grant Approval Date

Closed Date

Grant Amount

SAR

Bangladesh Strengthening Institutional Capacity 6/23/98 8/10/00 485,000

Bangladesh Government Auditing and Financial Management FY99

Bangladesh Capacity Enhancement of the Judicial System 12/20/96 4/17/99 312,700

India Strengthening the Institutional Framework 9/23/94 10/20/96 120,000

Pakistan TA for Institutional Strengthening 6/30/94 3/27/97 191,000

Sri Lanka Reforming Tax Administration 10/2/92 12/10/95 417,000

MENA

Yemen Legal Reform 1/11/95 1/10/98 196,000

Yemen Regulatory Regime for NGOs 6/26/97 12/31/99 286,295

LAC

Honduras Training and Institutional Strengthening Program 10/23/96 4/30/99 183,630

Nicaragua Grant for Public Investment Sector 1/29/99 3/7/01 247,900

Nicaragua Public Sector Financial Management 8/14/92 5/31/95 250,000

ECA

Albania Public Administration and Civil Service Reform 8/7/92 9/30/94 300,000

Albania Procurement Institutional Development 9/27/95 6/30/98 200,000

Kyrgyz Legislative and Institutional Framework for Public Sector 6/27/94 6/30/97 100,000

Azerbaijan Public Procurement 8/8/96 8/8/99 175,000

Georgia Development of Public Procurement Procedures 2/23/98 3/31/00 142,500

Georgia Institutional Strengthening of the Tax Admin. FY00

Georgia Strengthening Institutional Capacity 12/22/95 7/1/98 327,000

Moldova Strengthening Institutional Capacity 12/7/98 3/25/01 450,000

Tajikistan Public Procurement Systems 7/10/96 6/24/99 178,000

80 Annex 4

Country IDF Grant Approval Date

Closed Date

Grant Amount

EAP

Cambodia Rehabilitation of Public Finance 6/25/93 7/26/95 500,000

Cambodia Enhancing Governance and Fighting Corruption 200,000

Indonesia Legal Infrastructure 7/6/95 1/10/98 482,000

Indonesia Strengthening the Institutions of Local Governance 200,000

Laos Development of Institutional Capacity 1/20/95 5/30/97 476,000

Mongolia Building the Institutional Capacity of the State 12/4/97 2/10/00 350,000

Solomon Isld. Capacity Building 5/10/99 6/1/01 325,500

Vietnam Improve Government Accounting System 5/12/95 5/12/98 498,000

AFR

Angola Capacity Building 8/27/93 10/19/96 196,000

Benin Reinforcement of Anti-Corruption Unit in Presidency FY99

Burkina Faso National Capacity Assessment 5/2/96 5/9/98 60,000

Eritrea Building Capacity for Budgeting 1/27/95 1/27/98 446,000

Ethiopia Civil Service Reform 12/4/96 2/2/99 461,000

Ghana National Capacity Assessment 5/30/96 5/9/98 60,000

Guinea Public Procurement Reform 3/25/97 5/7/99 420,000

Guinea-Bissau National Capacity Assessment 5/3/96 5/9/98 50,000

Liberia Strengthening Capacity to Restore Basic Government 10/22/97 12/22/99 450,000

Malawi National Capacity Assessment 5/3/96 5/9/98 60,000

Mali Strengthening Public Procurement 3/24/98 7/22/00 434,000

Mauritania Modernization of Public Procurements 5/26/98 10/28/00 440,000

Mauritania Capacity Building 6/27/94 6/27/97 310,000

Mozambique Capacity Building 1/26/99 4/18/01 279,000

Mozambique Institutional Capacity Strengthening 6/26/97 10/29/99 200,000

Nigeria National Capacity Assessment 10/4/97 6/3/00 88,000

Cote d’Ivoire National Capacity Assessment 5/2/96 5/9/98 60,000

Cote d’Ivoire Grant to fund Conference on Governance and Corruption FY00

Cote d’Ivoire Civil Service Reform 5/16/95 7/24/97 124,000

Rwanda Strengthening Public Procurement Capacity 2/23/99 4/5/01 375,600

Senegal Civil Service Reform 8/6/96 10/8/98 183,000

Tanzania National Capacity Assessment 5/3/96 5/9/98 60,000

Tanzania Institutional and Legal Framework 5/9/97 8/14/99 428,000

Uganda National Capacity Assessment 5/3/96 5/9/98 60,000

Zambia National Capacity Assessment 5/2/96 5/9/98 60,000

Zambia Capacity Building 6/13/94 8/15/96 63,000

Zimbabwe Strengthening Monitoring Capacity 6/23/95 4/30/98 341,000

81 Annex 5

Annex 5. PREM Professional Development on PSM

One of PREM’s top priorities in FY98 through 00 is to create and implement professional development programs for PREM staff, to enhance their performance in delivering the Bank’s core business. The four themes to be address in these programs are: poverty reduction, economic policy, gender and development, and public sector management. Annex X summarizes PREM professional development activities within the public sector management component from FY98 to present.

PREM’s objective is to develop and manage a set of innovative, targeted and cost-effective professional development programs for HQ, Field Office and Operations support staff affiliated with PREM that will help them deliver the Bank’s core business more effectively. By cooperating with EDI/LLC, the Regions, other Networks, and external partners, the cost of delivering a diversity of training and professional development opportunities to PREM staff can be kept as low as possible.

