Presented to: World Bank Staff Course on Public Sector Governance and Anti-corruption

1. Presented to: World Bank Staff Course on Public Sector Governance and Anti-corruption Addis Ababa, Ethiopia June 4, 2007 Strengthening World Bank Group Engagement on Governance & Anticorruption Presented by: Helga Muller Sector Manager

2. Outline • A. Context • B. The World Bank’s Governance & Anticorruption Strategy • Country Level • Project Level • Global Level • C. Implementation – WAY FORWARD

3. Context • In 1996, corruption was a taboo “c-word”. • Since then, the World Bank’s governance and anticorruption work has evolved rapidly • In recent years, stakeholders in recipient & donor countries are demanding better governance & corruption control – scaling up of aid also requires strengthening governance • On March 20, 2007 the World Bank’s governance & anticorruption (GAC) strategy was unanimously endorsed by the Board, and approved by the Spring Meetings in April 2007

4. Governance is the door to anticorruption Governance The manner in which the state acquires and exercises its authority to provide public goods & services Use of public office for private gain Corruption • Corruptionis an outcome– a consequence of weak or bad governance • Governance reform – strengthening capacity & accountability – helps combat corruption by addressing its underlying causes

5. Seven Guiding Principles Governance & Anticorruption for Poverty Reduction: Poor governance and corruption undermine the World Bank’s mission of poverty reduction Working Together: The World Bank will work with donors & other actors at the country & global levels to ensure a harmonized approach—“the World Bank should not act in isolation” 7 Guiding Principles Country Leadership & Ownership: The World Bank is committed to supporting a country’s own governance & anticorruption priorities Strengthening Country Systems: Better national institutions are the long term solution to mitigating fiduciary risk for all public money Consistent Approach: While there is no ‘one-size-fits-all’, the World Bank will apply a consistent approach across countries & continue to allocate more aid to better governed environments (PBA) Staying Engaged: The World Bank will seek creative ways to provide support, even in poorly-governed countries—“don’t make the poor pay twice” Multi-Stakeholder Engagement: The World Bank will scale up good practice in engaging with civil society, media, parliaments, judiciary, private sector in its operational work

6. Key Elements of World Bank’s Strategy Global Level Working with development partners, sharing experience & addressing transnational issues Country Level Deepening support to countries to strengthen governance Project Level Combating corruption in World Bank Group operations

7. Helping Countries to Improve Governance Through 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) Coalition building across stakeholders

8. The new international aid architecture emphasizes the principle of mutual accountability Increasing recognition that "ringfencing" projects will not work – need to strengthen country systems Scaling up of donor assistance requires sound PFM systems and reduced corruption in partner countries Strengthening PFM Systems a key priority

9. Tackling Corruption in Key Sectors Tracing Vulnerabilities in Value-Chain: Pharmaceuticals Manufacturing Transparency Registration Tracking systems Random inspections Selection User surveys Procurement Monitoring based on transparent & uniform standards Distribution Media coverage of drug selection committee meetings Prescription & Disbursement Reference: Jillian Clare Cohen, Assistant Professor, Faculty of Pharmacy and Director, Comparative Program on Health & Society, University of Toronto

10. Innovative Examples of Multistakeholder Engagement in WB Operations Participatory prioritization of policies & public spending User participation & oversight in service provision Strengthening transparency & oversight over the use of budgetary resources Investment Operations Brazil Rural Poverty Reduction Project Rio Grande do Norte; Malawi Third Social Action Fund Development Policy Lending Armenia SAC IV; Laos PRSC1; Timor-Leste Consolidation Support Program Policy Grant, Vietnam PRSC (I to IV) Investment Operations Bangladesh Public Procurement Reform Project Development Policy Lending Haiti Economic Governance Reform Operation I and II Investment Operations Andhra Pradesh, India District Poverty Initiatives Project; Morocco Initiative for Human Development Support Project Development Policy Lending Brazil PHDSRL I; Georgia PRSC; Peru PSRL III Ethiopia, Protection of Basic Services Other actions Strengthening participatory local governance Strengthening other formal oversight institutions Development Policy Lending Bangladesh DSC III Other WBI Media Program Community Radio Initiatives Partnership for Transparency Fund Investment Operations Albania Community Works 2 Project; Bangladesh Local Governance Support Project; Ethiopia Capacity Building for Decentralized Service Delivery; Indonesia KDP Development Policy Lending Sierre Leone ERRC III Investment Operations Guatemala Judicial Reform Project; Kenya Institutional Reform and Capacity Building Project; Legal & Judicial Other WBI Parliamentary Strengthening Program

