Integrating Corruption and Governance Related Concerns in the design of CASs

1. Integrating Corruption and Governance Related Concerns in the design of CASs By: Vinay Bhargava Director, Operations and International Affairs, EXT Presentation at the PREM-WBIGP Core Course on Public Sector Governance and Anticorruption– February 15th, 2005

2. Introduction and Presentation Outline • Corruption+ weak governance = risks development outcomes + to Bank • CAS Guidelines: All CASs to discuss governance issues in key parts of CAS body ( Diagnosis; Country Vision; Assistance Program; Risks) • Anatomy of Two Governance Focused CASs: Ghana and Indonesia • Four Step (Iterative) Approach to prepare a governance focused CAS: • Step 1: Assess country governance environment • Step 2: Formulate a country assistance program • Step 3: Identify partnerships and coalitions • Step 4: Identify risks and propose mitigation measures

3. Bank Guidelines for addressing governance issues in CASs • Upstream Review • Significance of corruption/governance issues in the country • Risks to country development and the Bank operations • Proposed Bank assistance and risk mitigation approaches • Downstream CAS preparation and Review • Diagnosis of corruption and governance issues • Country’s strategy and programs for improving governance • Bank’s proposed assistance program and results • Analysis of risks to country and Bank and mitigation measures

4. Anatomy of Governance Elements in Ghana 2004-6 CAS Diagnosis:CPIA-3.0. Major structural issue.Risks: to country- high; to Bank -no mention. Country Vision:StrongGood governance and accountability program-- 1 of 5 PRSP Pillars. • Civil Society Voice & Participation • Improve capacity of civil society groups ENTRY POINTS Triggers: To Stay in the Base Case: Progress on financial management , in particular on the 15 point s of HIPC Accountability Action Plan .To Move to the High Case: Progress on public sector including civil service reforms. CAS Objective:Support to Improve Governance and Empowerment -3rd Pillar of CAS Public Sector ManagementFinancial management reformsCivil Service reformsDecentralization of service delivery provisionLocal government and public expenditureImprove M & E capacity Institutional Checks & BalancesParliament Other accountability institutions Lending Instruments:PRSCs; M&E components; Community Empowerment loansAAA Instruments:WBI ; Development Dialogue sessions; Outreach/media programs; CPAR; CFAA; Community Empowerment study; PER; M&E assessmentResults and Performance Indicators:See Hand Out

5. Indonesia Diagnosis:Chapter on the Special problem of corruption. Money politics. Risks: very high both to the Bank and country. Political will risk. High risk to the Bank’s credibility/reputation. Country Vision:part of government’s package of policy actions. Weak program . Civil Society Voice & ParticipationPublic participation and monitoringFull collaboration to promote governance ENTRY POINTS Triggers: To Stay in the Base Case: Improvements in government fiduciary management and anti-corruption institutions. To Move to the High Case: Improvements in fiscal accountability, governance in the justice sector, and fiduciary management. CAS Objective:Address the key issue of governance improvement thru all CAS activities- set standard for the Bank to address corruption and governance issues. Public Sector ManagementFinance and procurement reformsTax, customs. Public expenditures reformsEffective Implementation of Decentralization Local government governance improvement Institutional Checks & BalancesJudiciary and legal reformsAnti-corruption institutionsDisclosure by public officialsCorruption perception survey Competitive Private Sector*Corporate governance *Anti money laundering Assistance Approach:Four principles applied to promote good governance thru all activities.Lending Instruments: CDD programs; tax, customs, financial; media/CSOs components; loans to districtsAAA Instruments:Investment climate surveys; WBI; expenditure tracking; governance surveys; TA grants for judiciary; parliament . Results and Performance Indicators: Many -See Hand Out.Partnerships: Joint AAA and funding; CDF; Partnership for Governance Reform