The budgets figures for fiscal years 98, 99, and 00 are not strictly comparable because of internal structural and managerial changes. In FY 98 the Leadership and Learning Center (LLC) had the main responsibility for internal staff training as well as control over the budget. During FY99 LLC and EDI merged to become WBI, with the Networks taking on clearer responsibility for professional development and the associated budget allocated by the Knowledge and Learning Center (KLC).

FY Course Code/Title Costs ($’000)

‘98 PRM 10 – Government Reorientation: A New Thinking on Administrative Reform

10.2

PRM 12 – Workshop on Curbing Corruption 21.7

PRM 14 – Public Expenditure Management 20.7

PRM 15 – Decentralization in Developing Countries 11.0

PRM 19 – Public Sector Performance: The Critical Role of Evaluation

PRM 20 – PER Clinic 1.1

PRM 21 – Developments in Public Sector Accounting 5.9

PRM 22 – Judicial Reform: Lessons of Experience 6.7

PRM 3 – Institutions and Reform Public Expenditure Analysis and Management Seminar (French)

10.7

‘98 Total 88.0

‘99 PRM 31 – Building Urban Real Estate Markets 22.2

PRM 26 – Sustainable Policy Making in Government 6.0

PRM 28 – Economic Analysis of Judiciaries 26.5

PRM 15 – Fiscal Decentralization in Developing Countries

51.3

PRM 10 – Government Reorientation and Administration Reform

41.9

PRM 25 – Institutions and Reform 23.9

PRM 27 – Issues in public Sector Accounting 17.5

PRM 32 – Issues in Tax Administration 18.8

PRM 24 – Political Economy of Administrative Reform 25.6

PRM 14 – Public Expenditure Analysis and Management Seminar

34.2

82 Annex 5

FY Course Code/Title Costs ($’000)

PRM 20 – Public Expenditure Review Clinics 10.3

PRM 18 – Regional Orientation Sessions on Curbing Corruption (12 offerings)

50.0

PRM 33 – Seminar Series on Select Topics of Decentralization (monthly Brown Bag – 11 offerings)

4.2

PRM 29 – Topics in the Design and Evaluation of Tax Policy an Administration

13.6

PRM 30 – Workshop on budget Reform 34.2

PRM 12 – Workshops on curbing Corruption (4 offerings)

47.0

‘99 Total 427.2

‘00 Decentralization Training Course 21.0

Public Expenditure analysis and Management (2 offerings) 25.5

Issues in Public Sector Accounting and Financial Management 25.5

Budget Reform 10.5

Public Expenditure Review Clinics (4-6 offerings) 42.0

Understanding Civil Service Reform 31.0

Practical Tools and New Techniques for Institutional Assessment 20.0

Workshop series on Alternative Dispute Resolution, Judicial Reform, Case Management and Court Performance Standards

14.5

Building Property Systems 8.0

‘00 Total 198.0

83 Annex 6

Annex 6. Documents on Governance and Institution Building

6.1 Empirical Studies of Governance and Development: An Annotated Bibliography (Internal Documents)

6.2 Policy Documents on Governance and Development: An Annotated Bibliography (Internal Documents)

6.3 Additional Empirical Studies and Policy Documents

6.4 OED Reports: Country Assistance Reviews, Evaluations, and Notes for IDA Countries

6.5 Country Assistance Strategies for IDA Countries

6.6 PREM Notes from Public Sector Group of Poverty Reduction and Economic Management Network

84 Annex 6

6.1 EMPIRICAL STUDIES OF GOVERNANCE AND INSTITUTION BUILDING: AN ANNOTATED BIBLIOGRAPHY (INTERNAL DOCUMENTS)

Citation Methodology Main Findings

Brunetti, Aymo, Gregory Kisunko, and Beatrice Weder. 1997. “Institutional Obstacles to Doing Business: Region-by-Region Results from a Worldwide Survey of the Private Sector.” Policy Research Working Paper 1759. World Bank, Washington, D.C.

Survey business establishments around the world to construct an index of the “credibility of rules” composed of “the predictability of rule-making, subjective perceptions of political instability, security of persons and property, predictability of judicial enforcement, and corruption. “ Cross-firm and cross-country regressions were used to test the relationship between the credibility index and economic growth.

Credibility promotes investment and economic growth.

Burnside, Craig, and David Dollar. 1998. “Aid, Policies, and Growth.” Policy Research Working Paper 1777. World Bank, Washington, D.C.

Panel regressions measuring the relationships between aid, policies, and growth for 56 countries over six four-year periods.

Aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies. Aid does not appear to affect policies systematically—either positively or negatively.

Burnside, Craig. and David Dollar. 1998. “Aid, the Incentive Regime, and Poverty Reduction.” Policy Research Working Paper 1937. World Bank, Washington, D.C.

Panel regressions explaining the impact of aid on growth in developing countries. Indicators include both macro and micro dimensions: decline in infant mortality, initial conditions, growth of per capita income, government consumption, aid as percentage of GNP.

Aid spurs growth and poverty reduction only in a good policy environment. In developing countries with weak economic management, there is no relationship between aid and change in infant mortality. There is, however, a relationship between aid and the change in infant mortality in cases which a recipient has relatively good management.

Chong, Alberto, and Cesar Calderón. 1997. “Institutional Change and Poverty, or Why Is It Worth It to Reform the State?” Unpublished report. World Bank, Washington, D.C.

Cross-country regressions using measures of risk of expropriation, risk of contract repudiation, law and order, corruption in government, and quality of bureaucracy for institutional development; and measures proposed by Foster-Greer-Thorbecke (1984) for poverty.

