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Governance: Sound Development Management
Executive summary
In recent years, there has been increasing concern about
governance issues in the development debate. In February 1994,
the President issued interim staff instructions on governance.
Subsequently, in May 1995, the Board considered a Working Paper
on the subject. The present Paper takes into account the views
expressed by the Board at that time and sets out the role, approach,
and policy of the Bank in relation to governance issues. Being concerned directly with the management of the
development process, from the Bank’s point of view, governance
has to do with the institutional environment in which citizens
interact among themselves and with government agencies/
officials. The capacity of this institutional environment is important
for development because it helps determine the impact achieved
by the economic policies adopted by the government. Hence,
this capacity, and the governance quality it reflects, is a vital
concern for all governments. Although policy aspects are important for development, the Bank’s
concept of good governance focuses essentially on the ingredients
for effective management. Irrespective of the precise set of
economic policies that find favor with a government, good
governance is required to ensure that those policies have their
desired effect. In essence, it concerns norms of behavior that help
ensure that governments actually deliver to their citizens what
they say they will deliver. Similarly, the experience so far, especially within the region, shows
that successful development has taken place in countries with
different political systems. However, the common features that
stand out in respect of the high-performing economies are stability
in broad policy directions, flexibility in responding to market
signals, and discipline in sticking with measures necessary for
meeting long-term objectives despite short-term difficulties, all
hallmarks of sound development management, i.e., good
governance. A basic issue that arises in relation to governance is the proper
role of government in economic management. With governments
having limited access to information, there is a growing consensus
that markets generally allocate resources more efficiently.
However, even in market economies, governments are expected
to perform certain key functions, namely
- maintaining macroeconomic stability,
- developing infrastructure,
- providing public goods,
- preventing market failures, and
- promoting equity.
Governments decide the policies they adopt to perform these
functions. Once those policy choices are made, good governance
is required to make sure that implementation is effective and
consistent. As a development partner, the Bank has a clear and
direct interest in the capacity of borrowing governments to fulfill
their economic role by implementing the associated policies. More
specifically, the success of the Bank’s project investments depends
crucially on the efficacy of the institutional framework in
developing member countries (DMCs) and the consequent
capability for purposive implementation. A number of multilateral organizations have reflected on the
elements of governance and their relation to development. Insofar
as the Bank is concerned, the approach of the World Bank is the
most relevant. For the World Bank, the essence of governance is
sound development management, and the key dimensions of
governance are public sector management, accountability, the
legal framework for development, and information and
transparency. The Bank, too, regards questions of governance from the
standpoint of their relation to the effectiveness with which
development assistance is used, the impact of development
programs and projects, and the absorptive capacity of borrowing
DMCs. However, the Bank’s analytical framework for addressing
elements of good governance and, on the other, the specific areas
of action (e.g., public sector management), in which they could
be promoted or their existence enhanced. Accordingly, and building upon the approach of the World Bank,
the Bank has identified four basic elements of good governance:
accountability, participation, predictability, and transparency. The Bank’s interest in governance issues has intensified, over time,
as a result of several factors. These include
- the growing recognition of the importance of the policy environment in which development takes place,
- an increasing focus on equity issues and development performance,
- the lessons highlighted by the Task Force on Improving Project Quality, and
- the experience of the high-performing economies of the region.
The Bank’s approach to governance issues will be guided by the
provisions of its Charter. These explicitly exclude political activities
and considerations. Hence, the Bank cannot act as an agency for
political reform in DMCs. Nevertheless, if on purely economic
grounds, the Bank has considered an action or measure worth
supporting, it has not hesitated to do so even though the action
or measure may have had political implications. The Bank’s work
on governance will follow this pragmatic approach. Differences in political history have resulted in a diversity of
political systems and institutional cultures in the Asian and Pacific
region. None of these can reasonably claim to have any
comparative advantage from the point of view of governance.
There can, accordingly, be many institutional alternatives for
managing the development process soundly. When applying the
criteria of good governance, therefore, the Bank will take into
account the characteristics and situation of individual countries. To make the elements of good governance operationally relevant,
the Bank needs to translate them into specific areas of action. To
this end, this Paper indicates some ways in which these elements
can be promoted in the context of Bank operations. In most of
these areas, the Bank is already contributing to quality governance
and has been doing so for some time. The areas of action include
Accountability (building government capacity)
- public sector management
- public enterprise management and reform
- public financial management
- civil service reform
Participation (participatory development processes)
- participation of beneficiaries and affected groups
- public sector/private sector interface
- decentralization of public and service delivery functions (empowerment of local government)
- cooperation with nongovernment organizations (NGOs)
Predictability (legal frameworks)
- law and development
- legal frameworks for private sector development
Transparency (information openness)
- disclosure of information.
The Bank will integrate governance dimensions into its operations.
To the extent possible, Bank-supported programs and projects
will be designed such that they raise governance quality in the
sectors concerned (e.g., through inclusion of appropriate policy
measures, project components, or technical assistance [TA]). In
addition, the Bank will provide, on request, advisory TA for
specific governance-oriented policy studies, seminars, and
training. In all cases, the guiding principle for the Bank will be to
act on the basis of DMC requests, rather than to seek loan
conditionalities. The Bank’s modalities for enhancing governance in DMCs
encompass the full range of its operations. In due course, it is
likely that capacity-building activities and assistance for legislative
reform will become central pieces in the Bank’s efforts to help
improve governance in DMCs. Enhancing the governance dimension of its development
assistance will have resource implications for the Bank. These
relate to staffing, staff training, staff consultants, business travel,
and loan and TA resources. With respect to staffing, the Bank
would need to strengthen in-house expertise in various aspects
of governance and institutional development. However, given the
current constraints on the budget, any new staff positions required
would have to be accommodated through ongoing redeployment
efforts within the Bank. Necessary trade-offs with other activities
of lower priority would be worked out. Similarly, insofar as the
other resource implications are concerned, these would be
adjusted so as to be accommodated within the relevant budget
allocations. Two years after Board approval of the Bank’s operational policy
on governance issues (i.e., in late-1997), a Board paper will be
circulated, analyzing the Bank’s experience with governance
activities, proposing modifications to the operational approach,
as necessary, and indicating more specific resource implications.
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