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p. 12 of 34 BACK | NEXT Executive Summary Introduction Good governance defined The elements of good governance The Bank’s concern with governance quality Policy context of the Bank’s project lending Focus on equity and development performance Project quality The East Asian experience Outlook for the future The Bank’s approach to governance issues Promoting the elements of good governance in Bank operations The Bank’s modalities for enhancing governance in DMCs Resource implications Reporting arrangements

Governance: Sound Development Management : The Bank’s concern with governance quality

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Focus on equity and development performance

The need for greater attention to the social dimensions of the development process has been broadly accepted by the Bank’s shareholders, both donors and recipients (e.g., the understandings related to the ADF VI and GCI IV exercises). In line with this consensus, the proportion of the Bank’s project portfolio addressing social issues has increased. Since 1993, the Bank has sought to ensure that at least half of the projects it finances (by number) address social and/or environmental concerns, either primarily or secondarily.¹² Going further, the share of such lending (in terms of loan volume) is expected to reach 35 percent by 1997, and 40 percent by 2000.¹³

The Bank’s interest in governance quality in DMCs has deepened in tandem with this expanded concern with social and environmental development. The success of programs to increase economic opportunities for all requires an institutional and legal environment in which political and social authority are used equitably. It also implies that all segments of society should have recourse to courts of justice,¹⁴ and be protected from both the power of the state and that of dominant social groups (e.g., ethnic majorities, economic elites, etc.). Likewise implied is a system of governance that ensures that money spent to improve the social infrastructure is indeed used to benefit the sectors targeted. Equally important, a government’s ability to effectively foster economic growth and implement social programs is conditional on its institutional and administrative capabilities. While implementation capacity is crucial across the board, it is particularly so in the case of programs and projects addressing social concerns. Thus, the Bank’s growing emphasis on equity issues (e.g., poverty reduction, women in development, environment) has highlighted the need to focus on government capacity.

The ADF VI understandings also intensified the focus on development performance. It was indicated that the Bank would emphasize development performance as a criterion for the allocation of ADF resources.15 For this purpose, development performance was defined broadly as comprising (i) sound economic management; (ii) efforts towards growth with equity, and poverty reduction; and (iii) efforts towards sustainable economic and social development. This balanced concept of development (combining considerations of efficiency, equity, and sustainability) is assessed in terms of (i) economic management, and (ii) progress on "crosscutting concerns." The Bank now carries out such performance assessments of DMCs, annually for the major borrowing countries and once every two years for other DMCs.¹⁶ By their nature, these assessments reflect, to a considerable degree, the quality of governance in the countries concerned.

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