26357 Reforming May 2003 Public Institutions and Strengthening Governance A World Bank Strategy Implementation Update Public Sector Group Pover-ty Reduction and Economic Management (PREM) Network Reforming Public Institutions and Strengthening Governance AWorld Bank Strategy Implementation Update THEWORLD BANK Washington, D.C. C 2003 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473- 1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. 03040506432 1 The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522- 2422, e-mail pubrights@worldbank.org. ISBN 0-8213-5416-7 Library of Congress Cataloging-in-Publication Data World Bank. Public Sector Board. Reforming public institutions and strengthening governance: a World Bank strategy. p.cm. Includes bibliographical references. ISBN 0-8213-5416-7 1. Public administration-Developing countries. 2. Developing countries-Politics and government. 1. Title. JF60.W67 2003 306.2'09172'4-dc2l 2003045020 Acknowledgments vii Abbreviations and Acronyms ix Executive Summary xi Part 1. Reforming Public Institutions and Strengthening Governance: Implementation Update I I. Moving Institutional Development and Capacity Building to Center Stage 3 Governance in Country Assistance Strategies 3 Overall Patterns of Lending 4 Institutional and Governance Analysis in Bank Projects 4 Moving to Center Stage: Summary and Ongoing Issues 6 2. Theme 1: Broadening the Bank's Approach 7 Enhancing Ownership and Selectivity 8 Designing Reform Strategies: Identifying Entry Points to Enhance Accountability and Transparency 11 Working on the Supply Side: Reconsidering Technical Assistance 14 Promoting Competition and Accountability in Public Service Delivery 15 Broadening the Bank's Approach: Summary and Ongoing Issues 16 3. Theme 2: Emphasizing Good Fit over Best Practice and Deepening 18 Our Analytic Work Accordingly Institutional and Governance Reviews 18 Economic and Sector Work on Public Expenditure and Financial Accountability 19 Toolkits and Surveys 20 Deepening Our Analytical Work: Summary and Ongoing Issues 22 4. Theme 3: Lending Instruments to Enhance Institution Building 25 Approaches to Lending 25 Portfolio Quality 27 Monitoring Impact 29 Lending Instruments: Summary and Ongoing Issues 29 5. Theme 4: Internal Staffing, Organization, and Partnerships 3 1 Organization, Staffing, and Professional Development 31 Quality Assurance 34 Knowledge Management 34 Partnerships 34 Staffing, Organization, and Partnerships: Summary and Ongoing Issues 36 6. Conclusions 39 Notes to Part 1 41 Part 11. Regional, Development Research Group, and World Bank Institute Updates 43 7. Africa Region 44 Theme 1: Broadening the Bank's Approach and the Content of Country Programs 45 Theme 2: Deepening Our Analytic Work 49 Theme 3: Focusing Our Lending on Long-Term Institutional Reform 50 Theme 4: Internal Staffing, Organization, and Partnerships 53 Matrix of Selected Activities 54 8. East Asia and Pacific Region 59 Theme 1: Broadening the Bank's Approach and the Content of Country Programs 60 Theme 2: Deepening Our Analytic Work 65 Theme 3: Focusing Our Lending on Long-Term Institutional Reform 66 Theme 4: Internal Staffing, Organization, and Partnerships 67 Matrix of Selected Activities 69 9. Europe and Central Asia Region 72 Theme 1: Broadening the Bank's Approach and the Content of Country Programs 72 Theme 2: Deepening Our Analytic Work 74 Theme 3: Focusing Our Lending on Long-Term Institutional Reform 78 Theme 4: Internal Staffing, Organization, and Partnerships 81 Matrix of Selected Activities 82 1 0. Latin America and Caribbean Region. 88 Public Sector Work 88 Theme 1: Broadening the Bank's Approach and the Content of Country Programs 89 iv Contents Theme 2: Deepening Our Analytic Work 93 Theme 3: Focusing Our Lending on Long-Term Institutional Reform 95 Theme 4: Internal Staffing, Organization, and Partnerships 98 Matrix of Selected Activities 99 I 1. Middle East and North Africa Region 102 Salient Characteristics of the Middle East and North Africa Region 103 Theme 1: Broadening the Bank's Approach and the Content of Country Programs 104 Theme 2: Deepening Our Analytic Work 107 Theme 3: Focusing Our Lending on Long-Term Institutional Reform 110 Theme 4: Internal Staffing, Organization, and Partnerships 110 Matrix of Selected Activities 113 12. South Asia Region 1 16 Theme 1: Broadening the Bank's Approach and the Content of Country Programs 117 Theme 2: Deepening Our Analytic Work 121 Theme 3: Focusing Our Lending on Long-Term Institutional Reform 123 Theme 4: Internal Staffing, Organization, and Partnerships 126 Moving Forward 127 Matrix of Selected Activities 128 13. Development Research Group 131 Strategic Priorities of the World Bank and Policy Research 131 Public Policy, Public Finance, and Institutions 131 Basic Service Delivery 139 Investment Climate and the Public Sector 141 14. World Bank Institute 144 Theme 1: Broadening the Bank's Approach and the Content of Country Programs 144 Theme 2: Deepening Our Analytic Work 151 Notes to Part 11 158 Annexes Annex 1. The 2000 Strategy: Proactive Initiatives in Support of Strategic Objectives 161 Annex 2. Public Sector PREM Notes 166 Boxes Box 1. Governance in Poverty Reduction Strategy Papers 9 Box 2. Indicators of Governance and Institutional Performance 14 Box 3. Uttar Pradesh: Governance Challenges in the Power Sector 16 Box 4. Linking Empirical Analysis with Capacity Building: Governance and Anticorruption Diagnostics 21 Box 5. Two Innovations in Diagnostic Surveys: Public Expenditure Tracking Surveys and Court Cases 23 Box 6. Poverty Reduction Support Credits 26 Contents v Box 7. Albania: An Integrated Approach to Analysis and Lending for Institutional 28 and Governance Reform Box 8. Examples of Recent Governance-Related Learning Events (Fiscal Year 2002) 33 Box 9. Governance and Public Sector Reform Websites 35 Box 10. Recent Bank-Fund Collaboration on Governance and Public Sector Reform 37 Box 11. Africa Region: Partnership for Capacity Building m Africa 45 Box 12. Africa Region: Community-Driven Development and the Public Sector Reform Agenda 47 Box 13. East Asia and Pacific Region: Decentralization Dialogues in the Global Development Learning Network 63 Box 14. The Philippines: Public Expenditure, Procurement, and Financial Management Review 66 Box 15. The Russian Federation: Public Sector and Governance Reform Program 77 Box 16. Europe and Central Asia Region: Programmatic Loans 80 Box 17. Guatemala: Tackling a Broad Reform Agenda with Technical Assistance 96 Box 18. Sector-Specific Activities in Public Sector Management 105 Box 19. Morocco: Participatory Public Expenditure Work 108 Box 20. Andhra Pradesh: Selected E-Government Initiatives 120 Box 21. Bangladesh: Governance Analytic Work 123 Box 22. Pakistan: Civil Service Reform 125 Box 23. The Strategic Program Learning Cycle 146 Box 24. Brazil: An Example of a Learning Governance Country Assistance Strategy 148 Box 25. Modalities of Interaction between the World Bank Institute and the Poverty Reduction and Economic Management Network 152 Box 26. World Bank Institute Governance-Related Links 156 Figures Figure 1. Public Sector Components in World Bank Lending, Fiscal Years 1997-2001 5 Figure 2. World Bank Overall Lending for Institution Building, Fiscal Years 1997-2001 5 Figure 3. Three Drivers of Public Sector Reform 8 Figure 4. Operations Evaluation Department Quality Indicators: Completed Projects, Fiscal Years 1995-2000 27 Figure 5. Quality Assurance Group Quality Indicators: Ongoing Projects, Fiscal Years 1997-2001 27 Figure 6. Findings from Country Governance Diagnostic Surveys 147 Figure 7. Findings from Comparative Analysis of Country Diagnostic Survey Data 154 Tables Table 1. Lending for Core Public Sector Reform, Fiscal Years 1997-2001 4 Table 2. Institutional and Governance Reviews in Africa Region, by Type and Country Focus 50 Table 3. Active Public Sector Capacity-Building Operations in Africa Region 51 vI Contents Acknowledgments This update on the implementation of the World Bank's Public Sector Strategy was prepared by the Public Sector Governance Board, Poverty Reduction and Economic Management Network (PREM), under the direction of Cheryl Gray (Director, Public Sector). Members of the Board who provided input to the overall update and were responsible for their respective individual Vice-Presidential Unit (VPU) updates were Pedro Alba and Charles Humphreys (Middle East and North Africa), Robert Ebel and Daniel Kaufmann (World Bank Institute), Brian Levy (Africa), Helga Muller (Europe and Central Asia), Ron Myers (Latin America and Caribbean), Barbara Nun- berg (East Asia and Pacific), Sanjay Pradhan and Bob Beschel (South Africa), Ritva Reinikka (Development Eco- nomics), and Helen Sutch (PREM). Representatives from three vice-presidencies-Legal Department, Operational Policy and Core Services Network, and Private Sector Development and Infrastructure-were re- cently added to the Board, and they provided helpful input to make the update more inclusive. Others who con- tributed centrally to the preparation of the VPU updates include Joel Hellman (Europe and Central Asia), Yasuhiko Matsuda (Latin America and Caribbean ), Rick Stapenhurst (World Bank Institute), and Joel Turkewitz (World Bank Institute). Tripti Thomas (PREM) provided invaluable input and assistance throughout the process. We appreciate the many comments received from reviewers inside and outside the Bank. vii Abbreviations and Acronyms AAA analytic and advisory activity ITD international tax dialogue AAP anticorruption action plan LIL Learning and Innovations Loan ACBF Africa Capacity Building Foundation M&E monitoring and evaluation APC Adaptable Program Credit MDG millennium development goal APL Adaptable Program Loan MoTF Ministry of Taxes and Fees, the Russian APDMS Andhra Pradesh Development Monitoring Federation System MTEF medium-term expenditure framework BEEPS business environment and enterprise MTFP medium-term fiscal plan performance survey NGO nongovernmental organization CARD Computer-aided Administration of Registration OECD Organisation for Economic Co-operation Department, Andhra Pradesh and Development CAS Country Assistance Strategy OECS Organization of Eastern Caribbean States CBO community-based organization OED Operations Evaluation Department CDD community-driven development OPCS Operational Policy and Core Services Network CDF Comprehensive Development Framework OSCE Organization for Security and Co-operation CDP-G Comprehensive Development Partnership in Europe on Governance PACT Partnership for Capacity Bulding in Africa CFAA country financial accountability assessment PDR People's Democratic Republic CIS Commonwealth of Independent States PEFA public expenditure and financial accountability CMU Country Management Unit PEIR Public Expenditure and Institutional Review CPAR Country Procurement Assessment Report PEM public expenditure management CPU Commonwealth Press Union PER Public Expenditure Review DAC Development Assistance Committee PETS public expenditure tracking surveys DOSE downsizing options simulation exercise PIU Project Implementation Unit EASPR Poverty Reduction and Economic Management PREM Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region Network EBRD European Bank for Reconstruction PRMPS Public Sector Group, PREM and Development PRSC Poverty Reduction Support Credit ECSPE Poverty Reduction and Economic Management PRSP Poverty Reduction Strategy Paper Sector Unit, Europe and Central Asia Region PSAL Programmatic Structural Adjustment Loan ESW economic and sector work PSG public sector governance GDLN Global Development Learning Network PSGB Public Sector Governance Board GoK Government of Karnataka PSR public sector reform GPM governance and public management PSRL Public Sector Reform Loan HIPC Heavily Indebted Poor Country QAG Quality Assurance Group IDA International Development Association QSDS quantitative service delivery survey IDF Institutional Development Facility RPED Regional Program on Enterprise Development IGR Institutional and Governance Review SlAF-SAG Sistema Integrado de Administraci6n Financiera IFMS integrated financial management system y Control, Guatemala [System of Financial IFRL Intergovernmental Fiscal Relations and Local Administration and Control] Financial Management Program SOE state-owned enterprise IMF International Monetary Fund STAMP State Tax Administration and Modernization IRP Institutional Reform Project Program, Ukraine IT information technology TA technical assistance lx TAMP Tax Administration Modernization Project, the UNDP United Nations Development Programme Russian Federation USAID U.S. Agency for International Development TWINS Twin Cities Network Services, Andhra Pradesh VPU Vice-Presidential Unit x Abbreviations and Acronyms EXECUTIVE SUMMARY j T he purpose of this report is to assess progress cate that the quality of the public sector portfolio has to date in implementing the World Bank's improved considerably and that the number of proj- strategy for governance and public sector re- ects at risk has fallen. And this growth in the quantity form, Reforming Public Institutions and Strengthening and quality of lending has been complemented by an Governance: A World Bank Strategy. It is organized ac- extensive program of nonlending work, including ana- cording to the goals and commitments laid out in the lytic work and external learning and knowledge-shar- Strategy itself (as per headings below), to allow readers ing programs. The key challenges ahead are to continue to track to what extent the Strategy is being imple- to enhance the focus and improve the effectiveness of mented. Part I synthesizes progress and issues across the Bank's work on governance, institutional reform, the Bank, while Part II highlights specific challenges and capacity budlding; to fully mainstream these con- and approaches of individual Regions, the Develop- cerns and build links between individual sectors (such ment Research Group, and World Bank Institute. as the social or infrastructure sectors); and to help build client capacities to analyze and implement gover- nance and public sector reforms appropriate to their Moving Governance and Institutional settmgs. Reform to Center Stage The treatment of governance issues and the focus on Broadening the Bank's Approach institution building in Country Assistance Strategies (CASs) and Bank programs have increased steadily The Strategy envisions that the Bank's programs will over the past four years. Almost all recent CASs diag- not only supply advice and technical support to gov- nose the governance situation in the relevant country, ernments, but also consider ways to enhance domestic and lending for governance and institution building ownership and demand for reform. Defining strategies has increased significantly. Operations Evaluation De- that are workable in practice is critical, and public ex- partment and Quality Assurance Group ratings indi- penditure management, decentralization, e-govern- xi ment, and public service delivery are proving to be ing more flexible instruments with longer time hori- meaningful entry points in some countries. The Bank zons, including Programmatic Structural Adjustment has also strengthened its delivery of technical assis- Loans and Credits, Adaptable Program Loans and tance (TA) and capacity-building support and pro- Credits, and Poverty Reduction Support Credits. We moted competition in public service delivery. We must continue to focus on results. Designing specific expect the next phase to be one of consolidation as we programs of support is a continuing challenge, includ- seek to measure impact and learn more about what ing the need to identify entry points (as noted above) works. We need to continue to experiment, particu- and the need to sequence reforms so that success-and larly on the demand side, and to resist the temptation ownership-can build on itself A further broad cross- to settle back into supply-side TA that leads to easy but cutting issue concerns selectivity, especially with regard often ineffective loans. to countries where governance is particularly weak. The Bank has become more selective over the past half decade, reducing its lending in countries with poor Deepening Our Analytical Work governance and weak support for reforms, and contin- ued efforts to increase selectivity are warranted. The Bank has invested significant resources to strengthen our tools for institutional analysis and as- sessment, to underpm both projects and country pro- grams. Economic and sector work (ESW) on public Staffing, Organization, expenditure now focuses on institutional issues, and a and Partnerships family of ESW products under the broad title of Insti- tutional and Governance Reviews has been developed The Bank has met the Strategy's goals to date in the ar- and piloted in 13 countries. Toolkits and survey instru- eas of organization, staffing, and partnerships. To en- ments to measure patterns of corruption, incentives sure coherence in this agenda, senior management has facing public officials, and the delivery and financing recently decided to create an inclusive Public Sector of public services have been developed and widely ap- Governance Board (PSGB) by expanding the member- plied. We now have an expanded complement of ESW ship of the Board to include the Legal Department, the and analytic tools that clients and country teams can Operational Policy and Core Services Network, and draw on to understand institutional realities. As we the Public Sector Development and Infrastructure move forward, issues include the need to coordinate Vice-Presidency. This Board, which will also interact and consolidate these instruments more effectively closely with other Vice-Presidential Units and sector and to handle challenges relating to political sensitivity boards, will be the focal point for the Bank on public and the adequacy of resources and staff skills. sector governance. Country-based governance work will continue to be driven by country needs and strate- gies, defined in the CAS and coordinated by the Re- Moving to More Flexible and Longer gional PSGB member (working with other Regional Term Lending Instruments managers as needed, given the cross-cutting nature of this work). We now have a sizable cadre of technical The Bank has worked to strengthen institution build- experts and senior task managers, although the Bank ing in lending operations by designing and implement- remains in need of skills to meet demand in some key xii Executive Summary areas. We also have a strong network of external part- nance concerns across sectors, balance our concern for nerships, staff and client learning programs, and exter- anticorruption with the need for country ownership nal websites. and the imperative of poverty reduction, and enhance selectivity by focusing our efforts where the likelihood of success is strong. On the management front, we Next Steps need to continue to deepen our efforts to implement the inclusive model and expanded mandate of the The Bank has made substantial progress in imple- PSGB, address strategic staffing concerns, help staff menting its Strategy and expanding its governance work effectively in a more decentralized environment, work, but this area of work is still fairly new, and we all strengthen staff incentives to document and dissemi- still have a tremendous amount to learn. On the opera- nate lessons of experience and good practice, ensure tional front, we need to continue to deepen our efforts resource availability, and handle budgetary tradeoffs. to understand and measure governance realities, mon- We intend to continue to address these challenges as itor the impact of Bank programs, mainstream gover- we move forward in this critical area of work. Executive Summary xiii Reforming Public Institutions and Strengthening Governance: Implementation Update In July 2000, the executive directors of the World strengths and weaknesses of previous donor-financed Bank discussed the World Bank's strategy for gover- initiatives to reform public institutions and build ca- nance and public sector reform, entitled Reforming pacity and accountabdity in government. Public Institutions and Strengthening Governance: A The Strategy called for the Bank to move gover- World Bank Strategy. The Strategy had been developed nance, institutional development, and capacity build- and refined over the previous three years, a period of ing to center stage.' Rather than focus on individual unprecedented growth in the Bank's attention to issues policy changes or the direct provision of public serv- of governance and anticorruption. It built on or coin- ices, the Bank's primary goal would be to help our cided with numerous studies, which all emphasized clients build the institutions to make and implement the critical importance of well-functioning and ac- good policy and deliver public services themselves. countable public institutions to economic growth and The Strategy then laid out four broad recommenda- poverty reduction. These studies included World De- tions on how to enhance effectiveness in this effort: velopment Report 1997: The State in a Changing World, Broaden the approach to focus on the demand as Helping Countries Combat Corruption: The Role of the well as the supply side of reform, that is, on exter- World Bank (the Bank's anticorruption strategy, 1997), nal voice, participation, and competition in public Assessing Aid: What Works, What Doesn't, and Why service delivery, as well as on internal changes in (Policy Research Report 1999), World Development Re- port 2001: Attacking Poverty, and, most recently, World Development Report 2002: Building Institutions for Start with what exists on the ground-emphasiz- Markets. It also built on evaluation results from the ing good fit, rather than best practice-and deepen Operations Evaluation Department, Quality Assur- the Bank's analytic work, to understand existing ance Group, and other sources that shed light on the situations better * Move to broader, longer term, and more flexible major themes (as per Annex 1) and try to iluminate the lending instruments that are likely to be more at- range of activities undertaken in support of each. The tuned to institution-building needs discussion focuses prumarily on inputs and outputs, rather than outcomes. The Bank's governance work is * Strengthen staffing, organization, and partnerships, cerygie ytefnaetlmsino oet which ~ ar al.rtclt ucssu mlmnain clearly guided by the fiindamental mission of poverty reduction, whether through enhanced accountabiity The Strategy's plan of action summarized the for public resources, improved delivery of public serv- Bank's specific goals for fiscal years 2001-2003, both ices to the poor, better policymaking, or a more attrac- outcome objectives in client countries and output ob- tive climate for investment. However, it is not yet jectives within the Bank. The table in Annex 1 lists the possible in most cases to assess the impact of specific proactive initiatives the Bank committed to in the Bank-sponsored governance programs on poverty out- Strategy (many of which were well under way before it comes. Part of the reason is methodological, and the was finalized and published). Bank is working intensively to develop tools to better The purpose of this report is to assess progress to monitor the impact of governance reforms on how date in implementing the Strategy and to note ongoing government operates and on the quantity and quality challenges. Part I synthesizes progress and identifies is- of public services (as discussed further below). But it sues across the Bank, while Part II highlights the spe- also must be recognized that institution building is a cific challenges and approaches of individual Regions, long-term process, that many of the Bank's initiatives the Development Research Group, and World Bank In- are still fairly new, and that we are still very much in a stitute. Both parts are organized along the Strategy's learning mode in this difficult area of work. 2 Reformtng Public Institutions and Strengthening Governance SECTION ONE Moving Institutional Development and Capacity Building to Center Stage T he overarching theme of the Strategy is the A recent review of the coverage of governance issues in need for the Bank to move institutional devel- 28 CASs completed during the period of fiscal year opment and capacity building to center stage. 2000 to midway through fiscal year 2001 found in- Rather than focus on individual policy changes or the creases from the previous 1999 retrospective in the direct provision of public services, the Bank's primary number of CASs that: goal should be to help our clients build the institutions *Address governance and corruption issues (up to make and implement good policy and deliver public from 78 percent to 100 percent) services themselves. This is not an easy challenge, as it demands patience and a long-term vision, a willing- * Use governance-related triggers (up from 27 per- ness to work in partnership, a broader set of analytic cent to 82 percent) and interpersonal skills, and a tolerance for less readily . Discuss audit institutions and other accountability measured indicators of success. mechanisms (up from 52 percent to 79 percent) The Strategy noted several specific areas where in- creased focus on governance and institution building cuss therces pe was warranted: Country Assistance Strategies (CASs), cent to 79 percent) patterns of overall lending, and the contents of specific * Diagnose governance conditions and the risks of lending operations. corruption (up from 73 percent to 100 percent). There was, however, somewhat less discussion in Governance in Country the recent CASs of the risks of corruption in Bank Assistance Strategies projects (down from 54 percent to 46 percent of CASs reviewed). Furthermore, fewer of the recent CASs The attention devoted to governance and anticorrup- (down from 51 percent to 32 percent) based their diag- tion in CASs has risen steadily over the past four years. nosis on in-depth governance-related economic and 3 sector work (ESW), although many CASs included TABLE I Lending for Core Public Sector governance-related ESW in forthcoming country pro- Reform, FiscalYears 1997-2001 grams (see discussion of ESW in Section 3). _ Although there has been significant progress, fur- inea. j ' - ther work is still needed to incorporate governance is- sues fuilly into country strategies. In some cases, 1997 14 07 coverage is thin, as a result of country sensitivity. In oth- 1998 21 15 1999 22 10 ers it is incomplete because of a lack of in-depth analytic 2000 25 2 5 work. There is still a wide variation in coverage among 2001 22 2 5 countries. Future work should be aimed at strengthen- ing the evenness, depth, and quality of such coverage. ments. By fiscal year 2001 the number of approvals had increased to 22 projects, representing 14.5 percent of Overall Patterns of Lending total Bank commitments (Table 1). The prevalence of core public sector components The Bank has made significant progress in focusing its in overall World Bank lending also increased consider- lending more centrally on institution building, both ably over the same period. For example, in fiscal year through an increase in lending focused on systemic 1997 the Bank approved 21 loans with a public expen- cross-cutting areas of public sector reform and through diture component, while by fiscal year 2001 that num- a greater focus on institution building in specific sec- ber had increased to 51 (Figure 1). tors. Systemic cross-cutting (or core) areas were de- Total commitments for public sector institution fined in the Strategy to include administrative and civil budding, that is, core projects, as well as public sector service reform, decentralization and intergovernmental components in sector-specific interventions, have al- fiscal relations, public expenditure and financial man- most doubled in the past four years, primarily as a re- agement, revenue (tax and customs) policy and admin- sult of an increase in adjustment lending for public istration, legal and judicial reform, systemic approaches sector reform. Investment lending, including targeted to public enterprise management, and the development technical assistance, has stayed fairly constant over the of other systemwide accountability institutions (such period. In fiscal year 1997 adjustment lending consti- as legislatures and supreme audit organizations, om- tuted only 16 percent of the total public sector portfo- budspersons and anticorruption agencies, and non- lio, while by fiscal year 2001 that share had increased to governmental organizations and citizen watchdog 52 percent. The total size of technical assistance com- groups). While these broad systemic topics have close ponents in Bank lending stayed relatively constant over links to a number of individual sectors, sector-specific the period (Figure 2). lending typically focuses on institution building within a particular sector (for example, sector ministries, schools, or public health facilities). Institutional and Governance According to the Poverty Reduction and Economic Analysis in Bank Projects Management Network database on Bank-wide lending for public sector institutional reform,2 in fiscal year The Strategy reviewed Operations Evaluation Depart- 1997 the Bank approved 14 core public sector projects, ment (OED) findings on the institutional impact of accounting for 3.7 percent of total Bank commit- Bank lending. The percentage of Bank projects judged 4 Reforming Public Institutions and Strengthening Governance FIGURE I Public Sector Components in World Bank Lending, FiscalYears 1997-2001 100 80 * 1997 60 0 1998 l[l 1999 40 _ 2000 20 7_ U 2001 0 r Public Public Tax Civil service Judicial Decentralization expenditure enterprise reform reform mgmt. Source: PREM Network Database on Bank-wide Lending FIGURE 2 percentage should be much higher still if institution World Bank Overall Lending for Institution building is to be a central objective of Bank assistance. Building, Fiscal Years 1997-2001 (in $billion) The Strategy called on the Bank to revise the Oper- ational Policy on Institutional Assessment in Bank Pro- 5 O Investment jects to assist in this regard. A draft Operational Policy HAdjustment swas prepared in fiscal year 2001 that called for analysis 4 l 11 * _ of two questions as part of project preparation: Is the institutional environment for projects conducive to 3 *1 * * 1 _ _ their successful implementation? What is likely to be 2- 1|1 *1 * 1 1 _ the impact of the project on the institutional environ- ment? To help bring specificity and concreteness to I *1 1l * 1|1 1 _ these questions, an electronic-based toolkit was pre- pared for task managers to guide them in undertaking o 1997 - 11 ,1 - 1 _ , II , _ an institutional analysis along the lines envisioned in 1997 1998 1999 2000 2001 the Operational Policy. The Operational Policy and as- Fiscal year sociated toolkit were then piloted in 10 projects in 10 Source. PREM Network Database on Bank-wide Lending countries and seven sectors in fiscal year 200 1.3 The re- vised Operational Policy has been reviewed with the Operational Policy and Core Services Network and is by OED to have had substantial impact on institu- expected to be finalized in 2002. Training for Bank staff tional development rose over time from a low of about is included in the fiscal year 2002 learning program. 25 percent for projects completed in fiscal year 1995 to This work on the Operational Policy on Institu- about 50 percent for those concluded in fiscal year tional Assessment is only one dimension of the broader 2000. Although this improvement is noteworthy, the challenge of integrating governance concerns into Moving Institutional Development and Capacity Building to Center Stage 5 sector analysis and lending. Although all Regions and Poverty Reduction Strategy Papers is in place, and sectors recognize the importance of good governance the extent of coverage has increased steadily. The and significant progress has been made in some set- Strategy set a target that 90 percent of CASs would tings (see, for example, the South Asia Regional Vice- contain an adequate diagnosis of the governance Presidency update), progress has been uneven across situation in the relevant country by the end of fis- sectors and Regions. This remains a central challenge cal year 2003, and the Bank is already close to as we move forward, as discussed further below. meeting that target. Anticorruption action plans (AAPs) for fiscal years Moving to Center Stage: 1999 and 2000 were developed and fully imple- Summary and Ongoing Issues mented. In fiscal year 2001 the AAP was not pre- pared as a separate document, but it was The treatment of governance and the focus on institu- mainstreamed into the overall governance and tion building in CASs and in Bank lending programs public sector reform work program in each Vice- have increased markedly over the past three years.4 Presidential Unit. With regard to the targets laid out in the Strategy's ac- tion plan (Annex 1): ~~~~The most recent Strategic Forum (January 2002) reinforced the importance of public sector governance * The Public Sector Strategy has been pubhshed and and institutional reform to sustainable development widely disseminated inside and outside the Bank, and the need to continue to scale up the quantity and and donors are working together more closely with impact of the Bank's work in this broad area. The cen- a large degree of consensus on overall approach trality of governance as a corporate advocacy priority and priorities. is also recognized in the Bank's Strategic Framework The Operational Policy on Institutional Assess- Paper. Given the rapid growth in activity since 1997, ment has been piloted and is expected to be we expect the leveling off that occurred in 2000-2001 to continue and the overall amount of activity to re- adopted in 2002. The target of regular application main roughly similar to current levels for the next in at least 25 percent of Bank projects by end of fis- cn atlyeart 203i stillein oforce Bankprojectsbyendofs three to five years. The key will be to continue to en- hance the focus and improve the effectiveness of the * A regular process of advice and review regarding Bank's work on governance, institutional reform, and the coverage of governance issues in CASs and capacity building, as discussed below. 6 Reforming Public Institutions and Strengthening Governance ~~~~~~~, - S E C Ti I __ _TWO_ Theme 1: Broadening the Bank's Approach T he overarching message of Reforming Public financed technical assistance (TA) have stemmed from Institutions and Strengthening Governance is its supply-driven nature and the incompatibility of the need to place institutional reform and ca- donors' goals with those of the recipients. While a sup- pacity building center stage in our work. How to do ply of TA and insights from good practice around the that effectively is the focus of the rest of the Strategy, world will continue to be needed, the Bank and its and it lays out four themes to guide our work. The first clients must also consider the demand side of the equa- theme is expressed in the Strategy as follows: tion, both whether sufficient commitment exists to en- sure adequate absorption of TA and whether society's Reform will proceed only when a country's leaders demand for reform can be strengthened. Figure 3 en- are commutted and in the driver's seat. But changing the internal rules of government is usually not capsulates this broad approach by highlighting three enoughtoacheverform. To Y effective,drivers of reform: internal rules and restraints, compet- enough to achieve reform. To be effective, we need to itive pressures, and voice and partnerships. The Bank is work with our partners to understand and address ' now seeking a balance among these drivers of change. the broad range of incentives and pressures-both Our experience has also highlighted the impor- isidtoreanoutside. of government-that affect public tance of identifying entry points where progress can be sector performance. made quickly and of sequencing reforms, so that suc- Public sector reform is both a political and a techni- cess-and ownership-can build on itself and become cal challenge. While many instruments and techniques more self-sustaining. These tasks are incredibly com- of public management can be helpful, none will suc- plex in practice. The Bank is making progress in work- ceed without deep commitment and strong leadership ing with these complexities, but the challenge remains within the country. Many of the failures of donor- difficult in most country settings. 7 FIGURE 3 Three Drivers Rules and of Public Sector P Restraints Reform / * Jd, icial Independence / *Watchdog bodies A) / *Budgeting rules\ Public auditing rules Voice and Competitive Partnerships Pressures Enhancing Ownership and Selectivity The Comprehensive Development Framework and the Poverty Reduction Strategy Paper process. The recognition of domestic ownership as a sine qua The first initiative included in the action plan under non of success in public sector reform underpins ownership is the Comprehensive Development Frame- everything the Bank does in this area. This is not to say, work (CDF), which identifies the broad range of activi- however, that recognizing domestic ownership and ties needed to support development, puts clients in the building feasible programs of support around it are driver's seat, and helps coordinate donor activities. Sus- easy. Individual champions of reform can be found in tained progress has been made since the CDF was most settings, but it is not always easy to judge how launched in 1999 and smce the completion of the 12- broad the consensus is and whether reformers have country pilot.5 The Poverty Reduction Strategy Paper sufficient commitment and power to produce real re- (PRSP) process also has the potential to profoundly sults. In some cases donors can help to build owner- change the process and content of Bank operations (see ship through careful engagement; in others, selectivity the Africa Regional Vice-Presidency update). Together argues for a reduction in activity in one setting to allow the CDF and PRSP processes reflect, perhaps more than for a growth in places where chances for success are any other single example, the increasing recognition of greater. One lesson of experience is clear: these are ex- the centrality of client ownership to development out- ceedingly difficult judgment calls in practice. comes. Because good governance and effective public Our core lending programs all build on the need to institutions are critical contributors to poverty reduc- recognize and enhance ownership while ensuring se- tion, good governance is the first plllar of the CDF, and lectivity, as described further in Section 4 below. Three an effective governance strategy is a key ingredient of a particular initiatives designed to enhance ownership PRSP. Ten PRSPs and some 40 interim PRSPs were com- and selectivity were included in the action plan for the pleted by early 2002. Box 1 reports the results of a recent Strategy (Annex 1): review of the coverage of governance in these PRSPs. 