Improving Governance & Public Administration: Frontier Areas of Reform Presented to: Capacity Enhancement Program on Controlling Corruption & Improving Governance for Thailand September 6, 2008 Presented by: Sanjay Pradhan Director PREM Public Sector Governance The World Bank

Governance & Corruption Not the Same Thing! The manner in which the state acquires and exercises its authority to provide public goods & services – depends on capacity & accountability relationships among state & non-state actors Corruption Use of public office for private gain Corruption is an outcome – a consequence of weak or bad governance. Weak investment climate & poor service delivery are other outcomes. Improving governance entails building a more capable, accountable & responsive state

Improving Governance A Cross-Cutting Priority for Inclusive Growth Building a sound investment climate for growth Institutions for macroeconomic stability (e.g., fiscal responsibility legislation, independent Central Banks) Streamlined regulatory system: business entry, tax system Independent, competent, trusted judiciary Physical and financial infrastructure: power, transport, finance Delivering better public services to empower the poor Health, including curbing informal payments, leakages of drugs Education, including tackling absenteeism, leakages User participation and oversight in service delivery Managing public resources better Transparent & comprehensive budgets Transparent, competitive public procurement system Performance-based budgeting and human resource management system with meritocracy and adequate pay

Mechanisms to Improve Governance Capacity, Transparency, Accountability Citizens/Firms State Capture Political Institutions Political accountability, broad-based political parties Transparency & regulation of party financing Formal Oversight Institutions Independent judiciary Legislative oversight Independent oversight (SAI) Global initiatives: UN, OECD Convention, anti-money laundering Executive Transparent budgeting & procurement Civil service meritocracy & adequate pay User participation & Accountability in service delivery agencies Patronage & nepotism Civil Society & Media Free press, Right to information Civil society watchdogs Citizens/Firms Citizens/Firms Private Sector Contracting out Extractive Industry Transparency Initiative Collective business associations administrative corruption Outcomes: Services, Investment climate, Corruption Local Governments & Communities Decentralization with downward accountability Community Driven Development (CDD) Oversight by parent-teacher associations & user groups Citizens/Firms

Helping Countries Improve Governance Different Entry Points Across Countries Private Sector Competitive investment climate Responsible private sector Public Management Public financial management & procurement Administrative & Civil Service Reform Demand-side Reforms State oversight institutions (parliament, judiciary, SAI) Transparency & participation (right to information, user participation) Civil society & media CORE SLIDE Key messages: to clarify that there are many entry points for governance reform, and the choice depends on country context while there are many examples of good work in all these areas, the Bank has historically focused within governance primarily on public management The Bank wants to scale up work in the other four areas, as appropriate and in partnership with other donors: these are the frontiers building multistakeholder constituencies for reform are a critical aspect of managing the reform process Structure of Public Sector Decentralization Creation of Arms-length agencies Governance in Sectors Transparency, participation, accountability in service provision (health, education, transport) Sector-level corruption issues (EITI, forestry)

Deepening basis for the legitimacy of the public service Evolution of Reforms in High-Income OECDs Significant Foundations of Legitimacy in Place Deepening basis for the legitimacy of the public service 1990s – Performance Concern to make promises and deliver on them Measurement of results and the use of measurements for planning or accountability purposes 1970s - Responsiveness to elected officials and political priorities Frustration with political neutrality Concern that the public service is an obstacle to political objectives 1950s - Equal access and equal treatment Impartiality Concern that employment in the public sector should be representative of society 19th century - Due process and institutional continuity Patronage & purchase of public positions Northcote-Trevelyan Reforms of 1854 in UK, following bureaucratic chaos in the Crimean War Driven by the law

High-Income OECD Countries Performance-based budgeting: recent trends Shifting focus from input control to accountability for results Example: UK Public Service Agreements (PSAs) with the Treasury: three-year agreements with objectives & targets, published & monitored by Treasury Different degrees of performance information in high-income OECDs: Presentational: performance information presented with budget for later discussion Direct or formula-based performance link rare – Example: Korea, where ineffective programs get 10 percent automatic cut, concern about information quality & gaming Move to accrual accounting and performance & value-for-money audits Many different approaches towards performance management Only in a few countries (UK, Denmark): agencies’ performance directly reflected in pay or performance bonus of senior management In other countries, use of individual performance agreements & appraisal systems to link organizational goals to performance, influencing future career Majority of OECD countries introduced performance-related pay (PRP) policies, but this has not been successful (created resentment, promotion is better instrument for recruiting or retaining capable staff) Creation of arms-length agencies Focused purpose, accountability with autonomy. Examples: UK Next Steps Agencies, Netherlands ZBOs Coordination challenges with proliferation of agencies Demand-side reforms -- open government & E-government Examples: Freedom of Information legislation – with widespread utilization Publication of service standards (e.g. citizen charters) Consultative mechanisms (regulatory impact assessments) Creation of ombudsman offices to hear redress