Improvements in institutional efficiency reduce the degree, severity, and incidence of poverty.

Chong, Alberto, and Cesar Calderón. 1998. “Institutional Efficiency and Income Inequality: Cross-Country Empirical Evidence.” Unpublished report. World Bank, Washington, D.C.

Cross-country regressions using a composite index of institutional efficiency based on measures of corruption of government, quality of bureaucracy, law and order tradition, risk of expropriation, and risk of contract repudiation.

For poor countries, institutional efficiency is positively linked with income inequality, and for rich countries it is negatively linked with income inequality.

Cull, Robert. 1998. “How Deposit Insurance Affects Financial Depth.” Policy Research Working Paper 1875. World Bank, Washington, D.C.

Cross-country regressions. Explicit deposit insurance is positively correlated with subsequent increases in financial depth if adopted when government credibility and institutional development are high.

Demirguc-Kunt, Asli, and Enrica Detragiache. 1998. “Financial Liberalization and Financial Fragility.” Development Research Group, World Bank, Washington, D.C.

Panel logit regressions using rule of law, corruption, and contract enforcement as measures for institutional development as determinants of the probability of financial crisis after interest-rate liberalizations.

Banking crises are more likely to occur after financial liberalization. However, financial liberalization poses less of a threat to the banking sector when banking institutions are more developed.

Dollar, David, and Lant Pritchett. 1998. Assessing Aid: What Works, What Doesn’t, and Why. Oxford: Oxford University Press.

Qualitative and quantitative analysis explaining the interaction of government policies and the quality of governance.

“Sound management” measured by the quality of the bureaucracy, the rule of law, and the pervasiveness of corruptionincreases the effects of financial aid. It also improves social indicators beyond what good policies alone could bring.

Isham, Jonathan, Daniel Kaufmann, and Lant Pritchett. 1997. “Civil Liberties, Democracy, and the Performance of Government Projects.” The World Bank Economic Review

Cross-national dataset used on the performance of government investment projects financed by the World Bank to examine the link between government efficacy and governance.

The strong effect of civil liberties holds true even when controlling for the level of democracy. Even after controling for other determinants of performance, countries with the strongest civil liberties have projects with an economic rate of

85 Annex 6

Citation Methodology Main Findings

The World Bank Economic Review 11(2): 219–42.

efficacy and governance. liberties have projects with an economic rate of return that is 8–22 percentage points higher than countries with the weakest civil liberties.

Kauffman, Daniel, Aart Kraay, and Pablo Zoido-Lobatón. 1999. “Governance Matters.” Policy, Research working paper ; no. WPS 2196. World Bank, Washington, D.C.

Simultaneous model used to isolate the direct effects of differences in governance on three measures of development outcomes: GDP per capita, infant mortality, and adult literacy. Authors use a very large set of indicators drawn from commercial and noncommercial sources as well as data from World Development Report 1997. They allocate these indicators to six clusters and use a latent variable model to estimate a common element in each cluster.

A strong causal relation exists between governance and development outcomes for all six aggregate indicators. The authors find that the results hold whether or not OECD countries are included in the sample.

Kaufmann, Daniel, Aart Kraay, and Pablo Zoido-Lobatón.1999. “Aggregating Governance Indicators.” Policy, Research working paper ; no. WPS 2195. World Bank, Washington, D.C.

Simple variant of an unobserved components model used on a sample of 160 countries to combine information from different sources into aggregate governance indicators that include bureaucratic quality, rule of law, and graft.

Aggregate governance indicators are more informative about the level of governance than any individual indicator, but the standard errors associated with estimates of governance are still large relative to the units in which governance is measured.

Knack, Steve. 2000. “Aid Dependence and the Quality of Governance: A Cross-Country Empirical Analysis.” Policy Research Working Paper (No. WPS 2396). World Bank, Washington, D.C.

Analysis of cross-country data. Aid dependence can potentially undermine institutional quality by weakening accountability, encouraging rent-seeking and corruption, fomenting conflict over control of aid funds, siphoning off scarce talent from bureaucracy, and alleviating pressures to reform inefficient policies and institutions.

Levine, Ross. “Law, Finance, and Economic Growth.” Journal of Financial Intermediation (U.S.); 8, No. 1/2:8-35, January/April 1999

Panel regressions using institutional variables (such as creditor rights, enforcement of contracts, and accounting standards) as instrumental variables.

Countries with more developed institutions (legal and regulatory systems) have better-developed financial intermediaries and consequently grow faster.

Huther, Jeff, and Anwar Shah. 1998. “Applying a Simple Measure of Good Governance to the Debate on Fiscal Decentralization.” Policy Research Working Paper 1894. World Bank, Washington, D.C.

Applying an index for the quality of governance reveals a surprisingly strong positive correlation between fiscal decentralization and quality of governance.

World Bank. 1997. World Development Report 1997: The State in a Changing World. Oxford: Oxford University Press.

Survey of the importance of the role of the state in development. A survey of 3,600 firms in 69 countries commissioned for the publication reported on perceptions of the stability of laws and policies, adequacy of infrastructure, taxes and regulations, and crime and corruption.

The survey showed that entrepreneurs in some parts of the world live in constant fear of policy surprises and that the institutional framework was not well enough entrenched to withstand changes in government without serious disruption. Sound policies by themselves can improve results. Benefits are magnified where institutional capability is also higher.