8 Reforming Public Institutions and Strengthening Governance Governance in Poverty Reduction Strategy Papers The principles of the Poverty Reduction Strategy challenge as governments try to strategically Paper (PRSP) approach-be country driven, reallocate public resources at the same time as promote national ownership, base choices on com- they increase public sector effectiveness, re- prehensive diagnoses, maintain a long-term per- quirmg careful balancing of top-down re- spective, and be results oriented-resonate fully forms with bottom-up accountability. This with the Public Sector Strategy. Just as the Strategy poses a sharp, if familiar, dilemma: poverty re- emphasizes that no one size fits all in reforming in- duction requires governance and institutional stitutions and building well-functioning, account- reforms for service delivery that the poorest able governments, so also the PRSP approach countries are often in the weakest position to envisages that each PRSP will be different, in- undertake. In coping with serious capacity formed by the country's institutional needs and im- constraints, the challenge for each country is plementation capacity and its PRSP consultations. to come up with a minimalist but self-rein- Ten full PRSPs and some 40 interim PRSPs were forcing agenda suited to its starting point. completed by early 2002. Progress in preparing PRSPs are providing more thorough treat- PRSPs and implementing their strategies has varied ment of public expenditure systems relative to widely. The treatment of governance and public other aspects of governance. This trend is wel- sector reforms in these first PRSPs points to several come, both in terms of the service delivery im- overall lessons for the Public Sector Strategy: plications for the poor and as an important * Governance and institutional issues feature at entry point into more complex and politically some level in many PRSPs (both interim and challenging governance reforms. It also re- full), mirroring the importance these con- sponds to donor concerns and improves cerns have received in domestic consultations prospects for aligning development assistance and from external partners. A few PRSPs in- around PRSPs. Countries that are more ad- corporate existing governance strategies. But vanced in this regard include those where the many lack an analysis of institutional weak- Poverty Reduction Support Credits (PRSCs) nesses, fail to make the connection between are being put in place (for example, Albania, poor governance and poverty, and do not as- Uganda, and Vietnam). But serious gaps in ex- sess the potential payoffs and feasibility of penditure management capacity persist in governance reforms, so they lack a framework many PRSP countries, as revealed in the recent for assigning priorities. heavily indebted poor country tracking study. * The PRSP process is confirming deep capacity The political dimensions of the PRSP process constraints that come to the surface. The and cycle need to be fully factored in by PRSP process is a tremendous governance continued Theme I Broadening the Bank's Approach 9 countries and development partners alike. It nance Reviews and related survey instruments will not be enough to have technically strong can be useful here. strategies that are not politically viable. Elec- The attention that public expenditure man- tion cycles, for example, will affect the politi- agement is receiving suggests that it is a useful cal sustainability of poverty reduction ement i ng that wt is auel entry point and that we need to work with strategies, reinforcing the need for broad con- clients to leverage this attention into broader sultations so that an incoming government and deeper governance reforms, whether in can commit to the existing PRSP with appro-. sector ministries or in core public sector insti- priate amendments. tutions such as the civil service. * Parliaments have in general not been involved There is a need to invest in goverance moni- in PRSP formulation, missing an important toring and M&E systems aimed at building opportunity to generate political consensus both goverment and nongoverment capaci- across party lines. ties. Especially needed are broadly understand- * Governance indicators are largely absent and able and acceptable governance indicators and certainly weaker than those identified for methods to link inputs and intermediate gover- other policy reform areas in PRSPs. This is in nance outputs to longer term poverty impacts. part a reflection of the political sensitivity of The tendency to stovepipe governance con- many indicators, the lack of monitoring and cerns suggests that much remains undone in evaluation (M&E) capacities, both within government and outside, including in the maste inbyodcrpulcetra- eas. We must continue to build cross-sectoral media, and the need for development partners links. Better strategies to deal with decentral- and countries to improve understanding of ization, anticorruption, expenditure tracking, the links between governance and poverty. civil service reform, the political context for This assessment suggests several implications reforms, legal institutions, and the develop- for Bank support for PRSPs: ment of other accountability institutions are essential for the provision of health, educa- * Assistance is needed at the country level to un- tion, transportation, water, sanitation, rural bundle governance issues, prioritize them in development, and other services to the poor terms of difficulty and payoffs, and design a and for fostering a dimate for rapid invest- strategy for governance reform that is com- ment, growth, and job creation. mensurate with domestic institutional capaci- ties and political realities. The use of tools Source. "Review of the Poverty Reduction Strategy Paper Approach. Main Findings and Issues for Discussion," such as the Bank's Institutional and Gover- SecM2002-0085, February 20,2002. i0 Reforming Public Institutions and Strengthening Governance Partnership for capacity building in Africa. The procurement systems in borrowing countries, as well second ownership-related initiative in the action plan as on the extent of lending oriented toward improve- is the Partnership for Capacity Building in Africa ments in these systems.7 (PACT) (see the Africa Regional update). This partner- ship, funded in part through the Bank's Development Grant Facility, was founded on the principle that Designing Reform Strategies: Africans are in the best position to identify the Re- Identifying Entry Points to Enhance gion's capacity-building needs, decide on tradeoffs be- Accountability and Transparency tween competing demands for funding, and implement and monitor capacity-building programs. Putting clients in the driver's seat is critical to ensuring Rather than rely on foreign TA, the PACT approach at- ownership. But just as critical is designing reform tempts to build and enhance indigenous capacity strategies that can work in practice. Experience has through projects and programs owned and imple- shown that a broad frontal approach-that is, a broad mented by the beneficiaries. Since its establishment in and comprehensive program of public sector reform fiscal year 2000 (consolidating several previous pro- conducted simultaneously along many fronts-may grams under its broader umbrella), PACT has ap- not be the most effective strategy. In some settings, it proved 32 projects, with anticipated funding of $52 meets too much political resistance or encounters too million (all dollar amounts are current U.S. dollars). many institutional, technical, or capacity-related barri- Management of the program is in African hands and is ers. Rather, reforms in particularly difficult settings overseen by an executive board with broad interna- may need to start with what is "doable" in practice and tional membership and donor representation. While is likely to lead to early successes that reinforce a "virtu- the process has not always been easy, it has been "learn- ous circle" of interlinked institutional reforms. Fur- ing by doing:' and PACT has been successful at devel- thermore, effective programs are likely to combine a oping a robust portfolio of projects with client supply of TA and policy advice with efforts to foster ownership and potentially high impact. and channel a demand for reform. Broad-based de- Fiduciary framework for adjustment lending. To mand for reform can be strengthened through active help further selectivity, the Strategy included as an ac- programs to encourage transparency, citizen voice, and tion item the preparation of a fiduciary framework for government accountability. adjustment lending.6 A first conception of such a fidu- Experience to date suggests that three promising ciary framework was discussed at a meeting of the entry points for reform are public expenditure ac- Committee on Development Effectiveness in May countability, decentralization and service delivery and 2001 and at the Board meeting in July 2001. Further e-government. As themes around which to build a re- work has since proceeded on developing an approach form effort, they each combine key characteristics: to fiduciary work in adjustment and programmatic They are feasible in practice; they have potentially lending, including an expansion in analytic work on powerful impacts; and they help to foster transparency systemic issues of public expenditure, financialman- and accountability (and thus continued demand for agement, and procurement, as discussed further be- reform). Also related to the theme of accountability low. Results in practice have included significant and transparency is the growing effort to develop tools increases in the amount and depth of analytic work and indicators to monitor institutional performance on public expepditure, financial management, and and governance improvements on the ground. Theme 1: Broadening the Bank's Approach II Expenditure accountability. One strong entry port for both channels has grown significantly over point is public expenditure accountability, and the the past decade. The Bank is assisting most of its Bank is actively engaged in programs to strengthen clients with efforts to decentralize-fiscally, politi- public expenditure management and accountability in cally, or administratively, or any combination of almost every active International Development Associ- these-to lower levels of government through a vari- ation (IDA) borrower. These programs not only involve ety of lending instruments, TA, and analytical work analytic work and lending (both discussed further be- designed to support the intergovernmental frame- low), but also now involve efforts to strengthen external work and strengthen capacity of local governments. accountability mechanisms, whether external auditing, At the same time, the Bank has been active in bringing parliamentary oversight, nongovernmental organiza- resources directly to populations and encouraging tion monitoring, or donor fiduciary controls. participation in decisions that affect their lives. Social Examples of expenditure accountability work are funds and other sector-based community projects are highlighted in every Regional update. For example, the often popular and appreciated by clients. In fiscal year Latin America and Caribbean Regional Vice-Presi- 2000, an estimated $4-5 billion (a billion is 1,000 mil- dency update describes the importance of this theme lion) of Bank lending went for projects with commu- in the Region's work in the Honduras Public Expendi- nity-based components. ture Review (PER) and a series of financial manage- In the past couple of years, the Bank has under- ment projects in Guatemala. Africa Region has taken a major push to link these two related efforts, as undertaken extensive work on expenditure accounta- described in greater detail in the Africa Regional up- bility as part of its Heavily Indebted Poor Country date. On the one hand, to be knowledgeable and capa- (HIPC) work and its support for the PRSP process, ble of responding to local needs, governments need to and it is a key theme in much of the Region's lending reach communities. On the other hand, for commu- and economic and sector work (including, in many nity-based programs to be sustainable, they need to cases, regular annual PERs and country financial ac- link up with capable local governments to ensure on- countability assessments and Country Procurement going fiscal support and political accountability.8 Now Assessment Reports). Comprehensive public expendi- country programs are addressing these two aspects in ture work is highlighted in the Middle East and North tandem, whether through separate but coordinated Africa Regional Vice-Presidency update as an impor- projects or through a new wave of community-driven tant pillar for future Bank dialogue in the Arab Repub- development (CDD) projects that provide long-term lic of Egypt and the Islamic Republic of Iran. And the support for both local government institution build- East Asia and Pacific, Europe and Central Asia, and ing and participatory processes at the community South Asia Regional Vice-Presidency updates also level. In Latin America and the Caribbean, for exam- highlight the importance of this theme in their public ple, a major public sector loan in Bolivia supports re- sector and governance agendas. form of the intergovernmental framework, including Decentralization and service delivery. One strat- integrating the budgetary flows of social funds into egy to enhance demand and accountability isto bring local government budgets, thus improving incentives responsibility for service delivery closer to the citi- for prudent local management and responsive service zens. Two main channels for this are decentralization delivery. In East Asia and Pacific, the Bank is working of the public sector and stimulation and empower- -with the Indonesian government on its highly ambi- ment of community-based organizations. Bank sup- tious decentralization effort and is also supporting the 12 Reforming Public Institiutions and Strengthening Governance provision of public services to 751 districts (covering countries have national e-government strategies, ei- 9,000 villages and 25 million people) through the ther promulgated or in the making, and the Bank is be- Kecamatan Development Program. In Africa, the ing asked more often for assistance and support (see Zambian social fund is supporting community partic- the Regional update). Public procurement is another ipation and infrastructure investment, as well as area where e-government brings potential for substan- strengthening local governments. A significant num- tial improvements in governance and efficiency (Chile, ber of CDD projects are under development in the Mexico, and other Latin American countries being on Africa Region, with the objectives of channeling funds the forefront in this area) and where the Bank is now to communities and encouraging participation in the providing advice and assistance to clients. short term while building the capacity of local gov- Governance monitoring and indicators. Finally, ernments to be more responsive to their populations the Bank has put in significant effort over the past 18 over the medium term. In the Middle East and North months to identify and examine a broad range of pos- Africa, while there is some work on systemwide de- sible tools and governance indicators that might be centralization strategies (as in Morocco and begin- used to measure and monitor institutional perform- ning in the Republic of Yemen), much of the work in ance in client countries (Box 2). Numerous research the area of decentralization and community empow- programs have sought to define meaningful indicators erment has been done via sector initiatives, for exam- and to examine indicators already in use or potentially ple, in municipal development, education, and rural available from external sources. Various Regional development. Vice-Presidential Units are engaged in work with E-government. A third entry point in enhancing client countries to design institution-specific gover- transparency and accountability is to take advantage of nance monitoring tools (see, for example, the Europe the benefits of the revolution in information technol- and Central Asia and South Asia Regional updates). ogy by seeking ways for governments in developing The World Bank Institute has undertaken extensive countries to provide services or information or con- work to combine existing external indicators from a duct their business through the Internet and related variety of sources into broad governance indicators electronic technology. Like decentralization, e-govern- that work along a range of dimensions.'0 The Poverty ment has the powerful potential to enhance public Reduction and Economic Management Network service delivery, and the impact of many e-government (PREM) is working with the Organisation for Eco- initiatives can be directly measured through changes in nomic Co-operation and Development (OECD) and the quantity, quality, speed, or cost of public services. the United Kingdom's Department for International Countries such as Brazil, Chile, and India (most no- Development to identify a set of second-generation tably the state of Andhra Pradesh; see Box 20 in the governance indicators that measure institutional per- South Asia Regional update) are among the most ad- formance and progress in governance reforms in a vanced practitioners, and the Bank has been working specific manner." And a variety of analytic and survey to gather lessons from these settings to dissexninate instruments-addressed more fully in Section 3- elsewhere.9 The Bank is currently providing advice and have been developed and applied to measure the ex- assistance to an array of clients (two diverse examples tent and pattern of corruption, identify the incentives being Jordan and Mozambique) that are seeking appli- facing public officials in a particular setting, track ac- cations that might be practical in their settings. In Eu- tual public spending, and assess the performance of rope and Central Asia, for example, virtually all particular institutions. Theme 1: Broadening the Bank's Approach 13 Indicators of Governance and Institutional Performance Broad indicators of the quality of governance, controversial than direct indicators of corruption such as the Transparency International's Corrup- and rule of law. This work, on what are termed sec- tion Perceptions Index or assessments of investor ond-generation governance indicators, is funded in risk provided by the International Country Risk part by the United Kingdom's Department for In- Guide and other sources, have been invaluable in ternational Development and is being undertaken drawing attention to problems of corruption and in collaboration with the Development Assistance in helping researchers assess the crucial role of Committee (DAC) of the OECD. DAC is hosting an good governance for successful development. The open discussion forum and interactive website to World Bank Institute has developed this type of generate debate as a step toward building consen- indicator still further by combining a number of sus on an appropriate set of indicators. Potential in- these existing databases into a set of governance dicators are assessed with respect to how well they indicators that provide more disaggregated meas- meet four criteria: (a) Do they measure specific as- ures of governance along a variety of dimensions pects of governance? (b) Are they replicable and for a wide range of countries (see http://www. generated through a transparent process? (c) Are worldbank.org/wbi/governance/govdata200l.htm). they available for most developing counties and are These broad indicators provide valuable cross- the data updated periodically? (d) Are they reason- country information and can be used in various ably accurate and meaningful? Indicators that meet analytic contexts to measure corruption and rule these criteria reasonably well are then analyzed to of law and to help determine in what ways and to determine their relationship to propoor outcomes what extent they matter for development. reflected in the millennium development goals. The Bank is also working to complement these The website may be viewed by selecting a promi- broad indicators with more specific indicators of nent link at the upper right of DAC's International institutional performance that feed directly into the Development Goals site (http://wwwl.oecd.org/ design of reform options. In addition to having op- dac/indicators/). erational relevance, such indicators tend to be less Working on the Supply Side: nancial support, TA, computer systems, or training. ReconsideringTechnical Assistance On the financial side, an increasing amount of Bank assistance is provided as general budget support While building domestic ownership and demand for through adjustment-type lending instruments. How- reform is critical, it is also important for the Bank to ever, investment and TA lending is still considered im- continue to provide a supply of meaningful and effec- portant in many cases-often in conjunction with tive support for public sector institution building. adjustment lending-because it makes a focused and This support can take a variety of forms, such as fi- intensive effort easier in key reform areas. It is note- 14 Reforming Public Institutions and Strengthening Governance worthy that in addition to financing TA and computer Promoting Competition systems, the Bank has also recently moved to allow in- and Accountability vestment loans to finance severance pay for public in Public Service Delivery sector workers.' A recent study'3 looked at TA in PREM operations Competition is the third leg of the broader approach, and found progress in overcoming some of the short- and there are many ways competition can spur greater falls found in traditional Bank approaches to TA. The efficiency, transparency, and accountability in govern- design of most TA operations is now based on up- ment. Reforming Public Institutions and Strengthening stream analysis that seeks a realistic understanding of Governance pointed to the need to foster greater com- the client's demand for reform, governance context, petition in public service delivery and pointed out the incentive framework, and management capacity. More growing number of examples where this is fostered in attention is being given to good fit, rather than to ideal Bank work. The Bank's new Private Sector Development models of best practice that may not fit the context, Strategy: Directions for the World Bank Group contin- and client involvement in preparation and monitoring ues this theme in proposing a move toward output- is on the rise, all of which are reflected in better quality based aid, whereby donors pay for outputs, rather than of entry and stronger outcomes. Nevertheless, TA re- inputs, thus allowing competition in output provision. mains something of a stepchild in Bank operations, Much of the Bank's work in spurring competition and efforts will need to be made to ensure continuity and accountability in public service delivery is done of supervision by experienced staff, to monitor results, through sector projects and related analytic work. For to share lessons, to explore participatory mechanisms, example, in an innovative experiment, the Colombia and to deepen efforts to understand the institutional Secondary Education Project financed vouchers for and country context. poor students to enroll in selected private schools with With regard to the delivery of TA, the Bank is excess capacity. This scheme grew substantially in five working with partners to review and revisit our ap- years, incorporating more than 100,000 students from proaches to technical cooperation, most prominently, poor families. It was efficient in achieving lower unit the Dutch, the United Nations Development Pro- cost per beneficiary student (about 77 percent of the gramme, OECD, Support for Improvement in Gover- unit cost of public secondary education) and provided nance and Management in Central and Eastern education of at least comparable quality to that pro- European Countries, and the European Union. As one vided in public schools. The program has increased part of this broader initiative, the Bank is now imple- educational opportunities for the poor, and achieve- menting a $2 million program funded under the ment results are positive for many students. Bank-Netherlands Partnership Program to promote Many critical governance issues are sector specific, new models of TA, including the development of and every sector family in the Bank is facing an array of toolkits and websites to improve the information and governance challenges in its operational work. One ex- skills base of the ultimate beneficiaries of assistance. ample is the power sector in Uttar Pradesh, India (Box The objective is to level the playing field, rely less on 3), where governance problems that impose enormous foreign experts, and instead make country counter- economic costs are being intensively addressed in the parts active partners who are able to formulate, chal- Bank's program of support to that state (see the South lenge, redesign, or carry forward proposed reform Asia Regional update). We need to continue to en- initiatives. hance the sharing of knowledge and support across Theme 1: Broadening the Bank's Approach 15 Uttar Pradesh: Governance Challenges in the Power Sector It is estimated that 41 percent of the power pur- urban slum dwellers, who represent important chased by Uttar Pradesh Power Corporation Ltd. blocs of votes. In some areas, utility staff cannot is lost in the transmission and distribution system enter the streets, let alone the premises of con- because of technical problems and theft, pilferage, sumers. Nonpayments also result from high-level and faulty metering. Of the remainder, about 80 collusion between large industrialists and traders percent of what is billed is collected. Thus, less and politicians. There are several tiers of overseers than half of the power provided is paid for. The and supervisors in the bureaucratic chain, but corporation estimates foregone revenue to be of they do not have adequate managerial autonomy the order of $250 million (current $US dollars). and are often themselves compromised. Losses occur through a variety of mecha- High-level political commitment to address nisms. At the lowest level, meter readers, linespeo- these problems is often lacking. The requirements ple, and billing clerks do not read meters and bill of coalition politics make it difficult to remove or collect efficiently, presumably benefiting from politicians suspected of receiving illicit benefits. personal payments and political protection. These Board appointments have been heavily politi- officials have often been in their positions for cized, at times favoring candidates rumored to be 15-20 years and have therefore long-established corrupt. The fact that the government (through links with local political interests. The nexus with its various departments, offices, and residences, organized crime makes the problem particularly including those of politicians and bureaucrats) is difficult to address: local mafia groups, with the one of the largest defaulters on electricity pay- protection and complicity of local politicians, re- ments reveals further lack of commitment. portedly provide illegal supplies of electricity to sectoral boundaries, through multisectoral tools such ownership and demand for reform. Over the past sev- as PRSPs and PRSCs. eral years Bank staff have worked with clients and partners in the development community on a wide number of initiatives, including development of the Broadening the Bank's Approach: PRSP and CDF processes, testing of new modes of TA Summary and Ongoing Issues such as PACT, enhancing accountability through ex- panded emphasis on public expenditure and financial The Public Sector Strategy calls for a broadening of management, getting resources to the people through our perspective and our approach to governance is- decentralization and CDD, using e-government inno- sues. It envisions that the Bank's programs will not vations to reduce discretion and expand public service only supply advice and technical support to govern- delivery, and enhancing transparency through im- ments but also consider ways to stimulate domestic proved governance indicators. The Bank has also 16 Reforming Public Institutions and Strengthening Governance worked to strengthen its delivery of TA and capacity- However, we still have much to learn about what building support and increase competition in public works, and it is important to continue to undertake re- service delivery in client countries. It has been a period search, work with clients to test approaches, and moni- of innovation, and the breadth of our approach has ex- tor and evaluate those efforts to gather lessons from panded considerably. experience. We need to continue to experiment, partic- We expect the next phase to be one of consolida- ularly on the demand side, and to resist the temptation tion as we continue to take stock of these various expe- to settle back into a supply-side mode of TA that leads riences to determine their benefits and costs and the to easy but often ineffective loans. settings in which they may or may not be effective. Theme I Broadening the Bank's Approach 17 SECTION THREE Theme 2: Emphasizing Good Fit over Best Practice and Deepening Our AnalyticWork Accordingly T he second theme of the Strategy emphasizes progress to date provides a useful base on which to the uniqueness of each country's conditions build. and the need to start our work with a thorough understanding of those conditions: Institutional and Governance Reviews We need to start with a thorough understanding of what exists on the ground and emphasize "good fit" The action plan for the Strategy identified four key ac- rather than any one-size-fits-all notion of "bestprac- tivities to be undertaken to expand our knowledge of tice." And we need to work with our clients and other institutional realities. First, the Strategy envisions an partners to develop and apply analytic tools to do this e effectively,expans~~~epanion of governance-related economic and sector effectively. work (ESW) through the piloting and development of Attention to governance issues in the Bank's ana- a family of ESW products called Institutional and lytic work has grown considerably since 1997. Ana- Governance Reviews (IGRs). IGRs were intended to lytic work on public expenditure management undertake "a broad assessment of the quality of ac- (PEM), civil service incentives, and intergovernmen- countability, policymaking, or service delivery institu- tal finance, as well as the use of survey instruments to tions in a country and propose a strategy for understand patterns and costs of corruption, have all institutional change." Thirteen ESW activities that fit expanded. New analytic approaches have been piloted within the broad family of IGR products have been that seek to understand the political and institutional undertaken since 1999.14 These include both a num- roots of public sector dysfunction and that link such ber of pilots that received partial financial support dysfunction to poverty and service delivery outcomes. through the Public Sector Governance Board and nu- While much work still needs to be done to develop an- merous other analytic activities financed wholly from alytic tools with strong operational linkages, the country or Regional budgets. 18 These products have varied considerably in focus, policy-past and revised-makes provision for appro- cost, length, structure, and methodology: priately handling sensitive information in ESW. 15 * Some-including all of the formal pilots-have provided an extensive and in-depth overview of a Economic and SectorWork country's political and institutional setting, its par- on Public Expenditure ticular set of governance-related issues, and spe- .a.b cific suggestions on where to begin and how to a sequence reform efforts. The Bolivia IGR, for ex- The second action item pertaining to analytic work in ample, examined the roots of weak performance the Strategy is the progressive strengthening of the in- and patronage in the civil service and suggested stitutional components of Public Expenditure Reviews specific reforms to help move the country to a (PERs). The Bank has made significant progress on more meritocratic and effective system. this agenda, and PEM is now a central focus of virtu- Others have provided more of a quick and broad- ally all PERs, as well as a large number of investment brush look at a governance environment to illumi- and adjustment loans. Public financial management nate issues and possible priorities, as input to a and procurement are addressed in depth in the ex- Country Assistance Strategy (CAS). A short IGR panding program of country financial accountability for Chad, for example, helped the country team assessments (CFAAs) and Country Procurement As- understand the historical roots of current institu- sessment Reports (CPARs), which have grown consid- tional systems. erably in scale and depth since the preparation of the Strategy. A fuller description of the Bank's expanding * Still others have focused on a narrower set of gover- program of analytic work on public expenditure and nance and public sector reform issues, identifying financia anality (F (includin ure- specific legal rules and institutional incentives that . . . i need to be changed to address particular dysfunc- ment) is contained in a paper, "Public Expenditure tions in public service delivery. The IGR for Burkina Management and Accountability: Evolution and Cur- rent Status of World Bank Work;' which was prepared Faso, for example, analyzed specafic rules govermnins o h ordi pi 01 intergovernmental fiscal relations and pinpointed Two other recent initiatives complement and ex- changes that could empower subnational govern- Twotercntitaivsomletadex changes that ould empowtiveservice subnaliony gpand the attention given to public expenditure and fi- nancial management in the Bank's ESW. First, the The IGR is proving to be a useful vehicle for under- Bank and the International Monetary Fund (IMF) un- standing institutional realities on the ground and help- dertook a joint exercise in 2001 to work with Heavily ing countries identify actions needed to address Indebted Poor Countries (HIPCs) to assess their ca- governance weaknesses. But the format, coverage, and pacity to track poverty-reducing public spending and timing of IGRs must remain flexible to respond to the formulate action plans to improve such capacity. Ob- specific substantive needs and budget constraints of jective and readily measurable indicators were used to country teams. There is no one-size-fits-all approach to evaluate HIPC's capacity in various areas of PEM and governance analysis, any more than there is a one-size- set priorities for follow-up action. This work, dis- fits-all approach to governance reform. Issues addressed cussed in two recent Board papers,16 concluded that no in IGRs are often highly sensitive; the Bank's disclosure HIPC had yet reached all of the benchmarks needed to Theme 2: Emphasizing Good Fit over Best Practice and Deepening Our Analyac Work Accordingly 19 fully track such spending, although several were close. ministrative decisions through the policy dialogue. A It helped to set a baseline to monitor performance and similar emphasis on participation can be seen in the re- the impact of future reforms, and the methodology is cent PER for Vietnam and the joint PER-CFAA-CPAR potentially replicable in other settings. under way in the Philippines (see the East Asia and Pa- Second, the European Union has entered into a cific Regional update). trust fund with the Bank to cosponsor an expanded PEFA program. The goal of the PEFA program is to bring various interested donors together-initially in- Toolkits and Surveys cluding the Bank, European Union, the IMF, and sev- eral bilateral donors-to develop analytic toolkits; The last two action items pertaining to analytic work in support joint assessments of PEFA capacity in client the Strategy call for the development of toolkits and sur- countries; and share knowledge, information, and vey instruments and their dissemination through an in- good practice in PEFA-related capacity building. The stitutional analysis website. While IGRs and PERs are program is also supported by the Bank's Development broad categories of ESW that support the analysis of is- Grant Facility and the United Kingdom's Department sues related to governance, institutional reform, and for International Development, and several other bi- PEFA, they necessarily vary in focus, depending on lateral donors are interested in becoming active part- country needs and circumstances. Once broad areas of ners. Within the Bank, the PEFA program is making focus are identified, more detailed toolkits and survey in- enhanced collaboration easier between the Poverty Re- struments can help guide the analysis in IGRs and PERs duction and Economic Management Network and the by identifying specific questions of interest or concern.'7 Operational Policy and Core Services Network in the Analytic toolkits. Annex 2 of the Strategy listed a analysis of public expenditure, financial management, number of specific toolkits being developed at that and procurement issues, including an increasing shift time to help guide analysts, both in the Bank and in toward closer integration of PERs, CFAAs, and CPARs. client countries. These included toolkits for analysis of The Bank is now stressing the importance of a par- governance and poverty, PEM, civil service, revenue ticipatory approach to its analytic work-in particular mobilization capacity, legal andjudicial systems, inter- PERs-to increase its relevance and impact and help governmental relations, constraints on service deliv- build dient capacity. For example, the ongoing Mo- ery, commitment to reform, and the role of the media. rocco PER (see the Middle East and North Africa Re- These toolkts have been completed and are available gional update) uses a participatory approach, involving internally and externally through the Internet. Efforts interministerial working groups in two areas chosen by are continually under way to disseminate them and in- the government: budgetary procedures reform and civil crease their usefulness; for example, the civil service service reform. Unlike previous adjustment lending toolkit has also been translated into Russian as part of that relied on conditionality (with minimal success), the Bank's assistance for institutional reforms. this PER process provides the government with a sense Surveys of public sector institutional perform- of ownership and builds on the in-depth knowledge ance. As noted in Section 2, one approach to enhanc- that only those in the country can provide. The Bank ing transparency and accountability in government is contributes by ensuring strategic cohesion and a broad to survey the users of public services or the public offi- vision, providing analytic inputs and international ex- cials themselves and, where appropriate, disseminate perience, and influencing the content of some key ad- the findings to interested parties or more broadly to 20 Reforming Public Institutions and Strengthening Governance the public. Since 1997 the Bank has developed numer- array of stakeholders, to help build local capacity ous types of surveys for this purpose, including: for governance monitoring. They have been initi- ated or completed to date in 25 countries (Box 4). * Governance and anticorruprion diagnostic surveys that seek the views of households, private firms, or Public officials surveys that analyze the incentives public officials on the extent and causes of corrup- faced by civil servants working in various parts of tion. These are carried out in conjunction with lo- government (undertaken to date in 16 countries; cal institutions and seek the involvement of a wide see the Europe and Central Asia Regional update). Linking Empirical Analysis with Capacity Building: Governance and Anticorruption Diagnostics Country governance and anticorruption diagnos- Public commitment on the part of the govern- tic studies, developed jointly by the World Bank ment and other stakeholders to undertake re- Institute and the Poverty Reduction and Eco- form within the context of well-publicized nomic Management Sector Unit, Europe and national workshops Central Asia, establish governance profiles in a manner that builds local capacity at the same time Devlopmentof benchmar o vn . . . . ~~~~~~~~and public sector performance. as producing direct inputs into policy develop- ment. The diagnostic studies are organized as one Governance and anticorruption diagnostics component of a broad effort to establish a rigor- act as a mechanism for creating policy-relevant ous, inclusive, and country-led process to develop knowledge within a process that forges multi- governance and anticorruption reforms. The di- stakeholder coalitions for reform. The design and agnostic has the following key components: implementation of these surveys, which feature Use of experience-based(versusopiniclose collaboration between external experts and geUseiof expertience-bsedar(versurveys ofpino o local counterparts, also fosters learning. Further- generic) questions in separate surveys of pub- lic officials, firms, and households more, the agency-specific data steer the debate toward institutions rather than individuals, de- * Training of local organizations to conduct politicizing the problem and facilitating the re- empirical studies and analyze findings, using form process. Governance and anticorruption up-to-date analytical approaches diagnostics have been initiated or undertaken in * Establishment of multistakeholder . numerous countries in the Africa, East Asia and sseeings Pacific, Europe and Central Asia, and Latin Amer- committees to guide the use of survey findings iaadCrbenRgos in the design of anticorruption and gover- nance programs Theme 2 Emphasizing Good Fit over Best Practice and Deepening Our AnalyticWork Accordingly 21 * Public expenditure tracking surveys that help to iden- A second issue, linked to the first, involves resource tify the share of budget disbursements that reach in- and staff availability. Because analytic work related to tended beneficiaries, such as schools and health governance is both sensitive and difficult, it is often in clinics (under way to date in seven countries; Box 5). danger of being dropped when budgets become tight. * Surveys to measure the capacity of HIPCs to track PERs are less likely to be dropped, because they have been included in the due-diligence ESW package re- poverty-reducing spending (undertaken in 26 HIPCs).'8 quired for each country. This is not true of IGRs and related analytic and survey work, however, and it is not * Surveys of court cases to understand what types of clear whether current resource constraints provide cases are handled by courts and where there might room for a continuation of in-depth governance be scope for greater efficiencies (see Box 5). analysis at the same level as that we have seen for the Scorecardsforpublic services to facilitate civil societ past three years. Trust funds-such as the Danish Trust monitoriso cey Fund on Governance, the Bank-Netherlands Partner- moniorig o pulicserice rovsio (sppoted ship Program, and the European Union trust fund for by the Bank in the Philippines and Ukraine). siProgrm n th EroenUintutfdfr PEFA-have helped considerably in the past, but it is These various survey instruments have added con- not clear that these funding sources will be available in siderably to our knowledge base and in some cases the future. In the final analysis, this is an issue of coun- have helped to stimulate demand for governance im- try strategy, as it depends on the priority given to gov- provement while also pinpointing priorities and possi- ernance issues and the degree to which a common ble entry points for reform strategies. public sector analytical framework and a focus on gov- ernance issues are fully integrated into the range of Bank activities in a country. Deepening Our Analytic Work: A third issue concerns the need to coordinate and Summary and Ongoing Issues consolidate our survey instruments and efforts to en- hance both efficiency and impact. The past five years The Bank has worked hard to strengthen its tools for has been a time of experimentation; we aim for the institutional analysis and assessment, to underpin next few years to be a time of consolidation and main- both projects and country programs. We now have a streaming of these efforts. On the firm side, the Bank set of ESW and analytic tools that clients and country has recently taken steps to consolidate various firm- teams can draw on to understand institutional realities level survey instruments into a more common ap- on the ground. proach under the umbrella of business environment Several issues remain as we move forward. The first surveys, as described in the Bank's recent private sector involves political sensitivity: Governance issues are development strategy. On the public sector side, the complex and highly sensitive, and clients may be hesi- Public Sector Group is working now in a similar fash- tant to allow the Bank to undertake in-depth analysis, ion to consolidate the various approaches tested to particularly if it is likely to be widely disseminated. The date to develop a more common survey approach, un- Bank's disclosure policy-past and revised-makes der the umbrella of public officials and service provision for handling information that is confiden- providers surveys. The broad vision is to have a set of tial, sensitive, or could adversely affect relations be- complementary survey tools that can be tailored and tween the Bank and its member countries.19 applied in individual client countries: the business 22 Reforming Public Institutions and Strengthening Governance Two Innovations in Diagnostic Surveys: Public.ExpenditureTracking Surveys and Court Cases The increase in economic and sector work and obstructs social service delivery. While ghost lending for governance reform has been matched workers on wage bills accounted for about 20 per- by a major expansion in innovative surveys of var- cent of total spending, leakage in nonwage expen- ious types. These surveys help measure institu- ditures ranged from 40 to 80 percent. Uganda tional performance and establish baselines for responded to the survey results by increasing the monitoring the development impact of interven- dissemination of spending information to the tions. They provide an important window on real- public through the media and all tiers of govern- ity in client countries. Two interesting innovative ment. The extent of leakage fell dramatically as a examples include public expenditure tracking result, illustrating the positive impact that collec- surveys (PETS) and surveys of court cases. tion and dissemination of quantitative data on public services can have as a tool to enhance voice Public Expenditure Tracking Surveys and accountability. Good public expenditure management requires attention to the level of aggregate spending, allo- Surveys of Court Cases cation of public funds, and actual service delivery. In an effort to improve the informational base for Less attention has typically been given to the its legal and judicial reform, the Bank has devel- third, because of a lack of relevant data. PETS (or oped and piloted a new and innovative approach: a related variant, the quantitative service delivery surveys of random samples of court-case files. survey) uses the sample survey approach to collect This methodology provides a disaggregation of the missing information from different tiers of court use, identifying types of disputes and parties government and frontline service facilities. (Ex- and relating them to differences in treatment and amples of these survey instruments can be found outcomes. Applied research on legal and judicial at www.publicspending.org [tools].) These sur- systems in industrial countries has long under- veys have two broad uses. First, they serve as diag- scored the value of objective case analysis in test- nostic tools for budget execution and service ing-and sometimes debunking-conventional delivery. Second, they provide primary data on wisdom. But until recently this lesson had not service providers for empirical research. Several been applied rigorously in the developing world. PETS have been or are being implemented in a Four in-depth surveys of court cases have recently number of countries in the Africa, East Asia and been undertaken in Argentina, the Dominican Re- Pacific, Europe and Central Asia, and Latin Amer- public, Mexico, and Peru. While there is consider- ica and Caribbean Regions. In Africa, for example, able variation among and within systems (where surveys in Ghana, Tanzania, and Uganda confirm several court districts were covered), there are also that leakage of nonwage public funds seriously continued Theme 2: Emphasizing Good Fit over Best Practice and Deepening Our AnalyticWork Accordingly 23 consistent unexpected findings: amounts claimed from those of larger ones, but most reforms seem were far smaller than usually depicted; individu- to aim at the latter. More attention needs to be als, rather than commercial and industrial firms, given to enforcement of judgments: it does little were the most common users (although in Ar- good to speed up case processing if the claim is gentina, the state was a principal user); delays and never paid. More attention should go to what hap- appeals were less than expected; certain antici- pens out of court. Theory would say that a good pated biases (for example, prodebtor in debt col- system should encourage out-of-court negotia- lection cases) did not hold; and executions of tion (which is not the same as alternative dispute judgments proved particularly problematic. resolution); reforms, however, seem to assume Moreover, real judicial workloads were less than success lies in the proportion of cases reaching nominal ones, as many cases were abandoned by )udgment. Reforms intended to address problems the parties, often soon after filing. This also raises of overload may have to reexamine their assump- a question for further research: whether and how tions: every filing does not require the same atten- these disputes are resolved extrajudicially. tion from the judge, and assuming it does may Aside from emphasizing the importance of lead to wasted resources. Finally, many procedures this type of diagnostic work, the studies indicate a could be simplified, and some thought should go need for rethinking some common reform strate- to determining whether certain types of cases gies. The needs of small users may be different could be resolved extrajudicially. environment survey would help diagnose problems sector performance. The latter would ideally be used as and issues for attention, while the public officials and part of a broader analytic effort-whether an IGR or service providers survey would help identify what can another type of ESW-to understand governance con- actually be done to improve governance and public ditions, ideally upstream of a CAS. 24 Reforming Public Institutions and Strengthening Governance S E C T I O N F OUR U _ Theme 3: Lending Instruments to Enhance Institution Building T he third theme of the Strategy relates to our Approaches to Lending lending instruments: The data in Table 1 and Figures 1 and 2 indicate the growth in overall lending for PSR over the past half We need to ensure our lending enhances institution-deae h ao rwhhscm najsmn building (in addition to addressing relevant policy, eae h ao rwhhscm najsmn busicald (invaitionto anddressinge trelansferobcti . lending, which has focused more on reforms in public hysical investment and resource transfer objectives) expenditure management, revenue mobilization, the Bothlnvestment and adustment loanshavemportant civil service, the legal and judicial system, and decen- roles to play, and it is important that lending ap- trlzto n negvrmna iclrltos prahs etilrdtocutr odiin. ogr tralization and intergovernmental fiscal relations. proaches be tailored to country conditions. Longer- There has been a significant move toward longer term programmatic lending approaches can help in tere programmaticiapproachesminebothainvestmen some settings-both by emphasizing a longer-term term programmatic approaches in both investment som setins-bth y ephaizig aloner-ermin- and adjustment lending. The Poverty Reduction Sup- stitutionalfocus and by reducing thefragmentation of- adajsmn edn.TePvryRdcinSp sttncaused focusncoordibyeducingothe fragmenatio. o port Credits (PRSCs) for Burkina Faso, Uganda, and Vietnam are three recent examples of programmatic The action plan calls for the design of new ap- adjustment loans with a strong focus on PSR and gov- proaches, including long-term Adaptable Program ernance (Box 6). Other programs of adjustment lend- Loans and Credits (APLs and APCs) and Program- ing also focus more on governance reforms with a matic Structural Adjustment Loans (PSALs) and Cred- medium-term approach, such as the PSALs for Latvia its focused on public sector reform (PSR). The and Ukraine and for the states of Andhra Pradesh, Ut- primary benefits of these approaches are a longer time tar Pradesh, and Karnataka in India, the Public Expen- frame and greater flexibility, as countries have scope to diture Reform Credit in Benin, the series of PSR loans adjust year-to-year programs in light of long-term in Jordan, and the forward-looking program of adjust- goals and progress on the ground. ment lending in Turkey. 