MICs in Latin America Budget rules for aggregate fiscal discipline: “Fiscal Responsibility” laws Reforms to improve budget performance Chile stands out as the country that has made results-based budgeting Progress in Brazil of withdrawal of autonomy and possible dismissal of Secretary) But less progress in Bolivia, Peru, Colombia Integrated Financial Management systems (IFMSs) successful in LAC in 1990s Human Resource Management Some success in meritocracy (Chile’s 2004 Reforms, Brazil 1995 Reform) Failure of meritocracy in clientelistic bureaucracies (Honduras, Bolivia, Peru) Significant decentralization: Fiscal and administrative, election of mayors Creation of arms length agencies in enclaves: e.g., Peru’s SUNAT, with some improvement in performance, but questions of sustainability Major thrust in demand-side reforms Right to information legislation E-government – one-stop shops & e-procurement in Brazil & Mexico

Latin America: Two Patterns of Public Administration Reforms Institutionalized and sustained (Chile, Brazil, Costa Rica) Where public sector operates on reasonably transparent and formal lines, and public servants are hired on merit and reasonably immune from political pressures, then reforms look similar to those in high-income OECD countries Performance-based human resource management and budget management driving efficiency improvements in service delivery These reforms are institutionalized and sustained Opportunistic reforms, but with risks of reversals (Bolivia, Peru, Ecuador) Where patronage is more entrenched, reforms have flavor of pilots or experiments More likely to be enclaved or disconnected from the rest of public sector Flavor of opportunism with risk of reversal Need rule-based compliance as precondition for reforms

‘Leapfrogging’ & Non-traditional Sequencing: Achievements & Challenges Spectacular failures because of missing or inadequate “prerequisite” organizational practices - Kyrgyz, Mongolia, Argentina, Ecuador Limited number of clear examples – Middle-income countries – sequencing from “prerequisite” to “mature” performance-focused systems - Chile, Singapore Many countries chosen to “leapfrog” directly from patronage-based to performance-based management though “islands of success” based on “performance-based” management practices - Central Banks in many countries - Tax administration (SUNAT in Peru)

Frontier Areas for Reform Ensure rule-based public administration practices are in place: Internal audit & control Monitoring of merit-based recruitment, promotion, transfers Indicators for rule-based compliance: Public Expenditure and Financial Accountability or PEFA indicators; Human resource management (HRM) Actionable Governance Indicators (AGIs) Strengthen ethical responsibility: Asset declaration requirements Codes of ethics for public officials Strengthen commitment to values and ethics in public service: transformational leadership at individual & collective levels Coalitions of integrity to combat entrenched networks and attitudes towards corruption

Frontier Areas of Reform (cont.) Enhance availability of information Monitoring and posting of information on activities, outputs and results Right-to-Information (South Africa, India) Enhance participation & monitoring by civil society & media Stakeholder consultations in policy development process Bring state closer to people: Decentralization Posting of information on organizational budgets, standards and performance CSO monitoring of public sector performance (e.g., Bangalore Report Cards) Media monitoring of asset declarations (e.g., Philippines) E-Government Russia: online tax payment reduced corruption and increased overall tax compliance Bhoomi project in Karnataka, India computerized 20 million land records for 6.7 million farmers E-Procurement in Chile, Brazil, Mexico Multistakeholder coalitions for reform Needed to combat entrenched networks of corruption Examples: EITI, FLeG Global collective action to combat transnational corruption (e.g. StAR)

E-Government & Voice for Procurement Reforms Growing Trend in International Experience Engaging CSOs: Philippines E-Procurement: Chile All supplier companies register, indicating areas of business (e.g., IT, construction, furniture) Public agencies submit tenders through internet Automatic e-mail to all companies in selected area Online information on name, position of official in-charge Online information on results: who participated, proposals made, scores received, who won bid, historical record of agency’s purchases & contracts Legal foundation a mess with over 100 laws and regulations New omnibus law needed for clarity and predictability in the process New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO Extensive training of CSOs now under way

Civil Society Monitoring for Improved Service Provision: Bangalore, India 100 94 92 96 90 85 78 77 80 73 73 73 67 70 60 Percent Satisfied 47 50 41 42 40 34 34 32 32 30 25 16 20 14 9 10 5 6 4 n/a 1 n/a Dramatic improvements across nine city agencies between 1994 and 2003. Improvement even in city council, electricity, telephones across three report cards. Other services, hospitals, police, land, buses see huge improvements between 1999 and 2003. BATF tell similar story. Police City council Electricity Water supply Telephones Public hospitals Land authority Public buses Transport authority Agencies 1994 1999 2003 Source: Public Affairs Center, India

