By: Vinay Bhargava Senior Advisor, PRMPS and EXT

1. Mainstreaming Governance and Anti-Corruption in the CAS and Operations: A Guide for Country Teams with Country Applications By: Vinay Bhargava Senior Advisor, PRMPS and EXT Presentation at the Core Course on Public Sector Governance and Anti-corruption April 23-27, 2007 The World Bank Vinay Bhargava

2. Outline of presentation • GAC practices in CASs: A retrospective (FY99-06) • What will be done differently in CASs: Expectations under the new strategy • How To Mainstream GAC in CASs: A Suggested Five Step Approach Vinay Bhargava

3. FY99-06: Main Findings and Conclusions • Explicit discussion of GAC issues in CASs , as required under the guidelines, has become mainstream. • Increasingly the discussion of GAC issues in CASs is grounded in the Bank’s AAA. • Helping countries with governance and anticorruption has become a regular feature of the Bank’s assistance. About 90% CASs (FY99-06) • GAC related triggers used in about 80 % of the CASs. • Increasingly CASs are discussing risks from corruption to the Bank financed projects. • Coordination with other donors in GAC has become a regular feature of CASs. Vinay Bhargava

4. FY06 CASs: Current Practices and Areas for Improvement • FY06 CASs were better than earlier years. • Several potential areas for lifting the game. • DIAGNOSIS: In FY06 CASs CFAA,CPAR and PER main sources. Rare to see • See Governance assessment/survey as the source • See Relationship between GAC and growth discussed • Find non-government checks and balances institutions discussed • See an explicit connection between diagnosis and prescription Vinay Bhargava

5. FY06 CASs: Current Practices and Areas for Improvement ( Continued) • Entry Points: • Building capable and accountable states dominates • Half the CASs supported demand side of governance (transparency, CSOs , private sector) • Assessment and Mitigations of Risks: • Only half of the CASs assessed risks to Bank operationsand only 30% discussed reputational risks. • Majority did not assess risk of deterioration but 75% specified GAC related triggers • Main mitigation strategy: Fiduciary controls and social accountability mechanisms Vinay Bhargava

6. Scale up multistakeholder engagement– with civil society, media, parliaments, local communities in policy making & service delivery Systematically integrate governance in sectoral projects & programs – in extractive industries, infrastructure, forestry, health, education Moving Forward: What Will the World Bank do Differently? Scale up governance work where it matters most for development – alleviate governance constraints to poverty reduction Strengthen country systems while enhancing anticorruption measures in WB operations – a/c action plans; enhanced disclosure, participation & monitoring Systematically scale up engagement with private sector & industrialized countries–to tackle the supply side of corruption Work with donors & other int’l actors to ensure a harmonized approach & collective action – based on respective mandates & comparative advantage Vinay Bhargava

7. What will be done differently in CASs ? Expectations under the new GAC strategy. • Explicit consideration of (based on improved diagnostics): • GAC challenges and adequacy of government’s program • Risks posed by GAC challenges to the development and the Bank • Ways to involve private sector and accountability mechanisms • Stay engaged but tailor each CAS to Country Circumstances: • Weak governance but strong government GAC program • Weak governance but uneven government commitment • Most poorly governed settings • Course corrections during the CAS implementation with the Board’s involvement. Source: guiding principles 3-6 and pages 11-17 of the GAC Strategy. Vinay Bhargava

8. How To Mainstream GAC in CASs? A Suggested Five Step Approach • Take stock of GAC landscape and legacy including the constraints GAC poses to growth and poverty reduction. • Formulate C-GAC strategy and entry points suitable for the country GAC challenges and government commitment. • Assess and mitigate risks (fiduciary and reputational) to the Bank’s proposed engagement. • Formulate partnership (including coalitions), consultations and communication plan. • Develop results framework including the M and E arrangements and GAC related triggers (as applicable). Vinay Bhargava

9. Step 1: Stock taking: Objectives • Determine adequacy of diagnostics (commission more?) • DPR, ICA, IGR, GAC diagnostic surveys, Doing business • PEFA, PER, CPAR, CFAA, ROSC, Country GAC Assessment • DFID Driver of Change, TI- National Integrity Surveys, TI- Global Corruption Barometer, Global Integrity country report, OECD-DAC-MDB Joint survey, External intelligence sources • Determine GAC as constraint to growth and poverty reduction • Assess country circumstances faced. • Weak governance but strong government GAC program • Weak governance but uneven government commitment • Most poorly governed country setting. Vinay Bhargava

10. Step 1–Stock Taking : A check list • Aggregate and disaggregate governance indicators (e.g., KKZ, CPIA, TI, Global Integrity, Doing Business, ICA, Country client survey) • Political economy of GAC reforms and degrees of freedom for action • GAC as constraint to growth and poverty reduction: Summary findings of diagnostics and evaluations (AAA), • Government strategy and commitment—current and historical • Inventory and efficacy of key check and balances institutions in the government (executive/non-executive branches) and NGOs. • Key anti-corruption champions/partners (in and out of government) • Legacy issues: donor assistance; media monitoring; corruption scandals • On-going and recent Bank anti-corruption activities (last CAS) • Relatively high risk ministries/public enterprises Vinay Bhargava