25 On the investment lending side, PSR is now pur- The appropriate mix between adjustment and in- sued through APLs and APCs that lay out a coherent vestment lending in supporting PSRs depends on the long-term program. As discussed in the Strategy, APLs particular situation in the country. Adjustment lending and APCs are better aligned than traditional invest- may provide an impetus to help authorities advance ment loans with the long-term character of institu- major policy and institutional reforms. And, as noted tional reform and capacity building. APLs and APCs in Assessing Aid: What Works, What Doesn't, and Why are under supervision, for example, in Bolivia, Ghana, (published in 1998) and in the Strategy, adjustment Guinea, Tanzania, and Zambia. Possible future APLs lending has the systemic advantage of avoiding the and APCs are in preparation in Ethiopia, Mozam- budget and procedural fragmentation that can result bique, and Ukraine. from numerous individual donor initiatives. However, Poverty Reduction Support Credits PRSCs were approved in 2001 for Burkina Faso, In Uganda, the focus of the PRSC is also on Uganda, and Vietnam. They are designed to support improving service delivery. The operation is based the countries' own poverty reduction strategies. on three pillars: (a) efficient and equitable use of PRSCs in different countries can vary in focus and public resources; (b) improved governance scope, as demonstrated by the PRSCs for Burkina through cross-cutting public sector reforms, in- Faso and Uganda, which focus on service delivery, cluding reforms in pay and employment, procure- and the one for Vietnam, which is concerned largely ment, financial management, monitoring and with growth and private sector development. De- evaluation, and measures to increase transparency spite their different focus, governance and public and participation and fight corruption; and (c) sector reform are common themes underlying all improved access to, and quality of, education, three PRSCs. health care, and water and sanitation services. The Burkina Faso PRSC is one of three loans In Vietnam, the PRSC supports the govern- planned to improve service delivery outcomes in ment's twin goals of promoting growth and the country. It is designed to (a) help maintain poverty reduction by (a) improving the climate macroeconomic stability and create the condi- for the private sector to generate jobs and higher tions for accelerating growth; and (b) help reduce wages; (b) reforming state enterprises to improve poverty by improving the targeting and effective- efficiency and free up fiscal resources for poverty ness of public expenditures on behalf of the poor reduction; (c) restructuring the banking system to and by actually channeling public funds to more reduce the risk of financial crisis, which could accountable local spending agencies. The reform otherwise undermine poverty reduction efforts; program stresses delegation, accountability, and (d) integrating the country's economy with that of transparency in budget management to promote the world, to expand labor-intensive exports; and access to and quality of public services. (e) improving public expenditure management. 26 Reforming Public Institutions and Strengthening Governance investment lending can often help focus Bank assis- management, which is now complemented by a slow- tance on the design and support of specific institutional disbursing operation being prepared, in collaboration reforms within key ministries or key relationships be- with other donors, to support a Capacity Enhance- tween ministries or levels of government. Investment ment Program. Another country where various types lending makes it easier to give hands-on attention to of analytic and lending instruments have been complex institutional 'situations and provides targeted brought together effectively is Albania (Box 7). resources to help individual ministries finance reforms and sustain reform momentum. And from a fiduciary perspective, it may be judged the only acceptable ap- Portfolio Quality proach if the government's expenditure management and accountability are considered below some mini- The indicators of the quality of the public sector port- mum baseline of performance. folio have risen substantially over the past five years. In practice, many countries benefit from a mix of Figure 4 shows Operations Evaluation Department adjustment and investment lending, often with the (OED) indicators of the overall quality, sustainability, adjustment loan providing support for the overall and institutional impact of public sector projects com- program of reform and the investment loan support- pleted from fiscal year 1995 to fiscal year 2000. All indi- ing specific institution-building components in a fo- cators rose through this period and are now better cused, in-depth, and sustained manner. This was the than Bank averages. model, for example, in Uganda, where the PRSC was Figure 5 shows Quality Assurance Group (QAG) accompanied by a loan for economic and financial data on the proportion of ongoing projects and FIGURE 4 120 -+-% satisfactory Operations Evaluation 100 -- a U% likely or better Department Quality 80 sustainability Indicators: Completed '-60 % substantual Projects, Fiscal Years 60 A~-r- usata E -Ti 377z-^I; af institutional 1995-2000 40 - development 20 ~~~~~~~~~~~~~~~impact 20 1995 1996 1997 1998 1999 2000 Fiscal year FIGURE 5 50 -A--% projects at risk Quality Assurance Group Quality 40 A Indicators: Ongoing Projects, 4°30 \ %project FiscalYears 1997-2001 20 _ scommitments t 120 at risk ($) 10 1997 1998 1999 2000 2001 Fiscal year Theme 3 Lending Instruments to Enhance Institution Building 27 Albania: An Integrated Approach to Analysis and Lending for Institutional and Governance Reform The Bank's support for institutional and gover- Collaboration with other donors has proved nance reform in Albania since the mid- 1990s pro- pivotal in advancing the agenda and addressing vides an example of an in-depth program that setbacks. For example, the European Union and combines analytic work and lending in a highly the Organization for Security and Co-operation in challenging setting. Analytic work undertaken Europe (OSCE) helped in the preparation of the to date has included a detailed analysis of pay Law on Civil Servants in 1999, and the United and employment issues, a comprehensive anti- Kingdom's Department for International Develop- corruption diagnostic, a Public Expenditure and ment helped with introduction of the medium- Institutional Review, a Country Economic Memo- term expenditure framework in 2000 and (with randum, a Country Procurement Assessment Support for Improvement in Governance and Review, and an ongoing country financial ac- Management in Central and Eastern European countability assessment. A Fiscal Decentralization Countries and OSCE) the recent Law on the Orga- Note is being prepared to support the govern- nization and Functioning of the Council ofMinisters. ment's efforts in decentralization and feed into the Although it is still early in the process, the medium-term expenditure framework (sup- Bank has made a strong effort to develop tools to ported by the PRSC) and sector-specific gover- monitor impact and provide feedback to inform nance reforms. Much of this analytic work has subsequent policy deliberations. A detailed set of provided input into the Poverty Reduction Strat- indicators has been developed and is being used to egy Paper (PRSP) and the Country Assistance monitor the impacts of the Bank-financed Public Strategy and set the stage for various adjustment Administration Reform Project. The government and technical assistance operations, including a had little interest in monitoring and evaluation Structural Adjustment Credit in 2000, two techni- (M&E) early on, but the Department of Public cal assistance operations supportmg public ad- Administration has begun to realize that such ministration and the judicial system, and the monitoring and the publication of results can planned PRSC (in support of the PRSP developed strengthen its capacity to ensure effective imple- by the country). The continuous flow of analytic mentation of the agenda for civil service reform. work has helped to reinforce ongoing efforts and, M&E has assumed even greater visibility with the perhaps more importantly, to constantly expand preparation of the PRSP and the planned PRSC. the range of issues being actively addressed by the The government has committed to mounting a se- overall reform effort. The variety of lending vehi- rious effort to develop M&E systems within each cles has provided flexibility and leverage needed ministry over the next three years. As with other to address various issues as they arise. elements of public sector institutional reform, 28 Reforming Public Institutions and Strengthening Governance experience to date underscores the fact that build- tent instability in the political situation also cre- ing M&E into the reform agenda requires phasing ates continual risks of backsliding. The challenge and patience. will be to continue to maintain steady and patient As in other low-income countries, capacity support, focus and prioritize reforms, and ensure constraints in Albania are severe, and continuous that these reforms are integrated into the govern- support from the Bank and other donors will be ment's regular policy and budget management needed to sustain the large reform agenda. Persis- structures. commitments that were at risk from 1997 to 2001. The fectiveness of our support to governance programs. risk for the portfolio declined dramatically over this The Europe and Central Asia Region, for example, has period and is now below the average level of risks for invested considerable effort to identify and implement the Bank's portfolio overall. a set of governance monitoring tools for use in the Although it is difficult to pinpoint the exact mix of governance programs it supports, such as periodic in- determinants of the quality improvements described terviews of firms to monitor the deregulation program above, we believe that several factors are important. in the Russian Federation, and workshops to assist in The first is the increase in the depth and breadth of the development of monitoring tools in Albania, analytic work that has underpinned the preparation of Kosovo, Romania, and the Federal Republic of Yu- country strategies and projects, as discussed in the pre- goslavia (Serbia and Montenegro) (see the Europe and vious section. The second is the movement toward Central Asia update). more flexible and realistic lending instruments, noted above. The third is an increase in staff and manage- ment skills, as discussed below. Finally, the intensive Lending Instruments: work of OED and QAG helps to ensure that quality re- Summary and Ongoing Issues mains high on the agenda. The Bank has made progress in designing approaches to strengthening institution building in our lending Monitoring Impact operations. We are using more flexible instruments with longer time horizons, and the overall quality of A long-standing issue concerns how to evaluate our lending has improved substantially. progress in governance reform. While progress has We still face many challenges, however, as the Bank been made in developing indicators of good gover- continues to focus on strengthening results. One key nance (see discussion in Sections 2 and 3), we need to challenge, discussed in Section 2, is to design specific continue to work closely with countries (both govern- programs of support, including identifying entry ments and external oversight agencies) to define per- points where progress can feasibly be made, and to se- formance indicators and set up viable monitoring quence reforms so that success-and ownership-can systems, which in turn we can draw on to assess the ef- build on itself. A related challenge is to channel Bank Theme 3 Lending Instruments to Enhance Institution Building 29 financing in ways that respect and build on national commitment to reform widespread and strong enough processes of budgetary management while ensuring to warrant increasing Bank support? How should pro- that resources effectively contribute to the govern- grams be designed to further reform efforts and spur ment's own programs. A further broad cross-cutting progress? How should short-term financing needs be issue concerns selectivity, particularly with regard to weighed against the need for credible up-front progress countries where governance is particularly weak. The before large amounts of fundmg are committed in Bank has become more selective over the past half weak governance situations? There are rarely any easy decade, reducing its engagement and lending in coun- answers to these questions in practice. As in the past, tries with poor governance and weak support for re- they will need to be decided on a case-by-case basis. forms. Yet, questions inevitably arise in borderline However, in general the Bank should continue to push situations, where some reformers in dient govern- for selectivity to ensure that its limited resources have ments are striving to improve governance. When is the strongest possible impact on poverty reduction. 30 Reforming Public Institutions and Strengthening Governance SECT IO N F IV E Theme 4: Internal Staffing, Organization, and Partnerships T he fourth theme of the Strategy focuses on in- vices Network [OPCS] for systemic financial manage- ternal management and staff capacity: ment and procurement analysis, the Legal Department for legal and judicial reform, and the Private Sector De- We need to continue to develop the skills to do better velopment and Infrastructure Vice-Presidency for in- vestment climate) have changed considerably over the workinstitutional govance, aind-t r c gapcizatybidg past three years. Relative to five years ago, when staffing work In the Bank and fine-tune our organizational was thin, the Bank now has a sizable cadre of technical setup as needed to enhance responsibility, accounta- experts and senior task managers, with about 220 Bank biwity partndrs qualrityca as sance. Col orating clos staff formally mapped to the Public Sector Group; a growing number of financial management, procure- The last three sections of the action plan lay out a ment, and legal specialists in OPCS and the Legal De- number of specific steps to enhance in-house capacity, partment; and membership of more than 840 staff quality assurance, and knowledge management. from many VPUs in our seven core thematic groups. To date the staff from OPCS, the Legal Department, and Private Sector Development and Infrastructure have Organization, Staffing, interacted with Poverty Reduction and Economic and Professional Development Management Network (PREM) staff primarily through thematic groups and informal partnership arrange- The organizational structure and staffing patterns in ments. To ensure coherence in this agenda, senior man- the Public Sector Group and in our partner network agement has recently decided to create a more inclusive families and Vice-Presidential Units (VPUs) (includ- Public Sector Governance Board (PSGB) by expanding ing, among others, Operational Policy and Core Ser- its membership to include representation from the 31 Legal Department, OPCS, and Private Sector Develop- The large growth in demand for work on public ment and Infrastructure. This Board, which will also sector governance has meant a continual effort at ex- interact closely with other VPUs and sector boards, will ternal recruitment. In most cases such recruitment has be the focal point and spokesperson on public sector been undertaken to fill specific openings in individual governance for the Bank.20 VPUs. In mid-2000 the PSGB also piloted a new ap- The agenda at the country level will continue to be proach to recruitment, a centralized "batch" recruit- driven by country needs and strategies, defined in the ment exercise. It began with a focused worldwide Country Assistance Strategies (CASs) and coordinated search that identified a large pool of candidates. The by the Regional PSGB member (working with other Re- pool was narrowed to a short list of about 15 diverse gional managers as needed, given the cross-cutting na- candidates; these candidates were then interviewed, ture of this work). The three larger Regions-Africa, and a final list of 7 candidates was identified. Budget Europe and Central Asia, and Latin America and constraints limited hiring in fiscal year 2000,2 ' but sev- Caribbean-have dedicated Public Sector Units with eral of the candidates have since been hired to fill va- sector managers who each manage 25-40 PREM staff cancies. Significant demand for new staff has again working on governance and public sector reform (PSR), emerged, and we will continue to undertake external and a large amount of work on PSR is also undertaken search and recruitment efforts to identify and bring by country economists and sector units and OPCS staff the best possible candidates into the Bank. In those Regions (and in some cases by staff from the Le- Professional development and the quantity and gal Department, World Bank Institute, and other VPUs). quality of staff training have also been major areas of The three smaller Regions-East Asia and Pacific, Mid- focus. In addition to regular offerings of basic courses dle East and North Africa, and South Asia-have some- in our various areas of interest, the Bank has worked to what different managerial arrangements but have all develop innovative training initiatives to meet the di- increased their focus and staffing in this area and have verse needs of various staff. For example, just-in-time developed a clearer sense of responsibilities and account- clinics for task teams undertaking Public Expenditure abilities. The first activity in the action plan-designa- Reviews (PERs) have proved to be a popular and effec- tion of units with clear accountability for governance tive way to provide focused and relevant learning when and anticorruption work-has been largely achieved, teams are most likely to benefit from it. In September recognizmg, however, that this is a cross-cutting topic 2001, Public Sector Day brought together staff work- that affects virtually all activities and sectors in the Bank. ing on governance issues for a day of participatory dis- Major progress has also been made on the other cussions and learning. This complemented PREM staffing-related activities in the action plan. The PSGB Week, which will be held again in mid-2002 and will be discusses staffing needs on a regular basis and handles accompanied by a contiguous Staff Learning Week to recruitment, short listing, and promotion processes in provide extensive learning opportunities in a concen- accordance with clear criteria and procedures that trated time span, which is particularly helpful for have been developed and refined over the past three country-based staff. Finally, we sponsor a large num- years and posted on the Bank's internal website. In fol- ber of short "brown-bag" seminars and participatory low-up to the Bank's human resources strategy, PREM discussions to meet the needs of busy operational staff. is now preparing an updated strategic staffing plan Some examples of offerings for staff training for fiscal that will assess current and future staffing needs and year 2002 (excluding informal seminars) are shown in specific issues that need particular attention. Box 8. 32 Reforming Public Institutions and Strengthening Governance Examples of Recent Governance-Related Learning Events (Fiscal Year 2002) Cross-Cutting Anticorruption, Public Expenditure Management Governance, and Public Sector Reform and Financial Accountability Flagship governance and anticorruption Just-in-time public expenditure clinics course * Public expenditure analysis and management * Use of empirical analysis in the design of core course governance reforms Public Expenditure and Financial Account- * Institutional analysis of projects: clinics and ability course case studies "From Diagnostics to Design: Case Studies in * Just-in-time CountryAssistance Strategy Public Expenditure for Task Managers" (deliv- clinics ery in fiscal year 2003) * Public Sector Day Other Topics Administrative and Civil Service Reform E-government: topic areas and case * Bank-Fund workshop on civil service reform workshops * A comprehensive approach to administrative Intergovernmental fiscal relations and local fi- and civil service reform nancial management (decentralization): five courses, separately tailored to the Africa, East * Pilot administrative and civil service reform Asia and Pacific, Europe and Central Asia, and module for a distance learning course on pub- Latin America and Caribbean Regions and lic sector management World Bank-Global Legal and judicial Reform Tax policy and administration * Just-in-time legal and judicial reform clinics * Legal and judicial reform workshop on case management Theme4 InternalStaffing,Organization,andPartnerships 33 Quality Assurance and Socially Sustainable Development Network, and the Development Economics Vice-Presidency (Box 9). The rising quality of the Bank's public sector lending The public sector sites currently receive half a million portfolio was noted earlier. We have undertaken all of the "hits" per month, and thematic-group coordmators various quality-related activities in the action plan, in- regularly receive comments and queries from around cluding preparation of a portfolio database, review of at- the world. risk and flagship projects, participation in Quality We also use PREM Notes to disseminate knowl- Assurance Group (QAG) reviews, formation of peer re- edge in easily readable form. A list of public sector viewer list, and preparation of new PER guidelines. We PREM Notes is included in Annex 2. All are available to have also worked with QAG to expand the number of a worldwide audience through the Internet. Quality Enhancement Reviews to provide early input to task teams. While a number of these specific quality-re- lated activities have proved useful (and a few have not), Partnerships we believe that the broader network activities-most no- tably staff development and knowledge management- The final activity listed in the action program is the will contmue to be the most critical tools for improving exploration of new knowledge-sharing approaches portfolio quality. with partners. One such activity is a governance knowledge-sharing partnership with the Dutch, fi- nanced through a special trust fund. This partnership Knowledge Management is funding a variety of projects aimed at offering knowledge to clients in ways they can easily access and We have put extensive effort into knowledge manage- absorb. For example, a project in the state of Kar- ment. Public sector thematic groups are active and nataka, India, supports a local initiative to develop lively and are widely used as forums for formal and in- tools for assessing the quality of the government's de- formal knowledge sharing among staff. A thematic- livery of preventive health services. Another project group survey of staff was undertaken in summer 2001. supports a Russian-language website to deepen and While the results were generally favorable,22 they also broaden a public debate on possible options in the up- highlighted some areas for further focus, including the coming civil service and public administration reform need to reach out more effectively to country-based programs now being developed by the Government of staff. Respondents cited the lack of time and overwork the Russian Federation. as the key constraints to increased involvement in the Another example of innovative knowledge shar- thematic groups. ing-linked closely with capacity building and analytic Committed and well-informed knowledge sharing work (described in Section 3 above)-is the World through the Internet is one of the most useful activities Bank Institute's approach to governance and PSR. The the Bank can undertake, and thus we will continue to Institute organizes and delivers a wide variety of gov- commit significant resources to this end. The Public ernance and public finance-related workshops and Sector anchor has launched and continually updates programs, and all rely heavily on active client partici- nine websites that are all available externally, and these pation. The goal is not only to provide knowledge and are complemented by sites managed by the World Bank build skills but also to bring together clients to share Institute, the Legal Department, the Environmentally their knowledge and empower them to analyze and 34 Reforming Public Institutions and Strengthening Governance Governance and Public Sector ReformWebsites Development Community Driven LEG Legal & WBI Governance Research Group WBI Public Finance, Decentralization Development Judicial Reform & Finance wwwworldbank.org/ & Poverty Reduction wwwessdworHdbank www.worldbank www.worldbankorg/ research/projects/ www worldbankorg/wbi/publicfinance/ org/CDDWk2000.nsf/ org/legal wbi/governance publicspending Gweb/Home Legal Institutions Anticorruption Public Expenditure Tax Policy & Decentralization of the Market www worldbank-org/ Anaysis Administration www.worldbank.org/ Economy pubicsecor/ anagemen wwwworldbankorg/ publicsector/ wwwwceor/ldbankorg anticorru pt wvwwworidbank org/ publicsector/tax decentralization Administrative & - - g -1E-Gcovernment CMivi Service Reor *.wvwwworldbank org/ wvvw.worldbank.org/ publicsectorlegov publicsector/ovilservice PREM Public Sector www.worldbank.org/ publicsector address their own countries' problems. One example is lateral development banks, Commonwealth Secre- the anticorruption core course in the Latin America tariat, bilateral donors, and global nongovernmental and Caribbean Region, which has brought together organizations) and at the Regional level (for example, policymakers and civil society representatives from the Partnership for Capacity Building in Africa, Re- seven of the Region's countries (Bolivia, Colombia, gional anticorruption advisory groups in Europe and Ecuador, Honduras, Mexico, Paraguay, and Peru) to Central Asia and East Asia and Pacific, the network of understand, discuss, and devise strategies to combat Latin American supreme court justices, and the joint corruption in their countries. Bank-UNDP Partnership for Governance Reform in A third initiative focused on knowledge sharing Indonesia). Bank staff participate in many interna- with partners is the joint Bank-International Monetary tional conferences and working groups, and the net- Fund (IMF)-Organisation for Economic Co-operation work of contacts and the exchanges m knowledge they and Development (OECD) initiative to establish an in- foster have led to closer coordination and a stronger ternational tax dialogue (one of several recent joint ini- and clearer consensus in many areas of our governance tiatives with the Fund; Box 10). This initiative, and PSR work. summarized in a note sent to the Boards of the Bank and Fund m February 2002,23 aims to establish a mecha- nism for the regular exchange of knowledge and ideas Staffing, Organization, on taxation among industrial and developing countries and Partnerships: Summary alike. It seeks to promote an effective international dia- and Ongoing Issues logue, giving all countries the opportunity for real input into the discussion of tax administration and policy is- The Bank has made steady progress in organization, sues. It also seeks to identify good practices in taxation, staffing, and partnerships in the governance area and provide a clearer focus for technical assistance, and has to date fully met the goals set in the Strategy. With avoid duplication of effort in the activities of various in- regard to organization, the matrLx structure functions ternational organizations. reasonably effectively in this domain, with a clear divi- Two other ongoing partnerships are the Network sion of responsibilities and mutually supportive rela- on Good Governance and Capacity Development (a tionships between the Regions and the network network of donors organized by the OECD's Develop- anchor. The PREM Public Sector anchor has remained ment Assistance Committee) and the Governance small, and its work program is heavily geared to sup- Partnership in Indonesia (through which the Bank, the porting the Regions, both through its work on knowl- United Nations Development Programme (UNDP), edge management, staffing, quality, and partnerships and other donors supporting a broad program of ana- and more directly through operational support to Re- lytic work to help build civil society support for gover- gional task teams. Development Economics and the nance reforms; see the East Asia and Pacific update). World Bank Institute are active participants on the The activities discussed above and throughout Part PSGB, and they both also support the Regions and II attest to the expanding set of partnerships the Bank their clients through research, knowledge-sharing, and has developed with other organizations in the area of capacity-building activities. Staff in OPCS and Legal governance. We have invested heavily in strengthening Department undertake specialized work on financial partnerships both at the global level (for example, with management, procurement, and legal and judicial re- the IMF, UNDP, OECD, European Union, other multi- form. To date they have interacted with PREM staff 36 Reforming Public Institutions and Strengthening Governance Recent Bank-Fund Collaboration on Governance and Public Sector Reform The IMF is an important partner for the Bank, the joint effort of the Bank, Fund, and OECD to and both the Fund and the Bank have increased establish an international tax dialogue (ITD) as a their attention to issues of public sector reform means of sharing information and lessons of ex- (PSR) in recent years. The Bank's primary area of perience among tax administrators worldwide. focus is structural and institutional reform, The ITD is expected to lead to closer collaboration whereas the Fund's is macroeconomic stability in the tax area for years to come. and aggregate fiscal balance, but the two organiza- In all these areas-public expenditure, civil tions work together when interests overlap. Over service, and taxation-the Bank and Fund face the past 18 months, staff from the two organiza- important issues derived from their respective tions have strengthened collaboration further mandates. Areas of Bank focus include the com- through a number of joint activities related to position and efficiency of public expenditure and governance and PSR. One such activity was the civil service reform. Areas of Fund focus include analysis of public expenditure management the aggregate aspects of public sector spending (PEM) systems in Heavily Indebted Poor Coun- and revenues. Tax policy and tax and customs ad- tries and their ability to track poverty-reducing ministration are areas of overlap. The instruments spending. This work involved missions to 26 of the two organizations to support clients' pro- countries and resulted in a set of PEM indicators grams in these areas are different but generally and country-specific action plans for improve- complementary. The Fund provides balance-of- ment in PEM systems. A second activity, also re- payments support and a limited amount of expert lated to PEM, is the Bank-European Union Public technical assistance from in-house staff and resi- Expenditure and Financial Accountability pro- dent experts. The Bank provides medium- and gram; the Fund is a member of the steering com- large-scale adjustment and investment lending, mittee. A third activity involves civil service selected grants, and advisory and capacity-build- reform where the implementation of medium- ing support. Bank and Fund staff are working to- term structural reforms may at times create a gether to further advance their PSR agendas in challenge to maintenance of macro-fiscal balance. line with their respective mandates and to con- Bank and Fund staff have recently collaborated on tinue strengthening avenues for knowledge shar- an in-depth analysis of underlying issues in this ing and collaboration. This close collaboration area. In a recent workshop attended by 60 Bank follows the spirit of the note "Strengthened and Fund staff and managers, agreement was IMF-World Bank Collaboration on Country Pro- reached to go forward with several country-spe- grams and Conditionality," agreed to by both or- cific pilots to test various means of closer collabo- ganizations in August 2001. ration on these issues. A fourth activity has been Theme 4 Internal Staffing, Organization, and Partnerships 37 primarily through thematic groups and informal part- expertise in more specific technical subjects, such as nership arrangements. To ensure coherence in this accounting and auditing, informatics, and statistics. agenda, senior management has recently decided to With regard to staffing and professional develop- create a more inclusive PSGB by expanding its mem- ment, a leveling-off occurred in fiscal year 2001 (after a bership to include the Legal Department, OPCS, and previous three-year period of rapid growth), partly as a Private Sector Development and Infrastructure. This result of considerable budget pressure. Recruitment Board, which will also interact closely with other VPUs and staff training and development needs and demands and sector boards, will be the focal point and picked up again, however, in fiscal year 2002. Increases spokesperson for the Bank on public sector gover- in overall staffing have been matched by a consistent nance. Country-based governance work will continue growth in demand for work from our clients, and thus to be driven by country needs and strategies, defined in the Bank remains in need of skills to meet demand in the CAS and coordinated by the Regional PSGB mem- some key areas. First, we need to augment our skills ber (working with other Regional managers as needed, base in public expenditure management, for example, given the cross-cutting nature of this work). as well as in revenue (that is, tax and customs) policy Relative to five years ago, when staffing was thin, and administration, and e-government. Second, we we now have a sizable cadre of technical experts and need to deepen our skills base in institutional and polit- senior task managers, with about 220 Bank staff for- ical analysis. Third, we need to expand our cadre of sea- mally mapped to the Public Sector Group; a growing soned task managers who can work effectively with number of financial management, procurement, and clients to integrate various discrete areas of PSR into ef- legal specialists in OPCS and the Legal Department; fective and mutually remforcing programs of gover- and membership of more than 840 Bank staff from nance reform. Fourth, we need more interdisciplinary many VPUs in our seven core thematic groups. In- and analytic expertise in legal and judicial reform. The creases in overall staffing have been matched by a con- Bank has already made significant progress in all these sistent growth in demand for work from our clients, areas, but more is needed. and thus the Bank remains in need of skills to meet de- With regard to location of work, public sector ex- mand in some key areas. The kinds of staff needed pertise in the East Asia and Pacific and South Asia Re- were described in the Strategy: governance is a highly gions already is highly decentralized, with almost half interdisciplinary area, and effective task teams com- of public sector staff (the majority of whom are locally bine good task managers, technical experts in various recruited)-including one sector manager-located in areas, and experts in broader areas of institutional and country offices. Staffing in the other four Regions is political analysis who can help integrate various ap- less decentralized, and a modest increase in country proaches and disciplines into a holistic view at the presence is expected over the next two years. Patterns country level. Broad disciplinary backgrounds that can be expected to vary by Region, depending on a have proved to be highly relevant to this area of work number of factors, including the number and size of include economics, political science, law, and public countries, volatility of country programs, cost and management, and these need to be complemented by other logistical factors, and availability of local talent. 38 Reforming Public Institutions and Strengthening Governance ^U 7I-1O ON SIX - ___ Conclusions T aken all together, the Bank has made steady governance continues to be a central focus in Bank progress m implementing the public sector strategy documents and was highlighted as a continu- and governance strategy it finalized in 2000, ing top priority at the recent Strategic Forum. One of Reforming Public Institutions and Strengthening Gover- many signs of continued commitment is the recent de- nance: A World Bank Strategy. The need to focus on in- cision to focus the Institutional Development Fund on stitution building and the centrality of good two core areas related to governance: (a) public expen- governance to development are well recognized, and diture and financial accountability; and (b) legal and the magnitude of the Bank's efforts and activities has judicial reform. increased considerably. There has been consistent Despite our general progress and optimism for progress along all four of the major thrusts envisioned the future, the Bank needs to continue to address a in the Strategy to improve effectiveness: number of issues highlighted in this update. On the * Broadening the approach to focus on the demand, operational front, we need to continue to deepen our as well as the supply, side of reform Starting with existing situations and dUnderstand and measure governance realities on Starytin wirkth udexstisand dbettepe ga the ground (including their political and institu- alytic work to understand them better tional roots) through upstream diagnostic work, * Moving to broader and longer term lending conducted in a participatory manner to enhance instruments capacity building * Strengthening staffing, organization, and * Monitor the impact of Bank projects and pro- partnerships. grams in improving governance-and, ultimately, in reducing poverty-in client countries The way ahead also looks strong. There is no evi- dence of waning attention or commitment; indeed, * Mainstream governance concerns across sectors 39 * Balance a stronger focus on anticorruption and Address strategic staffing concerns (particularly governance with the need for country ownership the need to attract and retain a diverse and high- and the imperative of poverty reduction, particu- quality set of senior task team leaders) larly in weak governance environments * Promote effective work processes in an increas- * Practice selectivity by focusing our efforts where ingly decentralized environment the likelihood of success is strong. Strengthen staff incentives to document and dis- On the management front, we need to continue to semmate lessons of experience and good practice deepen our efforts to: * Ensure resource availability and handle budgetary * Implement the inclusive model and expanded tradeoffs. mandate of the Public Sector Governance Board We intend to continue to address these challenges and deepen its collaboration with other sectors and Vie-Presiden tialUnitscoaborat withothersect energetically as we move forward in this critical area of and Vice-Presidential Units wok work. 40 Reforming Public Insuitutions and Strengthening Governance N OT E S 1. Governance is broadly defined in the Strategy as "the Bank staff appear eager to avail themselves of the struc- way in which power is exercised in managing economic ture and guidance that a toolkit can provide. Based on and social resources for development." Institutions are the feedback from task managers, the electronic tool is defined as the "rules of the game" that emerge from for- being revised to make it more agile and less time- mal laws, informal norms and practices, and organiza- consuming for use by Bank staff. tional structures in a given setting; the incentives they 4. The expansion of this work was also documented in the create shape the actions of public officials. Clearly this is Operations Evaluation Department's International a large topic that touches almost everything the Bank is Development Association Review, "Governance-The engaged in. The Strategy focuses primarily on reforms Critical Factor, IDA 10-12," OED, World Bank, May of systemwide public sector institutions (such as admin- 2001. istrative and civil service reform, public expenditure 5. A range of countries have made considerable progress- management, tax and customs administration, legal and judlal rformdecetralzatin an intrgovrnmetal among them, Bolivia, Burkmna Faso, Ghana, Guinea, judicial reform, decentralization and intergovernmental Mauritania, Mozambique, Rwanda, Uganda, and Viet- relations, and other systemwide accountability and anti- nam. Except for one, these are also the countries that corruption institutions) and their interface with sectoral have successfully completed their first Poverty institutions. It touches only lightly on institutional con- cerns within specific sectors (for example, in health, Redcion Staelg Per the d emonst ie education, the financial sector, the private sector, and closelnk developn b n teCPr n rural infrastructure), and it does so primarily to point out generic issues that concern many sectors. Sector- 6. The International Development Association (IDA) also specific and governance issues are covered in greater uses the country performance and institutional assess- depth in strategy papers for individual sectors. ment performance indicators and related governance discounts to help direct IDA resources to committed 2. Since 1997 the Poverty Reduction and Economic Man- andswell-erforming rrowrs. agement Network's Public Sector anchor has main- and wetl-performmg borrowers. tained a database on the Bank's lending for institutional 7. See "World Bank Work on Public Expenditure Manage- reform, both lending for core public sector areas and ment and Accountability: Evolution and Current institution-building components of sector lending. This Status" (SecM200 1-0262) and "Actions to Strengthen database was used in the Strategy, and it is also used the Tracking of Poverty-Reducing Public Spending in here, because it is directly comparable across years and Heavily Indebted Poor Countries (HIPC)" thus can show trends in lending over time. However, it is (IDA/SecM2002-0030). important to note that this database is not directly com- 8. A path-breaking area for further understanding is the parable with the data on lending for public sector gover- linkage between local governments and community- nance recently compiled as part of the Bank-wide based organizations (CBOs). The Community Driven portfolio reclassification exercise, which used somewhat Development Group and the Decentralization Thematic different categories and methodology. Group are working closely together on incentives and 3. The results of the piloting exercise were quite favorable. channels for improving relations between local govern- The Operational Policy was generally well understood ments and CBOs. and appreciated, adding value to the pilot projects. 