86 Annex 6

6.2 POLICY DOCUMENTS ON GOVERNANCE AND INSTITUTION BUILDING: AN ANNOTATED BIBLIOGRAPHY

Citation Methodology Main Findings

“A Proposed Partnership for Capacity Building in Africa (PACT): An Initiative of the African Governors of the World Bank.” 1999. World Bank, Washington, D.C.

The approach to capacity building proposed within the PACT framework represents an innovative departure from traditional development assistance mechanisms on the continent. PACT offers an overarching, integrating framework that can help Africa meet its current and future development challenges.

Management recommended that the Board (a) support the establishment of PACT; (b) consider a contribution of US$30 million from fiscal 1999 net income; and consider additional allocations in subsequent years.

Barbone, Luca, Arindam Das-Gupta, Luc De Wulf, Anna Hansson. 1999. “Reforming Tax Systems: The World Bank Record in the 1990s.” Policy Research Working Paper 2237. PREM Network, Poverty Sector Management Division, World Bank, Washington, D.C.

The use of institutional analysis in the design of operations in support to reform of public institutions, of which tax and customs administration are important areas of concentration.

For the 43 operations with an administrative focus, major objectives cited most often were revenue enhancement (40 percent), strengthening administrative institutions (37 percent) and promoting macroeconomic stability and growth (28 percent). Improving accountability, taxpayer education, and services was a major objective in very few operations , while no project had a major focus on strengthening voice and participation.

Bhatnagar, Subhash, and Rober Schware. 1999. “Information and Communication Technology in Rural Development: Case Studies from India.” Telecommunications and Infomatics, World Bank, Washington, D.C.

The case studies presented in this paper spell out various applications of information and communications technology that have made a difference in the delivery of services or products in rural areas in India.

This paper documents successful use of ICT for rural development in India to draw lessons about the type of applications that are likely to have a developmental impact and the efforts that will be necessary to implement such applications.

Bermingham, Paul. 2000 (draft). “Public Financial Accountability and Bank ESW Products: Coverage of Borrower Countries.” World Bank, Washington, D.C.

This review focuses on three main instruments: public expenditure reviews, country financial accountability assessments, and Country procurement assessment reviews.

There is a need to determine at a corporate level: (a) the objectives of ESW work in this area; (b) the optimum mix of diagnostic ESW products in the area of public financial accountability; (c) performance standards in terms of frequency and depth of use in client countries; (d) the changes needed to current ESW products to achieve these objectives; and (e) guidance to country teams on how to integrate this work in Bank country programs, as well as with other development partners.

Chaudhry, Azam. 2000. “Corruption and Trade Liberalization.” OED Study on Anti-Corruption and Governance, World Bank, Washington, D.C.

Studies the relationship between trade liberalization and corruption.

International trade makes an economy more competitive, which in turn leads to less corruption and better governance.

Collier, Paul, and David Dollar. 1999. “Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet the DAC Targets.” Development Research Group, World Bank, Washington, D.C.

A quantitative study of the allocation of aid for poverty reduction.

Poverty in the developing world will decline by about one-half by 2015 if current growth trends and policies persist.

Collier, Paul. 1999. “How to Reduce Corruption.” Paper prepared for Conference on Good Governance and Sustainable Development, November 22–24, 1999.

Countries are less corrupt when they are fiscally decentralized and if women are more substantially represented.

“Context and Objectives of the Bolivia Institutional & Governance Review. “ Executive Summary, Bolivia IGR, World Bank, Washington, D.C.

This review draws heavily on a very substantial literature on governance, institution building,, and public management relating to Bolivia and other developing countries.

Simply importing “good ideas” from elsewhere without appropriate local adaptation does not work. In that spirit, this Bolivia IFG [Define.] has explored incentives that shape behaviors within Bolivia’s public administration.

Della-Giacoma, Jim, and Frederick Wherry. “The Anti-Corruption Handbook.” East Asia Region

Emerges from a realization that many Bank staff have had experiences with corruption. This handbook leverages

The handbook focuses on corruption within community oriented projects, rather than “grand” or systemic corruption, and therefore makes no

87 Annex 6

Citation Methodology Main Findings

Handbook.” East Asia Region Departmental Working Paper (DWP;16) Official Use Only.

corruption. This handbook leverages the knowledge and experiences of task teams and gleans lessons that development practitioners have learned during project implementation and supervision.

or systemic corruption, and therefore makes no claim to be a comprehensive approach to combating corruption.

Devarajan, Shantayanan and David Dollar. 1999. “Aid and Reform in Africa.” Discussion draft (DECRG). World Bank, Washington, D.C.

Draft summary report of the research project, “Aid and Reform in Africa.” It summarizes the common themes from case studies of ten African countries.

Large amounts of aid to countries with bad policy sustain those poor policies. Aid played a significant and positive role in the two sustained reformers (Ghana, Uganda)

Girishankar, Navin, and B. Levy. 2000. “Addressing Governance and Institutional Issues in the Poverty Reduction Strategy Process: An Approach for Country Teams in the Africa Region.” Working draft. World Bank, Washington, D.C.

Problems of poverty and governance are inextricably linked. This report focuses on identifying institutional arrangements that are most likely to produce results favorable to the poor.

Girishankar, Navin. 1998. “Reforming Institutions for Service Delivery: A Framework for Development Assistance with an Application to the HNP Portfolio.” Policy Research Working Paper ; no. WPS 2039. World Bank, Washington, D.C.

Product of collaboration between OED, the Public Sector Group in PREM, and a HDN thematic group.

Paper provides an institutional framework for service delivery, an essential component of institutional capacity.

