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Governance in Asia: From Crisis to Opportunity : Interventions beyond the crisis
Policy Framework
The Bank's 1995 governance policy provided a sound basis for its future work. This work was carried forward through the adoption of policies that gave tangible content to the principles embodied in the governance framework. Directly related to governance and public management, Board papers were prepared on participatory development and anticorruption,10 and elements of good governance were increasingly reflected in other Board policies on crosscutting issues, such as indigenous peoples, and gender and development. Governance issues have also started to permeate traditional sector work, as demonstrated in the policies currently being developed for integrated water management, urban development, health, nutrition, and education.
Law and development: The Bank's law and development activities promote legal reforms,11 building on empirical findings that a policy, legal, and regulatory environment, which secures property rights and enforces contracts, is supportive of economic growth and poverty reduction.12 Although law and development activities have a general focus on the development of legal and regulatory frameworks that support private sector development (Box 7), they take into account the need for "ethnically conscious interventions into the market" with a view to spreading market-generated wealth.13
Participation: People are at the heart of development; they are not only the ultimate beneficiaries, but are also the agents of development. Since development is both for and by the people, they need to have access to the institutions that promote it. Participation, as a component of the Bank's governance policy, implies that people will have the opportunity to improve the design and implementation of public programs and projects.
The Bank's Framework on Mainstreaming Participatory Development Processes defines participatory development, notes its importance to the Bank, and tells how Bank staff, in collaboration with DMC counterparts, can support it. Additionally, it shows how participatory processes can be systematically incorporated in the Bank's business processes, and what modifications are required in the Bank's procedures, policies, and practices to mainstream participatory development in the Bank's work. Participatory development as a key to the Bank's thinking is elaborated in Box 8.
Anticorruption-a key dimension of the governance agenda: The Anticorruption Policy deserves special attention, owing to the corrosive effect of corruption on Asian and Pacific economies, and its central role in weakening governance institutions that contributed to the Asian financial crisis. The Board of Directors approved the Bank's Anticorruption Policy on 2 July 1998, exactly one year after the onset of the crisis (Box 9).
The Bank's Anticorruption Policy rests on conclusive evidence that systemic corruption exacts a heavy price from developing economies by, for example, reducing investment, increasing capital costs, and increasing the time business executives need to spend negotiating with government officials.14 It is fully compatible with the policies of other multilateral financial institutions, including those of the World Bank,15 and is complemented by the OECD Anti-Bribery Treaty that took effect in December 1998. The Treaty, among other things, makes bribery of foreign officials a crime at par with bribery of national officials, and is thus a fundamental advance over earlier practices. Thus, for the first time in contemporary history, this convergence of policies and circumstances offers the opportunity to effectively combat corruption at both public and private levels, and to substantially reduce its burden on the peoples of the Asian and Pacific region.
Corruption can be defined briefly as the use of public or private office for personal gain. Samples of corrupt activities of greatest interest to the Bank include
- design or selection of uneconomical projects because of opportunities for kickbacks and patronage;
- procurement fraud;
- illicit payments to government officials to facilitate access to goods, services, or information to which the public is not entitled, to deny the public access to goods and services to which it is legally entitled, or to prevent the application of rules and regulations in a fair and consistent manner;
- misappropriation of confidential information for personal gain, such as using knowledge about public transportation routings to invest in real estate that is likely to appreciate;
- deliberate disclosure of false or misleading information on the financial status of corporations;
- theft or embezzlement of public property and monies;
- sale of official posts or promotions, or nepotism; and
- extortion and the abuse of public office, such as using the threat of a tax audit or legal sanctions to extract personal favors.
Experience demonstrates that significant progress can be made in the struggle against corruption if the proper legal, institutional, and policy frameworks are in place. The Bank's policy is "zero tolerance."
The first objective is convergent with the public sector management agenda, consisting of actions to make markets competitive and supporting improvements in public administration. For example, strengthening audit functions can improve resource allocation while making embezzlement more easily detected; instituting procurement reform can reduce costs while making fraud more difficult to perpetrate; improving procedures for recruitment and promotion can build capacity while helping reduce patronage and nepotism; and, most importantly, streamlining regulations can improve public management while reducing opportunities for corruption.
In pursuing the second objective, Bank assistance will be guided by three considerations: (i) the nature of the country request, (ii) the consistency of the request with the Bank's country operational strategy and efforts in the field of governance and public management, and (iii) the Bank's expertise.
If the Bank's efforts to reduce illicit behavior by outside entities are to be credible, it is essential that Bank staff be beyond reproach, and that the Bank's internal regulations and procedures support the highest ethical standards. Toward this end, the third pillar of the Bank's Anticorruption Policy calls for a range of actions to consider issues of corruption more explicitly, use independent internal mechanisms to address allegations of corruption, improve the quality of supervision of Bank loans and grants, and ensure that Bank staff are familiar with the policy and act in a manner consistent with both the letter and the spirit of it.
In its anticorruption activities, the Bank is cooperating closely with other international multilateral and bilateral organizations in supporting international and country-specific efforts to combat corruption.16 It will also work with nongovernment organizations (NGOs) on various international efforts to control corruption, and on specific anticorruption initiatives within a particular country. Mechanisms for Bank staff to report corruption are in place, and specific training for anticorruption efforts is being initiated
Box 7. Bank Activities in Law and Development
In 1997 and 1998, the Bank's law and development activities supported operations in almost all areas, such as energy regulation, promotion of participation in agriculture and forestry, reform of banking and capital market laws, and strengthening of bankruptcy and liquidation regulation.