Media Monitoring: “BIR [Tax Collector] Officials Amass Unexplained Wealth” By Tess Bacalla, Philippine Center for Investigative Journalism Owner: Regional Director in the Bureau of Internal Revenue forced to resign; currently facing corruption charges; other officials suspended, also facing charges CAR MODEL BENEFICIAL OWNER REGISTERED OWNER Nissan Patrol Edwin Abella Sulpicio S. Bulanon Jr. BIR Reg'l Director, 1817 Jordan Plains Subd., Quezon City Quezon City (listed address of Abella in his SALs) Suzuki Grand Vitara Ditto Merrick Abella (son of Abella) 24 Xavierville, Loyola Heights, Q uezon City Nissan Cefiro Ditto Elizabeth S. Buendia 152 Road 8, Quezon City BMW Lucien E. Sayuno Limtra Dev. Corp. BIR Reg'l Director, Zone 4, Dasmariñas, Cavite Makati City BMW Ditto Marie Rachel D. Mene ses c/o Metrocor and Holdings, G&F, Makati City Honda Accord Danilo A. Duncano Daniel Anthony P. Duncano BIR Reg'l Director, 2618 JP Rizal, New Capital Estate, Quezon City Quezon City Mitsubishi L200 Corazon P. Pangcog Alberto P. Pangcog (husband) Asst. Reg'l Director, B2 L23 Lagro Subd., Quezon City Valenzuela City Honda CR - V Ditto Alberto P. Pangcog 9 Ricardo St., Carmel 1 Subd., Quezon City

Entrenched Corruption Networks: The Case on Montesinos in Peru Judiciary Civil Society Legislative Branch International Alberto Fujimori State (Bureaucracy) Political Parties 1 Vladimiro Montesinos Media Military Municipal Government Private Sector Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy School of Government Case Program, Case C14-04-1722.0, based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000

Philippines: Procurement Reform Multistakeholder Coalitions for Reform Philippines: Procurement Reform Transparency and Accountability Network (20+ member groups) Walang Ku-Corrupt Movement (Youth) Procurement Watch: Drew other civil society groups into the advocacy efforts and coordinated the activities PAGBA & AGAP (w/in Gov’t) CBCP (Church) Philippine Contractors Association (private sector – main stakeholder) Local chambers of Commerce (Private sector)

Extractive Industries Transparency Initiative (EITI) Multi-stakeholder approach with mutual accountability between government, private sector and civil society Independent review of payments made to the government by oil, gas and mining companies and of revenues received by government from those companies by a reputable third party (i.e. audit firm) Publication in accessible form, oversight by civil society From EITI to EITI++ EITI Award of contracts and licenses Regulation and monitoring of operations Collection of taxes royalties Revenue distribution management Sound Sustainable Projects Azerbaijan’s State Oil Fund – transparent, consolidated, audited. Focus now upstream on contract transparency & downstream on budget transparency & reporting Kazakhstan’s investment in downstream public finance management

Global Collective Action: Corruption is not just a developing & transition country problem Percentage of firms that pay public procurement kickbacks by country of origin of foreign direct investment Source: “Are Foreign Investors and Multinationals Engaging in Corrupt Practices in Transition Economies?” by Kaufmann, Hellman, Jones, in Transition, May-June 2000. Note: Survey Question was “How often nowadays do firms like yours need to make extra, unofficial payments to public officials to gain government contracts?” Firms responding “sometimes” or “more frequently” were classified as paying kickbacks. These figures are subject to significant margins of error and thus should be regarded as approximate.

The Stolen Asset Recovery (StAR) Initiative The Problem A Global Effort Cross-border proceeds from criminal activity, corruption & tax evasion estimated to be $1-1.6 trillion per year— half from developing & transition countries Bribes received by public officials from developing & transition countries is estimated at $20-40 billion TI’s estimates of stolen assets include: StAR is a joint initiative with the Bank & UNODC, launched in September 2007. Partnerships are being developed at the global and country levels to: Persuade all jurisdictions to ratify & implement the UNCAC Help developing countries recover the existing stock of stolen assets Help countries undertake the necessary institutional reforms that would help deter future asset theft Advocate with financial centers to lower barriers to recovery On a voluntary basis, offer expertise to monitor the use of recovered assets for development (e.g., Nigeria) Ferdinand Marcos (President of the Philippines 1972-1986) $5-10 billion Mohamed Suharto (President of Indonesia 1967-1998) $14-35 billion Global Problem of Money Laundering: IMF Estimates: between 2% y 5% of Gross World Product, At least USD $600,000,000 Sani Abacha (President of Nigeria 1993-1998) $2-5 billion Mobuto Sese Seko (President of Zaire 1965-1997) $5 billion *Source for estimates of former Presidents above: Transparency International Global Corruption Report 2004. All sums are estimates of alleged embezzlement in US dollars.

Conclusion: Frontier Issues for Reform Strategic reforms to strengthen performance-orientation: Improving quality & protection of rule-based, meritocratic system Make strategically important agencies more performance-oriented Greater performance-orientation (performance budgeting, performance management, M&E, indicators) Integrating transparency & ‘demand-side’ approaches in public management More systematic e-government (one-stop shops, e-procurement) More proactive use of right to information and transparency reforms Citizen voice in policy making & implementation (consultations, report cards) Strengthening ethical responsibility in public service Asset declaration, conflict of interest Strengthening commitment to public service at individual & collective levels Coalitions of integrity to rebuild culture of public service Build multistakeholder coalitions for reform Collaborative governance arrangements Global collective action to combat transnational corruption

Discussion