Gupta, Monica, Helene Grandvoinnet, and Mattia Romani. 2000. “State-Community Synergies in Development: Laying the Basis for Collective Action.” Working draft. Development Research Group, World Bank, Washington, D.C.

This paper analyzes country experiences to examine the conditions required to tap the enormous potential for local energies and resources in development in rural settings.

The combination of creating more egalitarian social organization at the community level and of local bureaucratic reform enables the creation of powerful coalitions and synergies for rapid development, with a potentially self-sustaining dynamic.

Holmes, Malcolm, Steve Knack, Nick Manning, Richard Messick, and J. Rinne. 2000. “Governance and Poverty Reduction.” Working draft. World Bank, Washington, D.C.

Discussion paper as part of packet for “Practical Tools and New Techniques for Institutional and Governance Assessment,” June 26, 2000.

An introduction to institutions and governance.

Huther, Jeff, Sandra Roberts, and Anwar Shah. 1997. “Public Expenditure Reform under Adjustment Lending.” Discussion Paper 382. World Bank. Washington, D.C.

Revised version of an earlier paper entitled “Adjustment Lending and Public Spending.”

Bank loan conditions had small positive effects on expenditure patterns. The loan conditions on social sector spending had a stimulative impact on social spending. Budgetary inflexibility limited the success of loan conditions on public expenditures.

Jack, William. 2000. “Social Investment Funds: An Organizational Approach to Improved Development Assistance.” Yet unpublished.

This paper examines the design of Social Investment Funds (SIFs) as an approach to providing incentives for agents to propose, select, and implement good projects.

When existing political institutions fail to deliver assistance to vulnerable groups, a well-designed SIF may represent a useful administrative alternative.

Johnston, Timothy, and Susan Stout. 1999. “Investing in Health: Development Effectiveness in the Health, Nutrition, and Population Sector.” World Bank Operations Evaluation Department, Washington, D.C.

Result of an effort by OED to assess close to 30 years of World Bank experience in the population, health, and nutrition sector.

The Bank should seek to do better—not more—in the population, health, and nutrition sector

Kapur, Devesh, and Richard Webb. 2000. “Governance-Related Conditionalities of the IFIs.” World Bank, Washington, D.C.

This is a revision of a paper prepared for the Twelfth Technical Group Meeting of the Intergovernmental Group of 24 for International Monetary Affairs held in Lima, Peru, March 1–3, 2000.

Governance has emerged as a crucial part of the agenda of international financial institutions. Whether such institutions will take on new tasks and be effective in those new tasks remains to be seen.

Knack, Steve, and Nick Manning. 2000. “Towards Consensus on Governance Indicators.” World Bank, Washington, D.C. Newsletter, No.

The paper reviews the debate on governance indicators and notes the tremendous recent increase in the number and range of indicators that

Perhaps five current public management indicators meet the criteria suggested by the OECD Development Assistance Committee for the international working group on Participatory

88 Annex 6

Citation Methodology Main Findings

Washington, D.C. Newsletter, No. 21604

number and range of indicators that purport to measure aspects of good governance.

the international working group on Participatory Development and Good Governance.

Knack, Steve, and Nick Manning. 2000. “A User’s Guide to Operationally Relevant Governance Indicators.” PRMPS/DECRG Working Draft. World Bank, Washington, D.C.

This brief guide describes the ways in which indicators differ from each other, with an emphasis on selecting the indicators that are most appropriate for one’s particular purposes.

Different approaches to measuring government performance are suitable for different purposes.

Lancaster, Carol. 1999. “Ending Aid Dependence in Africa.” ODC-AERC Policy Paper, World Bank, Washington, D.C.

This paper emerges out of a two-year collaborative project of the Overseas Development Council and the African Economic Research Consortium.

There is much work still to be done and urgently required to ensure that foreign aid makes a positive contribution to governance.

Landell-Mills, Pierre. 1999. “Better Governance for a Better Future: Reforming Public Institutions in Bangladesh.” Executive Summary, Bangladesh IGR. World Bank, Washington, D.C.

This review draws heavily on a very substantial literature on governance, institution building, and public management relating to Bangladesh and other developing countries.

The review underlines the centrality of achieving accountability and transparency in government operation if Bangladesh is to achieve more rapid and sustainable development.

Manning, Nick, Ranjana Mukherjee, and Omer Gokcekus. 2000. “The Experience of Public Officials in Bolivia: What Works in a Weak Institutional Environment?” Policy Research Working Paper ; No. WPS 2427, World Bank, Washington, D.C.

This report presents an analysis of data obtained from a 1999 survey of public officials in Bolivia funded by the Dutch Trust Fund.

Staff perform better or worse in different agencies for a wide variety of reasons. The Anna Karenina principle applies: All well-performing agencies are alike, but there are so many preconditions for effective performance that every dysfunctional agency is dysfunctional in its own way.

Manning, Nick, and Naazneen Barma. 1999. “Initial Work on Analyzing and Measuring the Balance of Power Between the Executive and the Legislature.” PRMPS, World Bank, Washington, D.C.

Based on findings from a survey distributed to World Bank country economists, a 24-country data base was constructed.

The paper reviews the debate on governance indicators and notes a tremendous increase in the number and range of indicators that purport to measure some aspect of good governance. [Repeats language used to describe methodology of Krack and Manning (2000)]

Manning, Nick, Mike Stevens, Malcolm Holmes, Navin Girishankar, and Brian Levy. 2000. “Governance Own Goals Note.” Initial draft note. World Bank, Washington, D.C.