Apart from the legal components of sector loan and technical assistance operations, the Bank's law and development activities comprise specific law-related technical assistance projects, which increasingly focus on issues facing its developing member countries' legal systems as a whole.
The creation of in-country capacity for continuing legal education is an important feature of the Bank's law and development activities. In the transitional economies, the main focus of capacity building has been to prepare government lawyers and members of the judiciary to administer newly enacted laws and regulations and to adjudicate disputes relating to such new laws.
One systemic issue common to all economies is the lack of adequate systems for dissemination of information about laws to the public. This issue is being addressed under the Bank's technical assistance in the People's Republic of China and through regional technical assistance for improving access to legal information, particularly comparative legal reform materials to government lawyers and parliamentary draftsmen via the Internet.
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Box 8. Strengthening Participatory Development
Participation has always been important to the Bank--it is after all a development finance institution owned by 57 members, with a portfolio of projects covering virtually every aspect of development. But with the approval of the governance policy in 1995 and its subsequent implementation in Bank activities, the importance of stakeholder participation has been highlighted. In 1996, the Bank established a focal point for participation in its Social Development Division, Office of Environment and Social Development, and issued guidelines on mainstreaming participatory development processes. The following resulted from these guidelines.
- A conceptual framework that defines participatory development was prepared.
- A new generation of Bank operations is being designed in a participatory manner from the beginning (examples are the People's Republic of China Hebei Roads Development Project loan and the Lao People's Democratic Republic Shifting Cultivation Technical Assistance Project).
- Beyond loans and technical assistance, there is an increasing trend toward greater participation in the formulation of Bank policies. A broader range of stakeholders is being consulted on new policy development issues such as water, health, and education.
- Participation is increasingly being incorporated in the Bank's business processes, as demonstrated in the ongoing review of the technical assistance and loan processing cycle and of country programming. An illustration is the extensive participation undertaken in the country operational strategy study for the Philippines.
- Participation-related training programs are being developed for Bank staff. For example, the Bank pilot-tested a field-based workshop on community development in India, where Bank mission leaders learned from nongovernment organizations, local governments, and community members.
- Participation is encouraged through the Bank's Policy on Confidentiality and Disclosure of Information, and the establishment of the Inspection Panel to investigate complaints from groups affected by the Bank's operations.
The Bank subsequently approved on 19 July 1996 a regional technical assistance for $300,000 to facilitate and support a variety of small-scale participatory capacity-building activities for 11 countries and covering 10 subsectors.
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Box 9. The Bank's Anticorruption Policy
From Central Asia, through South, Southeast and East Asia, and into the Pacific, issues of corruption have risen to the top of the development agenda. Many have credited corruption and cronyism with playing a major role in the Asian financial crisis. A growing body of empirical evidence indicates that corruption—the use of public or private office for personal gain—has a strong negative impact on economic and social growth. Various studies have indicated that corruption has added 20-100 percent1 to the cost of procuring government goods and services in several Asian countries. Corruption can lead foreign investors to look for more transparent and predictable sites.
To extend the Bank's ongoing work on governance, the Board of Directors unanimously approved the Anticorruption Policy on 2 July 1998. The policy is intended to reduce the burden that widespread, systemic corruption exacts from the governments and economies of the region. Specifically, the Bank's policy is centered upon three objectives:
- supporting competitive markets, and efficient, effective, accountable, and transparent public administration;
- supporting promising anticorruption efforts on a case-by-case basis and improving the quality of the Bank's dialogue with its developing member countries on a range of governance issues, including corruption; and
- ensuring that the Bank's staff, projects, and programs all adhere to the highest ethical standards.
A task force has been established to oversee the policy's implementation. Bank procurement guidelines have been changed to allow for loan cancellation, blacklisting, and the right for audit, and to require full disclosure of all fees and commissions. The Bank has set up an internal Anticorruption Unit within the Office of the General Auditor to investigate cases of fraud and corruption. New staff guidelines addressing anticorruption issues have been issued. A series of training programs for Bank staff have been initiated, and the Bank is supporting research in areas such as accounting institutions and improving public expenditure management. The Bank is moving to promote anticorruption issues in country programming and to improve project monitoring and supervision. The Bank is hosting a number of global and regional anticorruption initiatives, including the next meeting of the Multilateral Development Bank Coordinating Committee on Governance, Corruption, and Capacity Building, and a joint conference with the Organisation for Economic Co-operation and Development on the relevance of the Anti-Bribery Treaty to Asia.
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1 ADB, "Anticorruption Policy" (Manila, 1998),9.
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- ADB, Mainstreaming Participatory Development Processes (Manila: ADB, 1996); and ADB, "Anticorruption Policy" (Manila: ADB, 1998).
- ADB, A Review of Law and Development Activities of the Asian Development Bank (Manila: ADB, 1998).
- For example, research funded by the United States Agency for International Development finds such a statistically significant link among sample countries, with appropriate qualifications given the complexity of the subject (Steve Knack, "Institutions and the Convergence Hypothesis: The Cross-National Evidence," Working Paper No. 59 [College Park, Maryland: IRIS, University of Maryland, 1993]).
- Amy L. Chua, "Markets, Democracy and Ethnicity: Toward a New Paradigm for Law and Development," 108 Yale Law Journal (1998), 1-107.
- Daniel Kaufmann, "From Analysis of the Evidence to Anticorruption Action Programs: Evidence and Implications from Research on Corruption," draft handout (World Bank, 1998).
- World Bank, "Anticorruption Policy" (Washington, DC, 1997).
- A working group of all multilateral development banks has been formed to ensure cooperation and mutually supportive efforts.
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