9. In 2000 the Bank established a thematic group on e- Meanwhile, the supporting electronic tool, though not government. This thematic group has gathered relevant required for piloting the Operational Policy, was used in experience by commissioning case studies from all over 8 of the 10 pilots. In the area of institutional analysis, the developing world and disseminating them through Notes to Part One 41 an external website (http://www.worldbank.org/public nance and Poverty Scoping Note (fiscal year 2001), and sector/egov) and through several major seminars, Zambia Governance and Poverty Scoping Note (fiscal including an e-government workshop at Bank year 2001). headquarters in June 2001. 15. See http://www.worldbank.org/htmV1pic/Dp_root.htm, 10. These are available through the World Bank Institute s.5, especially paras. 15-17. website at http://www.worldbank.org/wbi/governance/. 16. See note 7 above. 11. An external website developed in conjunction with the 17. For toolkits and survey instruments, see Development Assistance Committee of the http://wwwl.worldbank.org/publicsector/toolklts.htm Organisation for Economic Co-operation and Develop- and http://www.worldbank.org/wbi/governance/. ment (http://wwwl.oecd.org/dac/indicators/) contains 18 See note 7 above information on these efforts. 19. See http://www.worldbank.orglhtmllpic/Dp_root.htm, 12. Updated operations manual, "Financing Severance Pay Sect peciallybaraic56. in Public Sector Reform Operations," April 4,2002. Section 5, especialy para.56. 13. "Design and Management of Technical Assistance in 20. The community-driven development agenda will con- tinue to be overseen by a cross-network steering group, the PREM Portfolio: Stocktaking and Lessons Learned," wihi ikdcoeyt iia rs-ewr December 2001.~~~~~~~~~~~~~~~ which is hinked closely to a similar cross-network December 2001. thematic group on decentralization. 14. These include the Argentina Social Sector Institutional 21. This experience brought some practical difficulties to Review (fiscal year 2001), Armenia Institutional and the surface in hiring staff in anticipation of future job Governance Review (IGR) (fiscal year 1999-2000), openings-particularly during periods of tight budgets- Bangladesh IGR (fiscal year 2001), Bolivia IGR (fiscal rather than in response to specific ob availability. year 2001), Burkina Faso IGR (fiscal year 2001), p p a bty Cameroon governance and poverty scoping work (fiscal 22. Results are available on the internal website: year 2001), Chad governance and poverty scoping work http://www.wbweb.worldbank.org/prem/prmps/ (fiscal year 2001), eastern Caribbean IGR (fiscal year publicsector/tg_survey-results.ppt. 2001), Indonesia IGR (draft, fiscal year 2000, not com- 23. "Developing the International Dialogue on Taxation- pleted), Nigeria state and local governance study (fiscal A Joint Proposal by the Staffs of the World Bank, IMF year 2001), Peru IGR (fiscal year 2001), Tanzania Gover- and OECD" (SecM2001-0700/1). 42 Reforming Public Institutions and Strengthening Governance PA RT T W' - Regional, Development Research Group, and World Banlk Institute Updates 43 SECT IO N SEVEN V ___ Africa Region In November 2000, the Poverty Reduction and Eco- Better governance is a development imperative for nomic Management Network (PREM) Public most African countries.... Good governance should Sector Group (PRMPS) published a strategy, Re- aim to achieve the 'three Es': forming Public Institutions and Strengthening Gover- * Empower citizens to hold governments accountable nance.' As that Strategy highlighted, effective reforms to build public sector capacity are needed to address through participation and decentralization. to bdd pblicsectr caacit areneedd toaddrss * Enable governments to respond to new demands by both the technocratic "supply side" of reform (training, ble goermetsn improved management systems within organizations, buildcng capacity. etc.) and the more political "demand side" of reform enfor compance hf (including careful attention to check-and-balancei greater transparency.3 stitutional arrangements and, more broadly, the incen- This section updates how the Africa Regional Vice- tives confronting public actors). Throughout the 1990s, Presidency (mindful of our respect for country owner- emphasis had been put disproportionately on supply- ship and the limits of the Bank's mandate) has been side initiatives. Thus, the centerpiece of the 2000 implementing its renewed governance strategy over the Strategy was a call to "broaden our approach [by] em- past two years.4 The section is organized to highlight powering our clients and fostering accountability."2 the Africa Region's progress in each of the four princi- This focus on empowerment and accountability as pal themes identified as targets for attention in the central to public sector reform (PSR) is entirely consis- Bank-wide Strategy. As such, it will not aim to provide a tent with the approach laid out in the multipartner comprehensive stocktaking of the full array of gover- collaborative publication, Can Africa Claim the 21st nance-related activities under way in the Region-part Century? (chapter 3 of the Strategy document). That of the mainstream operational toolkit of the Bank. document highlighted the following: Rather, as a strategy issued by PRMPS, primary atten- 44 tion will be given to that facet of the Region's program.5 tor governance (PSG) is addressed within the Bank's Even so, as will be evident, much of the Region's country programs. At the same time, three new, high- progress cuts across the sectoral "stovepipes" within profile initiatives have moved to center stage within which the Region (as the rest of the Bank) is organized. the Region: the Poverty Reduction Strategy Paper (PRSP) process, community-driven development (CDD), and an intensified focus on expenditure ac- Theme 1: Broadening the Bank's countability in the context of the enhanced Heavily In- Approach and the Content of debted Poor Country (HIPC) program. Country Programs While each of these initiatives has a distinct origin, all three place special emphasis on transforming the Since the mid-1990s the Region has been exploring ap- incentives facing public officials. All three facilitate proaches to strengthening governance that move be- new, participative mechanisms of interaction between yond narrowly technocratic, supply-driven (and only states and societies. And all three require intensified partially successful) public management reforms. Over cross-sectoral collaboration if Bank staff are to add the past two years, the pace of this process has acceler- value in implementation. Taken together, these initia- ated. The launch of the Partnership for Capacity tives are transforming the way governance is addressed Building-with implementation in the hands of the in the Region's country programs. Africa Capacity Building Foundation (Box 11)-has Governance and the PRSP process. The lightning freed staff resources to focus more on how public sec- rise of the PRSP process to center stage in the Bank Africa Region: Partnership for Capacity Building in Africa In 1999, the World Bank Board of Executive Di- It has become active in Africa-wide and Regional rectors approved the Partnership for Capacity capacity-building issues, is focusing on integrated Building in Africa (PACT), to support capacity- country programs, and is creating a functional and building efforts in Africa, and committed up to operational knowledge management program to $150 million in World Bank funding. The PACT is serve institutions across Africa. Given its expanded being implemented by the Africa Capacity Build- mandate, ACBF is also strengthening its own insti- ing Foundation (ACBF), based in Harare, Zim- tutional capacity through an intensive change babwe. Integration of PACT into ACBF's mandate management process. has proceeded quickly, with ACBF's portfolio ex- ACBF's PACT projects are supporting key ar- panding from 34 projects to more than 80 projects eas of public sector and good governance pro- in just two years. grams in Africa. Many of the projects directly Under an aggressive strategic medium-term build capacity for improved public service man- plan ACBF is positioning itself to play a much agement, economic analysis, and roles in parlia- more significant role in capacity building in Africa. ments, civil society, and the private sector. Africa Region 45 (and, more broadly, donor) dialogue with African newed approach to governance. The challenge is to countries is the culmination of three trends: reconcile participation by civil society in the PRSP The realization that externally imposed conditions process with the primacy of elected parliaments as do not provide a workable foundation for eco- representative of popular voice. nomic development. The PRSP thus becomes a The PRSP process increases the focus of develop- framework within which countries themselves set ment efforts on outcomes and outputs and hence the agenda of donor support for development. on the ability of the public sector to actually deliver * The recognition that country ownership comprises services. As discussed below, this has in turn raised more than a decision process that plays out wholy the profile of decentralization and CDD as promis- within a government bureaucracy: it involves dia- ing mechanisms of service delivery, with impor- logue and consensus formation with a full range of tant effects on the Africa Region's agenda of public citizens and their representative organizations sector work. (with a special position in this process for elected The PRSP could bring back to the center of devel- parliaments). A national conversation about a opment discourse a comprehensive view of policy country's PRSP has the potential to broaden this choices and their tradeoffs. This will require bridg- foundation of ownership. ing the gap between the PRSP process and more * The emergence of new mechanisms for transfer- formal mechanisms for making choices at the ring resources to poor countries. Accelerated HIPC highest levels of government and making disci- debt reduction, accompanied by a broader effort to plined choices within some medium-term fiscal move toward more programmatic forms of donor framework. support, is a key element. PRSPs provide an impor- The PRSP process has heightened focus on coun- tant source of comfort for donors-the idea that tries' abilities to account for how public monies are debt forgiveness and Programmatic Loans will in- used-a focus that also has important implications deed help reduce poverty. for public sector work. The sudden prominence of PRSPs is reflected Indeed, the potential impact of the PRSP on the clearly in the Region's work program. In fiscal year Bank's work is so profound that the remainder of this 2002 alone, the Region is projected to help facilitate implementation update can be interpreted as describ- delivery of 6 interim and 22 full PRSPs to the executive i h ing how the Africa Region IS working to support the directors of the Bank. And beyond work associated PSG agenda of the PRSP. with the PRSPs themselves, the PRSP process is pro- Comnity-driven development and PSR. Over foundly changing the process and content of Bank op- the past two years, the Africa Region has embraced erations in Africa. Four of these changes are especially CDD, a vision of poverty reduction through empower- relevant for our operational work on governance: ment. As Box 12 highlights, CDD has enormous po- * The PRSP process has made participative state- tential to transform the Bank's PSR work in Africa. society interaction increasingly central in the for- The Region's CDD work is reshaping our pro- mulation of public policy. This emphasis on grams of country assistance in two ways: by scaling up participation is consistent with the focus on em- resource transfers made directly to communities; and powerment and accountability in the Bank's re- by linking "bottom-up" community empowerment 46 Reforming Public Institutons and Strengthening Governance Africa Region: Community-Driven Development and the Public Sector Reform Agenda In June 2001, Africa Region published a vision the center, as many responsibilities and resources statement, "Community Driven Development in will shift from the center to local governments. Africa: A Vision of Poverty Reduction through Management and control processes geared to sup- Empowerment." This statement has been distrib- porting a monolithic hierarchy will need refash- uted widely among our development partners (the ioning to support arms-length relationships initial printing consisted of 17,000 copies, in both between multiple centers of power. Traditionally, English and French). Commonly, CDD is per- central governments in Africa have followed the ceived as referring narrowly to "bottom-up" mech- 'blue collar' approach of operating all services. Af- anisms for engaging communities. As the excerpts ter decentralization, they will need to shift to a below from the vision statement make clear, how- 'white collar' approach. Instead of running serv- ever, the agenda is a substantially broader one, ices directly, they should focus on facilitating local with important implications for the process and government activities, setting standards, monitor- content of PSR: ing outcomes, providing training to lower levels, CDD and the process of PSR. "The starting and providing rewards and penalties to improve point of CDD is to empower communities by giv- local government performance. Reformers will ing them more resources, and authority to use come up against fears and resistance from civil these flexibly. But this process cannot depend for- servants and other powerful groups who believe ever on short-lived donor programs: it must at they will lose from the change. The reform pro- some point be embedded in a permanent, decen- gram needs to send the message that decentraliza- tralized institutional structure for the public sector. tion does not mean the withering away of the Past experience suggests that decentralization will center; it implies a joint venture between different not work without vibrant, participatory communi- levels of government, each contributing on the ties. And enhanced participation will at some point basis of its comparative advantage." (pp. 10-11) need a local government structure for sustainabil- The CDD vision thus calls for PSR and capac- ity. The two can evolve together dynamically, ity building-specifically for a transformation of strengthening one another." (p. 4) the skills, capacities, and methods of both central CDD and the content of PSR. "Decentraliza- and local governments. tion implies a far-reaching change in the role of Africa Region 47 work with "top-down" institutional reforms aimed at for the use of public monies-givmg meaning to reorienting the public sector to support stronger, more democracy, as well as being consistent with laws al- accountable local governments. Over the past two ready on the books in most African countries. years, principal achievements included the following: Agreements to accelerate HIPC debt forgiveness New International Development Association com- have led donors (responding to pressure from their mitments of the Africa Region directed specifically citizens) to seek credible evidence that HIPC re- to CDD amount to approximately $700 million ceipts are indeed being used to help reduce over the 2000-01 period (all dollar amounts are poverty. current U.S. dollars). As a signal of the Region's Many donors have begun to recognize the poten- commitment to CDD as a strategic priority, $2 tial benefits of programmatic approaches to donor million of its administrative budget was earmarked assistance. Programmatic lending is a more trans- ($1.5 million in fiscal year 2001 and $0.5 million in actionally efficient way of transferring resources, fiscal year 2002) for promoting CDD. and it has the potential to help buttress, rather than SLxteen country teams received budget support to fragment, public expenditure management (PEM) encourage their CDD efforts. The result has been and administrative systems. But programmatic expanded resource transfers to communities (with lending can only be workable on a large scale if new lending operations for this purpose in process expenditure accountability systems in recipient in, for example, Madagascar, Niger, and Nigeria), countries are strong. plus increased economic and sector work (ESW) While expenditure management has long been an and operational work to support decentralization important part of the Bank's policy dialogue with (including in Benm, Burkina Faso, Cameroon, African countries, the focus on expenditure accounta- Chad, Ethiopia, Guinea, Mozambique, Senegal, bility constitutes an important shift in emphasis. The and Zambia). emphasis of expenditure management work in the Re- gion has been on budget formulation: both economic In all, the Region's embrace of CDD as a strategic work (focused on the relative social rates of return of priority has created an Important, demand-driven en- alternative patterns of spending) and institutional try point for PSR. As described below, over the past two years this has begun to be reflected in both ESW twork (focusing on the processes of budget formula- and pertion tht hihliht he bidg beteenCDD tion). By contrast, the new emphasis highlights budget and thebroaders thathigendagof govebrna e andtPeRn CDD execution systems, which aim to ensure that resources Strengtheningade expgenditufgoernne accnt Sy. are indeed spent for the purposes intended, and re- Stregthnin exendtureaccuntbilty ys- porting systems, which facilitate the independent tems. Over the past two years the need for governments ortig systems wi facliatenth inddent to tansprenly acoun fo howpublc mniesare oversight (ultimately by parliaments and citizens) that to transparently account for how public monies are i eust fassanbe elfntoigbde used has moved rapidly to center stage in the develop- isaeq, ment discourse in Africa: system. The 2001 paper, "Tracking of Poverty Reducing Following a decade in which 45 African countries Public Spending in Heavily Indebted Poor Countries held multiparty democratic elections (many for (HIPCs)," prepared for the Boards of both the Bank the first time), citizens are pressing their elected and the International Monetary Fund (IMF), gave representatives to hold public officials accountable added impetus to this refocusing of public expenditure 48 Reforming Public Institutions and Strengthening Governance work. The urgency of focusing attention on public ex- a symptom of underlying weaknesses in institutional penditure and financial accountability-in particular checks and balances. Viewed against that backdrop, budget execution and monitoring-is clear. the Africa Region's new emphases on civic empower- The Africa Region's intensified focus on budget ex- ment (in the PRSP process and the CDD initiative) ecution and reporting systems provides an important, and expenditure accountability represent a focused, demand-driven entry point for efforts to strengthen implementable intensification of our anticorruption public management systems. As described further be- agenda. low, over the past two years this has begun to be re- flected within the Region in the ESW agenda, the operations content, and the staffing patterns. Intensi- fied effort in these areas has also provided impetus for Theme 2: Deepening Our collaboration between the Region and other Vice- AnalyticWork Presidential Units within the Bank: The Region's analytic work on PSG is undertaken pre- * The Development Economics Vice-Presidency, the dominantly under the umbrella of two ESW product Bank's research arm, has mounted a ma)or mitia- "brands. " The first is the Public Expenditure Review tive to track the link between public expenditure (PER)-a traditional brand that now incorporates flows and performance at the front line of service analysis of PEM institutions. In fiscal year 2002 alone, delivery. An initial round of analysis tracked what the Region is projected to complete PERs in seven fraction of nonwage recurrent expenditures allo- countries. The second brand comprises the Institu- cated to education actually found its way to tional and Governance Reviews (IGRs)-a new family schools: for Ghana, Tanzania, and Uganda, respec- of products designed specifically for analytic work on tively, the results were a dismal 50, 43, and 22 the political and institutional incentives that shape the percent. (The Ugandan Ministry of Finance re- behavior of public officials, an issue highlighted in the sponded to this result by disbursing funds directly 2000 Strategy document. Taken together, the IGRs, the to school principals and informmg communities new-style PERs, and related work are helping to directly of these disbursements; reported receipts strengthen the analytic base of our operational efforts rose to close to 100 percent of allocations.) on PSG. * The World Bank Institute also has provided im- Understanding countries' expenditure accounta- portant support to the Africa Region's expenditure bility systems better and helping to strengthen them accountability efforts by aligning many of its core have been major thrusts of the Region's ESW over the offerings-both technical offerings on budgeting past two years: and programs geared for parliaments and journal- PERs have put more focus on the processes of ists-to support capacity building for a strength- budget formulation and on the institutional ened budget cycle. arrangements for monitoring and controlling ex- In the late 1990s, the catalyst for moving gover- penditures, with correspondingly less attention nance to the top of the development agenda was the given to normative analysis and judgment about rising public revulsion toward, and willingness to the composition of countries' budgets. A good- speak against, the blight of corruption. All along, there practice example of this new approach is the PER has been clear recognition that pervasive corruption is completed for Malawi. Africa Region 49 * The expenditure control systems of all 22 HIPCs TABLE 2 Institutional and Governance Reviews have been benchmarked, with special reference to in Africa Region, byType and their capacity to track poverty-related spending, Country Focus (FY of completion) through an effort in 2001 (led by the Bank's Public Focus of IGR Sector Network anchor and undertaken jointly with Administrative the IMF and in collaboration with the Region).6 Type of Reform for Service * Country financial accountability assessments were IGR Political Economy Delivery conducted in close to a dozen African countries in Formal Nigeria (FYOI) Burkina Faso (FYOI) 2000 and 2001. Ethiopia (FYOI) Benin (FY02) * Country Procurement Assessment Reports (CPARs) Senegal (FY02) were conducted in seven African countries (CPARs Pilot Cameroon (FYO 1) Mozambique (FY02) support the expenditure accountability agenda by Chad (FYOI) giving detailed attention to the efficiency and trans- Tanzania (FYO 1) parency with which public resources are used to procure goods and services). Note: FY, fiscal year; IGR, Institutional and Governance Review. • A comparative review of the experience of six challenges and opportunities of operational work at African countries that have worked to put in place the subnational level. a computerized integrated financial management As seen in Table 2, five of the Region's IGRs have ex- information system was conducted jointly by the plored the strengths and weaknesses of public manage- Africa Region's public sector and Quality/Knowl-, ment systems from the perspective of frontline service edge groups. delivery. Piloted in fiscal year 2001 in Burkina Faso and As Table 2 shows, IGRs in the Region have focused Ethiopia, the approach is being used in fiscal-year-2002 on two sets of issues: the political-economic determi- analytical work in Benin, Mozambique, and Senegal. In nants of public action and the quality of administra- their emphasis on service delivery, these new IGRs help tive systems for service delivery. In five countries, strengthen the analytical underpinnings of the PRSP. IGRs have synthesized knowledge about underlying And in their emphasis on the interaction between cen- political-economic drivers of decisionmaking. This tral government and subnational public actors (both delicate exercise was piloted in fiscal year 2001 for local governments and deconcentrated line agencies), Cameroon, Chad, Ethiopia, Tanzania, and Zambia; the IGRs reinforce the CDD agenda of bringing control Nigeria's fiscal-year-2001 IGR focused on governance over public resources closer to the community. at the state level. The result of the pilot was a consensus among senior Africa Regional management that the exercise is worth undertaking-not necessarily as a Theme 3: Focusing Our Lending self-standing product but as a valuable input into the on Long-Term Institutional Reform Country Assistance Strategy (CAS) process, geared specifically to strengthening the knowledge base of The Africa Region's operational portfolio to support Bank staff. Nigeria's fiscal-year-2001 ESW, for exam- PSR and capacity building is being reshaped by the rise ple, heighteried attention in the resulting CAS to the in attention to the demand-side drivers of PSR; the 50 Reforming Public Institutions and Strengthening Governance TABLE 3 Active Public Sector Capacity-Building Operations Efforts to help ministries and agencies, in Africa Region (Board date) at both central and deconcentrated levels, improve incentives for perform- Type of Operation ance by shifting responsibility for serv- Principal Subject Adaptable ice delivery closer to the front line Area of Operation Program Loans Projects (including clarification of the new im- Expenditure accountability Kenya (FY01) peratives for the central government congo, Rep. of (FY02) associated with decentralization and Ghana (FY02) CDD [see Table 3 and Box 121) Malawi (FY03) Tanzania (FY03) Efforts to help ministries and agencies Broader administrative reform Ghana (FY00) Cape Verde (FYOO) clarify their role in relation to the pri- and capacity building Guinea (FY0 1) Lesotho (FY03) vate sector, now that virtually all Tanzania (FY0 1) Nigeria (FY03) Ethiopia (FY03) Uganda (FY03) African countries have moved toward Both Zambia (FYOI) Madagascar (FY03) market-friendly economic policies Mozambique (FY03) * Efforts to reform pay and the terms of Note: FY, fiscal year. public employment more broadly, to foster an environment conducive to ca- pacity retention search for mechanisms that transfer resources more ef- *Efforts to strengthen public expenditure control fectively than traditional technical assistance (TA) and and accountability systems (on which more is de- investment projects; and an emphasis on capacity scribed below). building rather than on TA. Table 3 summarizes the operational portfolio in a way that highlights two key As these APLs move into their second phase, an emerging trends: increased use of Adaptable Program emerging challenge will be to streamline the Bank's Loans (APLs) and an increased emphasis on expendi- procurement and disbursement arrangements so that ture accountability. they can complement the flexible, demand-side sup- A first trend is increased use of APLs as lending in- port that becomes feasible once a country has in place struments better aligned to the long-term character of a workable institutional framework for capacity institutional reform and capacity building. As of end building. 2001, public sector APLs were under preparation in A second trend is a heightened focus on expendi- Ethiopia and Mozambique and under supervision in ture accountability in both APLs and projects. Paradox- Ghana, Guinea, Tanzania, and Zambia. The first phase ically, growth of this facet of the Region's project of these loans typically focuses on the institutional portfolio has been driven in large part by a surge of en- framework, with the promise of making substantial re- thusiasm for Poverty Reduction Support Credits sources available for training and related learning ac- (PRSCs) and other fungible resource-transfer mecha- tivities in the second phase, once an incentive nisms for supporting countries' PRSPs. In many framework conducive to capacity building and reten- African countries, the framework of public administra- tion is in place. The first phase typically includes these tion is so weak that increased public spending in areas key elements: identified in the PRSPs would not necessarily have any Africa Region 51 significant impact. The questions thus arise: How rap- approach in Burkina Faso, whose 2001 PRSC was idly can the move toward PRSCs (and fungible pro- preceded by an expenditure accountability approach grammatic lending more broadly) proceed in countries implemented throughout the 1994-2000 period. where systems of expenditure accountability, and pub- An overal emerging lesson from the evolving ex- lic service delivery more broadly, remain weak? And perience with public sector operations over the past how, in the context of the move to PRSPs, can these ex- two years is that, for all of the promise of APLs and penditure accountability systems be strengthened? PRSCs, "projectized" implementation may remain a The Region's country programs have adopted a va- useful way to provide the intense, sustained scrutiny riety of approaches to strengthening the budget execu- f tion and reporting underpinnings of PRSCs and other needed wheres there s as eed for ac- fungible Programmatic Loans: countability, where there is an urgent need for rapid fungible Programmatic Loans:ganinpbccpcty gains in public capacity. Folding expenditure accountability efforts into Recent experience also points to two further con- Programmatic Loans. The pioneering Burkina tinuing roles for more traditionally structured public Faso and Uganda PRSCs both focused heavily on sector projects in the Region's portfolio. First, in many administrative reforms, especially (for reasons African countries, the institutional framework is too noted earlier) on expenditure accountability; this weak to support programmatic capacity building and approach was also adopted in Benin's recent Public has little prospect of significant improvement for the Expenditure Reform Credit. The strength of this foreseeable future. Experience from a series of projects approach is that it could foster ownership of the initiated early in the 1990s-Implementation Com- expenditure accountability agenda on the part of pletion Reports were completed in 1999-2001 (includ- the recipient country. Its potential weakness is that ing for Burkma Faso, Malawi, Mozambique, Tanzania, it combines in one quick-disbursing instrument Uganda, and Zambia)-suggests that, under these cir- both "stroke of the pen" reforms (the classic com- cumstances, flexibly and skillfully implemented tradi- ponents of such lending) and long-term efforts at tional TA projects can build capacity and help lay a capacity building. foundation for more ambitious reform efforts. Complementing quick-disbursing loans with par- .Second, even in settings with stronger institu- allel capacity-building operations. This was, of tions, stand-alone projects can sometimes continue as the most effective mechanism for supporting ca- course, the classic combination of structural ad- a h otefciemcaimfrspotn a jourstmente clandsTA. "ombine atio"vrion of structupacity building and providing an opportunity to push the frontier of instrument design in innovative new this approach (PRSCs plus capacity-building oper- directions: ations) is being attempted in Madagascar, Malawi, Mozambique, Tanzania, and Uganda, five coun- Uganda, which has a well-articulated institutional tries where the agenda includes both PRSCs and framework, has decided to complement its PRSC complementary projects that focus on expenditure with a stand-alone, multidonor capacity-building accountability (see Table 3). project (innovatively designed to ensure flexible * Delaying PRSC-style lending until the expenditure demand-driven access for public agencies commit- ...stye.... ted to improved, focused performance). accountability systems have achieved some mini- mum baseline of performance. This approach is be- VWhile Nigeria's federal constitution clarifies the ing adopted in Zambia, and it was the de facto limited role of central government, capacity at 52 Reforming Public Institutions and Strengthening Governance the state level is weak. An innovative operation is consultants with strong expertise in political economy being prepared to support-on a competitive, and governance. Demand for the specialized skills of demand-driven basis-the more forward-looking, these staff and consultants has been high. performance-oriented governments emerging in All three strategic drivers described earlier-the some states. PRSP process, CDD, and the expenditure accountabil- Innovative efforts aiming to strengthen the budget ity work-depend for their success on cross-sectoral work. Enabling these multisectoral agendas to work ef- cycle as a whole-with capacity-building support, not only for public management systems, but also fectively has been a particular focus of Public Sector for parliamentary accounts committees and citizen Group management. The CDD Steering Team, which was co-chaired by the Public Sector Group manager, organbizationdinsgtatrfo oength quaityorpod impcto directed its financial support to country teams that of public spending-are being incorporated into operations currently being prepared in Ghana, were willing to bring together specialists from diverse sectors (typically including social protection, rural and Malawi, and Tanzania (all programmed for Board human development, and the public sector). Similarly, the work to assess expenditure accountability capaci- ties (and Bank efforts to strengthen them) for the 22 Theme 4: Internal Staffing, African HIPCs was undertaken jointly by macroeco- Organization, and Partnerships nomics, financial management, and public sector staff. The experience of the Public Sector Group suggests As noted earlier, with the maturation of the Partner- that a genuine commitment to multisectoral partner- ship for Capacity Building in Africa (see Box 11), the ing in an open, non-turf-oriented way can empower, priority agenda over the past two years has been inter- rather than weaken, the participants. nal: strengthening the quality and quantity of work on An important challenge will be to fine-tune the PSR and capacity building, as well as governance, by balance between staff located in Washington and those engaging the Bank's country teams more effectively. in the countries. In working to rebuild the public sec- The approach has been twofold: to win credibility by tor program, the Bank's principal focus so far has been strengthening the specialist skills of staff and to focus reaching the critical mass needed to effectively support on approaches that highlight the win-win gains from country teams. But as PSR and capacity building be- multisectoral partnerships. come a stable part of the work programs of country On the staffing side, the focus of recruitment has teams, the opportunities are growing for moving the been on public administration, an area in which skills center of gravity of the work closer to our clients. It is were in short supply. Over the past two years, a well-re- thus expected that over the next few years there will be spected lead specialist in public management and two more recruitment of local staff to support country- senior and three entry-level public sector specialists level public sector operations, with mentoring support were recruited into the Public Sector Group. In addi- provided through the relocation of internationally re- tion, the group has built a network of independent cruited staff. Africa Region 53 Africa Region: Matrix of Selected Activities The following matrix contains a list of selected activities pre- sector-specific activities-for example, in the social sectors sented to the Board, finalized or active in fiscal years (health, education, social protection), in rural development, in 2000-02, and selected activities under preparation in fiscal municipal development and infrastructure, in privatization and year 2002. Although challenges of governance and PSR cut private sector development, in social funds, and in postcon- across most of the Bank's work, the matrix focuses on core flict work. Activities are listed only once, although they may fit governance reforms and does not include many importnt in several categories. Upstreanm [ngagenment, KnowDedge, Financing, Preparation, Supervisoon, and and Learning gmplernentation o5f Mew Operations (ESW and Diagnostics) (Lending) Public Finance Management General o ICR: Public Resource Management Credit * Public Resource Management Credit (Mauritania, Project (Mauritania, FY0 1) FY97/98/99100) * Governance Knowledge Management Flagship: design and * Fiscal Consolidation Credit (Central African Rep., FY00) implementation of integrated financial management * PHRD grant public expenditure reform (Uganda, FY00) systems (FY0 1) Fiscal reform support operation (Mauritania, FY00) * Tracking of poverty-reducing public spending in HIPCs * Fiscal Sustainability Adjustment Credit (FY0 1) (Zambia, FY00) * Actions to strengthen the tracking of poverty-reducing Public Expenditure Reform Credit (Uganda, FY00; Benin, public spending in HIPCs (FY02) FYOO-01) * ICR: Economic Management Project (Benin, FY0 1) Public Sector Adjustment Credit focusing on accountabil- * ICR: Economic Management Project (Guinea-Bissau, ity and transparency in public resource use (Kenya, FY0 1) FY0 1) Third Fiscal Restructuring and Deregulation Program * ICR: Parastatl and PSR (Tanzania, FY0 1) (Malawi, FY0 1) * Supplemental Credit to the Fiscal Reform Support Opera- tion Project (Mauritania, FY0 1) * Supplemental Credit to the Public Finance Recovery Credit Project (Niger, FY0 1) * Public resource management and public resource manage- mentTA (SaoTome and Principe, FY01) Public Expenditure Review * PER (Tanzania, FYOO/0 1; Ethiopia, FYOO/02; Malawi, FY0 1; Nigeria, FY01 /02, Uganda, FYOO/0 1/02; Chad, Mauritania, Mozambique, Rwvanda, Zambia, FY02) * Report on public expenditure and public investment (Cameroon, FY00) 54 Reforming Public Institutions and Strengthening Governance Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Omplementation of New Operations (ESW and Diagnostics) (Lending) Public Finance Management, continued Budget Management * TA Credit on management of oil revenue (Chad, FYOO) * IDF: Support to Budget Office of the Federation (Nigeria, FY02) Procurement (CPAR) CPAR (Burkina Faso, Cameroon, Chad, Ghana, Guinea, Regional project to reform the public procurement Nigeria,Tanzania, Uganda, FYOO; Eritrea, Mozambique, systems of member countries of the Union economique et FYOO-0 I) monetaire ouest-africainea' * IDF: Public Procurement Project (Rwanda, FY99) Financial Management CFAA (Nigeria, Chad, Ghana, FYOO; Benin, C6te d'lvoire, Public Financial ManagementTA Project (Ghana, FY97) Eritrea, Ethiopia, Niger, FYOO-0I; Cameroon, FYO1) Second Economic Reform and Financial Management Pro- ICR: Economic and Financial Management Project ject (Uganda, FYOO) (Uganda, FYOO) IDF: Financial Management Control Board Project (Kenya, * ICR: Financial and Legal Management Upgrading Project FYOI) (Tanzania, FYO I) ICR: Economic and Financial Management Project (Zambia, FYO I) Tax IDOF: Tx Administration Project (Tanzania, FY97) * Tax Administration Project (Tanzania, FY00) Administrative Reform (Including General PSR, Statistics) * ICR: The First, Second, and Third Structural Adjustment Public Sector Adjustment Credit (Madagascar, FY89, Credit Projects (Chad, FYOO) FY91, FY92, FY93) * ICR: capacity building-Public Sector and Legal Institution * Public Sector Management Reform Project (Ghana, FY99) Development Project (Mozambique, FYO 1) * Policy Analysis, Management, and Coordination Project * ICR: Third Structdral Adjustment Credit (Tanzania, FY99) Project (Burkina Faso, FY0I) PSR (Zambia, FY99) * ICR: PSR and Capacity Building Credit * Structural Adjustment Credit (Burkina Faso, FYOO) Project (Cape Verde, FYO 1) * PSR support (Cape Verde, FYOO) * ICR: Public Institutional Development Project (Burkina * Structural Adjustment Credit (Malawi, FYOO) Faso, FYO01) Africa Region 55 Africa Region: Matrix of Selected Activities (continued) Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Omplementation of New Operations (ESW and Diagnostics) (Lending) Administrative Reform (Including General PSR, Statistics), continued ICR: Second Structural Adjustment Credit Project PHRD grant: integrated PSR (Senegal, FYOO) (Cameroon, FYO 1) PSR Project (Tanzania, FYOO) ICR: Institutional Development and Civil * PHRD grant: second economic and PSR (Kenya, FYOO) Service Reform Project (Kenya, FYO 1) Economic and PSR (Kenya, FYOI) * PSR (Mozambique, FY03) * Second public sector management support (Sierra Leone, FY01) * Public Sector Management TA Project (Kenya, FY02) * PHRD grant: Public Sector Management Reform Project (Ghana, FY99) * Institutional Capacity Building Project (Uganda, FY96) * Public Management Capacity Building Project (Madagascar, FY97) * IDF: second public service training (Namibia, FY98) * Human Resources Development Project (Eritrea, FY98) * IDF: Capacity Building Project-Ethiopia Civil Service Col- lege (Ethiopia, FY99) * PACT (FY99-01) * Economic Management Capacity Building Project (Nigeria, FYOO) * Public Service Capacity Building Project (Zambia, FYOO) * IDF: public investment capacity building (Comoros, FYO I) * PHRD grant Capacity and Performance Enhancement Program (Uganda, FYO 1) * IDF: statistics in Southern African Development Commu- nity (FYOO) * IDF: East Africa Statistical Training Center Project (Tanza- nia, FYO I) * IDF: Development Research Institute Project (Ethiopia, FY01) 56 Reforming Public Institutions and Strengthening Governance Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) Service Delivery and Decentralization * Sourcebook for community-driven development (FY00) PHRD grant: decentralization APL (Ghana, FY00) * Study on governance underpinnings of service delivery Capacity building for service delivery (Guinea, FY00) (Burkina Faso, FYO I) Local Government Reform and Engineering Project * State and local governance study (Nigeria, FYOI) (Mozambique, FY00) * Pilot paper on administrative arrangements for service * PHRD grant local government and community upgrading delivery (Mozambique, FY02) (Tanzania, FY00) * Local Government Development Program Project (Uganda, FY00) * PHRD grant states governance and capacity building (Nigeria, FYOI) Legal and Judicial Reform * ICR: Public Sector and Legal Institutions Legal and Judicial Reform Project (Burkina Faso, FYOO-0 I) Development Project (Mozambique, FYO 1) PHRD grant capacity building for legal and judicial reform (Guinea, FY00) * IDF: Legal Sector Reform Project (Tanzania, FYOI) * IDF: Legal Status ofWomen Project (Mauritania, FY00; Niger, FY00) * IDF: Gender and Legal Literacy Project (Mali, FY99; Burk- ina Faso, FYO I) Broader Governance (Including Civil Society Participation and Anticorruption) Institutional and Governance Reviews (Cameroon, FYOI; * IDF: parliamentary oversight (Chad) Chad, FY01; Ethiopia, FYOI;Tanzania, FY01; Zambia, FY01; * Institutional Development Project (Malawi, closed FY01; Benin, FY02; Mozambique, FY02; Senegal, FY02; Kenya, Uganda, closed FYOI) FY02-03) * Economic Management Project (C6te d'lvoire, closed * Governance and poverty scoping work (Cameroon, FY01; FY02) Chad. FY0I) * PHRD grant institutional reform (Rwanda, FY01) * Governance and Poverty Scoping Note * Transparency and Governance Capacity Building Project (Tanzania, FY01; Zambia, FY01) (Dem. Rep. of the Congo, FY02) * Poverty Reduction Support Credit (Burkina Faso, FY0), * IDF: Government-NGO Partnership Project (Uganda, FY02; Uganda, FY00, FY01I) FY01i) * Good governance'and anticorruption action plan (Chad, * IDF- AFRICATIP Project (Mauritania FY00) FY00; Cameroon, FY00) I Africa Region 57 Africa Region: Matrix of Selected Activities (continued) Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) Broader Governance (Including Civil Society Participation andAnticorruption), continued * Good governance conference, with focus on corruption PHRD grant: promoting partnerships with traditional au- (C6te d'lvoire, FYOO) thorities (Ghana, FYO I) * Andcorruption missions (Nigeria, FYOO) Governance and anticorruption included in Economic Re- * Participation in 9th International Anti-Corruption Confer- habilitation and Recovery Credit (Sierra Leone, FYOO) ence (South Africa, FYOI) IDF: Kenya Anticorruption Authority (Kenya, FYOO) * Governance and anticorruption surveys (Benin, Ethiopia, IDF: Anticorruption Bureau Project (Malawi, FYOO) Ghana, Guinea, Malawi, Mozambique, Nigeria,Tanzania, * Chad-Cameroon Pipeline Project-strong transparency Uganda, Zambia, FY99-present) components (Chad. FYOO-0I) * IDF: Combating Corruption Project (Uganda, FYO 1) * IDF: Anticorruption Commission (Nigeria, FY02) Note APL, Adaptable Program Loan; CFAA, country financial accountability assessment; CPAR, Country Procurement Assessment Report; ESW, economic and sector work- FY, fiscal year; HIPC, Heavily Indebted Poor Country; ICR. Implementation Completion Report; IDF, Institutional Development Facility; NGO, nongovernmental organization; PACT, Partnership for Capacity Building In Africa; PER, Public Expenditure Review; PHRD, Policy and Human Resource Development Fund; PSR, public sector reform;TA, technical assistance. 