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Governance in Asia: From Crisis to Opportunity : Interventions beyond the crisis
Enhancing the Bank's Capacity of Governance Work
The Bank has identified six key areas of governance, for which it is acquiring an internal core capacity: (i) participation, civil society, and social capital; (ii) law and development; (iii) public/private interface; (iv) sector and project work; (v) core government functions at the national level; and (vi) decentralization. Ongoing program and sector development program loans with governance components are listed in the table on page 28. As mentioned earlier, anticorruption efforts can and must be incorporated in all governance areas, as appropriate to the circumstances of the specific country.
Participation, civil society, and social capital: Mainstreaming participation in the Bank entails modifying the conceptual framework on participation, based on lessons from the field; operational support in projects, sector work, and country strategies; work on policies, guidelines, and procedures; training and information sharing; capacity building in DMCs to strengthen participatory approaches; and networking with other development finance institutions, NGOs, and DMC-based organizations. The piloting of participatory approaches in Bank operations is continuing. Law and development: A common theme in the Bank's dialogue with many DMCs is the need to address systemic problems that undermine the efficiency and, ultimately, the legitimacy of legal, judicial, and law enforcement institutions. Laws need to be enforced fairly. Predictability, one of the four pillars of governance discussed earlier, relies largely on a legal and judicial framework that is clear, uniform, public, and robust. Among the systemic problems found in many developing countries are delays in court hearings; poor physical infrastructure; low status of judges, and terms and conditions under which they work; weak judicial accountability mechanisms which, in some countries, permit widespread buying of favorable verdicts (particularly in the rural areas); lack of trained support staff and case management systems; and poor state of legal education and training. Accordingly, assistance on specific project-related law reforms also takes into account the need for development of institutional capacity of the legal and judicial systems. Corporate governance and the public-private interface: Regulatory issues are relevant in every sector, and the development impact of Bank assistance will depend to a major extent on the existence of a sound balance between the public and private interests in the sector in question. While the public-private interface is too diverse to be amenable to meaningful generalizations, the main goal is a regulatory framework that is suited to the characteristics of the sector in question and that protects identified public interests while minimizing private transaction costs. A good regulatory framework does this by fostering accountability, transparency, and predictability in the formulation and application of the rules and regulations (as in the case of Indonesia's Financial Governance Reforms: Sector Development Program loan, Box 3). This is especially necessary for issues of corporate governance of public enterprises, which must reflect the general principles of good private management as well as the interests of the state as owner, in furtherance of some public aim. The general influence on good governance of market-based and other nongovernment mechanisms is also important. First, contestability, i.e., the possibility of market entry, can sometimes be as effective as actual competition to stimulate good public sector management. (A lively and competent private audit capacity has implications for the efficiency of public audit; a competitive private labor market influences positively human resource management in the public sector; an efficient financial market helps foster public financial accountability; and so on.) Second, actual competition is optimal for the effectiveness of the public-private interface19. Governance considerations in sector and project work: Governance aspects of sector and project operations can be incorporated in the Bank's work through improvements in project approach and design rather than through radically different projects. Rarely will a sector strategy or a project have governance improvements per se as its central focus. However, all sector strategies and projects should consider the possibility of strengthening accountability mechanisms, reducing the cost of information, or improving predictability-even if no particular action turns out to be appropriate to the situation at hand. Thus, more effective incorporation of governance considerations at the sector and project levels should flow from individual manager's leadership, a better-equipped staff, and career incentives consistent with the time and effort required. Core government functions at the national level: Empirical evidence underlines the strong link between capable government and economic growth.20 Technical assistance or program lending can help DMCs in areas such as (a) revenue administration; (b) public expenditure management, from budget formulation through budget execution and audit; and (c) public administration and civil service, including policy coordination and machinery of government. Public expenditure management can be further subdivided between the "upstream" issues of budget formulation (including the link to the overall fiscal and macroeconomic framework) and the "downstream" issues of budget execution and monitoring, including procurement and audit. Decentralization: Priorities for Bank support include (a) promoting intergovernment fiscal relations and finance; (b) strengthening government institutions at the subnational level; and (c) enhancing the delivery of critical municipal services. Many Asian governments have developed or are starting to implement ambitious decentralization schemes. Although such initiatives hold long-term promise for more responsive and effective service delivery, in the near term there is a critical need for assistance in developing an appropriate division of labor among central, regional, and municipal governments. This is a particular concern in settings with limited administrative and financial capacity and low levels of accountability. If decentralization means only a shift in the control of resources to local institutions monopolizing task-related roles, service delivery performance may suffer from low capacity and weak accountability. A more promising model would be to promote networks of service delivery partners, including central and local government agencies, private businesses, and NGOs. By increasing the number and diversity of partners, accountability will be increased, risk reduced, and public sector tasks better adapted to local needs.21
The Bank is fully committed to its transformation into a broad-based development institution, of which governance is a core dimension. While the transformation in Bank operations is well under way, to be sustainable it requires, among other things, appropriate organizational arrangements, and a small core of specialist staff in the various areas of public sector management and institutional development. Some specialist staff have been brought on board already, and the required core should be in place by the end of 1999. The new organizational arrangements revolve around a Governance and Public Management Cluster,22 which assembles all Bank specialists in the area (including focal points from each operational department and from central units). Governance is too important to be marginalized or isolated into any single office at the Bank. It must become an integral part of all analytical, lending, and technical assistance activities. Hence, at the top of the immediate agenda is the mainstreaming of governance activities into the Bank's operational departments. At the same time, the Bank is ensuring that governance considerations are appropriately incorporated into other policies being formulated and is actively monitoring implementation of the governance and anticorruption policies.
The Bank is well aware that its external credibility is partly a function of the internal adjustments it makes to adapt to its new role as a broad-based development institution. Thus, in addition to recruiting specialist staff and introducing efficient organizational arrangements for governance, the Bank is making all necessary efforts to mainstream governance considerations throughout the institution, and to streamline the Bank's own business processes and operational procedures. In particular, the Bank has strengthened its procurement policy, has updated its Code of Conduct for staff, and created independent reporting mechanisms to address allegations of corruption among Bank staff and in Bank operations, and is improving the quality of oversight and management of its loans and technical assistance.
One may anticipate that, by the end of 1999, the Bank will be well on its way to assuming a lead role for governance and public management in the Asian and Pacific region. Given the delicate nature of the topics and the vastness of the problems and of the region, the Bank will also use to the maximum all possibilities for constructive partnership with other institutions. It is expected that the enhanced role of the Bank in this area will not only raise the effectiveness of its own assistance, but also facilitate efforts by its partners to improve the impact of all external assistance to the countries of the region.
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- A good case in point is private involvement in power generation, where direct negotiation of build-operate-transfer projects has sometimes led to excessive tariffs or overcapacity.
- Peter Evans and James Rauch, Bureaucratic Structure and Economic Growth: Some Preliminary Analysis of Data on 35 Developing Countries (Berkeley, California: University of California, 1996).
- John M. Cohen and Stephen B. Peterson, “Administrative Decentralization: A New Framework for Improved Governance, Accountability and Performance,” Development Discussion Paper No. 582 (Harvard University, 1997).
- The cluster is intended as a mechanism to prevent fragmentation of efforts as well as to make Bank activities cost-effective, by (i) giving the members a venue for professional interaction; (ii) providing the Bank with quality control advice, guidance in training and recruitment, and leadership in applied research and dissemination activities; (iii) serving as a focal point for partnership with other institutions, and as a mechanism to soften boundaries among the Bank’s departments and offices; and (iv) making the Bank specialists available for work throughout Asia. The cluster is coordinated by the Senior Advisor for Governance and Public Management in the Strategy and Policy Office.
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