Initial draft note based on points from Mike Stevens, Malcolm Holmes, Navin Girishankar and Brain Levy.

It is important to examine critically Bank operational practices and ask whether in country dialogue and project work sufficient attention is paid to rule-based governance of the public sector as laid out in the country’s own national laws and regulations.

Mausolff, Christopher. 2000. “Report on the OED/SDV Task Manager Survey on Participation.” OEDCM, World Bank, Washington, D.C.

Part of the larger OED Participation Process Review of participation in Bank operations.

The three biggest obstacles within the Bank to increasing participation are insufficient funding, inadequate time for mission work in the field, and pressure for rapid procession of operations.

McMahon, Edward. 2000. “The World Bank’s Role in Legislative Strengthening: A Review of Donor Activity and Proposed Options.” Draft Report, Center on Democratic Performance, Department of Political Science, Binghamton University, Binghamton, NY.

The paper recommends that the Bank increase its attention and resources devoted to legislative strengthening.

Mookherjee, Dilip. 1997. “Incentive Reforms in LDC Bureaucracies: Is There Cause for Hope?” Paper prepared for the World Bank Annual Conference on Development Economics, May 1997.

Addresses the question of whether or not internal incentives can be designed for public bureaucrats, just as they are designed within large private sector bureaucracies.

The design of incentives must incorporate specific details concerning the institutional environment within which public officials operate.

Operational Core Services and Poverty Reduction and Economic Management Networks. 2000.”Adjustment Lending and Corruption.” Discussion Draft. World Bank, Washington, D.C.

Emphasis on the need for greater reliance on the performance of borrower institutions that manage public finances.

89 Annex 6

Citation Methodology Main Findings

Poverty Reduction and Economic Management (PREM) Network, “Helping Countries Combat Corruption: Progress at the World Bank Since 1997.” 2000. Operational Core Services/PREM background document (preliminary). World Bank, Washington, D.C.

Joint effort between the Poverty Reduction and Economic Management Network and Operational Core Services.

This report reports progress made on the Bank’s anticorruption and governance agenda since the launch of the initiative in September 1996.

Picciotto, Robert, and Eduardo Wiesner. 1998. Evaluation and Development: The Institutional Dimension. Transaction Publishers, New Brunswick, NJ.

The work is divided into four parts: The role of institutions in development; institutions and governance structures; institutional development and social capital; the implications of neoinstitutional economics for evaluation.

Recognizing the crucial role of institutions, organizations, politics, and the economy is not inconsistent with the neoclassical model for dealing with situational constraints. Empirical research into specific institutional and organizational factors is needed.

Picciotto, Robert. 1995. “Putting Institutional Economics to Work: From Participation to Governance.” World Bank Discussion Papers 304. World Bank, Washington, D.C.

This paper links the literature of institutional economics with the lessons of development experience.

The paper proposes a systematic framework of institutional design and deals with the pattern of different kinds of institutional goods in a country context.

PREM Network. 1997. “Helping Countries Combat Corruption: The Role of the World Bank.” World Bank, Washington, D.C

The report grew out of the work of an internal task force, the Corruption Action Plan Working Group, which was set up in 1996.

Purpose of the report is to provide a framework within which the World Bank can approach corruption.

Public Sector Board, PREM Network. 2000. “Reforming Public Institutions and “Strengthening Governance: A World Bank Strategy.” World Bank, Washington, D.C.

This strategy paper serves as an update of the 1991 and 1994 reports on governance. Executive Summary Volume I – Overall Strategy Volume II – Regional, DRG, and WBI Strategies

Sets out current thinking on public sector reform, indicates work in progress, and summarizes regional strategies.

“Quality of ESW in FY99: A QAG Assessment.” 2000. Quality Assurance Group. World Bank, Washington, D.C.

As part of its effort to improve the quality of the Bank’s operational work, QAG has, with this report, completed the second assessment of ESW.

One out of four tasks assessed in fiscal 1999 is rated as less than satisfactory. The quality of the Africa Region’s ESW output continues to be significantly lower than that of other regions. Quality –at entry is the single most important characteristic that distinguishes satisfactory tasks from less-than-satisfactory tasks. ESW remains undermanaged. The quality of ESW for countries with weak policy and institutional framework is significantly lower than the average. The quality of public expenditure reviews needs improvement.

Schacter, Mark. 2000. “When Accountability Fails: A Framework for Diagnosis and Action.” Policy Brief 9. Institute on Governance, Ontario, Canada.

This policy brief, based on work done by the Institute on Governance for OED, describes a simple analytical framework that is intended to help diagnose accountability problems in a public sector context and develop practical strategies for solving those problems.

The “accountability cycle” model is meant to provide a basis for designing and implementing strategies to strengthen accountability as a countervailing force to inefficiency, waste, corruption, and other ills that afflict the public sector when accountability to citizens is weak.

Schneider, Hartmut. 1999. “Participatory Governance: The Missing Link for Poverty Reduction.” Policy Brief 17. OECD Development Center.

This report draws on insights from political and institutional economics and from experiments promoted by social activists.

The report examines how a participatory approach to governance operates as an essential link in the net of causalities that have to be considered and taken into account in designing and implementing poverty reduction strategies.

Shugart, Matthew, Erika Moreno, and Brian Crisp. 2000 (draft). “The Accountability Deficit in Latin America.” Kellogg Institute for

Prepared for the conference on Institutions, Accountability, and Democratic Governance in Latin America. [Where? When?]