'Economic and Monetary Union of West Africa. 58 Reforming Public Institutions and Strengthening Governance S ECTI ON E I G HT L_____ East Asia and Pacific Region T he publication of the Bank's Public Sector nesses in public management and revealed the extent Strategy in November 2000 signaled an impor- of corruption in many Asian societies. tant departure from earlier work on public sec- The Bank's East Asia and Pacific Region took notice tor and governance issues. It called on the Bank to of these new conditions, and a public sector cluster was move mstitutional development and capacity building formed in the Region's Poverty Reduction and Eco- to center stage, where these had previously been con- nomic Management Unit (EASPR). In the past two sidered marginal concerns. The launch of this new years, this small start-up has worked with staff in head- strategy coincided with a sea change that was taking quarters and the country offices to meet a demand for place in the East Asia and Pacific Region's Vice- work on governance and PSR that has been growmg ex- Presidency's approach to governance and public sector ponentially. Within the broader framework established reform (PSR). In the period running up to the Asian fi- by the Bank-wide Public Sector Strategy, the Region's nancial crisis of the late 1990s, little interest could be approach has been to manage demand through sub- generated in the reform of public institutions in the stantive selectivity, working intensively on the core top- Region. Years of growth for the Asian "tigers" had crys- ics that resonate most for Asian borrowers. The Region tallized into the Asian "miracle." With such a strong is extremely diverse, ranging from China to East Timor, record of economic performance, the Region had so narrowing in on common themes presents a chal- strenuously resisted the proposition that public sector lenge. Broadly, the following areas of concentration capacity needed improvement or that governance was have emerged: civl service reform, public financial a problem. The crisis-and the contemporaneous po- management, decentralization, and broader gover- litical transformations that occurred through much of nance issues, including corruption (see the matrix of the Region-changed that. Economic meltdown and Regional activities). This section provides highlights of governance calamities throughout Asia exposed weak- the Region's public sector experience in implementing East Asia and Pacific Region 59 this agenda. It does not comprehensively take stock of governance and public sector work (among borrowers all of the Region's governance activities. Instead, it and country units) through serious quality assurance tracks the four main themes discussed in the main and reliable supply of solid products to meet a man- body of the Public Sector Strategy as they have played ageable portion of the overflowing demand; (b) to out in East Asia. focus on a selective work program, emphasizing main- stream themes and instruments as an entree to deeper, more expansive work on governance and public sector Theme i: Broadening the Bank's issues; and (c) to innovate at the margins with experi- Approach and the Content mental products that can be piloted, tested, and mami- of Country Programs streamed to improve the quality of lending and analytic and advisory activities (AAA) across the Re- With the diverse set of clients for the Region's public gion. Some highlights of the Region's experience in sector work and the dramatic political shifts and eco- implementing this program are provided below. nomic oscillations that have taken place in postcrisis- The Region has made dramatic strides in main- and postconflict-countries throughout the Region, streaming governance, but more work is needed. East Asian governance programs have needed to strike First, though it was once almost taboo, there is now lit- a delicate balance between providing a consistent stan- tle question that governance has become the central dard of technical support and offering a significantly focus of the development agenda in a number of the broader set of approaches to address individual coun- Region's countries. In Indonesia, the country pro- try problems on a customized basis. The legacy of gram's explicit recognition of the overriding impact of Regional discomfort with governance issues also en- political turmoil, corruption, and ethnic cleavages on genders potential tensions between the aims of re- economic reforms put governance at the heart of all its specting country ownership and promoting difficult interventions. It placed the Bank's first dedicated, reforms that may threaten protected special interests. field-based senior governance adviser to oversee and These conditions have shaped the Region's governance coordinate governance-related activities across the context over the past two years. portfolio. Recognizing the need to build national ca- Clearly, an important element in developing the pacity for serious thinking and responsible debate on Region's governance program in the past couple of key governance choices, the Bank (in concert with years has been the Bank's overarching public sector other donors) is supporting an Indonesian-led part- agenda-that is, to broaden the approach beyond nar- nership for governance reform to build a govern- row technical solutions, deepen analytic work, focus ment-private sector and civil society coalition in lendmng on long-term institutional reform, and fashion support of governance reforms. the right mix of staffing, organizational arrangements, Similarly, the central focus of Thailand's country and partnership linkages to support governance re- program was support for the government's own public form in borrower countries. Within this framework, sector and governance agenda, channeled first through the Region has further crafted its own strategic ap- the Public Sector Reform Loan (PSRL) and now the proach to improving governance in East Asia and Pa- Comprehensive Development Partnership on Gover- cific. The aims of this strategy-often pursued nance (CDP-G). The latter is intended as a means of implicitly and opportunistically rather than explic- sustaining systematic dialogue with government about itly-have been threefold: (a) to build credibility for its reform program in a postlending environment. The 60 Reforming Public Institutions and Strengthening Governance Thai experience underscores the difficulties the Bank with micromanagement of inputs and performance faces in adapting programmatic approaches to chang- with compliance. An important entry point for public ing country political circumstances. It will be impor- sector and governance reforms, therefore, has been tant to track the progress of reforms within this looser through the more traditional product of public finan- arrangement. With the fall of the Estrada government cial management. In most instances, lending is pre- in the Philippines, accountability, probity, and trans- ceded by a PER (now completed for every country), parency reforms have soared to the top of the country often undertaken on a joint basis with procurement agenda, through a combination of AAA and lending reviews and financial accountability assessments. A vehicles, including a joint fiduciary assessment (Public powerful inducement to further Bank involvement on Expenditure Review [PER], country financial account- these issues has been the participatory type of PER car- ability assessment [CFAA], and Country Procurement ried out in Vietnam, and now the Philippines. While Assessment Report (CPAR]), an upcoming public sec- less comprehensive and perhaps less rigorous than tra- tor adjustment operation, a Legal and Judicial Reform ditional PERs, those with heavy country participation Loan, and trust-funded work on anticorruption. In have cemented good relations between governments Cambodia, governance is seen as the key constraint on and the Bank. In Vietnam, the positive PER experience poverty alleviation and thus a centerpiece, of the is being spun off into a project for public financial Poverty Reduction Support Credit operation that will management that is supporting reforms in the budget soon be prepared. This follows what has been a contin- process at national, subnational, and sectoral levels. uous stream of activities related to the public sector, These initiatives provide a foundation for broader re- mcluding a PER, intensive dialogue with technical as- form of the public administration-including civil sistance (TA) on civil service reform, and TA for capac- service reform and decentralization-being under- ity building and legal and judicial reform. taken by the Vietnamese government. Similar entrees Even with the enormous emphasis on governance, have been achieved through this mechanism in China, however, more progress is needed to underscore the East Timor, Papua New Guinea, the Philippines, and fundamental nature of these issues in country pro- Thailand, among others. grams. Governance and PSR cannot be said to drive Civil service problems are serious in the Region. country program scenarios: although failure to meet Although the Region's earlier reputation for high- minimal economic performance thresholds could quality bureaucracies lingers, the problem of weak civil grind a lending program to a halt, falling below mini- service performance and incentives is actually quite mal institutional thresholds is less likely to do so.7 In pervasive, especially among the poorer countries. The addition, work on these issues is underresourced, and fundamentals of sound civil service establishment coordination within country teams on this agenda is management are seriously lacking in a surprising inconsistent. number of the Region's borrowers: pay distortions and Public financial management has offered a credi- overemployment are hobbling governments' ability to ble way in to broader governance reform. By inter- carry out necessary service and policy functions. Cam- national standards, public financial accountability bodia, China, the Lao People's Democratic Republic institutions in most East Asian countries lag behind (PDR), Mongolia, the Philippines, Thailand, Vietnam, good practice, possibly behind practice in countries at and even the Republic of Korea all present variants of similar levels of development in other Regions.8 In this syndrome. At the same time, the Region's borrow- particular, there remains a tendency to confuse control ers show a keen interest m applying modern human East Asia and Pacific Region 61 resource approaches in their civil services and are par- and education sectors, but linkages between macro- ticularly attentive to the new public management ex- level, sectoral, and decentralized initiatives have been perience of their antipode neighbors, as well as the difficult to forge, both within the Bank and within gov- record of Hong Kong, Japan, and Singapore. While ernment. In the Philippines, the government's Depart- these second-generation reforms cannot be credibly ment of Budget Management is working to extend undertaken without resolving the first set of problems, Bank-supported local government report cards to the the Bank has moved only gingerly on civil service is- national budget process. sues in the Region. Through lending, AAA, and trust- The governance focus is increasingly decentral- funded initiatives, technical advice and support have ized. Much of the Region's recent governance agenda is been provided to help countries prepare the ground emerging outside of central government, especially at for future reform in Cambodia, Indonesia, the Philip- the subnational and sectoral levels. Highly centralized pines, and Thailand. Mainly, the approach of choice so governments have begun to devolve responsibilities to far has been to work to build country analytic capacity, lower governmental tiers, and the Region has provided to raise the quality of dialogue on this difficult but crit- advice throughout East Asia and Pacific on the fiscal ical issue. and administrative aspects of these changes. Provincial Governance activities demand high levels of inte- PERs have been carried out in China and Indonesia, gration among sectors, between levels of govern- and local expenditure issues are a major focus of the ment, and between the private and public spheres. Philippines PER. Decentralization was the focus of a Governance reform is increasingly being approached Regional electronic dialogue that used videoconfer- on an integrated basis, crossing over bureaucratic and ence technology to provide the Global Development thematic barriers to develop a coherent approach on Learning Network (GDLN), to give countries an op- governance and to monitor and track the performance portunity to share their experiences (Box 13). record. This approach looms as particularly challeng- Much of this subnational-level work on gover- ing in poor, low-capacity countries, where the task of nance is being carried out through the sectors, work- managing complex reform agendas can be overwhelm- ing with local government and civil society institutions ing. The Region has supported the development of a with an intense poverty focus. The Kecamantan Devel- governance action program in Cambodia, assisting the opment Project in Indonesia has been supporting government in monitoring institutional reforms and community initiatives to establish self-governing developing a realistic implementation strategy. Bring- mechanisms that are responsive to local needs and ing together diffuse parts of the agenda for PSR has focused on reducing corruption. Similarly, East also been important in giving support to Thailand's Timor's new state formation has been supported at the national governance priorities, initially through pro- most local levels by the Bank's Community Empower- grammatic adjustment lending and later, to keep ment and Local Governance Project, which supports second-generation reforms on track, through an inno- district decisionmaking by representative community vative vehicle for dialogue, the CDP-G. groups. Such grassroots operations need to be well The challenge of integrating core PSRs with those monitored to assess results. To the extent that they may in individual sectors is also being tackled, though be exhibited as "islands of excellence" in otherwise progress has been limited. In Thailand, performance disappointing mstitutional environments, careful targets in the country's budgeting system were, in thought is needed about how they might be scaled up principle, designed to work down through the health or rolled out and how they may be linked explicitly to 62 Reforming Public Institutions and Strengthening Governance East Asia and Pacific Region: Decentralization Dialogues in the Global Development Learning Network Decentralization is a fairly new trend in East Asia, ing on global knowledge can enhance the design which has historically been highly centralized in and implementation of decentralization reforms its division of responsibility and authority among and deepen the Bank's knowledge of the imple- levels of government. Enactment of the Philip- mentation of these reforms. pines'Local Government Code (1991) launched its Using videoconference technology and the intergovernmental reform. In 1994, China initi- GDLN, the EASPR and the World Bank Institute ated a comprehensive fiscal reform that pro- Economic Policy and Poverty Reduction Division foundly affected the balance of powers between have been conducting the East Asian Decentral- central and local governments. The new Thai ization Dialogues since February 2001. These dia- Constitution (1997) mandates decentralization to logues have the following objectives: local administrations. And, in what may be a To promote cross-country policy discussion means to achieving national cohesion, Indonesia of the appropriate intergovernmental fiscal recently launched (2001) (with a "big bang") de- framework to support decentralization and centralization reforms that encompass nearly all the advantages and inherent risks in aspects of fiscal and administrative management. Although decentralization is under way in these countries, opportunities for sharing knowledge To develop a network of government officials, and experience have been limited by differences in academics, and other interested individuals in culture and language. China, Indonesia, the Philippines, Thailand, and Vietnam to share decentralization The Benefits of Dialogue approaches and experience How can decentralization achieve its potential To strengthen partner institutions (through benefits of better services, enhanced local ac- countability, national cohesion, and the creation custoidin ingfmateral andodeer s n- of a potentially powerful tool for poverty allevia- deystan ding o ol ap resothat tion? Possible solutions include ensuring a well- they can play a leading role in strengthening designed policy framework for decentralization theicapua and making sure new and emerging local govern- ments have the human and institutional capacity Targeting policy experts and other practition- to carry out their new responsibilities. The various ers, the GDLN dialogues begin with a 30-minute degrees and stages of decentralization across East presentation of the "fundamentals" of a topic, Asia provide rich experience of what does and combining worldwide and Regional perspectives, does not work. Sharing this experience and draw- continued East Asia and Pacific Region 63 followed by a two-hour dialogue applying that (though much more learning is possible). Video is concept to decentralization reforms under way. both a new technology for learning and a difficult On average, each site has 10-15 participants, who medium for simultaneous dialogue between six represent ministries of finance, home affairs, sites. While the possibilities for "live" dialogue planning, education, public health, or other cen- among multiple sites are limited, an unintended tral agencies; local governments; universities and benefit of the dialogue sessions is the "real dia- training centers; research institutions; and civil logue" that takes place before or after the formal society organizations. Discussion in each site is dialogue sessions. Bringing together a diverse au- moderated by a local facilitator. dience to regularly discuss decentralization issues has built awareness of alternative approaches and Lessons Learned stimulated discussion of options in the participat- Participants have evaluated the dialogues favor- ing countries. Over time, GDLN participants have ably and have requested a second series. Most be- become more comfortable with the medium and lieve that the objectives of developing a Regional are actively presenting materials and seeking guid- network, sharing cross-country experience, and ance from other participating countries. strengthening partner institutions were achieved macrolevel institutional reforms. An important step surveys and studies have been extremely useful in rais- that remains to be taken is drawing empirical connec- ing the issue with the governments in Cambodia, In- tions between all levels of PSR interventions and tangi- donesia, and Thailand. In addition, lending focused on ble development outcomes on the ground. The Region specific system improvements in procurement, public has recently formed an intersectoral working group to financial management, and civil service reform has develop some consistency of approach across various sought improvements in transparency, accountability, types of community-driven development initiatives and probity. The legal and enforcement basis for and draw early lessons about how to maximize the im- progress in this area is receiving attention through le- pact of these interventions. gal and judicial assessments carried out, for example, The Region is addressing issues of politics and in Cambodia and Mongolia. Legal operations that sup- anticorruption more directly, but capacity is port these reforms are under way in several countries, stretched. Over the past two years, the Region has including Cambodia, the Philippines, and Thailand. taken up sensitive issues of corruption and politics, Rooting these interventions in a coherent performance with considerable vigor, through dialogue, analysis, framework that can be linked to specified outputs and, and lending. Dialogue has taken place on a Regional perhaps, to higher level probity indicators is a signifi- level through the East Asia and Pacific Anticorruption cant challenge that the Region now faces in demon- Advisory Group and through Bank participation in a strating an impact in this area. range of Regional events and conferences, including East Asia has begun to take more seriously the po- the Region's GDLN-based discussions. Corruption litical elements of reform. Political risk with regard to 64 Reforming Public Institutions and Strengthening Governance the lending portfolio is being discussed and analyzed customize PERs to country circumstances, so, they are at the Vice-Presidential level. The Region has worked usually not standardized. Recent PERs in China and to develop ways to operationalize political analysis for Indonesia selected decentralization as the key focus, use as a decisionmaking tool for country programs for example. and task managers. A new approach to political stake- The Region has also introduced several new, inno- holder analysis has been piloted in Cambodia and vative analytic products. The major governance-related Thailand on civil service and anticorruption initiatives analysis in the Region is very much focused on capacity and is now being considered for other operational building for civil service reform. This has involved the problems in the Region. Internal discussions have been development of a civil service financial model that sys- increasingly sensitive to the impact of politics on tematizes analysis of pay and employment tradeoffs to country programs. It will be important to promote help governments weigh policy options when contem- more explicit consideration of these issues in the plating civil service restructuring. The modeling exer- Country Assistance Strategy process. cise is designed to provide decisionmakers with robust scenarios for discussion. The aim is to leave govern- ment technical staff with the capacity to build future Theme 2: Deepening models on their own to strengthen ongoing civil service Our Analytic Work policy choices. This has proved to be a simple but useful tool and has been applied in Cambodia, East Timor, In- The Region's analytic work on governance and PSR donesia, the Philippines, and Thailand. Future involve- has been very operationally driven, largely emphasiz- ments may include Mongolia and Vietnam. ing country, rather than Regional, topics. The East Asia Another innovative analytic product, the Expected and Pacific Region has not offered fertile ground for Utility Stakeholder Model, is designed to raise the large Institutional and Governance Reviews (IGRs). quality of political analysis in the Region and translate Rather, analytic work has tended to focus on particular rigorous game theoretic techniques from political sci- problems or issues that arise in the context of dialogue ence into a highly operational tool for helping task and or lending. country managers make politically smart decisions PERs are still the bread and butter of the Region's about reform strategies. It provides a precise forecast AAA. They have already been mentioned as the main of stakeholder behavior with respect to proposed gov- channel for Bank-country discussion on public sector ernance reforms. Pilot analysis was carried out on anti- issues and as a useful preface to lending. As in the corruption and civil service reform in Cambodia and Philippines and Vietnam, PERs are increasingly partic- Thailand. ipatory, providing real opportunities for building the The Region has also made use of diagnostic surveys capacity of government officials. Cross-sectoral coop- to flesh out the demand side of governance. In Cambo- eration has also led to collaboration on joint fiduciary dia, a corruption diagnostic created sensitivities within exercises to merge the PER, CFAA, and CPAR government but ultimately proved highly effective in processes and products. The Lao PDR PER reflects an stimulating public debate and moving the government early effort along these lines. The Philippine PER is pi- forward on its governance action plan. In Thailand, a loting an even more extensive undertaking to bring to- similar survey was largely undertaken by a national in- gether the instruments for assessing public financial stitute, raising local capacity to continue this method of management (Box 14). An effort has been made to assessment as governance reforms continue over the East Asia and Pacific Region 65 The Philippines: Public Expenditure, Procurement, and Financial Management Review Taking forward the participatory approach to ana- grated report for the authorities and for a wider lytical work on public expenditure management audience of development partners and civil soci- begun in Vietnam ("Vietnam: Managing Public ety. The exercise is based on a participatory ap- Resources Better," Report No. 21021-VN, Decem- proach that will result in one or more reports over ber 13, 2000), the Region has initiated an inte- the medium term, underpinned by a long-term grated Public Expenditure, Procurement, and engagement and partnership with the authorities, Financial Management Review for the Philippines. donor partners, and civil society. The authorities This review aims to examine selected issues in the have established working groups for the three allocation and management of public resources of components of the overall task, and the task team interest to the authorities and the Bank, fulfill the comprises staff from the World Bank and the Asian Bank's fiduciary responsibilities, and serve as the Development Bank. Joint workshops and consul- core background analytical work for future opera- tations with the authorities, donor partners, and tional work. The value of this exercise lies in the civil society groups are complemented with hands- consolidation of three interconnected strands (the on technical assistance in key areas. The report is PER, the CPAR, and the CFAA) into a single inte- due to be completed in fiscal year 2002. next several years. The results of the corruption diag- gion took the first Programmatic Structural Adjust- nostic work and analysis of the intersection between ment Loan to the Board for the Thailand Public Sector poverty and corruption in Indonesia are being dissemi- Loan, to support the first generation of governance re- nated through the governance partnership, to broaden forms through a series of single-tranche instruments. citizen discourse on governance issues. The hope is that The approach was highly flexible, providing an overall a national strategy will emerge and eventually have framework for reforms and performance benchmarks government support. that could allow for the predictably uneven progress on various reform components. This approach is now being modified to address the second-generation re- Theme 3: Focusing Our Lending forms under way in Thailand. The Bank is supporting on Long-Term Institutional Reform a new AAA instrument, the CDP-G, which will con- tinue to promote Bank-country dialogue within the The East Asia and Pacific Region has been working starting framework on governance reforms, without with borrowers to develop operational instruments to the specific leverage of lending. This approach may of- support the long-term institutional reforms that are fer a useful prototype for other middle-income coun- key to public sector and governance reform. The Re- tries no longer borrowing from the Bank. 66 Reforming Public Institutions and Strengthening Governance In a starkly different case, a programmatic ap- Theme 4: Internal Staffing, proach is also being developed in East Timor, where Organization, and Partnerships Bank budget support will underwrite a broad program of state building and administrative strengthening in The Region's staffing for public sector and governance the context of postindependence reconstruction. began two years ago, with three dedicated profession- The Region is also pursuing institutional reforms als, and has since grown into a public sector cluster through TA for capacity building. In Cambodia and within the larger EASPR. Staffing levels have reached East Timor, the Bank is financing capacity-building 10, including a lead specialist with combined substan- operations designed to develop local skills on an im- tive and managerial responsibilities (as well as two staff mediate basis to address postconflict needs. Such oper- financed through trust funds, in addition to a junior as- ations must be carefully synchronized with the larger sociate). Economist staff in the larger EASPR work with budget support approaches, however, to ensure that the public sector cluster on these issues. The tasks in- the policies and incentives needed to sustain institu- volved in PERs, for example, may be managed by either tional development over the longer term are in place. type of staff, with quality assurance done by the public In Cambodia, for example, capacity building and sector lead specialist. In addition, a handful of staff in training will have little impact if civil service pay con- decentralized country offices spend varying portions of tinues at its current, low levels. TA lending has also their work programs on governance issues. This in- been used to build fiscal management capacity in cludes a half-time senior governance adviser in the China and Mongolia and to support the governance Jakarta Country Office. The staff of the Environmen- reforms undertaken through the PSRL in Thailand. tally and Socially Sustainable Development Network The East Asia and Pacific Region has also used also work on the bottom-up issues in governance, as do more traditional adjustment instruments to lever- staff from other sectors throughout the Region. age institutional reforms amenable to fast-disbursing In general, the EASPR's porous, flat structure al- balance-of-payments support. This may be the form lows for extremely good interaction and collaboration adjustment takes in the Philippines, for example. between public sector and mainstream economist In addition, investment lending is supporting budget staff. This arrangement requires that individual staff reforms in Vietnam, in conjunction with the flex- be highly versatile and fungible among topics. Recruit- ibility of a multidonor trust fund for analytic and ment of public sector staff has thus had to strike a loan preparation activities on public expenditure compromise between specialized expertise and more management. rounded skill profiles. All public sector staff are ex- Finally, smaller interventions and ongoing dia- tremely overstretched, and demand continues to out- logue are also part of the Region's governance reper- strip supply, even with the addition of new staff. This toire. The Institutional Development Facilities (IDFs) makes for a very pressured work environment, espe- have been used in Cambodia, East Timor, Indonesia, cially when coupled with the ardors of long-distance and the Philippines, to build local capacity for public travel and "twenty-four/seven" communications and management and governance reforms on a more flexi- meetings requirements. ble basis. Ongoing dialogue m Cambodia, initially tied With these pressures, partnerships with other sec- to the International Monetary Fund (IMF) condition- toral units in the Bank are attractive in theory but diffi- ality, has moved forward what had been a stalled dis- cult in practice. So far, the joint fiduciary exercise cussion of civil service reform. offers the best opportunity to work closely across East Asia and Pacific Region 67 bureaucratic boundaries. On a selected basis, the col- additional concerns of fiduciary assurance, legal and laboration with the IMF on core public sector issues judicial system change, or community-driven initia- has also been very productive, especially when but- tives imposes both intellectual and managerial re- tressed by joint missions in the field. A difficult quirements. Careful thought will be needed to Fund-Bank dialogue in the early discussions of civil determine how best to devise a coherent strategy to service reform in Cambodia has flourished into a proceed with this intricate set of governance themes. highly collaborative exercise over the past year and a In the first phase of the Region's governance pro- half, for example. An initiative to coordinate better gram, staffing up and establishing a respectable but real- Fund-Bank public expenditure work is also under way. istic bar for quality were high on the agenda. The level of Partnerships are also being forged externally, demand for operational support continues to over- largely driven by country missions. Indonesia's Part- whelm supply, and we still face difficulties staffing work nership for Governance Reform is an example. With on important issues, such as corruption. In addition, the multidonor financing (the Bank's portion comes pace of operational work is accompanied by pressures to through an IDF), the partnership is led by key Indone- relegate further quality improvements and more frontier sian stakeholders and provides support for a range of analytic activities to the back burner. The Region needs innovative pilot projects and knowledge initiatives to now to consolidate and broaden AAA and applied re- promote governance reform and public debate on gov- search to deepen our understanding of how best to assist ernance. It is novel in that it supports a loose conglom- client countries in improving governance and public sec- eration of civil society institutions and government tor capacity. Extending pilot initiatives on stakeholder bodies under a steering structure, rather than a single analysis, broadening PERs or providing additional AAA government entity. vehicles for institutional analysis, and forming partner- Moving ahead. As the Region's governance agenda ships with Development Economics and others to en- matures, several challenges deserve particular atten- gage in operationally relevant research will be important. tion in developing the next phase of the Public Sector Finally, the Region now needs to focus much more Strategy. First, the tension between selectivity of focus explicitly on performance objectives, working with and responsiveness to demand requires continuous re- clients to set meaningful but realistic goals to guide thinking and still needs to be assiduously managed. In- both the Bank and borrowers in our governance work. stitutional imperatives, along with substantive logic, Weaving such performance goals and rigorous assess- are pushing for a broader mix of tasks and, increas- ment methods into lending and AAA should be a ma- ingly, a multisectoral approach to integrated gover- jor focus of the EASPR's program of public sector nance reforms. The intersection of core PSRs with the work as we go forward. 68 Reforming Public Institutions and Strengthening Governance East Asia and Pacific Region: Matrix of Selected Activities The following matrix contains a list of selected activities pre- sector-specific activities-for example, in the social sectors sented to the Board, finalized or active in fiscal years (health, education, social protection), in rural development, in 2000-02, and selected activities under preparation in fiscal municipal development and infrastructure, in privatization and year 2002. Although challenges of governance and PSR cut private sector development, in social funds, and in postcon- across most of the Bank's work, the matrix focuses on core flict work Activities are listed only once, although they may fit governance reforms and does not include many important in several categories Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) a General * CEM (Rep of Korea, FY00, Vietnam, FY02) * SSR- Public service reform and debt management chapters (Thailand, FYOO) Public Expenditure Review * Two workshops on analytic framework and methodology Structural Adjustment Credit 11 (Vietnam, FY00) of PER for central and local government officials (Vietnam, Structural Adjustment Loan: Structural Adjustment FY00) Credit (Cambodia, FYO I) * PER (Indonesia, Malaysia, Thailand, Vietnam, FY00; Papua * SIL ChongQing Urban Environment Project (China, FY02) New Guinea, FYOO/02, China, Mongolia, Philippines, FY02) Budget Management * FiscalTA (China, FY02) Fiscal accountingTA (Mongolia, FY02) Procurement (CPAR) * CPAR (Thailand, FY00, Indonesia, FY0I, China, EastTimor, * TA for strengthening procurement and IDF grant to sup- Mongolia, Papua New Guinea, Philippines, Vietnam, FY02) plement it (Vietnam, FY00) Financial Management * CFAA (Rep of Korea, FY00, Indonesia, FYOO/0I; Cambo- PHRD grant Financial Accounting Standards Board (Rep. dia, Papua New Guinea, Philippines, Vietnam, FY02) of Korea,Thailand, FY00) * Establishment of Korean Financial Accounting Standards Board (Rep. of Korea, FY00) East Asia and Pacific Region 69 East Asia and Pacific Region: Matrix of Selected Activities (continued) Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) Public Finance Management, continued Financial Management, continued * Integrated TA to prevent fraud in financial management (Philippines, FYOO) * TA for government financial management (Indonesia, FY02) * Public financial management and accountability (Philippines, FY02) Accounting and Audit *Seminar on role of audit committees (Rep. of Korea, FYOO)I| Administrative Reform (Including General PSR, Civil Service Reform, Statistics) *Comprehensive Development Partnership on Governance * ASEM grant: Institute of Directors (Thailand, FYOO) (Thailand, FY02) * TA Loan: Economic Capacity Building Project (Cambodia, FY02) Service Delivery/Decentralization |*TA for fiscal decentralization (Indonesia, FY02) Legal and Judicial Reform * judicial assessment (Philippines, FYOO) * PHRD grant: transparency of regulatory environment * SSR (Philippines, FYOO) (Rep. of Korea. FYOO) * Learning and Innovations Loan: Legal Reform Project (Mongolia, FY02) * SIL: Judicial reform (Philippines, FY02) * SIL: Land administration and management (Philippines, FY02) 70 Reforming Public Institutions and Strengthening Governance Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) * Anticorruption surveys (Cambodia, Indonesia, Thailand, Structural Adjustment Loan Governance Promotion FY99-present) Adjustment Loan (Papua New Guinea, FYOO) * UNDP-World Bank Partnership on Governance * Public Sector Reform Loan (Thailand, FYOO) (Indonesia, FYOO) PHRD grant. preparation of Public Sector * ParliamentariansWorkshop (Cambodia, FYOO) Reform Loan 11 (Thailand, FYOO) * SSR governance component (Philippines, FYOO) * Participation in donor working program on governance (Vietnam, FYOO) * Integrity Awareness Seminar (Indonesia, FYOO) * EastAsia Regional Study 2000, Chapter 6 (Regional, FYOO) * Handbook for Fighting Corruption (Regional, FYOO) * Anticorruption report and recommendations submitted to government (Philippines, FYOO) * Anticorruption report (Vietnam, FYOO) * Anticorruption training for Bank staff in Manila (Philippines, FYOO) * International Conference on Combating Corruption, Seoul (Rep of Korea, FYOO) * Conference on project management and implementation, with session on transparency and anticorruption (Vietnam, FYOO) * Study. constraints on the media to help curb corruption (Regional, FYOO-O I) * CEM (EastTimor, FY02) * Corruption and the poor in Indonesia (Indonesia, FY02) * Development Policy Review (Indonesia, Philippines, FY02) * Political analysis for governance reform (Regional, FY02) Note ASEM; Asia-Europe Meeting- CEM, Country Economic Memorandum, CFAA, country financial accountability assessment, CPAR, Country Procurement Assessment Report, ESW, economic and sector work, FY, fiscal year, IDF, Institutional Development Facility, PER, Public Expenditure Review; PHRD, Policy and Human Resource Development Fund, PSR, public sector reform, SIL, Specific Investment Loan; SSR, Social and Structural Review, TA, technical assistance, UNDP, United Nations Development Programme. East Asia and Pacific Region 71 'T~~~x' I ~~~~~~~~N S E C T I O N N I N E Europe and Central Asia Region A little more than a decade has passed since the and contrasting levels of institutional capacity across start of transition in the formerly socialist the Region. economies of Europe and Central Asia Re- gion. During this period, these countries have followed various paths, some rapidly adopting market-oriented Theme 1: Broadening the Bank's policies and institutions, some proceeding more grad- Approach and the Content ually, and some maintaining substantial government of Country Programs ownership or control over economic activity. In con- trast to the situation in Central Europe and the Baltic Over the past five years, there has been an evolution of countries, the economic reform in much of the Com- the Region's priorities from "first-generation" eco- monwealth of Independent States (CIS) and south- nomic policy reforms (such as price and trade liberal- eastern Europe does not seem to have improved public ization) to a greater focus on institutional reforms. sector governance or reduced corruption. Moreover, This has led recently to an expansion in the scale and the legacy of conflict and dramatic declines in invest- scope of the Region's activities in public sector institu- ment and growth in many countries of the Region tional reform in the Region. Building on earlier reform have affected the development of institutional capac- efforts, the Region has pursued a strategy of enhancing ity. Even in the most advanced transition countries, institutional capacity in the areas of fiscal manage- there remains a considerable reform agenda in the ment, public admmistration and civil service, regula- public sector. One of the challenges confronting the tory structure, and the legal and judicial system. Europe and Central Asia Regional Vice-Presidency is Efforts also focus on integrating work across these the- developing and implementing country-specific ap- matic areas to develop a coordinated approach to pub- proaches and solutions tailored to the nature of the lic sector reform (PSR). Key features of our strategic governance problems, differences in political systems, approach include (a) strengthening public oversight of 72 government performance; (b) diagnosing institutional cession. In the Balkans, fiscal decentralization has been dysfunctions and developing quantitative perform- a component of rebuilding the state in postconflict sit- ance indicators to track progress in implementing re- uations. In some CIS countries, decentralization is forms; (c) working with governments to identify seen as a mechanism for improving the stability and concrete actions and entry points to reduce the incen- transparency of fiscal