1. Monitoring Governance in Eastern Europe and Central Asia Cheryl Gray World Bank

2. Two questions that active monitoring can help to answer: How to improve governance? How to improve governance? (explanatory variables: inputs, outputs, and/or intermediate outcomes) What has been achieved to date? What has been achieved to date? (outcomes; results) What has monitoring in ECA shown? ECA has seen a lot of progress (more than most regions), but more is still needed.

3. Business Environment and Business Environment and Enterprise Performance Survey (BEEPS) Joint initiative with EBRD Joint initiative with EBRD 20,000 firms in 3 rounds (1999, 2002, 2005) 20,000 firms in 3 rounds (1999, 2002, 2005) 26 transition countries 26 transition countries 6 European comparators in 05: Ireland, Germany, Greece, Portugal, Spain, Turkey (+ Korea and Vietnam) 6 European comparators in 05: Ireland, Germany, Greece, Portugal, Spain, Turkey (+ Korea and Vietnam) Life in Transition survey Life in Transition survey Economic and poverty data Economic and poverty data CPIA CPIA Actionable indicators (DB, PEFA, others) Actionable indicators (DB, PEFA, others) Many indicators are useful.

4. Explanatory variables

5. Structure of government: Legislative oversight Independent and effective judiciary Independent prosecution, enforcement Sub-national government Multilateral rules for trade, investment, aid Political accountability: Political competition, credible political parties Transparency in party financing Disclosure of parliamentary votes Asset declaration, conflict of interest rules Civil society voice and participation: Freedom of information Public hearings on draft laws Free and competent media/NGOs Competitive private sector: Economic policy reform Competitive restructuring of monopolies Privatization Transparency in corporate governance Public sector management: Meritocratic civil service with monetized, adequate pay Budget management (coverage, treasury, procurement, audit) Tax and customs Sectoral service delivery (health, education, energy) Decentralization with accountability Governance Improving governance requires a multi-pronged approach (and each variable has its own monitoring tools).

6. Changing the role of the state and reforming economic policies are key early steps. Macroeconomic stabilization Macroeconomic stabilization Price and trade liberalization Price and trade liberalization Privatization Privatization Property rights and law reform (commercial, civil, etc) Property rights and law reform (commercial, civil, etc) Adoption of modern tax structures Adoption of modern tax structures Promotion of business entry and FDI Promotion of business entry and FDI Banking reform Banking reform World Bank programs in the 1990s supported this transition to private market economies.

7. The business climate has improved. Source: Doing Business in 2007

8. But the ease of doing business still varies widely among countries. Source: Doing Business in 2007

9. Many ECA countries are gradually improving transparency and accountability. Source: Monica Dorhoi, 2005. "Anti-Corruption Strategies and Fighting Corruption in Central and Eastern Europe". PhD Dissertation. Michigan State University

10. Businesses use courts quite heavily in ECA…

11. But many firms see the judiciary as an obstacle to business.

12. Courts are not seen as independent. No (heavily influenced) Yes (entirely independent)

13. Most firms do not see courts as honest…

14. …or affordable.

15. Few firms think courts are quick…

16. …or can enforce decisions.

17. Results to date

18. Growth in ECA has been rapid in recent years after the initial collapse. Note: 2000-02 data for Serbia and Montenegro, from 2003 onwards – Serbia.

19. Poverty and vulnerability have fallen. Source: **Bank staff estimates based upon ECA Household Data Revised numbers for 2002-3 period based on a new countries coverage

20. Corruption is falling for the region as a whole (though not yet to W. Europe levels)… Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

21. … but not in all countries … Bribe Frequency by country, 2002-2005 Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

22. … and not in all sectors. Bribe Frequency by sector, 2002-2005 Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

23. European countries vary significantly. (% firms viewing corruption as a problem for business) Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

24. New private firms continue to pay the most bribes. Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

25. Some broader aspects of rule of law are also improving. Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

26. Some explanations?

27. Corruption is lower where courts are easier to deal with …

28. … and where taxes are simpler …

29. … where business licensing is streamlined …

30. … and where international trade is painless...

31. In sum: A variety of specific indicators are helpful in tracking governance influences and outcomes at the country level. A variety of specific indicators are helpful in tracking governance influences and outcomes at the country level. Actionable policy and institutional indicatorsActionable policy and institutional indicators Economic and political indicators Economic and political indicators Unbundled corruption indicators Unbundled corruption indicators Indicators point to impressive progress in some ECA countries, driven by market reforms and prospects for EU accession –but more is needed. Indicators point to impressive progress in some ECA countries, driven by market reforms and prospects for EU accession –but more is needed.

32. www.worldbank.org/eca/act3 For a broader look at governance and economic reform in ECA see www.worldbank.org/eca/econ For details on corruption trends see Anticorruption in Transition 3 – Who is Succeeding … And Why?

33. The time required to enforce a contract is longer in Serbia than most other European countries… (Latvia, Finland, Norway)

34. But countries vary in ease of doing business Source: DB 2006 }in top 20 worldwide