11. GAC As Constraint on Economic Growth and Poverty Reduction Vinay Bhargava

12. Main Sources of Governance Diagnostics in 16 FY06 CASs* * Table 2 shows the number of CASs supporting their governance and corruption diagnostics by referring to AAAs. AAAs used in other contexts than governance and corruption diagnostics will not be included in the table. Vinay Bhargava

13. Step 2: Formulate Country specific GAC strategy, entry points and assistance instruments A typical C-GAC program should include the following elements: • Objectives and approach to assistance • Proposed entry points • Proposed mix of lending and non-lending instruments • Risk assessment and mitigation • Results framework and triggers Vinay Bhargava

14. Step 2-Objectives and Assistance Approach: Key Trade-Offs depending upon situation • Supporting development vs. managing risks to the Bank • Balancing help to executive branch with help to non-government institutions of accountability • Selectivity in entry points for results and credibility vs. comprehensive ( cover the water front) approaches • 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 situations Vinay Bhargava

15. Step 2:Practical tips for choosing entry points Whether and how effectively the proposed entry point is 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 • Be feasible under the political landscape, institutional setting, and administrative capacity Vinay Bhargava

16. Step 2: Helping Countries- Various ‘Entry-Points’ Public Management Public financial management & procurement, monitored by PEFA Administrative & civil service reform Private Sector Competitive investment climate Responsible private sector Civil Society, Media & Oversight Institutions State oversight institutions (parliament, judiciary, SAI) Transparency & participation (FOI, asset declaration, user participation & oversight) Civil society & media Local Governance Community-driven development Local government transparency Downward accountability Governance in Sectors Transparency & participation Competition in service provision Sector-level corruption issues (EITI, forestry) Vinay Bhargava

17. Step 2:Involve institutions to limit corruption • Judiciary • Legislature • Decentralization with accountability • Constitutionally independent accountability institutions • Anti-corruption agency • Election Commission • Ombudsman • Supreme audit institutions • Media • NGOs Vinay Bhargava

18. Beware: Sectors and Institutions Most Affected By Corruption Vinay Bhargava Source: Transparency International Global Corruption Barometer 2005, http://www.transparency.org/policy_and_research/surveys_indices/gcb/2005

19. Step 2: Choosing the mix of assistance instruments for an entry point • Undertaking and disseminating ESW • Grants for institutional capacity building • WBI capacity building programs • Sponsoring in-country dialogue events • Fitting lending operations with anti-corruption plans • Free standing lending/TA operations in support of governance improvement Vinay Bhargava

20. Step 2: How to be selective in entry points/ assistance instruments 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 Vinay Bhargava

21. Entry Points and Modalities of FY06 CAS Interventions Vinay Bhargava

22. FY06 CASs: Checks and Balances Institutions Vinay Bhargava

23. Step 3: Risk assessment and mitigation • Bank shareholders, partners, and other stakeholders expect highest standard of integrity and accountability. • INT investigations show that the Bank needs to do more to ensure the proper use of funds. • New GAC strategy calls for: • Regular risk reviews of project pipeline and lending portfolio to identify the subset most at risk. • Elevate review of riskier projects to senior levels and focus resources on them. • Supporting actions by government’s investigation and prosecution systems/institutions. • Use of special risk mitigation tools for high risk environments Vinay Bhargava

24. Step 3 :Risk Analysis and Mitigation • Upstream-assess risks to the Bank • CPIA ,governance indicators, country knowledge assessment, red flags tools • Country team self assessment validated by selected external interviews • Commonly used mitigation measures to reduce risks to the World 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 Vinay Bhargava

25. FY06 CASs: Assessing and Mitigating Risks Vinay Bhargava

26. Risk Mitigation Measures proposed in 16 FY06 CASs Detection and deterrence Use of CSOs Corruption risks as part of CPR Anti-corruption plans for projects Disclosure and transparency Vinay Bhargava

27. Step 4 : Develop partnership, consultation and communication plan • Expectation for cooperation among donors • Partnerships and Coalitions effective tools for improving governance • Instruments: joint or parallel (coordinated) activities with domestic and/or external partners for: **Studies **Funding **Joint statements **TA projects **Coordination group **Public dialogue events **Mass communications **Dialogues with gov’t. • Regular consultations and communication with and for results Vinay Bhargava

28. Step 5: Monitor progress and evaluate results • Set clear and monitorable results and set up M and E systems • Push beyond Disclosure Policy to supply information to public that make activities transparent • Set reporting and independent auditing systems • Put in place social accountability mechanisms • Encourage beneficiary participation in planning/evaluation • Propose GAC related triggers for lending scenarios. Vinay Bhargava

29. Step 5: Course Corrections During CAS Implementation • In more volatile country settings be prepared for mid-course corrections adjusting program in response to improvements or deterioration during implementation. • In case of new information (e.g. from INT) about confirmed instances of corruption in Bank-financed projects the appropriate response may be to: • curtail operations and agree on risk mitigation measures • switch scenarios within the existing CAS • propose a revision in the CAS Progress Report, or move to an ISN. • In the event of demonstrated improvements in governance and anticorruption be prepared to scale assistance. • If changes in country circumstances warrant a shift in the WBG’s approach, an appropriate document will be presented to the Board for discussion. Vinay Bhargava

30. 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 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 Entry points 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 Vinay Bhargava

31. That is all – Thank You Very much for your attention. Vinay Bhargava