relations between levels of gov- tives and opportunities for engaging in corruption; ernment. The Bank is addressing these complex eco- and (d) developing sustainable programs in the areas nomic and political challenges with various of public administration and civil service reform, pub- instruments. In a number of countries, the Region is lic expenditure management (PEM), financial ac- conducting analytical work and providing direct im- countability, and legal and judicial reform. These are plementation assistance to support the governments' the main elements of the Region's program in public own reform efforts. In the Russian Federation, the sector and institutional reform. As all these efforts re- Bank has recently approved a loan and a program of quire long-term commitments from the Bank and the technical assistance (TA) to support the government's clients, the Region has emphasized the importance of efforts to reform the framework for intergovernmental managing expectations and learning from ongoing finance and to strengthen budget management at Re- efforts. gional levels of government. Encouraging voice, transparency, and accounta- The Region has also undertaken a range of CDD bility. To improve public sector performance, the Re- work that involves (a) strengthening accountable, in- gion has focused on reforms to encourage voice, clusive community groups; (b) supporting participa- transparency, and accountability through enhancing tion by poor people; and (c) facilitating access to participation and competition in public service deliv- information and markets. The Social Development ery, using data to monitor outcomes, and taking ad- Team is elaborating a strategy to scale up CDD in four vantage of new technologies to transform the interface pilot countries in the Region. CDD components are between civil servants and their clients. being incorporated into social development funds, ru- Improving service delivery and participation ral development, community works, micro credit, and through decentralization, local government capacity water projects, most clearly in the case of Albania. In building, and community-driven development addition, the Region is piloting approaches to (CDD). Many countries have begun to enhance ac- strengthen the accountability of communities and lo- countability by decentralizing public service delivery cal governments, through user surveys and citizen and shifting decisionmaking authority to lower levels feedback mechanisms. Plans for developing more in- of government, to increase voice and participation. In novative CDD pro)ects are also under way, such as a the Region's countries, such progress has been mixed: Learning and Innovations Loan in Albania, to comple- the delegation of administrative functions to lower ment decentralization efforts, with institutional re- levels of government has not led, in most cases, to a forms to promote local government transparency. real devolution of decisionmaking, particularly in the Monitoring performance and developing per- area of control over revenues (often for valid reasons). formance benchmarks to improve transparency and This record of mixed progress requires an ap- accountability. On the basis of international experi- proach tailored to specific country circumstances. In ence, the Region has collected and is beginning to Central European countries, local government reform implement a set of governance-monitoring tools. Gov- is being driven by the process of European Union ac- ernance-monitoring tools are intended to be flexible Europe and Central Asia Region 73 instruments to track government performance over tration) to a more radical restructuring of citizen-state time, are easy to implement repeatedly, are capable of interactions through such mechanisms as integrated targeting specific problem areas, and can be identified "one-stop-shops" for a range of public services or di- through anticorruption diagnostic surveys and eco- rect citizen involvement in the decisionmaking nomic and sector work (ESW). Plans for the imple- processes of public institutions. There remains a sub- mentation of such governance-monitoring tools are stantial agenda of learning and experimentation in this under way in a number of the Region's countries. In area, and the Region is working on a number of fronts. the Russian Federation, an independent system using In Ukraine, for example, a three-pronged e-develop- periodic surveys of firms across the country has been ment strategy is being pursued in the areas of public developed to monitor implementation of a recently administration, business environment, and democracy enacted deregulation program. In Latvia, a system is building. The Region is also initiating a Regional study being put in place for judicial monitoring. In Ukraine, to survey national initiatives and analyze linkages be- an expansion is planned of the People's Voice program tween e-government and the Bank's project and sector (a civil society effort to monitor municipal govern- work. ment performance) to include monitoring of public procurement. Governance scorecards are being devel- oped to track government performance across the Sta- Theme 2: Deepening bility Pact countries. Our AnalyticWork Expenditure tracking surveys are another form of performance monitoring. Where systems of compre- There has been an increased emphasis on Regional hensive expenditure monitoring and audit are defi- ESW, particularly dealing with institutional and gover- cient, these studies provide greater transparency in the nance issues. The Region continues to play an impor- use of public resources. In Albania, expenditure track- tant role in using research and survey-based tools to mg surveys have been deployed in three sectors- set the analytical agenda in such areas as anticorrup- health, public works, and local government-that were tion and the political economic dimensions of re- heavily affected by the Kosovo refugee crisis. Recom- forms. In addition, new analytic approaches have been mendations derived from the surveys to improve func- piloted to develop better assessments of institutional tionality and information technology in the treasury capacity and these dimensions of reform. Examples in- system are being supported by a Public Administration clude the Institutional and Governance Review in Ar- Reform Technical Assistance Credit. In Macedonia, menia and the Public Expenditure and Institutional such surveys support the design of the policy actions Review (PEIR) in Ukraine. Direct government partici- and TA to be provided under a Public Sector Manage- pation in ESW activities is also on the rise, most re- ment Adjustment Loan. cently demonstrated in the Turkey PEIR. Introducing e-government to improve voice and Combating corruption. The Region launched a transparency. "E-government" has emerged as a high- report, Anticorruption in Transition: A Contribution to priority area for many of the governments of East Eu- the Policy Debate, at the Prague Annual Meeting in rope and Central Asia, with the development of September 2000. The report, written in collaboration national e-government strategies across the Region. with the World Bank Institute, outlined the analytical These strategies range from upgrading applications for foundations of a new approach to improving gover- traditional public services (for example, tax adminis- nance and combating corruption in the Region. The 74 Reforming Public Institutions and Strengthening Governance paper began by "unbundling" the concept of corrup- Georgia, and Latvia. More recently, diagnostics in part- tion, recognizing that what has generally been treated nership with government and civil society have been as a one-dimensional phenomenon encompasses a completed in Bosnia and Herzegovina, Kazakhstan, range of interactions within the state and between the Romania, and the Slovak Republic and initiated in Ar- state and society, each with its own dynamic. On this menia and the Kyrgyz Republic. These surveys are in- basis, the paper set out a typology of corruption and tended to lead to the development of concrete action governance in transition economies to identify and plans that can be further supported by Bank lending compare patterns of corruption across various groups and TA to address corruption. of countries. Specific policy recommendations were The Region has also undertaken separate surveys of tailored for each group of countries. public officials in Albania and Macedonia to measure The paper also developed the concept of state cap- the performance of public administration. These gov- ture, a form of grand corruption in which firms make ernments have committed to re-administering those private payments to public officials to influence the surveys after two to three years to monitor progress. In design of laws, rules, and decrees. The examination of Albania the Bank has helped the government under- the institutionalization of corruption into the very take a survey of salaries in the public and private sec- policymaking process broadened the scope of the pa- tors and the donor community within the country to per, addressing the political and economic roots of assist in the design of salary reform. poor governance and the factors that can lock coun- One effort to develop consistent indicators of gov- tries into a low-level equilibrium of misgovernance ernance has been the business environment and enter- and corruption. prise performance survey (BEEPS), developed jointly Over the past year, the Prague paper has been dis- by the World Bank and the European Bank for Recon- seminated through workshops and presentations in 10 struction and Development (EBRD). BEEPS began of the Region's countries, as well as to donor partners, during 1999-2000 as a survey of more than 4,500 firms the media, and academic and policy communities. The in 25 transition countries to examine the quality of the paper has prompted discussion in our client countries business environment. Based on face-to-face inter- and the development community on how to combat views with firm managers and owners, it is designed to the problem of state capture so as to enable further re- generate comparative measurements in such areas as forms. The Region is currently undertaking a study corruption, state capture, lobbying, and the quality of that will build on the report's analysis and policy rec- the interaction of specific government institutions and ommendations, to develop a framework for the Bank's agencies with business. The data have been dissemi- anticorruption operations in the Region. The overall nated through a new Internet tool, the BEEPS interac- objective is to set out an approach to mainstreaming tive dataset. The interactive dataset gives unrestricted governance and anticorruption concerns into a public access to the BEEPS surveys and enables users at broader range of Bank operations in the Region. various skill levels to perform a wide range of analyti- Increasing the use of surveys. The Region has im- cal operations, producing customized downloadable plemented anticorruption diagnostic surveys in sev- data tables and charts. The Region is committed to in- eral countries to initiate a dialogue on corruption and stitutionalizing BEEPS every two to three years, in co- governance. These surveys are based on large-scale in- operation with the EBRD, and will implement the terviews of households, enterprises, and public offi- survey again in collaboration with the Investment Cli- cials. The first diagnostic studies were done in Albania, mate Unit and the World Bank Institute in 2002. This Europe and Central Asia Region 75 will create a flow of data, enabling the Region to meas- framework for the integrated management of fiscal ure progress in a wide range of dimensions of gover- risks (including those stemming from off-budget op- nance over time. erations). Currently, the results are being applied in a Promoting cross-country case studies. The Re- growing number of Bank operations. gion is undertaking several cross-country Regional Using ESW for capacity building. ESW projects in studies to draw lessons from various reform experi- the Region have also increasingly been designed to en- ences and approaches. A recent study, Decentralization hance local capacity and provide TA. In the Russian in Transition Countries: Challenges and the Road Federation, ESW on public administration reform has Ahead, evaluates progress in implementing intergov- been structured to produce a series of demand-driven ernmental finance reforms across the Region and policy notes (rather than a single, comprehensive re- highlights key challenges to be addressed. In 2000, the port), targeted advisory work, and lessons of interna- Region conducted, jointly with the International Mon- tional experience, to meet the pace of the reform etary Fund (IMF), a study of public debt sustainability environment (Box 15). The introduction of medium- in five International Development Association (IDA) term expenditure frameworks (MTEFs) has been used countries in the CIS: Armenia, Georgia, the Kyrgyz Re- to help countries (for example, Albania and Bosnia public, Moldova, and Tajikistan. This has been fol- and Herzegovina) improve their strategic focus on for- lowed by a paper, written in partnership with the IMF, mulating budgets and strengthen the link between sec- the EBRD, and the Asian Development Bank, that sets toral policies, resources, and the macroeconomic the debt sustainability agenda in the broader Poverty framework. Reduction Strategy Paper (PRSP) context and expands Adopting a staged approach to PEM work. PEM the coverage to two additional IDA-eligible CIS coun- accounts for a substantial share of the Region's ESW, as tries: Azerbaijan and Uzbekistan. The paper will serve this issue looms particularly large on the Region's as the basis for a joint initiative on debt sustainabdity agenda. Demand continues to grow for Public Expen- by the international financial institutions for these diture Reviews (PERs) from both the clients and the seven CIS countries. The Region has also started to Bank, given the enhanced attention to fiduciary con- prepare two cross-country studies, one focusing on fis- cerns. During fiscal years 2000-02, expenditure re- cal management issues; the other, on institutional re- views were carried out for Albania, Croatia, the Czech form in transition countries. Republic, Kazakhstan, Latvia, Macedonia, Turkey, and Focusing ESW on selected topics. The Region has Ukraine. Such studies are also in progress in Armenia, been piloting new analytical work in selected areas. For Azerbaijan, Bulgaria, Georgia, the Kyrgyz Republic, example, a judicial assessment was implemented in the Moldova, Romania, and the Federal Republic of Yu- Slovak Republic to develop an economic analysis of goslavia (Serbia and Montenegro). the incentives faced by the key players in the justice Integrating public expenditure work more closely system. The assessment drew attention to the systemic with lending and nonlending activities remains a key management issues fostering inefficiency and corrup- challenge. This is particularly true in countries where tion in the judicial system. The Region has also devel- donor financing forms a significant proportion of oped an approach to integrated analysis and budget financing. In such cases, public expenditure management of public liabilities (and broader, fiscal work and financing decisions should be closely inte- risks). Several free-standing ESW pieces on this subject grated with the government's own annual budget cycle. have led to the development of a methodological The Region plans to use public expenditure work as a 76 Reforming Public Institutions and Strengthening Governance The Russian Federation: Public Sector and Governance Reform Program The Bank has established a program of activities in ing modern concepts of tax administration in key areas of public sector management in the Russ- the Russian Federation through reforms in pilot ian Federation. These activities include strengthen- regions, TAMP II aims to deepen the reforms ing and modernizing civil service and public and expand their coverage. At a week-long con- administration at the federal and subnational levels ference, high-level officials of the Ministry of and improving public finances. Support is pro- Taxes and Fees (MoTF), heads of all functional vided in the form of lending (Treasury Moderniza- areas, representatives of regional administrations tion Pro)ect, Tax Administration Modernization and international experts from other countries, Project [TAMP] I and II, Regional Fiscal Reform donors, the IMF, and the World Bank carried out Technical Assistance Loan, Fiscal Federalism and a diagnosis of the continuing weaknesses of the Regional Fiscal Reform Project) and economic and tax administration. Additional consultations sector work (Budget Management Note, Public In- were held with state organizations that are af- vestment Review). The objectives of this program fected by the performance of the MoTF, such are (a) to provide clients with "just-in-time" policy as the ministries of finance and the economy, advice; and (b) to promote active stakeholder in- or those that have an impact on the performance volvement. Two examples follow. of the MoTF, such as the tax police and the judi- ciary. External stakeholders, such as taxpayer Public Administration Reforms associations and the chamber of control, were The Bank has been providing targeted technical as- also consulted for their perspective. The result- sistance to the federal government. This has in- ing project design includes reforming organiza- cluded high-level policy advice, such as short notes tion and management; strengthening various for senior decisionmakers, analyses of international operational functions; improving taxpayer serv- experience and outcomes in selected reform areas, ice, outreach, and education; and in coordina- and seminars for policymakers. This has been tion, forming linkages with the tax police and the closely integrated with longer analytical work, such judiciary. as the development of a pay and employment Three politically difficult reforms exemplify model and scenarios for pay reform and workforce the issues that the Programmatic Structural Ad- downsizing, and knowledge management activi- justment Loan operation took aim at: reform of ties, particularly the development of a Russian- unregulated and undisciplined public sector agen- language website on public administration reform. cies, which control nearly half of the state budget; reform of a complex, nontransparent, and discre- Tax Administration Reforms tionary system of pay; and privatization of Latvia's Building on the experience of TAMP I, which so-called crown jewels. successfully tested the feasibility of implement- Europe and Central Asia Region 77 recurrent annual exercise, mtegrated into the budget This should ensure a deeper integration of fiduciary cycle, to support (a) the government's formulation of concerns into the overall operational program. The budget strategy; (b) the opening of the budget process Region has a developing portfolio of operations sup- to review by domestic constituencies; and (c) (serving porting budget execution, treasury development, and as a framework) a review of progress on fiduciary con- other functions of public financial management that cerns. Albania and Bosnia and Herzegovina are current provide a platform for dialogue on long-term im- examples of countries where work along these lines is provements in fiscal transparency. In PRSP countries, being undertaken, but the approach is relevant to other this agenda is an important element in the annual low-income high-aid countries. Most of the cases PRSP dialogue, as well as in monitoring government within this category are also actual or potential candi- performance. dates for Poverty Reduction Support Credits. In these cases, public expenditure work (including PERs) should be clearly linked to the PRSP and subsequent Theme 3: Focusing Our Lending lending. An effort is also being made to integrate on Long-Term Institutional Reform poverty-reduction objectives and programs defined in the PRSPs into the country budget strategies, presented The share of projects to enhance institutional capacity in MTEFs. The public expenditure work in these coun- has increased substantially in the Region. Projects un- tries will have to ensure that the countries develop the der preparation or supervision include (a) investment capacity to cost the PRSP budget implications. In the operations on tax and customs reforms in Bulgaria, case of middle-income countries, it is neither possible Kazakhstan, Latvia, the Russian Federation, Turkey, nor appropriate to develop as specific a model for pub- and Ukraine; (b) investment and TA operations in fi- lic expenditure work as for the PRSP countries. nancial management reforms and public administration Accounting for risks and challenges. Analytical reforms in Armenia, Bulgaria, Georgia, Hungary, Kaza- work on governance always runs the risk of challenging khstan, the Kyrgyz Republic, the Slovak Republic, the political sensitivities. The Region has tried to address Russian Federation, and Uzbekistan; (c) investment such concerns by closely involving governments in the and TA operations in legal andjudicial reform in Alba- tasks, though this has been more difficult with Regional nia, Croatia, Georgia, and the Slovak Republic; (d) ad- studies and cross-country comparisons. Greater con- justment operations focusing primarily on public sideration for dissemination strategies and upstream sector institutional reforms and governance reforms in consultation will be needed to mitigate these risks. Kazakhstan, the Kyrgyz Republic, Latvia, and Macedo- Another challenge is the integration of fiduciary nia; and (e) adjustment operations with important concerns within public expenditure work. This is components on public sector institutional reforms and partly a task of coordinating principal fiduciary instru- governance reforms in Albania, Armenia, Azerbaijan, ments, such as the country financial accountability as- Bosnia and Herzegovina, Croatia, Georgia, Moldova, sessment (CFAA) and the Country Procurement Tajikistan, Turkey, Ukraine, and the Federal Republic Assessment Report, with other PEM work, such as of Yugoslavia (Serbia and Montenegro). PERs. In the Region, a number of experiments have The experience of Bank operations in this area sug- been made in this direction, including the integration gests the importance of using a set of complementary of CFAA work in the Turkey PEIR and efforts to coor- instruments tailored to the particular country circum- dinate PERs and CFAAs in Bosnia and Herzegovina. stances. In many countries, this comprises a mixture of 78 Reforming Public Institutions and Strengthening Governance adjustment lending and TA. Adjustment operations for example, the Region has placed more emphasis on can provide a degree of leverage to place institutional institutional aspects of budget performance and other issues on the reform agenda. Such policy reforms often elements of financial management systems. This in- require complementary TA, especially where institu- cludes a combination of diagnostic studies, compo- tional capacity is weak and threatening to undermine nents of adjustment operations, institutional the implementation and sustainability of reforms. development projects, and TA operations targeting Nevertheless, many countries in the Region are in- budget preparation and execution systems, auditing creasingly reluctant to borrow for TA, especially in the functions, and revenue administrations. Appropriate face of high debt levels and a perceived abundance of sequencing of these interventions provides for the long grant-based TA. To meet this challenge, the Region has time horizon required for such reforms. One example been relying on grant funding from other donors, of this staged approach is in Albania (see Box 7 in though this has raised problems of donor coordina- Part I). tion and introduced an element of uncertainty in the The sequenced approach to institutional reform timing of TA. has to be based on a deeper analysis of the root causes The Region's experience with adjustment opera- of weak public sector institutions and wider consulta- tions to support institutional reforms in the public tion with stakeholders. One example is the TAMP II in sector has been mixed. It is clear that such reforms re- the Russian Federation (see Box 15). A similar ap- quire sustained engagement over a long time horizon, proach has been applied to treasury modernization but the Region is still moving slowly in its use of long- projects to establish effective cash management sys- term lending instruments, such as Programmatic Ad- tems and improve the transparency of budgetary justment Loans. Such loans are currently being piloted transactions. Such projects typically involve (a) assis- in Latvia, Turkey, and Ukraine (Box 16), but many tance in the development of the underlying legal and borrowing countries in the Region are reluctant to institutional framework required for implementation; adopt Programmatic Loans, given the significant de- (b) modification or adoption of budget classification mands they place on institutional and coordination systems; (c) consolidation of government bank ac- capacity. The Programmatic Financial and Public Sec- counts into a single treasury account at the central tor Adjustment Loan in Turkey focuses on three areas, bank and establishment of institutional arrangements each of which has a medium-term dimension: (a) im- for processing payment and receipt transactions; and plementing structural fiscal policies to ensure perma- (d) design and implementation of information sys- nent fiscal adjustment; (b) launching a medium-term tems, detailed regulations, procedures, and operating program of policy and institutional reforms to im- manuals. Currently, such systems are being imple- prove the transparency and efficiency of PEM, includ- mented in Albania, Hungary, Kazakhstan, Turk- ing action to improve budget preparation and menistan, and Ukraine, and preparatory work is execution, policy formulation, and the operational ongoing in Armenia, Azerbai)an, the Russian Federa- performance of public agencies; and (c) initiating tion, and Uzbekistan. broad-based institutional reforms to improve the The Region's operational work is not limited to pure quality of public sector governance. lending activities. A substantial part of the work is done Overall, we are attempting to mainstream a long- through International Development Facility (IDF) term approach to institutional reform, through a com- grants. Several countries (including Georgia, Kaza- bination of instruments. In the area of fiscal reform, khstan, the Kyrgyz Republic, the Russian Federation, Europe and Central Asia Region 79 Europe and Central Asia Region: Programmatic Loans Adaptable Program Loan: Ukraine STAMP taining risk, to offset the professional risks of re- The use of an Adaptable Program Loan for the form leadership. Ukraine State Tax Administration and Modern- ization Program (STAMP) addresses a number of Programmatic Structural Adjustment challenges in a complex and risky institutional de- Loan: Latvia velopment environment. It allows the Bank and The Bank is providing the Government of Latvia the government to plan for a decade-long reform with a Programmatic Structural Adjustment Loan process yet segment it into manageable pieces. It (PSAL), envisaged as a series of three adjustment attempts to manage the many risk areas of such an operations. The first loan, disbursed in 2000, sup- undertaking. The three phases of STAMP provide ported the return to a situation of sustainable milestones for taking stock of progress, problems, macroeconomic balances, the design of an efficient and the evolving environment, in response to and effective public sector, and the adoption of changing conditions. The milestones also provide transparent procedures for privatizing the last few predefined exit points in the absence of sufficient large, state-owned enterprises. The next two oper- progress or in the face of increased risks. The ations are to focus on the restructuring of the pub- phased approach allows for early wins to build lic sector and privatization of these enterprises. support among stakeholders. Subsequent (or par- Three politically difficult reforms exemplify allel) investments in capacity building and re- the issues that the PSAL operation took aim at: re- structuring help establish their sustainability. The form of unregulated and undisciplined public sec- strength of the long-term commitment can also tor agencies, which control nearly half of the state help to change the institutional culture. Among budget; reform of a complex, nontransparent, and other things, the champions of reform need man- discretionary system of pay; and privatization of dates and well-conceived mechanisms for con- Latvia's so-called crown jewels. Tajikistan, and Turkmenistan) have received IDF grants Experience with Project Implementation Units," com- for implementing public procurement reforms. This is pleted in February 2001, examined selected aspects of expected to grow as the revised guidelines for IDF grants the Region's experience with pro)ect implementation focus more on public financial management and arrangements, reviewed the pros and cons of various legal-judicial reforms. arrangements, and highlighted issues that task teams The Region is also trying to align project imple- and borrowers confront during project preparation mentation arrangements with institutional develop- and implementation. The note concluded that Project ment needs in the countries. "Implementation of Implementation Units (PlUs) play useful roles in proj- World Bank-Financed Projects-A Note on the ECA ect management, particularly in those countries where 80 Reforming Public Institutions and Strengthening Governance the government's capacity to manage development current staffing levels. More importantly, there is a projects is low. But there is evidence that use of stand- shortage of client-oriented staff with a combination of alone PIUs can weaken long-term institutional devel- specialized technical skills in the public sector (espe- opment by creating enclaves within the public sector cially in expenditure management and public admin- and distorting incentives of the staff, both within and istration reform) and good operational experience. We outside the PIUs. The preparation of the note led to re- will need to increase recruitment for replacements visions in the guidelines for establishing and using from outside the Bank to increase the skill levels in stand-alone PIUs in the Region. these areas. Establishing partnerships. Public sector and in- stitutional reform work in the Region has always in- Theme 4: Internal Staffing, volved close partnerships both within and outside the Organization, and Partnerships Bank. Inside the Bank we have been cooperating very closely with the World Bank Institute on the gover- Supporting internal staffing and organization. The nance work. Multilateral and bilateral donors, such as Region has established a strong capacity on public sec- the IMF, the European Union, the Department for In- tor institutional reform. The staff combine analytic ternational Development (United Kingdom), the U.S. skills and practical experience in areas such as PEM, Agency for International Development, and the United administrativ an civil service reform,governance Nations Development Programme, are very active in administrative and civil service reform, governance and anticorruption, and tax administration. About 30 PSR in the Region, and we are closely collaborating staff, including 3 in country, work on these core issues with them. This applies not only to the country pro- in the Region's Poverty Reduction and Economic grams but also to Regional tasks. We are participating Management Sector Unit (ECSPE). No fuirther expan- in the Stability Pact Anti-Corruption Initiative, which sion is planned at this stage, though demand for sup- brings together the countries of the South Eastern Eu port on PSR issues from the Region's clients continues rope Region and the multilateral and bilateral donor to expand. The objective is to focus on existing com- community to design, implement, and monitor pro- mitments and deepen involvement in existing areas, grams to address corruption in countries of this Re- with a view to achieving demonstrable impacts and gion. We have also stepped up our outreach efforts by sustainable success. One of our main goals is to pro- establishing the Europe and Central Asia Region's Ex- vide specialist support to task and country teams. In nan A orBosrd on Anticorruptonmand ovr many instances this means that country economists nance, composed of prominent government and would take the lead in some of the work (such as nongovernmental organization representatives, to PERs), supported by public sector specialists. This also provide feedback on Bank research and operations in emphasizes the need to provide sufficient training op- reai portunities for a broad range of staff. Remainig issues. Below is a short summary of Staff turnover is a concern. Because the Region ex- the main issues we will need to address over the next panded very quickly about three or four years ago, fewyears some staff are beginning to move to other Regions. * Maznstreaming governance concerns across the This should be encouraged, to promote professional range of Bank work-The Region has had only lim- development. However, this also creates problems for ited success in mainstreaming governance issues the work program, given the high level of demand at on a broader scale in other sectors. The ECSPE Europe and Central Asia Region 81 concentrates its activities on reforming and devel- sonable time frame. Demonstrating results over oping core government functions. We have started rhetoric will be critical to sustaining anticorrup- to work with some sectors to improve policymak- tion efforts. ing, regulatory, and monitoring capacities to en- Measuring results and outcomes-The main chal- hance the governance dimensions of sectoral lenge in the areas of public sector and institutional reforms, but substantially more work needs to be reform-given the long-term nature of many of done in this area. these reforms-is to measure the impact of our in- Operationalizing anticorruption programs-The terventions more systematically. This will require a success of diagnostic surveys and coalition-build- clear definition of expected outputs and the devel- ing efforts in raising awareness about the extent of opment and refinement of a limited set of output corruption and its implications for economic de- indicators to track various aspects of public sector velopment have increased demands for demon- performance over time. It is critical to establish strable results in the fight against corruption. Yet, feasible intermediate benchmarks to track prog- many of the Region's countries have faced diffi- ress. Such monitoring efforts could have substan- culties in translating recently adopted anticorrup- tial payoffs in terms of both gaining feedback on tion programs into concrete actions designed to reform efforts and building support to sustain the have a clear impact on corruption within a rea- momentum of reform over the long term. Europe and Central Asia Region: Matrix of Selected Activities The following matrix contains a list of selected actvites pre- tant sector-specific activities-for example, in the social sec- sented to the Board, finalized or active in fiscal years 2000-02, tors (health, education, social protection), in rural develop- and selected activities under preparation in fiscal year 2002. ment, in municipal development and infrastructure, in Although challenges of governance and public sector reform pnvatization and pnvate sector development, in social funds, cut across most of the Bank's work, the matrix focuses on and in postconflict work. Activities are listed only once, al- core governance reforms and does not include many impor- though they may fit in several categories. Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) Implementation Completion Reports Public Finance SAC 2 (Bosnia and Herzegovina, FY99) * Public Finance SAC (Bosnia, FY00) Public Sector Adjustment Loan (Latvia. FY00) * SAC (Macedonia, FY00) SALs or SACs (Tajikistan, FY98/0 1, Armenia, FY98/01/03; * SAL I (Russian Fed., FY00) Albania, Georgia FY99; Moldova, FY99/02, Lithuania, * SAL 2 (Russian Fed., FY00) FYO0; Azerbaijan, Croatia FY02; Serbia, FY02F03; Montenegro, FY03) * Emergency recovery (Macedonia, FY0O) * Programmatic SAL (Latvia, FYO 1/02; Ukraine, FY02) * Public Finance SAL (Latvia, FYO 1) 82 Reforming Public Institutions and Strengthening Governance Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) Implementation Completion Reports Public Sector Management Adjustment Credit (Macedo- * SAC (Albania, Azerbaijan, Talikistan, FYO1) nia, FY02) * SAC 3 (Armenia. FYO 1) Programmatic Financial and Public Sector Adjustment * SAL 3 (Russian Fed., FYOI) Loan 2 (Turkey, FY02) * SATAC 2 (Georgia, FY99) Public Finance SAC (Bosnia and Herzegovina, FY03) * SAL I-all PER agenda (Fed. Rep. of Yugoslavia [Serbia/ * TAMP (Hungary, FY99) Montenegro], FY02) * TAMP (Albania, FYOO) IBTA (Turkmenistan, Uzbekistan, FY94; Azerbaijan, FY95; * TA (Bulgaria, FYOO) Talikistan, FY99) * TA (Kazakhstan, FYOO) PSRCTA (Armenia, FY03) * TAMP (Russian Fed., FYOO) IBTA 11 (Azerbaijan, FY02) * IBTA (Tajikistan, Uzbekistan, FYOI) SATAC 11 (Armenia, Georgia, FY97) * TA for treasury data (Turkey, FYO 1) Structural reform support (Georgia, FY99) * TAMP (Albania, Russian Fed., FY01) Public Expenditure Review * PEIR (Albania, FYO 1; Fed. Rep. of Yugoslavia [Serbia/Mon- tenegro], FY02) * PERs (Kazakhstan, Macedonia, Russian Fed. FYOO; Croatia, Czech Rep., Latvia, Turkey, FYO1; Bosnia, Bulgaria, Roma- nia, Ukraine, Fed. Rep. of Yugoslavia [Serbia/Montenegro], FY02) Budget Management * Report on budget management (Russian Fed., FYO 1) * Public finance management (Turkey, FY95; Hungary, FY96) * Budget 11 (Russian Fed.. FY02) .* Public finance management reform (Slovak Rep.. * Public Investment Review (Russian Fed., FYO 1) Uzbekistan, FY03) * Report on public management (Poland, FYO 1) * Treasury development (Russian Fed., FY02) * TA support for Public Finance Act (Poland, FYO 1) * IDF: Fiscal risk management (Czech Rep., FYOO) * Regional debt sustainability (FYO1) * Treasury modernization (Kazakhstan, FY96) * Treasury systems (Ukraine, FY98) * IDF: Treasury reform (Bosnia and Herzegovina, FYO 1) * IDF: Improving public debt management (Lithuania, FYO 1) Europe and Central Asia Region 83 Europe and Central Asia Region: Matrix of Selected Activities (continued) Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Omplementation of Mew Operations (ESW and Diagnostics) (Lending) General Operations, continued Procurement * Procurement cost study (Latvia, FY00) * CPARs (Bulgaria, Croatia, Kazakhstan, Romania, FY00); Albania, Georgia, Latvia, Poland, Russian Fed., Slovak Rep., Turkey, Ukraine, FY01; Azerbaijan, Bosnia and Herzegov- ina, Macedonia, Uzbekistan, Fed. Rep. ofYugoslavia [Serbia/Montenegro], FY02) * Public conference on public procurement (Poland, FY00) * Regional procurement information systems (FY00) * Procurement assessmentTA (Kazakhstan, FY00) Financial Management (CFAAs) * CFAA: (Poland, FYOO;Turkey, Ukraine, FYOI; Albania, Azerbaijan, Bosnia, Kazakhstan, Russian Fed., Fed. Rep. of Yugoslavia [Serbia/Montenegro], FY02) Tax and Customs * Customs Reform Project (Russian Fed., FY04) * STAMP (Ukraine, FY03) * TAML 11 (Russian Fed., FY03) * State Revenue Service Modernization Loan (Latvia, FY99) * IDF: Tax administration (Hungary, FY99-02) * FEDL: Tax component (Kazakhstan, FY99-02) * Unified revenue agency (Bulgaria, FY03) Administrative Reform (Including General PSR, Civil Service Reform, Statistics) * Public administration reform TA (Ukraine, FY00) * Government Administration Modernization Project * Public officials' survey (Albania, Bulgaria, FYO 1) (Bulgaria, FY03) * Diagnostic surveys of households, enterprises, aqd public * PSRC (Georgia, FY02) officials (Kazakhstan, FYO 1) Public Administration Reform Credit (Albania, FY00-04) * Public administration Internet site (Russian Fed., FYO 1) PSRC (Armenia, FYO I) * Household and enterprise surveys on the quality of public * IDF: PSR and capacity building (Latvia, FY99-02) services (Armenia, FYOI) State reform IDF (Latvia, FY99-01) Civil seryice reform (Russian Fed., FY02) 84 Reforming Public Institutions and Strengthening Governance Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) * IDF: Strengthening State Chancellery and Public Service Bureau (Georgia, FY99-02) * Public Administration Loan 11 (Bulgaria, FY04) * Public Administration Loan (Romania, FY04) * Business and household survey (Azerbaijan, FY00) RegionalTA (Russian Fed, FY99-04) * Decentralization (Regional, FYO I) Regional fiscal reform (Russian Fed, FY02) * Note on intergovernmental finance (Ukraine, FY00, Fed Rep ofYugoslavia [Serbia/ Montenegro], FY02) * Intergovernmental fiscal relations (Czech Republic, FYO I) * Monitoring subnational government performance (Poland, FY00) * Judicial assessment (Fed Rep of Yugoslavia Legal and ludicial reform (Moldova, FY03) [Serbia/Montenegro], FYO I) Judicial reform (Slovak Rep, FY02) * Report on judicial reform (Latvia, FY00) * Legal and Judicial Reform Credit (Albania, FY00) * Paper on use of legal institutions (Russian Fed, FYO 1) Judicial Reform Credit (Georgia, FY99) * Report on regulatory reform (Latvia, FY00) Legal Reform Loan (Kazakhstan, FY99) * Court and Bankruptcy Administration Loan (Croatia, FY01) * IDF Legal systems reform (Belarus, FY98) * Advice on civil service reform and anticorruption strategy * GovernanceTA (Kyrgyz Rep, FY02) (Russian Fed, FY00) Governance SAC (Kyrgyz Rep, FY03) * Anticorruption diagnostic (Albania, Bosnia and Herzegov- Governance IDF (Armenia, FY00) ina, Romania, Slovak Rep., FY0 1; Russian Fed, FY02) PSR and capital building IDF (Latvia, FY99-02) * Governance or corruption surveys (Albania, Georgia, Latvia, Romania, Slovak Rep, Turkey FY99-present) * Note on anticorruption (Russian Fed., FY00) * Anticorruption in transition (Regional, FY00) Europe and Central Asia Region 85 Europe and Central Asia Region: Matrix of Selected Activities (continued) Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) * Report on anticorruption (Latvia, Poland, Regional, Russ- ian Fed, FY00; Bosnia and Herzegovina, Romania, FY01) * Preparation of anticorruption strategy (Albania, Ukraine, FY00; Kosovo, FYO I) * Anticorruption strategy (Armenia, FYO 1) * Policy notes on anticorruption strategy (FY02) * Anticorruption TA (Ukraine, Latvia, FY00, Regional, Bosnia, Turkey, FYO I) * Report on business transactions (Russian Fed., FYO 1) * Corruption and Public Sector Management Reform (Slovak Rep., FYO I) * Corruption monitoring under SPAI (Regional, FYO 1) * Anticorruption and Governance ReformWorkshop (Regional, FYO I) * Conference on anticorruption strategies (Poland, FYO 1) * Conference on money laundering (Poland, FY0 I) * Public conference: Anticorruption Diagnostic Report (Romania, FYO I) * ECA Anticorruption inTransition (Regional, FY00) * ECA Flagship on Monitoring Public Sector Performance (Regional, FYO 1) * ECA regulatory reform (Regional, FY02) * Governance and service delivery diagnostic (Kazakhstan, FYOI) * IGR and workshop (Armenia, FYOO-0 I) * Institutions in transition (Regional, FY02) * Mainstreaming anticorruption (Regional, FY00) * IDA-eligible CIS: Poverty, growth, and debt fiscal sustain- ability (Regional, FYO 1-02) * Comparative Approaches to Conflict of Interest: paper (Russian Fed., FYO I) * Pilot IGR (Armenia, FY99-00) * Households and public officials survey for IGR (Armenia, FY00) 86 Reforming Public Institutions and Strengthening Governance Upstream Engagement, Knowledge Financing, Preparation, Supervision, and Management, and Learning Dmplementation of Mew Operations (ESW and Diagnostics) (Lending) Broader Governance (Including Civil Society Participation andAnticorruption), continued * Review of ECA Project Implementation Units (Regional, FYO I) * SEE and Balkans anticorruption monitoring (Regional, FYO I) * Business and household survey (Azerbaijan, FYOO) Note: CFAA, country financial accountbility assessment; CIS, Commonwealth of Independent States; CPAR, Country Procurement Assessment Report; ECA, Europe and Central Asia Regional Vice-Presidency; ESW, economic and sector work; FEDL, Finance and Enterprise Development Loan; FY fiscal year; IBTA, institution building/technical assistance; ICR, Implementation Completion Report; IDA, International Development As- sociation; IDF, Institutional Development Facility; IGR, Institutional and Governance Review; PEIR, Public Expenditure and Institutional Review; PER, Public