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Governance in Asia: From Crisis to Opportunity : The role of governance in the Bank's response to the Asian financial crisis
Governance-Oriented Assistance to Other Countries
The years 1997 and 1998 also saw an expansion of Bank activities in countries in the Asian and Pacific region in various aspects of public institutions and the public/private interface. Of course, some interventions were under way well before the onset of the Asian financial crisis, but the crisis gave them added impetus. Interventions have ranged from corporate governance in the Kyrgyz Republic to public administration diagnosis in Nepal; civil service reform strategies in Pakistan; governance reviews for Lao People's Democratic Republic, Thailand, and Viet Nam; anticorruption in Indonesia (in conjunction with the Financial Governance Reforms: Sector Development Program loan); urban governance in the Philippines; public sector interventions in the Pacific; and more. Some illustrations are provided in Box 6.
Bank assistance to its Pacific DMCs has broadened in scope since the formulation of the 1996 Strategy for the Pacific: Policies and Programs for Sustainable Growth. Working in consultation and agreement with governments, the Bank has taken the lead role in the aid community as a catalyst and facilitator of policy reform and capacity building in development management, while retaining the traditional role of project financier. Economic reform programs in seven Pacific DMCs (Cook Islands, Marshall Islands, Federated States of Micronesia, Nauru, Samoa, Solomon Islands, and Vanuatu) have been undertaken with Bank technical and financial assistance during 1996-1998.
These programs aim at generating sustainable economic growth through the creation of a leaner, more efficient public sector, and a better enabling environment for the private sector. Program effectiveness in improving governance and the economic policy framework is expected, in turn, to increase the effectiveness of project-based and sector-specific lending. To improve Bank interventions in the Pacific DMCs, the Bank established an interdepartmental task force to review the design, implementation, and impact of its program loans and associated policy reforms. Lessons learned from the review will influence Bank assistance, especially to the Pacific DMCs, in the fields of policy reform and governance.
There is no doubt that in 1999 and beyond, both the geographic coverage and the scope of Bank financial and technical assistance for governance and public management (including anticorruption) will widen even further.
Box 6. Illustrations of Bank Loans with a Major Governance Focus
India: Gujarat Public Sector Resource Management Program (in combination with technical assistance for reforming public finances and restructuring state-owned enterprises [SOEs])
The State of Gujarat in India faces wide-ranging structural challenges in the public finance area because of stagnation in resource mobilization, weak fiscal management, growing inefficiency of SOEs, and lack of support for efficient infrastructure. The Bank’s program loan of $250 million, approved in 1996 as the first subnational operation in India, supports the Government of Gujarat in augmenting domestic resource mobilization, improving the allocation and efficiency of public resources, and reducing the Government’s role in commercial activities while promoting market-oriented policies to enhance private sector participation in physical infrastructure. To support the program loan, the Bank provided technical assistance to strengthen institutional capacities for budget policy, planning, and modernizing tax administration to improve transparency and accountability. An additional technical assistance of $600,000 approved in 1996—Restructuring Program for State-Owned Enterprises in Gujarat—is aimed at strengthening the technical secretariat charged with restructuring the SOEs.
Kyrgyz Republic: Corporate Governance and Enterprise Reform Program Loan
Subsidized government loans to private and public enterprises caused a huge drain on the Kyrgyz Republic’s budget. Inefficiencies in insolvency procedures allow nonviable enterprises to operate, and lack of regulatory sanctions means that management of many enterprises functions improperly. The Bank’s Corporate Governance and Enterprise Reform Program loan of $40 million, approved in 1997, aims to develop and implement guidelines to improve corporate governance, including statutory mechanisms to ensure enforcement. Internal enterprise efficiency will be improved by the introduction of better management practices, and long-term competitiveness will be enhanced by requiring enterprises to seek new financing arrangements on commercial terms, without the benefit of government guarantees. The legal framework, including the court system, will be strengthened to expedite liquidation or restructuring of nonviable enterprises. Sector capacity building will include a public information and education project and will reinforce stakeholders’ rights and obligations.
Samoa: Financial Sector Program
Improved governance calls for competitive markets with efficient, effective, accountable, and transparent public sector management. This is the aim of the Bank’s Financial Sector Program loan of $7.5 million approved in 1998 to Samoa. Direct monetary controls, interest rate controls, rigid loan rates and credit growth ceilings, and the existence of inefficient SOEs placed constraints on Samoa’s economic development. The Government concluded that this called for comprehensive financial sector reform. The loan is assisting the Government to implement the reform program by liberalizing the financial sector; adopting indirect instruments of monetary management; enabling Samoa’s central bank to effectively manage liquidity through open market operations; strengthening the prudential and regulatory frameworks; and, equally important, privatizing and corporatizing public utilities.
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