90 Annex 6

Citation Methodology Main Findings

America.” Kellogg Institute for International Studies, University of Notre Dame, Notre Dame, Indiana.

America. [Where? When?]

Stephenson, Kathleen. 2000. “IDA11 FY97–99: Improving IDA’s Effectiveness in Reaching the Poor.” Volume 1. Resource Mobilization Department. World Bank, Washington, D.C.

This report covers newly committed projects and projects under implementation during IDA11. It draws on many other reports that provide detailed information and analysis of key aspects of IDA operations.

United States General Accounting Office. 2000. “World Bank: Management Controls Stronger, but Challenges in Fighting Corruption Remain.” GAO/NS IAD-00-73, Washington, D.C.

The Congress directed GAO to review the Bank’s progress in strengthening measures to prevent corruption. GAO’s objective was to determine whether the outcomes from the Bank’s management initiatives would provide reasonable assurances that project funds are spent as intended.

The Bank has made significant progress in meeting each of the five standards for effective management control system. However, challenges remain and further action will be required before the Bank can provide reasonable assurance that project funds are spent according to the Bank’s guidelines.

91 Annex 6

6.3 ADDITIONAL EMPIRICAL STUDIES AND POLICY DOCUMENTS

Aberbach, Joel D., Robert D. Putnam, and Bert A. Rockman. 1981. Bureaucrats and Politicians in Western Democracies.” Boston: Harvard University Press.

Barkan, Joel. 2000. “Increasing Public Sector Accountability and Transparency in Tanzania: An Assessment of the Political Context of Economic Reform.” Assessment prepared for the World Bank (AFT12) in partial fulfillment of purchase order 7511828, University of Iowa.

Barnestein, J. 1994. Overcoming Fuzzy Governance. University Press Limited.

Barro, Robert. 1996. “Democracy and Growth.” Journal of Economic Growth 1(1): 1–27.

Beck, Thorsten, George Clarke, Alberto Groff, Philip Keefer, and Patrick Walsh. 2000. “New Tools and New Tests in Comparative Political Economy: The Database of Political Institutions.” World Bank Policy Research Working Paper 2283, Washington, D.C.

Bilson, John F. O. 1982. “Civil Liberty: An Econometric Investigation.” Kyklos 35: 94–114.

Brautigam, Deborah. 1992. “Governance, Economy, and Foreign Aid.” Studies in Comparative International Development 27(3): 3–25.

Brautigam, Deborah. 2000. Aid Dependence and Governance. Stockholm: Almqvist and Wiksell International.

Brautigam, Deborah, and Kwesi Botchwey. 1998. “The Institutional Impact of Aid Dependence on Recipients in Africa.” Unpublished manuscript, American University School of International Service.

Burkhart, Ross, and Michael Lewis-Beck. 1994. “Comparative Democracy: The Economic Development Thesis.” American Political Science Review 88: 903–10.

Burki, Shahid Javed, and Guillermo E. Perry, eds. 1998. Beyond the Washington Consensus: Institutions Matter. World Bank Latin America and Caribbean Studies. Washington, D.C.: World Bank.

Campos, J. Edgardo, and Sanjay Pradhan. 1998. “Building Blocks Toward a More Effective Public Sector.” Economic Development Institute Working Paper, World Bank, Washington, D.C.

Carter, N., R. Klein, and P. Day. 1995. How Organizations Measure Success: The Use of Performance Indicators in Government. London: Routledge.

Chong, Alberto, and Cesar Calderón, “On the Causality and Feedback Between Institutional Measures and Economic Growth.” Economics and Politics, forthcoming.

Clague, Christopher, Philip Keefer, Stephen Knack, and Mancur Olson. 1999. “Contract-Intensive Money.” Journal of Economic Growth 4: 185–209.

92 Annex 6

Collier, Paul. 1999. “Aid and Dependency: A Critique.” Journal of African Economies 8(4): 528–45.

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Heyman, David B. 1988. “Input Controls in the Public Sector: What Does Economics Theory Offer?” IMF Working Paper[Number?]. Washington D.C.: International Monetary Fund.

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Huq, H. A. 1996. Below The Line: Rural Poverty in Bangladesh. University Press Limited.

Huque, A.S. 1990. Public Administration Dimensions of Development. University Press Limited.

Isham, Jonathan, Daniel Kaufman and Lant Pritchett. 1997. “Civil Liberties, Democracy, and the Performance of Government Projects.” World Bank Economic Review 11(2): 219–42.

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Keefer, Philip, and Steve Knack. 1997. “Why Don’t Poor Countries Catch Up? A Cross-National Test of an Institutional Explanation.” Economic Inquiry 35(3): 590–602.

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Knack, Stephen. 2000. “Does Foreign Aid Promote Democracy?” World Bank, working paper.

Knack, Stephen and Gary Anderson. 1999. “Is ‘Good Governance’ Progressive?” World Bank, working paper.

Knack, Stephen and Philip Keefer. 1995. “Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures.” Economic and Politics 7: 207–27.

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Schiavo-Campo, Salvatore, Giulio de Tommaso, and Amitabha Mukherjee. 1997. “An International Statistical Survey of Government Employment and Wages.” World Bank Policy Research Working Paper 1806, Washington, D.C.

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Shand, D. 1997. “The Role of Performance Indicators in Public Expenditure Management.” Unpublished IMF document.

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Weingast, Barry, and Mark Moran. 1983).”Bureaucratic Discretion or Congressional Control? Regulatory Policymaking by the Federal Trade Commission.” Journal of Political Economy 91: 765–800.

