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 15 th, 2005

The World Bank PREM Public Sector Governance 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

The World Bank PREM Public Sector Governance 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

The World Bank PREM Public Sector Governance 4 Institutional Checks & Balances Parliament Other accountability institutions Public Sector Management Financial management reforms Civil Service reforms Decentralization of service delivery provision Local government and public expenditure Improve M & E capacity Anatomy of Governance Elements in Ghana CAS Diagnosis: CPIA-3.0. Major structural issue. Risks: to country- high; to Bank -no mention. Country Vision: Strong Good governance and accountability program-- 1 of 5 PRSP Pillars. Triggers: 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. Civil Society Voice & Participation Improve capacity of civil society groups ENTRY POINTS Lending Instruments: PRSCs; M&E components; Community Empowerment loans AAA Instruments: WBI ; Development Dialogue sessions; Outreach/media programs; CPAR; CFAA; Community Empowerment study; PER; M&E assessment Results and Performance Indicators: See Hand Out CAS Objective: CAS Objective: Support to Improve Governance and Empowerment -3rd Pillar of CAS

The World Bank PREM Public Sector Governance 5 Institutional Checks & Balances Judiciary and legal reforms Anti-corruption institutions Disclosure by public officials Corruption perception survey Public Sector Management Finance and procurement reforms Tax, customs. Public expenditures reforms Effective Implementation of Decentralization Local government governance improvement 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. Triggers: 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. Civil Society Voice & Participation Public participation and monitoring Full collaboration to promote governance ENTRY POINTS Assistance Approach: Four principles applied to promote good governance thru all activities. Lending Instruments: CDD programs; tax, customs, financial; media/CSOs components; loans to districts AAA 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 CAS Objective: Address the key issue of governance improvement thru all CAS activities- set standard for the Bank to address corruption and governance issues. Competitive Private Sector * Corporate governance *Anti money laundering

The World Bank PREM Public Sector Governance 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

The World Bank PREM Public Sector Governance 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.

The World Bank PREM Public Sector Governance 8 Step1.2 : Categorizing Countries by Transparency, Accountability, and Corruption in the Public Sector CPIA Rating (Question # 20) Control of Corruption Incidence of Corruption LowestHigh Middle-LowSubstantial Middle-HighModest HighestLow

The World Bank PREM Public Sector Governance 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

The World Bank PREM Public Sector Governance 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.

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

The World Bank PREM Public Sector Governance 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

The World Bank PREM Public Sector Governance 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

The World Bank PREM Public Sector Governance 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

The World Bank PREM Public Sector Governance 15 That is all – Thank You Very much for your attention.