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Roundtable Meeting of Chief Justices and Ministers of Justice
Governance: Sound Development ManagementShoji Nishimoto The law and development programming to which you have been introduced this morning is a part of the Bank's policy on promoting better governance in its developing member countries. Governance for Bank purposes is defined as "the manner in which power is exercised in the management of a country's social and economic resources for development". Governance is being increasingly recognized as an essential component of sustainable and equitable development. There are many ways in which good governance contributes to economic development. Governments make decisions on macroeconomic and social policy that have a direct impact on the long-term health of the economy. Governments provide critical goods and services, such as infrastructure, health and education, that determine the competitiveness of the economy. Governments foster an enabling environment for private sector growth and regulatory structures that balance objectives of growth and equity. The experience of East Asia shows that good governance is an essential component of dynamic private sector growth. In August 1995, Asian Development Bank's Board approved a policy paper, Governance: Sound Development Management, that has committed the Bank to assisting its developing member countries in enhancing capabilities in this area. The ADB is the first multilateral development bank to have an official board policy statement on governance. We are now moving forward in implementing the key thrusts contained in this paper. A Governance and Capacity Building Resource Group was recently established under the Office of the President to provide an institutional focal point for these issues within the Bank. The Bank's work on Governance and Capacity Building is guided by a number of key principles, which reflect the Bank's best judgment as to the essential attributes of a well-functioning public sector, including the delivery of legal services to the public sector and the efficient working of the legal system. These principles include accountability, strategic focus, transparency and predictability, responsiveness, and participation. The rationale behind these principles is discussed in the ADB's Board policy paper on governance, and I will only briefly touch on these today. Accountability is a fundamental tenant of good management and for our purpose it implies that public employees, whether working individually or collectively, need to be placed within a framework that clearly sets out the goals, establishes incentives for the achievement of the desired outcomes, and monitors progress towards these ends. This is also applicable to the judiciary and other components of the legal system. Strategic Focus is essential in an environment where needs are vast and resources are limited. Consequently, organizations in the public sector must have a clear sense of purpose, otherwise, they are likely to dissipate energy and resources over a range of activities that may not be directly related to their fundamental objectives. Transparency and Predictability are important as more rapid economic development is possible when the private sector can operate within a set of stable, predictable "rules of the game" that facilitate investment decision-making and promote investor confidence. It is in this area that the need for an efficient legal system is most apparent. Well-developed laws, which are not subject to arbitrary change, an independent judiciary, and a minimum level of technical competence within the judiciary, are essential for ensuring predictability in business relations. Without such predictability, transaction costs may be so high that economic activity is stifled. Responsiveness helps public organizations to be client-centered and to focus their efforts upon providing services that are in greatest demand. This in turn fosters higher customer satisfaction and reduces the diversion of resources into unnecessary or lower priority goods and services. Participation is important since governments are more effective when they operate within a robust civil society. The relevance of participation is most apparent in the law making process since laws which do not enjoy a wide societal consensus are often impossible to enforce. Also implicit in the Bank's policy on governance is the belief that a government's sphere of operations should be limited and focused upon areas where it has a clear comparative advantage over the private sector. The public sector should not serve as an employer of last resort or as a vehicle for patronage. Nor should it occupy a commanding position within the economy. Rather, it should target its efforts carefully and selectively upon performing a core set of activities well. The decisions about the size and scope of the public sector and the optimal level of responsibility for the delivery of public goods and services will clearly reside with the individual country. There are occasions, however, when the Bank can play a role in the consideration of such issues, such as when a country's public sector has become so over-stretched that it has difficulty in performing even the most basic functions effectively. Specific areas of emphasis in the Bank's governance activities are: Core ministries, agencies and departmentsIf core government agencies, ministries and departments fail to function effectively, the impact is felt throughout the system. In this regard there are four areas of importance in terms of Bank's work:
Recent Bank assistance to Sri Lanka on public administration reform is a good example of the Bank's work in this area. The action plan which resulted from Bank assistance emphasized issues such as institutionalizing strategic policy-making capability; separating policy making, service delivery, and regulatory functions of government; introducing results-oriented management systems; and staff redeployment. In June 1997, the President of Sri Lanka announced a major realignment of ministries which, to a large extent, reflects the recommendations of the public administration reform technical assistance. Sector work with line ministries, agencies and departmentsHistorically, the majority of Bank efforts on governance capacity building have concentrated upon sectoral work within line ministries, agencies and departments. In this context, the phrase "capacity building" has been used quite loosely to incorporate a wide range of activities, from technical upgrades (primarily computerization), to systems development, to training. For the next decade, capacity building efforts are likely to continue to constitute the bulk of the Bank's work, however, we plan to focus on:
Decentralization and Municipal GovernanceIn Asia urbanization is proceeding at a rapid pace, which is placing tremendous pressure upon "city governments" which are struggling to provide critical goods and services, such as basic physical infrastructure, potable water and sewerage, solid waste disposal, and adequate low income housing. The Bank's efforts in this area will fall under two general categories. The first will focus upon supporting the appropriate division of responsibilities and resources between various levels of government, with particular emphasis upon ensuring that municipalities have adequate financial and human resources to fulfill the new responsibilities being placed upon them. The second will focus upon enhancing municipal service delivery. The latter will include developing appropriate performance data to monitor municipal service delivery in certain key areas, such as solid waste removal, and promoting links with NGOs to facilitate greater accountability for results. Currently the Bank is undertaking pilot projects aimed at improving governance in two South Asian cities: Lahore, Pakistan and Dhaka, Bangladesh. Both projects employ a participatory approach, involving all the stakeholders and the media, in developing an action plan for reforming city administration so as to improve provision of city services and expand the local revenue base. Public/Private InterfaceIt is now generally accepted that governments should concentrate upon fostering an "enabling environment" for private sector growth. The elements of an enabling environment include a stable macroeconomic policy; transparent and predictable commercial and investment codes; labor codes that enhance management efficiency and protect basic labor right; and a legal system that supports the timely and fair adjudication of disputes. They also include government bureaucracies that operate in a reasonably efficient and transparent fashion in providing access to critical goods and services, such as import permits, customs clearance, title for land, and access to utilities. The Bank's work in this area includes the establishment of business-government councils and other mechanisms for fostering dialogue between the public and private sectors, and support for the commercialization and privatization of certain public sector activities. It, of course, also includes creating enabling legal frameworks for private sector development. Civil societyThe Bank's governance program places a premium upon participatory methods for project preparation and implementation. The Bank also works towards the creation of an enabling environment for NGO activity, including an appropriate legal framework, which will allow NGOs to form and operate in a stable and predictable setting with a minimum of interference and red tape. In conclusion, I would like to emphasize what President Sato has stated on many occasions: "The relevance of our Bank in the coming years will be measured by much more than just our financial contribution to development". In my view, the Bank will continue to be relevant in the rapidly changing global environment only if it can help bring about a continuous improvement in the institutional capabilities of its developing member countries to address the increasingly complex problems of development management. In this context, the need for reducing the inefficiencies of legal systems is extremely important.
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