Zussman, David, and Jake Jabes. 1989. The Vertical Solitude: Managing in the Public Sector. Halifax: Institute for Research on Public Policy.

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6.4 OED REPORTS: COUNTRY ASSISTANCE REVIEWS , EVALUATIONS , AND NOTES (IDA COUNTRIES )

Fiscal year Sub-Saharan Africa

East Asia South Asia Europe and Central Asia

Latin America and the Caribbean

Middle East and North Africa

1995 Ghana

1996 Zambia

1997

1998

CAR Cote d’Ivoire Bangladesh Albania Bolivia

Mozambique

CAN Togo

Kenya

Malawi

1999

CAR Burkina Faso Yemen

CAN Ethiopia Indonesia Sri Lanka Azerbaijan Honduras Egypt

Cambodia Nepal

Maldives

2000

CAE India

CAE Tanzania

Uganda

CAE Ghana Vietnam Kyrgyz Republic

Legend: CAR = country assistance report; CAN = country assistance note; CAE= Country Assistance Evaluation

96 Annex 6

6.5A COUNTRY ASSISTANCE STRATEGIES FOR IDA COUNTRIES

A List Countries

Ghana 1993, 1994, 1995, 1997, 2000 Mozambique 1992, 1994, 1995, 1997, 2000 Côte d’Ivoire 1999 Uganda 1993, 1994, 1995, 1997 Cambodia 1995, 1997, 2000 Vietnam 1993, 1994, 1995, 1998, 2000* Bangladesh 1992, 1994, 1995, 1998, 1999 Kyrgyz 1993, 1995, 1998 Bolivia 1994, 1998 B List Countries

Tanzania 1994, 1997, 2000 China 1993, 1995, 1997 India 1992, 1994, 1995, 1997 Nepal 1994, 1996, 1998 Azerbaijan 1995, 1996, 1999 Yemen 1996, 1999 Country assis tance strategies studied for OED governance review.

Chad 1993, 1999, 2000 Ethiopia 1993 Gambia 1992, 1998 Ghana 1993 Kenya 1992, 1998 Lesotho 1998 Malawi 1998 Mali 1998 Mozambique 1992 Zambia 1992, 1999 China 1993 Laos 1999 Vietnam 1993, 1998 Bangladesh 1992, 1998 India 1992, 1997 Albania 1993, 1998, 2000* Azerbaijan 1999 Kyrgyz 1993 Moldova 1993, 1999 Honduras 1993, 1999

* CAS Progress Report

97 Annex 6

6.5B COUNTRY ASSISTANCE STRATEGIES FOR IDA AND IDA/IBRD COUNTRIES , FISCAL 2000 AND FIRST HALF OF FISCAL 2001

Date of board discussion

Country Document Last step completed

11/15/00 OECS CAS

11/2/00 Bangladesh CAS

10/16/00 Niger CAS

10/3/00 Djibouti CAS

9/15/00 Nepal CAS

9/14/00 Burkina Faso CAS

6/29/00 Uganda CAS Upstream review 3/29/00

6/22/00 Benin CAS

6/20/00 Togo CAS Progress Report Upstream review 4/13/00

6/20/00 Zimbabwe CAS Progress Report RVP/ROC clearance

6/15/00 Cameroon CAS Update RVP/ROC clearance

6/15/00 Tanzania CAS Upstream review 2/18/00

6/6/00 Macedonia CAS Update Final CAS to MD

6/1/00 Mozambique CAS Upstream review 2/4/00

5/30/00 Vietnam CAS Update RVP/ROC clearance

5/23/00 Chad CAS Final CAS to MD

5/18/00 Bosnia-Herzegovina CAS Final CAS to MD

3/30/00 Ghana Ghana: Joint IDA/IFC CAS with Urban V

3/21/00 Albania Albania Progress Report with 2 credits

2/29/00 Cambodia Joint CAS with structural adjustment credit

12/21/99 Bhutan Bhutan CAS with rural access project

12/21/99 Sierra Leone Interim Support Strategy

12/14/99 Honduras Joint CAS - stand alone

10/7/99 Zambia CAS

9/14/99 Azerbaijan Joint IDA/IFC CAS

7/20/99 Bangladesh CAS Progress Report

98 Annex 6

6.6 PREM NOTES FROM PUBLIC SECTOR GROUP AND ECONOMIC POLICY GROUP OF POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK

PREM Note Date Feature article

39 May 2000 Reducing corruption: Lessons from Venezuela

37 April 2000 Reforming tax systems: Lessons from the 1990s

35 January 2000 Conditionality revisited: A new approach in Burkina Faso

34 December 1999 Reducing court delays: Five lessons from the United States

33 October 1999 An anticorruption strategy for revenue administration

31 October 1999 Rethinking civil service reform

30 October 1999 Mobilizing civil society to fight corruption in Bangladesh

29 September 1999 Assessing political commitment to fighting corruption

27 August 1999 Lessons from large adjustment loans

26 July 1999 The law and economics of judicial systems

25 June 1999 Assessing borrower ownership using reform readiness analysis

24 June 1999 Fostering institutions to contain corruption

23 May 1999 Using surveys for public sector reform

22 May 1999 Looking for more from adjustment: Africa’s experience

20 April 1999 Public expenditure reviews: Progress and potential

19 April 1999 Using an ombudsman to oversee public officials

15 January 1999 Decentralizing Borrowering Powers

7 October 1998 New Frontiers in Diagnosing and combating corruption

4 May 1998 Corruption and Development

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