11. DecentralizationThe Challenge • Decentralization is more likely to work when there is adequate capacity and two sets of accountabilities are in place • Downward accountability between local governments and citizens • Allocation of responsibilities between central and local governments • Assignment of service provision responsibilities • Assignment of fiscal resources (including local tax base) • Central fiduciary and performance oversight over local • In practice, the impulse for decentralization is political; high risk of being stuck in institutional ‘limbo’ (Albania; East Asia review – Cambodia, China, Indonesia, Philippines, Thailand and Vietnam)

12. Making the Private Sector an Advocate of Governance Reform • The two faces of the private sector • Competitive, productivity-focused firms thrive on a level-playing field • Corrupt, rent-seeking firms thrive in the shadows • How to support competitive, responsible private sector? • Create sound business environments, benchmarked internationally (Doing Business Indicators) • Showcase examples & evidence that ‘avoiding corruption is good for business’ (Celtel’s Mohammed Ibrahim) • Support initiatives to promote business ethics and voluntary codes of conduct (ICC Code of Conduct, TI’s Business Principles, WEF PACI, UN Global Compact) – and create external verification mechanisms • Build coalitions of businesses and other stakeholders for anticorruption (Indonesia Business Link, Makati Business Club, Global Integrity Alliance) • Enforce global/regional laws & regulations (OECD Convention, UNCAC)

13. Monitoring for Results • Use aggregate governance indicators (e.g., CPIA, KKZ, TI CPI) to indicate of extent and mix of governance problems • Use actionable & outcome indicators (e.g., PEFA, Global Integrity Index) to monitor progress in implementing priority governance and anticorruption reforms • Support participatory mechanisms for monitoring and mutual accountability (private sector, civil society) Frontier challenge: Improve menu of actionable and outcome indicators

14. Combating Corruption in World Bank Operations Prevention • Strengthen country systems • Identify high-risk operations, mitigate risk upstream • Prepare project anticorruption action plans • Increase disclosure and transparency; greater oversight and participation from civil society organizations • Create anticorruption teams composed of field staff to review project design & rate risk • Focus on corruption in portfolio review • IFC-MIGA to strengthen ethical corporate practices across their operations

15. Combating Corruption in Bank Operations (cont.) Enforcement • Independent review of INT in order to strengthen investigation of corruption in projects • Continue to publicly sanction corrupt firms • Implement the Voluntary Disclosure Program (VDP) • Sanctions reform: on separate track, Board approved

16. Global Collective Action Against Corruption Global & Regional Conventions (UNCAC, OECD, AU, OAS, Asia-Pacific Action Plan) need to be enforced to curb transnational corruption & facilitate asset recovery Donor Collaboration MDB harmonization in high-risk settings to avoid ‘mixed-signals’; coordinated donor action to support demand-side initiatives Coalitions with civil society, private sector, parliamentarians, and others (e.g., GOPAC, PACI, Global Integrity Alliance) to combat entrenched corruption networks

17. 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

18. Emerging Elements of GAC Implementation Plan 4 Diagnostics, indicators & knowledge 1 Country-driven Process & Incentives • Diagnostics for CASs & key sectors • Guidance & good practice notes for staff • Accelerate development & use of actionable & outcome indicators • M&E to evaluate impact • Country Governance & Anticorruption implementation plans (CGAC) • Competitive fund for topping up country Bank budgets • Performance reward & innovation fund for teams 2 Leadership Capacity & Organizational Arrangements 5 Project-level: Risk Management • Bankwide leadership team to coordinate GAC work • Regional clusters (2 pilots) • Multisectoral organizational arrangements • Field advisors in high-risk settings • Integrated fiduciary assessments in project preparation • Risk reviews • AC action plans & teams • Enhanced disclosure & 3rd party monitoring • More regional supervision 6 Global Collective Action 3 Country-level: Sectoral Governance & Engagement • Donor coordination in high-risk settings (OECD-DAC GovNet & MDG Task Force) • StAR Initiative-asset recovery • Multi-statkeholder alliances in sectors (EITI, FLEG, PROFISH, MeTI, CoST, GIA) • Guidance & good practice in integrating GAC in sectors • New instruments for private sector work to curb ‘supply-side’ of corruption • Guidance on engaging with non-governmental stakeholders (media, etc.)