Catalog

	Table of Contents
p. 30 of 34 BACK | NEXT Executive Summary Introduction Good governance defined The elements of good governance The Bank’s concern with governance quality The Bank’s approach to governance issues Promoting the elements of good governance in Bank operations Building governance capacity Participatory development processes Legal frameworks Information openness The Bank’s modalities for enhancing governance in DMCs Resource implications Reporting arrangements

Governance: Sound Development Management : Promoting the elements of good governance in Bank operations

---

Legal frameworks

Law and development

A legal environment conducive to development is essential for all DMCs. It would cover the traditional concept of the rule of law, the existence of a stable and predictable legal system, as well as law reform for economic development. It would also imply effective and efficient admin-istration of law. This legal framework impacts the entire process of development and is, therefore, directly relevant to efforts for promoting the latter. This is seen most clearly in the need for market-friendly, economic reform to be matched by laws suited for the purpose. However, the requirement of appropriate legal dispensations is no less in other areas, such as improvement of the status of women and protection of the environment.

The Bank’s operations will help legal reform in several ways. The most obvious and direct contribution is through improvement of sector policy frameworks. Legal training in development law is another. Where the legal system suffers from accumulated arrears, recourse to commercial arbitration and alternative dispute resolution mechanisms could be promoted, with the Bank offering information on best practice in other (preferably regional) countries. Similarly, competition policy varies greatly in the region, and a systematic analysis of the relative costs and benefits of different regulatory regimes may be useful to DMC policymakers.

The erstwhile centrally planned economies in transition to market-oriented systems represent a special situation. Rules originating under their existing jurisprudence may penalize activities considered normal business practice in a competitive economy. There are also enterprises that are neither purely public nor private, and in which the rights and responsibilities of management are ambiguous. Transfer of ownership in such cases can be problematic. As these economies open them-selves to foreign investment and trade, they may need to undertake wide-ranging reform of their legal systems.

Similarly, the special cultural circumstances of Pacific DMCs may also need to be recognized in this regard. These economies are yet to be fully monetized, with many transactions in the outer islands re-maining outside the money economy. Land is held in the name of the community as a whole, and land transactions are subject to customary law. The coexistence of Western political, legal, and administrative systems, on the one hand, and communal property rights and tradi-tional forms of conflict resolution, on the other, and their interface present considerable challenges to the governments concerned, ne-cessitating careful and sympathetic adjustments.

Legal frameworks for private sector development

Promoting development of the private sector in general, and that of the financial sector and securities markets in particular, requires an especially strong legal underpinning. This is needed because the system must protect private property, regulate transfers, and register titles, so that property can be used as collateral, thus enhancing credit and liquidity. The system is also required for enforcing contracts, reducing the costs of bankruptcies, and setting competition policy, including rules for entry and exit. By determining the ease with which creditors can attach assets of borrowers in case of default, the effectiveness of the legal system can affect the willingness of lenders to make loans. More generally, the enforceability of contracts and agreements is vital for the promotion of investment and trade. In its absence, economic uncertainty increases, raising costs all around.

Another consequence of a poorly functioning legal apparatus is growth of the informal sector, which in turn further undermines the legal order. Informal enterprises function in the shadow of the law and, lacking access to formal dispute settlement procedures, have to resort to extra legal methods. By encouraging such entrepreneurs to register their operations, reform of the legal environment enhances the sustainability of the liberalization process by expanding the size of the formal sector. It also enlarges the government’s revenue base.

Box 7 provides examples of Bank assistance in the field of legal frameworks.

An ongoing regional TA project focuses on legal training in devel-opment law (1992). Short workshops are being held for midcareer law-yers and official legal advisers in Cambodia, People’s Republic of China, Lao People’s Democratic Republic, and Viet Nam. The topics covered include (i) legal aspects of privatization, (ii) managing international investment agreements and international trade transactions, and (iii) legal framework of financial sector and capital market development.

As another regional TA, the Bank is financing a comprehensive, comparative, and integrative study of regulations governing securities market operations and supervisory practices in Bangladesh; Hong Kong, China; India; Republic of Korea; Malaysia; Philippines; Singapore; and Taipei,China (1992). The study also reviewed the results of earlier Bank-financed studies on People’s Republic of China, Indonesia, Pakistan, Sri Lanka, and Thailand. Based on this review and comparative study, a rationalization plan for each DMC is being prepared, in consultation with the government concerned, to cover gaps in policy and improve the quality and degree of regulation and supervision. A blueprint for implementing the recommended changes will also be finalized. In addition, specific proposals and areas for future Bank assistance will be identified.

Back Cooperation with NGOs	Next Information openness