6. A four steps iterative approach is proposed to integrate governance focus in a CAS • Step 1: Assess key country governance environment *Corruption and governance indicators and knowledge base *Government’s ACG strategy and program ( including political will), *Risks to the country development outcomes ; • Step 2:Formulate Bank’s assistance program: • Step 3:Identify partnerships and coalitions for coordinated action • Step 4:Analyze the risks * to the success of Bank activities and to the Bank’s reputation * and formulate measures to mitigate/address the risks. • Depth of coverage and audiences vary by Upstream and Downstream

7. Step 1.1 :Assemble basic country knowledge (Essential for designing a program suitable for local conditions) • Governance indicators: CPIA, WBI, Investment climate, TI, client survey. • Political economy of corruption and degrees of freedom for the Bank’s action • Summary findings of ESW diagnostics and OED/QAG reviews. • Government anti-corruption/governance strategy--Current and historical • Key anticorruption institutions ( executive and non-executive branches). • Key anti-corruption champions among civil society and donors-activities. • Legacy issues: past Bank assistance; media; INT; Bank remedies. • On-going and recent Bank anti-corruption activities (Last CAS/PR) • Relatively high risk ministries/public enterprises.

8. Step1.2 : Categorizing Countries by Transparency, Accountability, and Corruption in the Public Sector

9. Step 2.1: Formulating the Bank’s Assistance Program A typical program includes the following elements: • Objectives and approach to assistance • Proposed entry points • Proposed mix of Lending and Non-Lending instruments • Expected results (Country and CAS performance indicators) • Proposed triggers ( if any) associated with CAS scenarios

10. Step 2.2: Key Trade-Offs depending upon country situation • Supporting country’s program vs. risks to the Bank. • Balancing help to executive branch with help to non-government institutions of accountability ( e.g. parliament), CSOs and media. • Selectivity of entry points for results and credibility vs. comprehensive • Balancing lending vs. non-lending mix and sequence of assistance. • Prerequisites and Selectivity in When, Where, How and How Much to lend in high risk countries/situations.

11. GOOD GOVERNANCE Step2.3: Possible entry points for CAS Interventions (Source: PRMPS) • Institutional Checks & Balances • Independent, effective judiciary • Legislative oversight • Decentralization with accountability • Global initiatives: OECD Convention, anti-money laundering, WCO • Political Accountability • Political competition, credible political parties • Transparency in party financing • Disclosure of parliamentary votes • Asset declaration, conflict-of-interest rules • Civil Society Voice & Participation • Freedom of information • Public hearings on draft laws • Media/NGOs • Community empowerment • Report cards, client surveys • Competitive Private Sector • Economic policies • Restructuring of monopolies • Effective, streamlined regulation • Robust financial systems • Corporate governance • Collective business associations • Public Sector Management • Meritocratic civil service with adequate pay • Public expenditure, financial management, procurement • Tax and customs • Frontline service delivery (health, education, infrastructure)

12. Step 2.4: Assess potential impact Whether and how effectively the CAS interventions in the selected entry points likely to : • Reduce opportunities for corruption • Increase risk of exposure and punishment • Increase severity of punishment • Reduce incentives for corruption • Increase public demand/pressure for reducing corruption • Strengthen accountability of public sector programs

13. Step 3: Building partnerships and coalitions • Expectation for cooperation among donors in a country led strategy • Coalitions are more effective for improving governance • Instruments: joint or parallel( coordinated) activities with domestic and /or external partners for : **Studies **Funding **Statements ** TA projects **Coordination group **Coalitions **Public dialogue events ** Mass communications **Dialogues with government

14. Step 4: Risk Analysis and Mitigation • Categorize country by risks to the Bank operation and reputation. • CPIA ,governance indicators, and country knowledge assessment • Country team self assessment validated by selected external interviews • CAS Review shows use of one or more of the following mitigation measures to reduce risks to the Bank: • Fiduciary controls (procurement and financial) and INT review • Integrating social accounting mechanisms • Integrating strong results monitoring framework • Screening of new projects for corruption risks; preventive measures • Increasing transparency ( disclosure, hotline) • Strategic communications and partnerships • Proactive sanctions enforcement

15. That is all – Thank You Very much for your attention.