Expenditure Review; PSR, public sector reform; PSRC, Public Sector Reform Credit; SAC, Structural Adjustment Credit; SAL, Struc- tural Adjustment Loan; SATAC, Structural AdjustmentTechnical Assistance Credit; SEE, South Eastern Europe Region; SPAI, Stability Pact Anticor- ruption Inidative; STAMP, StateTax Administration and Modernization Program;TA, technical assistance;TAMLTax Administration Modernization Loan;TAMRTax Administration Modernization Project. Europe and Central Asia Region 87 Latin America and Caribbean Region Public Sector Work versified into a broader range of TA operations. Typical projects were divided into roughly two types: (a) com- Before the 1997 reorganization that set up the current prehensive State Modernization Projects that encom- network structure and gave birth to Public Service passed most of the core areas of public sector Units in some other Regions, the Latin America and management and, in some cases, even privatization and Caribbean Regional Vice-Presidency already had units regulatory reform (Ecuador, El Salvador, Honduras, dedicated to public sector modernization issues. With Jamaica, Nicaragua, and Venezuela in 1995-1998); and a long and solid operational tradition in this area, the (b) stand-alone TA operations in specific public man- publication in 2000 of the Bank's Public Sector Strat- agement functions (for example, financial manage- egy report did not mark a radical departure for public ment in Bolivia, Colombia, Jamaica, and Guatemala; sector work in the Latin America and Caribbean Re- tax administration in Jamaica; and public investment gion. Rather, the Region's involvement in issues of and pension management in Argentina). The Region public sector institutional reform has evolved over also pioneered judicial reform operations (Venezuela), time, reflecting primarily the changing demands from which steadily increased in the mid-1990s (Argentina, countries, along with experiences on the ground. Bolivia, and Ecuador). The trend in the public sector work in the Region The trend in public sector work in the Region before the Strategy. The Latin America and Caribbean since the Bank-wide Public Sector Strategy. Since the Region's involvement in public sector issues originated mid-1990s the Region has expanded its emphasis on in the Bank's work on fiscal adjustments in the early the governance and institutional agenda. Support for 1980s, along with some technical assistance (TA) to decentralization, subnational government reform and support strengthening of core economic management development, and fiscal or financial management has functions. But as client countries' public finances more dominated the new lending portfolio since fiscal year or less stabilized toward the early 1990s, the Region di- 1999. Within these operations, the Region is also begin- 88 ning to address the "empowerment" agenda by empha- tution building and governance issues have been main- sizing access of the poor to public services and promot- streamed in country programs varies significantly ing e-government for greater government transparency from one country to another. In the case of Bolivia, and efficiency. The agenda for civil service reform, in where both the government and the Bank highlighted contrast, has taken a back seat. Although there are some the central importance of governance constraints to projects with components that deal with strengthening economic growth and poverty reduction, the Country human resource management, only one (Bolivia's In- Assistance Strategy (CAS) squarely put public sector stitutional Reform Project [IRP]) has reform of public reform (PSR) issues at the top of the country's devel- sector pay and employment reform as the central opment agenda.9 Bolivia had long received much Bank objective. support in public sector areas, but the intensity of Bank There has also been a renewed emphasis on analytic and donor support for the government's institutional work. In fiscal years 2000-02 the Region carried out reform agenda increased significantly over the past more than a dozen new economic and sector work three years under the CAS-Comprehensive Develop- (ESW) tasks on governance and public sector issues, in- ment Framework (CDF). cluding three institutional reviews (Bolivia, Peru, and At the same time, there are still a number of coun- Organization of Eastern Caribbean States [OECS]), tries where the Bank has no, or only limited, presence several Public Expenditure Reviews (PERs) (including in the public sector area. Some of these countries (for one Public Expenditure and Institutional Review example, Costa Rica and Uruguay) do not face the [PEIRI), and several studies each on decentralization most serious governance problems, by the Regional and the judicial sector. The Region has also begun standard. In another group of countries, the condi- working on anticorruption issues (Argentina, Bolivia, tions for a program of sustainable institutional reform Ecuador, Honduras, Nicaragua, Paraguay, Sao Paulo), are lacking. However, the trend is clearly toward in- with the World Bank Institute playing a lead role. Full creased demand for PSR as governments and societies integration of the analytic work with effective policy di- recognize its importance to national development. alogue and reform design, with or without a follow-up Brazil and Mexico are two special cases among the lending operation, remains a goal. countries where the Bank has lately gained entry in Within this broad operational trend, this Strategy public sector areas. These two are the Region's largest update describes how the Region's work on core issues client countries where the Bank had not had an oppor- of public institutional reform has responded to the tunity to be heavily involved in issues of public sector new directions set forth in the Bank-wide Public Sec- institutional reform. We have begun to engage both tor Strategy report and discusses remaining challenges governments through effective use of analytic work, to our effectiveness on the ground. linked to the respective country's policy agenda (de- centralization in Mexico and fiscal reform in Brazil). The policy dialogue is continuing via a mLx of ad)ust- Theme 1: Broadening the Bank's ment and Technical Assistance Loans (including a Approach and the Content Subnational Adjustment Loan in Mexico and a Pro- of Country Programs grammatic Adjustment Loan in Brazil). In both cases, this initial entry has grown into additional requests for Mainstreaming governance and institutional con- Bank support on more sensitive issues of governance, cerns in country programs. The degree to which insti- corruption, and judicial reform. Latin America and Caribbean Region 89 Another important client in the Region is Chile, time since the beginning of the last century) had devel- for its well-reputed public sector. The Bank had not oped into a strong momentum for decentralization. In had an operation to support central government re- response, the Bank began advising the government on form in Chile since the last Public Sector Moderniza- decentralization policy, first with comprehensive ana- tion Loan in the mid-1980s. However, the Chilean lytic work. The agreed policy reforms were then sup- government has recently requested our assistance in ported with a Decentralization Adjustment Loan. upgrading its system for managing public finance and Further implementation of the new policy framework in supporting deeper budget reform, partly because of (with a strong emphasis on subnational fiscal discipline the Bank's successful efforts in promoting systems of via a new regulatory framework for subnational bor- integrated financial management elsewhere. rowing) has been supported with an Adjustment Loan In most of the other countries, the Bank is contin- and an accompanying Technical Assistance Loan to one uing to work in the public sector area by building on of the states (State of Mexico). In implementing these the existing portfolio of projects. In Argentina, Colom- operations, the Bank carried out intensive supervision, bia, Ecuador, El Salvador, Guatemala, Honduras, Ja- with monthly visits to the country, and a series of maica, Nicaragua, and Venezuela, the Bank has monthly seminars on decentralization issues, with the maintained a continuous presence through an ongo- Office of the President. ing series of TA projects. In some cases, however, In Bolivia, the Bank proactively transformed a changing country circumstances and the implementa- planned second municipal development project into a tion experience of the earlier projects have led us to re- full-fledged decentralization program. Analytic work (a examine our involvement in a country (for example, chapter on decentralization in the 1998 PER) had iden- Venezuela) or reconsider our approaches (for example, tified weaknesses in the intergovernmental fiscal frame- Ecuador and Honduras). work that distorted incentives for efficient management Growing demand for decentralization work. of public resources at the subnational levels. Thus, the Clearly the area where the demand for Bank support is Bank proposed to the government a fundamental re- increasing most rapidly is decentralization and subna- form of the intergovernmental transfer and credit sys- tional government reforms. Half of the new projects tems, to be supported with a Programmatic Structural approved in fiscal years 2000-02 support reform of in- Adjustment Credit, as a necessary prerequisite for con- tergovernmental relations or specific subnational gov- tinued financial support for urban infrastructure. ernments. The Bank traditionally had projects on The Bank has also used an Adjustment Loan to municipal and provincial development, with a mix of support the decentralization and the agenda for sub- investment financing and management strengthening national government reform in Argentina and Colom- (for example, Argentina, Bolivia, and Chile) and a few bia. In Argentina, Chile, Guatemala, and Mexico, the privatization operations in Brazilian states. It had also Region is supporting strengthening of municipal and worked on decentralization issues from specific sec- provincial and state governments through Technical toral angles (for example, social sectors). But it is really Assistance and Investment Loans. Elsewhere (Brazil, during the past few years that it began to frontally ad- the Dominican Republic, Ecuador, El Salvador, dress intergovernmental fiscal and institutional issues. Paraguay, Peru) analytic and advisory activity has so The most striking examples are Mexico and Bolivia. far been the instrument of choice.10 In Mexico, the rapid political opening (even before the Emphasis on participation. Taking advantage of recent change in the government party, for the first the fairly strong civil society presence in the Region, 90 Reforming Public Institutions and Strengthening Governance the Bank has moved to emphasize participatory ap- Bank supports these efforts (especially IFMS) in virtu- proaches to designing and implementing public sector ally all of its client countries in the Region. Together operations. For example, improving access to justice with decentralization, financial management projects has been one of the core objectives of the Region's ju- constitute the largest block of the Region's public sec- dicial reform operations. Among them, the Venezuela tor portfolio. It is expected that the growing emphasis Supreme Court Strengthening Learning and Innova- on e-government will only reinforce this trend in com- tions Loan (LIL) has supported the formation of a ing years. court-nongovernmental organization (NGO) part- Beginning of anticorruption work. In Latin nership (Social Alliance for Justice), and the America, most of the anticorruption efforts so far have Guatemala Judicial Reform Project has financed the focused on awareness raising and support building establishment of courts in rural areas, with judges who through diagnostic work. They include the anticor- speak local languages, thus making justice more acces- ruption diagnostic surveys developed by the World sible to indigenous communities. In the Peru Urban Bank Institute and others, institutional assessments Property Rights Project, the agency in charge of for- aimed at understanding the structural and political malizing property rights established, early on, perma- factors facilitating corruption (Bolivia, the Dominican nent mechanisms for consultation and information Republic, Peru), and sponsorship of programs to mo- sharing to ensure effective beneficiary involvement. biize citizen support (for example, the anticorruption The Argentina Provincial Reform Projects have in- strategies developed in Bolivia and Ecuador). Preven- creasingly relied on the use of participatory ap- tive programs are fewer and usually linked to single proaches and social assessments (surveys and focus institutions, such as tax agencies (Colombia) or pro- groups) for design and on direct NGO participation curement activities. However, much ordinary public for implementation. sector work can also be seen as fighting corruption, in E-government and transparency. Another clear that it aims to introduce good practices and put in trend is the use of e-government techniques to im- place incentives for following them. The emphasis on prove transparency and efficiency of government serv- IFMS is a case in point, as are state modernization pro- ice delivery, with the expected indirect effects of grams in Bolivia and Argentina. The Bank has sup- strengthening societal demand for good governance. ported anticorruption agencies in some cases (for This includes support for development of the institu- example, Argentina). tional infrastructure needed to introduce e-procure- Experience to date has broadened our understand- ment in Argentina, development of a Legislative ing of the phenomenon but has yet to produce an Information System in Guatemala (with the Interna- overall strategic approach incorporating lessons tional Development Facility), scale-up of a successful learned from these isolated activities. The challenge is pilot program for "digitizing" birth registrations in to consider simultaneously all facets of anticorruption Salvadoran municipalities, and implementation of on- work (that is, awareness raising, prevention, and en- line databases in the Venezuelan judiciary. forcement) and all types of corruption in a more coor- The Region continues to invest in the development dinated fashion and identify areas in which the Bank and expansion of integrated financial management can make tangible contributions on the basis of its systems (IFMS) (including measures to make the in- comparative advantage. formation publicly available via Internet) and inte- Future of comprehensive PSR. Another notable grated personnel database systems. Currently, the trend is the reduction in comprehensive public sector Latin America and Caribbean Region 91 modernization projects. There is a sense that these op- headed for turbulent times. This is most acutely ob- erations tend to degenerate into "Christmas-tree" proj- served in the Andean Region, where social and politi- ects that are difficult to implement. Especially when cal stability has deteriorated significantly over the past introduced in a country with weak commitment and few years, and more recently in the social unrest and capacity to reform, these operations have tended to be rapid government changes in Argentina. In many rather unproductive. Some of them, such as the Public cases, this instability seems to be driven, at least par- Sector Modernization Projects in Ecuador and Hon- tially, by the frustration that has arisen from the per- duras, have been succeeded by more-focused TA oper- ceived failure of the economic policy reforms in the ations on financial management. Region to spark growth and visibly reduce poverty and One of the last projects that was designed m an inequality (that is, "reform fatigue"). The persistent ambitious, comprehensive fashion was the Bolivia IRP. perception of corruption, along with its heightened Designed as an Adaptable Program Loan (APL), the salience in the public debate, may be another con- IRP tries to professionalize personnel and organiza- tributing factor to social discontent. The Bank will tional management of selected pilot entities ("vertical" have to reflect on this prospect and its implications as reform) and simultaneously to address budget and it moves forward with its agenda for governance and civil service management and anticorruption meas- institutional reform in the Region. ures government-wide ("horizontal" reform). The To the extent that the crisis of the state legitimacy project takes a "hurdle" approach by singling out those has its roots in citizen discontent with public sector agencies that are either in most need of reform or most performance, there will likely be increased demand for prepared to reform themselves. The implementation further reform of the state. The need for governments record so far indicates both the promise and the diffi- to "clean up" their houses quickly while confronting culty of this approach. The IRP has scored important uncertain economic prospects and pressures of global progress in substantially reforming the customs ad- competition involves high risks (as well as opportuni- ministration, which had long been one of the most ties). The Bank thus needs to exercise keen judgment corrupt state organizations in the country. Now the on a client country's social and political conditions for project is tackling similar reforms of the tax agency PSR and make even more rigorous efforts to tailor pro- and the national roads agency, also known for corrup- grams of support to the country context. tion and political capture, and has obtained important Several approaches may be worthwhile considering legislative victories. But, to obtain these achievements, in the weakening governance conditions m parts of the the project had to rely on unusually strong and cohe- Region and the corresponding difficulty of obtaining sive donor pressure, made possible largely as a result of sufficient government commitment to reform. First, the strong partnership cultivated in the CDF context the Bank should exercise selectivity, not only among (facilitated by the presence of a Bank publc sector spe- countries, when necessary, but also among various cialist in the country office), and ultimately, a change possible entry points for reform. Even in a difficult en- in the government leadership. Thus, both sustainabil- vironment, some reform measures may gain greater ity and replicabllity of this approach remain to be seen. receptivity and thus promise better political feasibility Rough road ahead? After a period of relative eco- than others. Currently, the Bank is exploring an oppor- nomic and political stability following macroeco- tunity to support Venezuela's stalled decentralization nomic stabilization and democratic transition, a agenda through such a careful approach. Second, in- number of countries in the Region appear to be tense policy dialogue that not only highlights costs of 92 Reforming Public Institutions and Strengthening Governance current policies but also offers benefits of credible re- olence). The Public Sector Group has also carried out a form paths may be able to win over reluctant govern- Knowledge Management Program, and some individ- ments. Together with the International Monetary ual staff actively participate in Bank-wide thematic- Fund (IMF), the Bank is engaging Honduras in de- group activities. signing a strategy for sustainable civil service reform. Exploring "good fit" for IGRs. The Region was Third, when specific actions are identifiable, promot- among the first to complete its IGR pilot (Bolivia). ing and carefully managing user participation may Perhaps as a sign of increasing recognition of the lead to improved understanding by the government of salience of institutional and governance issues in the the proposed policy's impacts on the users and thus to Region, the two subsequent IGRs (OECS and Peru) a stronger commitment to implement it. In all cases, a were explicitly requested by Country Management good understanding of the country's political and in- Units (CMUs) so they could get an understanding of stitutional dynamics will be essential. the challenges these countries faced in institutional de- velopment and PSR and then offer strategic guidance on reform priorities. Also the Human Development Theme 2: Deepening Unit conducted an institutional review of social sec- Our AnalyticWork tors in three Argentine provinces, with collaboration from the Public Sector network anchor. The Region's initial challenge on the analytical front in The Bolivia and the Peru IGRs each included very the past few years was to revamp the ESW program in explicit political institutional analyses to guide assess- the public sector area, which had been cut down signif- ments of particular areas of public sector issues (for ex- icantly in the mid-1990s. Apart from a few PERs that ample, public expenditure management (PEM), examined public sector issues (for example, the role of personnel management, service delivery, decentraliza- the state, decentralization, public sector pay and em- tion, and the judiciary). Following the principle of ployment, the budget process) and a few Country Eco- "good fit', both IGRs offered reform options that, on nomic Memorandum-type reports that looked into the basis of the institutional analysis presented, were fiscal issues (for example, public pay and employment thought to promise the most realistic balance between in Brazil), the Region had produced fairly little analyti- political feasibility and technical rationality. The "Orga- cal work on public sector institutional issues before fis- nization of Eastern Caribbean States: Institutional and cal year 2000. Since then, however, there has been a Organization Capacity Review" examined the con- steady stream of ESW tasks on critical institutional is- straints faced by the public sector of sLx island countries sues such as decentralization, the judiciary, and anti- at the national, sub-Regional, and Regional levels. The corruption, as well as Institutional and Governance review covered democracy, fundamental rights and Reviews (IGRs). There is also a slow but clear trend to- freedoms, the rule of law, public sector management ward greater "institutional awareness" in the Region's (with special reference to managerial autonomy), ac- PERs. The Regional Chief Economist's Office high- countability, and mechanisms to enforce accountability. lighted institutional issues in two successive Regional Increased institutional content of PERs. Tradi- flagship publications (in 1998 and 1999) and contin- tionally, the Region's PERs had been prepared with ues to support Regional research on topics related to fairly limited or no involvement of public sector staff. public sector institutions and governance (for exam- This trend began to change in fiscal year 1999. Public ple, studies of court use, corruption, and crime and vi- service staff have since participated in PERs in Bolivia, Latin America and Caribbean Region 93 the Dominican Republic, Honduras (task manage- analytical work with institutional focus and the many ment), Nicaragua, and Peru, contributing to their in- ongoing financial management operations. Again in creasing institutional focus. The PERs in Honduras Honduras, the PER discovered weaknesses in some of and Nicaragua are linked to the Heavily Indebted Poor the very basic elements of PEM, despite the several Country-Poverty Reduction Strategy Paper process, years of Bank involvement in supporting the develop- offering analysis of fiscal sustainability, efficiency of ment of an IFMS. Analytical tasks are commissioned public spending, and their institutional bases. sometimes without taking into account the cycle of Some of the recent PERs are going beyond the typ- parallel lending operations. ical coverage of budget management issues. For exam- Other analytic work. Besides the IGRs and PERs, ple, the Nicaragua PER addressed weak policymaking the Region has carried out several studies on public as a fundamental cause of poor expenditure manage- sector institutional issues, including an anticorruption ment, while the PEIR in the Dominican Republic, now study in Argentina; decentralization studies in Brazil, under way, is designed to cover a range of institutional Ecuador, Mexico and Paraguay; and the empirical Re- and governance issues, such as corruption and admin- gional study on court-use patterns in Argentina, the istrative oversight and control, in addition to an analy- Dominican Republic, Mexico, and Peru, based on ac- sis of the budget process, using a political-economic tual court cases. In Mexico and Peru, results of the lat- approach as an analytical framework. ter studies are informing the design of Judicial Reform The Region has begun to apply public expenditure Projects. In Brazil, the Region is concluding an in- tracking surveys (PETS). The first PETS in the Region depth assessment of the federal multiyear planning was used in an adapted form in the Honduras PER. system, in close collaboration with the federal Secre- The Honduras PETS tracked actual deployment of tariat of Planning, paving the way for substantive dia- public sector staff in the health and education sectors logue on PEM issues, beyond the traditional fiscal and uncovered patterns of informal personnel man- concerns. Finally, a new study on governance and in- agement and the inefficiency that results from it. As the vestment climate, focusing on effects of judicial per- question of fiscal sustainability of wage bills has be- formance on private sector transactions, is being come a priority issue in the dialogue between the gov- started in Brazil. ernment and the IMF, the survey results offer In search of greater impact on the ground. The empirical confirmation of another critical dimension past few years have seen both an increase in the num- of personnel management: inefficiency in the current ber of public sector-related analytic tasks and diversi- staffing policy in the two sectors. A second PETS in the fication of their content. A greater challenge is to Region is being conducted in the ongoing Peru PER, improve our ability to use these analytic products to which tracks leakage of public resources in munici- engage clients (both in and outside government) in pally managed nutrition programs and the education constructive dialogue on reform issues. While some sector. Findings of this PER are expected to feed into ESW products have been more or less instrumental in the design of the second Social Reform Programmatic advancing policy dialogue (for example, Brazil federal Adjustment Loan, which places strong emphasis on planning, Honduras PER, Mexico decentralization), expenditure rationalization and transparency in social there have also been more frustrating experiences. sectors. An illustration of the challenge of using ESW as an One of the challenges of the public expenditure instrument of policy dialogue is offered by the Bolivia work is to establish better links between the emerging IGR. The report was presented at a workshop to 94 Reforming Public Institutions and Strengthening Governance launch the companion IRP, attended by the vice-presi- management; two Financial Management Loans to dent, several ministers and other high-level govern- Colombia since the early 1990s; and three loans to ment officials, and donor representatives. The report support introduction and expansion of IFMS in itself, because of the quality of its content, was quite Guatemala). As demonstrated in the Guatemalan case, well received by the Bank (rated as "highly satisfac- this "traditional" approach can still be an effective tory" by the Quality Assurance Group), by the client means of support for a gradual process of institution (rated from "highly satisfactory" to "satisfactory" in building, with close involvement of the Bank through the client survey for the Association of Caribbean project supervision. States), and by some donors." However, a variety of However, as these stand-alone projects often do country circumstances prevented broader and more not explicitly set medium-term performance expecta- aggressive in-country dissemination work, despite the tions up front, it can be difficult to assess progress on fairly strong commitment to this by both the govern- institution building. When both expected medium- ment and the Bank (Box 17). The IGR has been used term outcomes and the degree of country commit- by some members of the country team as a guide to ment are left ambiguous, there is a risk that an navigating the reform terrain in the country, but it is inappropriate operation may be allowed to continue not clear to what extent it has had a lasting impact on beyond justification. the country's dialogue on PSR issues (which continue This may have been the case with some of the Bo- to be highly salient), the government policy, and the livia financial management projects, whose problem- Bank's and donors' approaches to supporting gover- atic status became apparent only when the Bank began nance reform in the country. preparing another PSR operation (an IRP) and ana- Despite these promising starts, there is a continu- lytic work (an IGR) and gained a different perspective ing need to review the effectiveness of informed policy on the impact the project was having. The project has dialogue through ESW. More participatory ESW since been successfully restructured, but its implemen- should be encouraged. In some cases, the traditional tation has depended, to a large extent, on strong exter- ESW format may not be the most appropriate mode of nal pressure on the government. This might only have knowledge-based assistance. The Region is now exper- been possible with the Bank's and donors' heavy in- imenting with an alternative approach of more ad hoc, volvement in state reforms in the CDF context. just-in-time advisory support for decentralization Cautious use of programmatic approaches. Cur- (Peru) and anticorruption (Mexico). rently the Region has three Programmatic Loans in the public sector area. The first was the APL to support the ambitious agenda for PSR in Bolivia (an IRP). While Theme 3: Focusing Our Lending the reach of the IRP is broad, its core is the introduc- on Long-Term Institutional Reform tion of merit-based personnel management in selected government agencies. For political and technical rea- Traditional approach to long-term commitment. sons, the implementation of the IRP has not been an Traditionally, the Region's approach to long-term en- easy path so far, but lately important progress has been gagement in a country was to prepare a series of Tech- achieved. This progress owes much to the political nical Assistance Loans, with each successive loan commitment of the new president, who as vice- building on the previous one (for example, four loans president was a champion of the original reform when since 1986 to support Bolivia's economic and financial it was designed and launched. Thus, continued success Latin America and Caribbean Region 95 Guatemala: Tackling a Broad Reform Agenda with Technical Assistance A more comprehensive program of PSR emerged for e-government initiatives far beyond those during the 1990s in Guatemala in a series of proj- originally conceived. This also suggests that care- ects that responded to specific needs and oppor- ful reform sequencing and aggressive project im- tunities. Project design and implementation took plementation can generate momentum and new advantage of evolving lessons, demonstration ef- opportunities. fects and, most importantly, strong political com- The tax administration project has supported mitment spanning several administrations. The the creation of the modern and professional Su- deepening focus of Bank operations on questions perintendence of Tax Administration. The judi- of transparency, anticorruption, civil society par- cial reform project is promoting a more effective, ticipation, and judicial reform found fertile accessible, and credible )ustice system, using a ground with administrations, which nevertheless participatory process to (a) strengthen the judi- were careful in estimating the degree of societal ciary's institutional capacity, including use of support and political feasibility (that is, avoiding SIAF-SAG; (b) support anticorruption measures upfront civil service reform thus far). The record to promote transparency and better control of suggests that discreet TA operations that focus on Judges; (c) strengthen access to justice through rapidly generating results on the ground, take ad- diversification, reorientation, expansion, and pro- vantage of new technology, cultivate local cham- motion of a variety of dispute resolution mecha- pions and allies, and pay attention to international nisms; and (d) improve communications with experiences, along with careful internal Bank co- stakeholders. operation, can build momentum and public sup- Institutional strengthening of Congress has port or demand for reform, even in the absence of been supported by several donors and an Institu- fiscal crisis or external shocks. tional Development Facility grant. As part of a A series of three loans for reform of public Central American and Caribbean network initia- sector financial management were designed in tive, the Guatemalan Congress has (a) installed a quick succession to update and integrate core fi- Global Legal Information Network station; (b) nancial operations at the central government and derogated more than 9,300 outdated laws; (c) im- municipalities. The new system, Sistema Inte- proved Congressional budget oversight and con- grado de Administraci6n Financiera y Control trol capacity; (d) provided local university (SIAF-SAG, System of Financial Administration training to deputies and administrative personnel; and Control), is having an impact on social and (e) prepared a master plan for modernizing spending, transparency, and professionalization the Guatemalan Congress. of financial management, creating foundations 96 Reforming Public Institutions and Strengthening Governance of the project is likely to depend on both sustained ond Municipal Development Project, with a broadly commitment from the government and close monitor- similar approach, had been envisioned early in the ing by the Bank and the donors. A real test of the re- preparation process. But the Bank recognized the inef- form's sustainability will come when the government ficiency of the municipal investment operations in the changes later this year. If the API:s long-term approach absence of a sound decentralization framework that is viable, it should have an impact in deterring the new promotes efficient and fiscally prudent management government from resorting to the traditional practice by municipalities. Thus, it shifted its focus to a longer in Bolivia: a wholesale change of public sector person- term operation with the primary objective of support- nel following patronage criteria. If the new govern- ing needed adjustments to Bolivia's intergovernmental ment is not fully committed to continuing with the relations with a two-tranche Programmatic Adjust- IRP-supported reform, the combination of the APL's ment Credit. Subsequent phases of the reforms are ex- programmatic approach and the donor cohesion that pected to be supported with a Poverty Reduction has been catalyzed by the CDF might stil be able to Support Credit (PRSC). While it is too early to tell how keep the momentum. But the risk is high. this program will perform in facilitating the institu- The Region has since prepared two Programmatic tional reform of Bolivia's decentralized governance, Adjustment Loans to support PSRs. One is the Pro- the credit is a telling example of the shift in the Re- grammatic Fiscal Reform Structural Adjustment Loan gion's approach from an emphasis on municipal devel- in Brazil, which supported a series of legislative and opment, with heavy infrastructure components administrative measures to strengthen the federal gov- (through an investment project), to an emphasis on ernment's fiscal institutions and management. These medium-term reform of the institutional design of in- included (a) the enactment of the Fiscal Responsibility tergovernmental relations (through a Programmatic Law, which establishes strict limits on personnel ex- Adjustment Loan). penditures and debts; (b) the introduction of the new The two experiences so far with programmatic ad- multiyear planning framework; and (c) measures to Justment operations demonstrate contrasting ap- improve the institutional arrangement and techniques proaches. In Brazil, the Bank has designed the program of federal debt management. The Bank is offering a to "reward" ex post homegrown reform measures al- second Programmatic Structural Ad)ustment Loan to ready taken by the government. While the design of the support the next round of actions to build on these second Programmatic Loan is guided by the expected measures. The challenge in this specific case is to keep actions negotiated for the first loan, the Bank is main- a good balance between the full country ownership of taining a flexible stance toward the exact mix of reform the reform measures, on the one hand, and the pace of measures to be expected for the second one. In Bolivia, the reform that the Bank deems acceptable to justify its in contrast, the Bank's approach has been more akin to lending program, on the other. the traditional adjustment operations that use the A third Programmatic Loan supports decentraliza- Bank's financial leverage as a means to push agreed re- tion in Bolivia. This loan was originally envisaged as a forms. The appropriateness of each approach may de- follow-on to the Municipal Sector Development Pro- pend more on the nature of the relationship between ject, which had supported urban infrastructure invest- the country and the Bank and that of the country's ments with complementary components on municipal commitment to reform. But elsewhere, such as strengthening. The loan was rated satisfactory overall Guyana, where the Bank is preparing a PRSC, there is a in the Implementation Completion Report, and a sec- concern that the country's weak capacity and the Latin America and Caribbean Region 97 fragility of its demonstrated commitment in the past of the CMU and acts as the sector leader for Poverty may frustrate the ambitious goals of a programmatic Reduction and Economic Management Network tasks. approach. There is a strong consensus within the Pub- Their understanding of, and attitudes toward, public lic Sector Unit that effective supervision (for example, sector institutional issues have turned out to be a criti- monthly country reviews for the Mexico Decentraliza- cal factor influencing the quality of tasks, especially tion Structural Adjustment Loan) and TA to support analytic tasks. In some CMUs, the lead economists implementation (even in a "high-capacity" country have played very active roles in promoting, and some- such as Mexico) are essential ingredients for successful times personally leading, public sector tasks. But in adjustments. others, they have taken a rather passive posture, which Limited use of LILs. The Region has begun lim- sometimes affects strategic coordination between the ited use of the LIL as an instrument to promote inno- institutional agenda pursued in the public sector work vative PSRs. Three have been prepared so far, all in the and the rest of the country program. area of judicial reform. One reason why LILs are not Partnership. The Region maintains more or less used more often is the high transaction cost for their active external partnerships on the knowledge front. preparation, given the amount of financing they al- These activities include regular participation in the low. When other funds (for example, a Project Prepa- Latin American Centre for Development Administra- ration Facility) are available to finance some upfront tion (Centro Latinoamericano de Administraci6n para pilot activities, the incentive to prepare a full-scale LIL el Desarrollo, a Regional academic association of pub- is further reduced. The recent change that requires lic administration practitioners and scholars) and pro- that LILs be designed to test explicit hypotheses has motion of networks of Latin American Supreme added to the procedural hurdle, which is likely to dis- Courts. This year, the Regional Chief Economist's Of- courage its further use. In some cases, a project that fice has organized a Regional seminar on fiscal rules, started as a LIL has turned into a regular Technical As- jointly with the IMF. sistance or Investment Loan for these reasons. These On the operational front, one of the biggest chal- issues related to internal procedures should be ad- lenges in this area is effective collaboration with the dressed Bank-wide but, in the meantime, it is fair to Inter-American Development Bank, the Region's conclude that the Region underexploits the potential largest lender. The two often operate with different of the LIL to promote innovative approaches to im- strategic approaches (for example, different views on proving public sector performance. conditionalities, the amounts of loans, and the timing of their processing). These divergences can at times have unproductive consequences for client countries. Theme 4: Internal Staffing, In terms of internal partnerships, the Region has Organization, and Partnerships worked closely with the Legal Department in manag- ing its judicial reform portfolio and has also begun Organizational issues. After several years of matrix working with the World Bank Institute on anticorrup- management, initial confusion in the respective roles tion work. In decentralization the Public Sector of CMUs and Sector Management Units is being re- Group has worked together with the Urban Group of solved by gradual establishment of a modus operandi. the Finance, Private Sector and Infrastructure Net- But this varies somewhat across CMUs. A critical fac- work and, to a more limited extent, with the World tor is the role of the lead economist, who is a member Bank Institute. 98 Reforming Public Institutions and Strengthening Governance Latin America and Caribbean Region: Matrix of Selected Activities The following matrix contains a list of selected activities pre- sector-specific activities-for example, in the social sectors sented to the Board, finalized or active in fiscal years (health, education, social protection), in rural development, in 2000-02, and selected activities under preparation in fiscal municipal development and infrastructure, in privatization and year 2002. Although challenges of governance and PSR cut pnvate sector development, in social funds, and in postcon- across most of the Bank's work, the matrix focuses on core flict work Activities are listed only once, although they may fit governance reforms and does not include many important in several categories. Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) Public Expenditure Management * PER (Guyana, Honduras FY0 I) Public Investment StrengtheningTA Prolect (Argentina, * PER (Nicaragua, FY02) FY96) * PEIR (Dominican Rep., FY02-present) Financial Decentralization and Accountability Prolect * PER (Peru, FY02-present) (Bolivia, FY98) * Assessment of Federal Planning (Bril, FY02) Second Integrated Financial ManagementTAL Project (Guatemala, FY98) * PEM Project (Venezuela, FY99) * Economic and Financial Management Project (Honduras, FYO1) * Economic ManagementTAC Prolect (Nicaragua, FYOI) * Second Public Financial Management Project (Colombia, FY02) * Fiscal and Financial ManagementTAL Prolect (Brazil, FY0 1) * Programmatic Fiscal Reform SAL Project (Brazil, FYOI) * Structural Fiscal Adjustment Loan (Colombia, FY02) * Public Sector Financial Management Project (Ecuador, in preparation) * PEM Project (Chile, in preparation) * Third Integrated Financial Management Project (Guatemala, in preparation) Procurement (CPAR) * IDF: Modernizing Public Procurement Project (Uruguay, FYO1) Latin America and Caribbean Region 99 Latin America and Caribbean Region: Matrix of Selected Activities (continued) Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) Financial Management, Accounting, andAuditing CFAA (Bolivia, FYOO, Peru, FY01, Brazil, Mexico, IDF. Auditing and monitoring capacities in subnational Argentina, FY02) governments (Mexico, FYOO) IDF Institutional strengthening of supreme audit institu- tions IDF (Central America, FYOI) Tax |*Tax Administration TAL Project (Guatemala, FY98) * IDF: Institutional strengthening of the Ministry of Agricultural Development (Panama, FY95) * Public Sector Modernization TAL Project (El Salvador, FY97) * Public Sector Modernization Project (amaica, FY97) * Public Sector Modernization and Decentralization Project (Venezuela, FY98) * Institutional Reform Project (Bolivia, FY99) * State Modernization Project (Argentina, FY99) * SAL Project (Ecuador, FYOO) * Public Policy ReformTA Prolect (Panama, FY02) * SAL Project (Argentina, FY02) * National Pension Administration TA Prolect (Argentina, FY97) * State Pension Systems Reform TA Project (Brazil, FY98) * Social and Fiscal National Identification System Project (Argentina, FY99) * Urban Property Rights Project (Peru, FY99) * IDF: Congress Prolect (El Salvador, FYO 1) 100 Reforming Public Institutions and Strengthening Governance Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) * Fiscal federalism (Brazil, FY01) Provincial Development Project (Argentina, FY95) * Decentralization study (Mexico, FY01) Municipal Development Project (Chile, FY99) * Decentralization study (Ecuador, FY01) Provincial Reform Adjustment Loan: Catamarca * Decentralization AAA (Peru, FY02) (Argentina, FY01) * Provincial Reform Loan: Cordoba (Argentina, FY01) * Estado de Mexico Adjustment Loan (Mexico, FY01) * Provincial Reform Adjustment Loan Santa Fe (Argentina, FY02) * Estado de Mexico TA Prolect (Mexico, in preparation) * Decentralization Adjustment Loan (Mexico, FY00) * Programmatic SAC for Decentralization (Bolivia, FY01) * Judicial sector assessment (Argentina, FY00) Judicial Reform Project (Ecuador, FY97) * Surveys of court cases (Dominican Republic, Mexico, Model Court Development Project (Argentina, FY98) Argentina, Peru, FY01 -present) judicial Reform Project (Guatemala, FY99) * Judicial Infrastructure Project (Venezuela, FY93) Judicial Conflict Resolution Improvement Project (Colom- bia, FY02) * IGR (Bolivia, FY00) IDF. Strategies for reducing civil violence (Sao Paulo, * IGR (Peru, FYOI) Brazil, FY00) * Institutional and Organizational Capacity IDF Anticorruption Office Project (Argentina, FY99) Review (OECS, FY01) IDF Anticorruption (Ecuador, FY01) * Governance and investment climate study (Brazil, FY02 ongoing) * Anticorruption study (Argentina, FY00) * Governance/corruption surveys (Bolivia, Ecuador, Colom- bia, Honduras, Peru, Paraguay, Sao Paulo, FY99-present) * Anticorruption AAA (Mexico, FY02-present) Note AAA, analytic and advisory acovicy, CFAA, country financial accountability assessment, CPAR, Country Procurement Assessment Report, ESW, economic and sector work, FY fiscal year: IDF, Institutional Development Facility; IGR, Institutional and Governance Review, OECS, Organi- zation of Eastern Canbbean States, PEIR, Public Expenditure and Institutional Review, PEM, public expenditure management, PER. Public Expendi- ture Review; PSR, public sector reform, SAC, Structural Adjustment Credit, SAL, Structural Adjustment Loan, TA, technical assistance, TAC, Technical Assistance Credit, TAL, Technical Assistance Loan Latin America and Caribbean Region 101 SECT IO N EL EVEN Middle East and North Africa Region W o orld Bank work in various countries ing in part the diversity of country situations, the Re- within the Middle East and North Africa gion's work program-across all sectors-continues to Regional Vice-Presidency before the pub- shift progressively in favor of public sector issues, espe- lication of the Bank's Strategy in late 2000 included ciafly from the perspective of public expenditure and civil service reform, public expenditure management resource management, as the work program cuts (PEM), service delivery-by both central government across public sector issues. and sector agencies-taxation, divestiture, and, to a The Region's governance and public sector strategy more limited extent, anticorruption. Usually, such seeks to encourage countries to (a) address governance work had mixed results at best, as noted in the 2000 and public sector issues; (b) help lay a foundation for a Strategy. The limited success largely reflected the reti- move toward more countrywide programmatic finan- cence of many governments with weak democratic in- cial support; and (c) take advantage of openings and stitutions and legitimacy to openly address poor public opportunities by responding to specific, targeted re- sector management and limited participation. It also quests for Bank support. As a result, the work program pointed to the challenges of raising the awareness that is multifaceted. It ranges from Region-wide work, such these factors constrain development and of building a as a study of governance and development to help consensus to tackle them head on. The Region is taking build a consensus on the importance of addressing up this challenge by sharpening its focus on strength- these issues, to countrywide approaches dealng with ening public sector management. cross-cutting issues, such as PEM in Jordan and Mo- The overall Regional strategy, formulated in fiscal rocco, in conjunction with a progressive move toward year 2002, singles out public sector efficiency and gov- programmatic lending. It includes targeted actions on ernance as one of five key themes to guide Regional core public sector issues, such as civil service reform in work over the coming years. And while there remains the Republic of Yemen or budget management techni- wide variation in country strategies and work, reflect- cal assistance (TA) in Algeria, that take advantage of 102 windows of opportunity. As well it includes a wide ar- and have led to comparatively high military and secu- ray of sector-specific work (economic and sector work rity spending. Sometimes this amounts to a fourth or and projects) aiming to increase the efficiency and ef- more of total spending and averages as much as 5 per- fectiveness of public services and regulations, such as cent of GDP. Faith-based institutions play an impor- the social sector Public Expenditure Review (PER) in tant role in delivering many public services in several Algeria or support to activities that empower rural of the Region's countries. communities in Tunisia and water-user associations in Three stylized facts help characterize the Region. the Arab Republic of Egypt, to name only a few. First, despite wide variation m public sector character- To become more effective at creating or seizing istics, the Region's countries on average perform as opportunities, in line with this clearer focus on public well as, or better than, those in other Regions along the sector issues and expanding work program, the Re- dimensions of rule of law; stability of governments; gion is strengthening its internal staffing and organi- general budgetary and financial management, includ- zational arrangements to maximize the cross-sector ing equity; and public administration. However, when collaboration needed for good work on public sector compared with countries at similar income levels, the management. performance of the Region's countries appears to be below average in overall macroeconomic manage- ment, transparency, voice and accountability, and con- Salient Characteristics of the Middle trol of corruption."2 East and North Africa Region Second, the Region has comparatively large public sectors, driven in part by an "employment imperative" The Middle East and North Africa Region has 19 coun- that arises from the demographic bulge and relatively tries that vary in size, income, and public sector insti- modest economic performance, which in turn leads to tutions. More than half the countries have fewer than 5 high unemployment rates (averaging more than 15 million people-many have fewer than a million-and percent).'3 Thus, the stereotypical country of the Re- two countries alone account for more than 40 percent gion is one with a large public sector, highly central- of the population. Income levels range from those of ized government, overstaffed civil service, and little two poor International Development Association participation. (IDA)-eligible countries that receive substantial aid to Despite persistent perceptions that public service those of oil-rich and capital-surplus economies with delivery in the Region's countries is weak, worldwide per capita incomes in the thousands of dollars. comparisons-of Organisation for Economic Co- Despite the variations, there are also common ele- operation and Development (OECD) countries, as ments. Although there is increasing participation, the well-suggest that the average quality of service deliv- forces and institutions of democracy are weak in many ery in the Region is not uniformly worse than in other countries. With a few exceptions, the Region's coun- Regions and in some cases is significantly better. This tries have substantial financial resources (from either conclusion is based on a wide array of health, educa- oil exports or large aid flows, often driven more by tion, and infrastructure outcomes, taking account of geopolitical considerations than by development differing income levels. However, averages mask wide needs), so the role of Bank lending is necessarily lim- variation across countries. For example, the Region's ited. In addition, security issues heighten sensitivities countries on average have some significantly better to dialogue and work on public sector reform (PSR) indices of health outcomes, including longer life Middle East and North Africa Region 103 expectancy, lower expectation of disability, and greater Country Assistance Strategies (CASs). Despite access to sanitation facilities, often achieved with lower the fact that the 2000 Strategy report identified the public spending. But mortality rates in many countries number-one challenge facing the Region as main- remain above the norm. Moreover, in terms of educa- streaming a focus on public sector institutional con- tion, rates of adult illiteracy are significantly higher in cerns in country programs, the treatment of these the Region. Other quantitative, if not qualitative, serv- issues continues to be highly variable across the Re- ice delivery indicators, such as enrollment rates, are no gion's countries. different from those in other Regions, and some indica- Since publication of the 2000 report the Region tors are significantly better, including small primary has formulated three CASs (Egypt, the Islamic Repub- class sizes. Infrastructure services are typically no worse lic of Iran, and Morocco). Of these, only in Morocco than in other Regions, and sometimes, as is the case (presented in May 2001) has there been a clear inten- with access to improved water sources, they are signifi- tion to deepen the shift toward institutional support cantly better.'4 Still, many of the Region's countries and to aim for progress on a broader PSR program, have been unable to create an environment for private with an increased emphasis on "d6concentration" (de- sector-led growth (for example, the countries of the volution of public services), decentralization, commu- Region lag in their ability to attract foreign investment; nity-based approaches, new partnerships with cvil trade is hampered by protectionist policies; and their society, and a simplified business environment. The economic growth lags that of the rest of the world). Iran Interim CAS does not highlight public sector and Third, despite the dysfunctions of the public sec- governance concerns generally, although it does pro- tor, dialogue on PSR is often held back by heightened pose capacity-building efforts for the formulation, se- political sensitivities, stemming in part from rising Is- quencing, and implementation of economic and lamic movements and efforts to curb them, strong en- sector policies, especially in social sectors. The Iran In- trenched vested interests (sometimes of long-standing terim CAS must, however, be put in context: the Bank feudal or tribal origin), the prevalence of violence is only just resuming a dialogue with a country where (much of which may be linked to the persistent con- there is considerable distrust, especially regarding is- flict between the Israelis and the Palestinians), and the sues related to public sector performance. The Egypt prevalence of autocratic regimes. CAS (in mid-2001) scarcely focuses on PSR or gover- nance overall, reflecting in part the difficulty of mounting a dialogue on these issues. But it does recog- Theme 1: Broadening the Bank's nize the value of increased privatization and decentral- Approach and the Content ization. At the same time, the Bank Strategy has of Country Programs included a sizable amount of coordinated public sector management work in health, education, and social As noted above, the Middle East and North Africa is protection, providing a base on which to build, eventu- not a Region where demand for Bank work to ally, a broader thrust on core issues. strengthen public sector management is particularly Earlier CASs for Jordan and the Republic of Yemen strong, despite the obvious need for it. The Bank's past (both in 1999) had already singled out improving the work program has reflected this situation: it has been performance of the public sector as a key objective. highly variable across countries and more often than The Jordan CAS listed PSRs as the third of four objec- not opportunistic, rather than holistic. tives: redefining the role of the public sector, attaining 104 Reforming Public Institutions and Strengthening Governance efficiency and equity in spending and budget manage- gion has had a substantial work program on public ment, modernizing the public administration, and im- sector issues, and business plans point to a substantial proving transparency and accountability. In the increase in the coming fiscal years. (For example, Republic of Yemen, creating a modern public adminis- about 30 percent of Poverty Reduction and Economic tration that provides public services honestly and effi- Management Network (PREM) work in fiscal year ciently is the first of three CAS objectives; the CAS 2001/02 was on public sector management and gover- identified the civil service and budget management, lo- nance issues. See also Box 1 in Part I for the range of re- cal government, and corruption as areas of engage- lated work by sector departments.) Already in fiscal ment for the Bank. In both Jordan and the Republic of year 2002 there are clear signs of more intensive focus Yemen, the centerpiece of Bank support was broad- on these issues (Box 18). As noted in the CAS discus- based lending, focused on PSR and capacity. In con- sion, the largest, most comprehensive programs are in trast, the CAS for Tunisia (2000) does not go much Jordan, Morocco, the Republic of Yemen, and-until beyond privatization and decentralization. recent violence-the West Bank and Gaza. In Mo- Work program. Despite the variable treatment of rocco, the work has focused on legal and judicial re- public sector and governance issues in CASs, the Re- form, improved access by civil society organizations Sector-Specific Activities in Public Sector Management Effective work on public sector issues in the Middle East and lytical underpinning for the whole of government reforms and North Africa goes well beyond work focused on core ele- helps ensure buy-in from sector agencies for the broader re- ments (summarized in the Regional table of selected activities) forms, including on issues such as public expenditure manage- and includes extensive sector-specific studies and Bank-fl- ment, accountability, and transparency. Even the broad-based nanced prolects, where the interface between the public sec- Morocco PER was built on years of work on education, and tor and the private sector and civil society is often the closest, key reforms are to be piloted first in public health In many While the main objective of this work may not be public sec- cases, where dialogue on core issues remains weak, PSR may tor management, it usually includes significant components fo- be proceeding in specific areas, as with water-user associa- cused on strengthening specific public institutions and their tions in Egypt.The table below documents the sector-specific interface with users Such work not only deals with sector- work in the Middle East and North Africa, which includes sig- specific public sector problems, but also provides critical ana- nificant work on issues in public sector management Upstream Engagement, Knowledge, and Learning (ESW and Diagnostics) * Irrigation Sector Note (Syrian Arab Rep., FYOO) Traffic System Management Study (West Bank and Gaza, * Micro-Finance Study (Lebanon, FYO 1) FY95) * Export PromotionTask Force Report (Egypt, Arab Rep, FYOO) * Transport Sector Study (West Bank and Gaza, FYOO) * Social Protection Note (Lebanon, FYO 1) Middle East and North Africa Region 105 _e _ : . _- .~F-e Financing, Preparation, Supervision, and Implementation of New Operations (Lending) Rural Development and Agriculture Financial Infrastructure, Trade, * Irrigation, Drainage, and Rural Water Development Loans and Privatization and Credits (Tunisia, FY00, Morocco, FYOI [community Financial System Infrastructure Development Loan irrigation],Yemen, FYO [irrigation and water supply or (Algeria, FYOI) sanitation]) Privatization Support Projects (Algeria, FY00; Yemen, * Rural Development Prolect (Egypt. FY99-present; FYOO) Morocco, FY99-present [pilot fisheries];Yemen, FYOI [ru- 0Economic Compe0)veness Adjustment Loans (Tunisia, ral access]) FY99-01, FY02; Jordan, FY99-present [trade, * Agricultural Support Services Project (Tunisia, FYO 1) privatization, financial sector, regulatory reforms]) Export Development Loans (Tunisia, FY00 Social Funds and Community Development [e-government]) * Social Fund for Development Credit (Yemen, FY00) * Ex-Combattants Reintegration Credit (Djibouti, FY99/00) Municipal Development and Infrastructure * Community Development Loan (West Bank and Gaza, * Municipal Infrastructure and Development Loans, Credits, FY00; Lebanon, FYO 1) and Grants (Lebanon, FY00;West Bank and Gaza, * Social Development and Public Works Credit (Djibouti, FYOO-present) FY99-present) Electricity and Power Sector Management Loan and Grants (West Bank and Gaza, FY00; Algeria, FYO I [techni- Education and Health cal assistance, includes mining]) Telecommunications and Information Loans (Algeria, FYOI * Education Credits and Loans (Lebanon, FYOO; Tunisia, [telecom and social sector]; Morocco, FYOI [information FYOO;Yemen, FY00; West Bank and Gaza, FYO 1) infrastructure] * Health Credits and Loans (Morocco, FY99 [health financ- Housing Loan (Algena, FY99 [low income]) ing and management]; West Bank and Gaza, FYOO-present; Transportation and Roads Loans and Credits (Tunisia, Yemen, FYOD-present [child development]) FYOI) Note ESW, economic and sector work, FY, fiscal year and nongovernmental organizations (NGOs), munici- less the same rhythm, though with mixed success in pal management, and PEM. The latter illustrates the some areas, such as the civil service. power of participatory analytical work. It has helped Work has been or is significant in some of the build a high level of trust between the Bank and Mo- smaller countries, such as the West Bank and Gaza roccan authorities regarding PSR, allowing the Bank to (where it has focused on PEM, service delivery, anticor- play a more privileged role by contributing to the de- ruption, and NGO participation, all key for ensuring sign and implementation of a coherent strategy for that the new administration will be an effective public reform across the public sector. In Jordan and the sector entity) and Djibouti (where the focus has been on Republic of Yemen, work on PEM and civil service re- macroeconomic and fiscal management as a prelude to form began in the late 1990s and continues at more or dealing with severe dysfunctions in the administration). 106 Reforming Public Institutions and Strengthening Governance It is significant that Bank work on public sector is- other areas, the strategy emphasizes the importance of sues in the three most populous countries in the Re- finding the right combination of finance and knowl- gion-Algeria, Egypt, and the Islamic Republic of edge activities to yield measurable and significant im- Iran-has been smaller and less systematic. In Egypt, pact. Reflecting this new strategy, the Region is the last comprehensive work on public expenditures planning significant, broad-based public expenditure was in the mid-1990s, and other public sector work has work in three important countries: Egypt and the Is- been approached through projects in health and edu- lamic Republic of Iran (discussions to start similar cation, support for local water-user associations, and public expenditure work in Tunisia remain at a prelim- analytical work on social insurance. In the Islamic Re- inary stage). At the same time, it will deepen work on public of Iran there has been a variety of Bank projects cross-sector public sector management in Morocco in public health, housing, and municipal services and and continue the fairly strong focus on it in Jordan and work on subsidy and tax policy, but comprehensive the Republic of Yemen. public expenditure work is beginning only in fiscal year 2002. In both Egypt and the Islamic Republic of Iran, comprehensive work on PEM is starting only in Theme 2: Deepening fiscal year 2002, including Country Procurement As- Our Analytic Work sessment Reports and country financial accountability assessments, building on past sector work. In Algeria, The Region has typically focused its analytical work Bank work has covered public expenditure issues in on specific activities (often in response to government health and education and TA for budget moderniza- requests), such as customs administration in Egypt tion, but these are not yet part of a comprehensive and Morocco, surveys of public service delivery in work program. Likewise, work in public sector man- West Bank and Gaza, work on social insurance and agement in Tunisia has been limited, mostly recently, pensions in Egypt, decentralization of education to small sections in Social and Structural Review, as spending in Morocco, and civil service pension reform well as some sector-specific work, such as community in Djibouti. While it is useful work often with solid participation in rural development. In at least a quar- impact, it has not always derived from a larger, system- ter of the Region's countries, there is no Bank activity atic Bank strategy for dealing with PSR issues in a at all, and in several others it has been limited to small country. However, there are at least four emerging IDF or Regional trade arrangements, focusing on is- trends in analytical work that hold promise for greater sues such as fiscal policy and public expenditure. impact: more participatory approaches, sharper focus However, in fiscal year 2002 the Region began to on performance-based budgeting, public service de- develop a stronger, more coherent approach to reform livery as a powerful entry point (especially in sectors), and strengthening of public sector management, and a Regional approach to establishing a consensus building on substantial sector-specific work over the on the centrality of public sector management and past several years and reflecting follow-up to the 2000 governance to development. Bank-wide Public Sector Strategy. The Regional strat- The first trend is the use of participatory analytical egy document, finalized in early 2002, singled out work, epitomized in the Region by, but not limited to, "public sector efficiency and governance" as one of five the ongoing Morocco PER (Box 19). Where lending strategic areas of focus where it is essential to develop leverage is limited, as it often is in the Middle East and special expertise and excellence. In this, as well as in North Africa Region, there is a need to enhance the Middle East and North Africa Region 107 Morocco: Participatory Public ExpenditureWork What was the problem? ing. Implementation will be gradual, starting Excessive centralization in PEM and civil service with the Ministry of Health, and will include rigidity seen as the two critical underlying con- all ministries by 2004. straints on efficiency and allocation of public spend- On civil service-The group prepared a decree ing and overall fiscal stability, to increase internal mobility and established a "realistic" strategy of civil service reform. What was the situation? Accumulation of studies and initiatives, with little concrete action. Lack of political will on the Mo- W aene xt stepsnan challeges? * Generalized implementation of budget result roccan side, and piecemeal, fiscal-based approach indicators and of decentralized programming on the Bank side. * Progress of civil service reform on the basis of What were the perceived entry points? established strategy Authorities interested in deconcentrating man- agement of public expenditures and in simplify- deepnn andgraenir ing procedures. Ministry of finance and sectors willing to improve efficiency of expenditures. What are the lessons learned? Bank support needs to be sustained over time, but Whartdicipad thejoint Bank-do? ernment working the process must be focused and modular, to help Partiipatd injoin Ban-govrnmet woking achieve rapid results even where reforms typically groups on budgetary management and civil service require a medium- to long-term horizon. Team issues, with the mandate to propose ready-to-be- andusillamieisucucial,requirng aolendno tech approed istittionl refrms.Bankteampro- and skill mix is crucial, requiring a blend of tech- approved institutional reforms. Bank team pro- nical expertise-both broad pubhlc sector and sec- vided guidance with strategic framework, helping nia epe rte-bt broad st and se tor specific-strategic vision, and an ability to be the group propose alternative institutional setups. process integrators. What have the working groups What are the challenges for the Bank? accomplished? Finalized a first group of reforms in seven months stai ours (April-October 2001): over several years On budgetary management-Changes in laws Balancing an internal, document-driven process and regulations were approved at the end of with clent-focused, participatory process 2001, in conjunction with the 2002 budget * Delinking analytical support from lending law, which shifted the system toward more conditionalities that push counterparts into a deconcentrated, performance-based budget- negotiation mode. 108 Reforming Public Institutions and Strengthening Governance Bank's credibility as an analytical, objective partner. In Jordan seems to indicate, initial efforts may have been Morocco, this was accomplished through the use of a too ambitious: it takes time to introduce performance participatory approach, based on interministerial budgeting, and it necessitates other reforms as well. working groups, in two areas chosen by government The third trend is public service delivery as a com- (both driven by the government's objective of decen- pellmg entry point for broader work on public sector tralization or deconcentration): budgetary procedures management. Governments that are otherwise reticent and the civil service. This participatory approach, with seem generally responsive to dealing with public sector the Bank providing analytical support, was chosen fol- management when posed in this way, partly because lowing fairly unsuccessful efforts under a previous good service delivery is seen as a way of enhancing their Structural Adjustment Loan to tackle public adminis- legitimacy and partly because the problem may be ini- tration weaknesses through conditionality. The new tially tackled sector by sector. A focus on improving serv- approach appears to be working, because government ice delivery-whether government-wide or in selected has a strong sense of ownership (it is the one setting the sectors-opens the door to process simplification, e- agenda), and it can design the needed reforms more ef- government, reorganization, civil service reforms, anti- fectively than Bank or other outside staff. The Bank has corruption measures, and the introduction of elements helped ensure strategic cohesion and vision in the over- of performance budgeting. It also gives credence to the all program, provided some pivotal analytical work and use of user surveys to obtain feedback, especially impor- international experience, and influenced the content of tant where regimes tend to be autocratic and public voice some key administrative decisions in terms of expendi- and accountability are limited. It is thus one way of in- ture management. Replicating this model requires a creasing transparency. The Bank has done extensive concerted strategic approach as manifested in the CAS, work on surveys of public service delivery in Jordan, Mo- close integration of sector and macrolevel work in the rocco, and the West Bank and Gaza, for example. Bank's program, and a focus on partnership in all as- The fourth trend is establishing a Regional consen- pects of the work. 5 To be credible, it will also require a sus on the centrality of public sector management and multiyear commitment by the Bank to follow-up. governance to development. The Bank has embarked The second trend is the growing demand from on a multiyear Regional study of public sector gover- within the Region for help from the Bank on perform- nance and development in the Region ("Governing ance-based budgeting. This is a demand coming both Development and Developing Governance"). This has from countries such as Egypt, Morocco, and Jordan and been a way of informing the debate on the need for from those that do not borrow from the Bank but in- heightened attention to governance in a Region where stead buy Bank services, such as Bahrain and Qatar. In there has been a reluctance to face up to the problem Egypt, the government has requested Bank training in and, ultimately, of forging a consensus on needed re- budget monitoring and evaluation (M&E), and the forms and capacity strengthening across the Region. Bank is working with U.S. Agency for International De- This is more than an activity dealing with anticorrup- velopment (USAID) to define a program to introduce tion, although that will be a significant transversal performance budgeting. Bahrain has recently con- theme, given the pervasiveness of corruption in the tracted the Bank to conduct a study of budget pro- Region. And while the study will focus mainly on eco- grams to help the government prepare its 2003/04 nomic and not political governance, it cannot escape budget and to train a large number of government staff the issue of limited voice and participation generally in in performance budgeting. However, as experience in most of the countries of the Region. Middle East and North Africa Region 109 Theme 3: Focusing Our Lending transversal public sector issues and on critical sector on Long-Term Institutional Reform issues while galvanizing national programs of reform and capacity building. In the Middle East and North Africa Region, the chal- Second, in countries such as Morocco, the Bank's lenge is to design more appropriate ways of providing fi- new approach is to provide comprehensive, multiyear nancial support to governments-when needed-that financing, primarily through highly consolidated an- is better integrated with national budget formulation nual lending channeled through the government and execution, cycles, and outcomes. Deeper integration budget and based on financing needs derived from the within national budgets would help ensure that Bank macroeconomic and overall budgetary situation.'6 funding could have more impact on the margin, as the Bank financial support would be offered in the context dialogue could focus sharply on budget content, execu- of a broad program of PSR, to which the Bank would tion and service delivery, and outcomes. And alignment contribute analytically-and in a participatory fash- with national budgetary systems would help ensure that ion-in selected areas of focus where it considers re- the manner in which the Bank provides the funds would form essential, where the government requests it, or do more to empower and strengthen, rather than com- where it has a comparative advantage. Some of these plicate, the country's own public financial management areas of focus would be government-wide issues such systems. Such arrangements would have the additional as PEM, civil service reform, financial controls and ac- benefit of requiring a comprehensive framework for or- countability, decentralization and municipal manage- ganizing, expanding, and harmonizing Bank analytical ment, and the maintenance of government property, work with the country on key public sector programs as well as the content of spending programs in key sec- and policies, within and across sectors. What is being tors such as agriculture, transport, water, health, and sought is an approach that focuses on strengthening na- education. Of course, a challenge will be to ensure that tional public capacities, including accountability for, these various elements are integrated and handled har- and the capacity to monitor, budgetary outcomes and moniously (the model is similar to the one for Kaza- that reinforces the multisector nature of public sector khstan, developed in the Europe and Central Asia work. Two types of financing may help achieve these ob- Region, and the Thailand Comprehensive Develop- jectives: Poverty Reduction Support Credits (PRSCs) ment Partnership on Governance being piloted in the and consolidated, programmatic lending, provided East Asia and Pacific Region). Over time, this could be- both are coupled with a reinforced program of macro- come a model for other middle-income countries in level and sector analytical work. the Middle East and North Africa Region. First, in the IDA-eligible countries, the PRSC can provide such a mechanism, although in both Djibouti and the Republic of Yemen (the Region's only IDA-eli- Theme 4: Internal Staffing, gible countries) the move toward PRSCs will require Organization, and Partnerships considerable work on budget and fiduciary manage- ment and accountability. An open question is how best At the beginning of the period under review, the Re- "to support" the needed public sector strengthening in gion significantly changed the organization of core the interim in these countries. For example, a more staff working on public sector issues, creating two geo- rapid move toward a PRSC model may more effec- graphically based PREM managerial units and a public tively consolidate and focus work of Bank staff on sector thematic group open to all PREM staff working 110 Reforming Public Institutions and Strengthening Governance on public sector issues. This arrangement replaces the European Union and USAID; in Egypt with USAID; earlier one, in which country economists were man- and in the West Bank and Gaza, as part of a multi- aged by country directors, with PREM comprising donor trust fund. More broadly, the Luxembourg small Poverty and Public Sector Management Units. process-an informal arrangement for cooperation While the Region no longer has a stand-alone Public exchanges between the European Union, the European Sector Management Unit, the new arrangement helps Investment Bank, the International Monetary Fund, ensure that public sector issues are treated as an inte- and the Region-provides a forum for strategic dis- gral part of the macroeconomic dialogue and that all cussion with these agencies on a range of issues, in- staff of the Region's Social and Economic Develop- cluding public sector management. The Bank is now ment Group are potentially included in public sector working more closely with NGOs and civil society- work, depending on the country issues. It is an for example, in Egypt and Morocco, to help reduce the arrangement that enhances cooperation between bias against women in government administrations, at macroeconomic and public sector staff. Rather than both local and national levels. Finally, the Region con- reducing the focus on PSR and governance, the reor- tinues to work with the Economic Research Forum ganization into a public sector thematic group has and other Regional think tanks to reinforce its work on helped strengthen interest in and work on these issues public sector issues. by virtually all PREM staff and, in particular, country Issues and challenges for the future. Three chal- economists. Through the participation of interested lenges stand out for the Region: focusing on impact, sector staff, the reorganization can also provide a finding the right combination of finance and knowl- mechanism to integrate work on public sector issues edge, and taking a multisectoral approach. with core activities on public sector management and First, in a Region where public sector management governance. is seen to be especially weak, perhaps the overwhelm- The Region is strengthening its staffing for core ing issue is sharpening the Bank's focus work on the public sector work with the recruitment of a lead impacts of its work in the countries (such as improved economist to animate the public sector thematic group public sector management, improved public service and of senior-level staff with confirmed skills in vari- delivery, and greater transparency, voice, and partici- ous areas of PSR, including public finance and institu- pation)-rather than on internal measures of "prod- tional reform. Additional recruitment is planned. uct" and "output" delivery-as a means of enhancing Public sector skills and experience already play a more development outcomes. As elsewhere in the Bank, prominent role in the recruitment of new country sharpening the focus on impact will confront the economists and other staff. problem of formulating and monitoring indicators. While there are no overarching partnerships work- This is complicated by the fact that outcomes may not ing on the public sector across the Region, there are be apparent at first, even if programs to strengthen significant partnering arrangements with specific aid public sector management and capacities are imple- institutions, and these vary from country to country. mented as planned. In the end, monitoring develop- For example, activities in Jordan have been, or are be- ment impact must be ensured by countries, not the ing, designed and supported in partnership with the Bank. Nevertheless, the Bank can play an important German Association for Technical Cooperation (Ges- role in focusing attention on M&E systems by helping sellschaft fur Technische Zusammenarbeit); in the Re- to design better systems capable of delivering reliable public of Yemen, with the Dutch; in Morocco, with the statistics; ensuring that the information collected is Middle East and North Africa Region III available to all, and bolstering local demand for, and ing the resource transfer, this model could allow Bank capacity to use, such information by watchdog groups staff to devote more effort to needed analytical and in the country. Where a country's M&E system cannot advisory services where they have a comparative ad- provide information on the impact of government vantage, while helping preserve the credibility and ob- programs designed and implemented with Bank help, jectivity of their analytical work. the Bank will still need to monitor the impact of its Third, as is true for other Regions in the Bank, the own work, and this may require other indicators. multisectoral nature of PSR means that continued ef- Second, as in other Regions, the Middle East and fort is needed to further integrate the work on public North Africa Region is beginning to consider how to administration and governance issues by sector staff, design programs that enable the Bank to contribute to, both with PREM activities and with similar work in and accompany, a country's PSR program effectively other sector units. While there is a natural tendency to and efficiently over a period of several years, with or focus on government-wide public sector issues (such without lending. This would represent a break with the as budget procedures and civil service), the interface past, where there has been a tendency in the Region to between the administration and the public occurs respond to government requests for public sector mostly through sector ministries and-to a quite lim- strengthening with a multitude of small IDF and Policy ited extent in the Region's countries-local or munici- and Human Resource Development Fund grants, as pal governments. While progress in this area will well as occasional Bank loans and credits-often small depend in part on the definition of a comprehensive Learning and Innovations Loans. In Morocco, for ex- strategy for public sector work within the CAS, it will ample, this new approach would identify key areas of also require organizational efforts to facilitate the public sector management and governance (including work (and financing) of multisector teams, more at- specific sectors such as education and health or specific tention to harmonized frameworks for public sector transversal issues such as decentralization) where the analysis, and incentives for all staff working on public Bank would commit to substantial and continuing an- sector issues (whether macrolevel or sector level) to alytical work, in partnership with government and participate more in a common thematic group. There other interlocutors. At the same time, the Bank would are signs of increased collaboration among staff in di- aim to consolidate its financing more directly with the verse units, especially where the CAS clearly focuses government's overall annual spending program, where on multisector PSR as the major issue, the country di- needed and justified by the macroeconomic situation rector provides unambiguous leadership, and there and within a viable, rollng multiyear expenditure exists a solid foundation of sector work. The Region is framework, sensible sector budget programs, and a also beginning to harmonize-and eventually to inte- sound economic and financial management program. grate-public expenditure work, procurement re- Under this arrangement, capacity-building efforts and views, and financial accountability assessments within other financial costs of PSR would be budgeted as part a unified framework, focusing on public financial of the government's own expenditure program, rather management. The "areas of focus" approach in the than handled separately as Bank-financed activities (al- new Regional strategy is intended to help "main- though the Bank would play a significant role m their stream" public sector management into all sectors of design, implementation, and monitoring). By simplify- Bank activity in the Region. 112 Reforming Public Institutions and Strengthening Governance Middle East and North Africa Region: Matrix of Selected Activities The following matrix contains a list of selected activities pre- sector-specific activities-for example, in the social sectors sented to the Board, finalized or active in fiscal years (health, education, social protection), in rural development, in 2000-02, and selected activities under preparation in fiscal municipal development and infrastructure, in privatization and year 2002 Although challenges of governance and PSR cut private sector development, in social funds, and in postcon- across most of the Bank's work, the matrix focuses on core flict work. Activities are listed only once, although they may fit governance reforms and does not include many important in several categories. Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) General * Social and Structural Review (Egypt, Arab Rep., FYOI) * Monitoring and Evaluation Note (Egypt, Arab Rep, FYO I) Public Expenditure and Budget Management * Public expenditure work (West Bank and Gaza, FY99-00, Fiscal Consolidation Credit (Djibouti. FY02) Bahrain, FY00, FY02 [budget reform]; Morocco, FYOI-02; * PHRD: Fiscal consolidation and administrative reform Yemen, FYO 1-02 [review, expenditure database]) (Lebanon, FYOO-02) * CEM (Islamic Rep of Iran, FY02 [subsidies, privatization]) IDF Modernization of government accounts (Syrian Arab Rep., FY98-present) * IDF Debt management (Syrian Arab Rep., FY98-0 1) * Policy Reform Support Loan (Morocco, FY99 [expenditure management, procurement, judicial reform]) * Budget System Modernization Loan (Algeria, FYO 1-05) * Revenue Enhancement and Fiscal ManagementTAL (Lebanon, FY95-present) Procurement * CPAR (Morocco, FYOO;Yemen, FYO1, Egypt, Arab Rep., IDF Strengthening public procurement (Lebanon, Islamic Rep of Iran,Tunisia, FY02-03) FY98-01; Morocco, FY99;Yemen, FYOO;Jordan, FYOI) * Training on procurement and financial management (West Bank and Gaza, FY98-0 1) Financial Management * CFAA(ordan, FY01; Egypt, Arab Rep, Islamic Rep. of * TATrust Fund, covering central and local government Iran, FY02-03) financial management (West Bank and Gaza, FY93-02) Middle East and North Africa Region 113 Middle East and North Africa Region: Matrix of Selected Activities (continued) Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) Accounting and Auditing Syria Economic Review. recommendations on increasing IDF: CDR-financial management and project accounting central government management capacity (Syrian Arab (Lebanon, FY98-0 1) Rep, FY01 ) IDF: Capacity building in accounting standards and profes- sion (Morocco, FY99-present) * Modermization of Accounting Project (Algeria, FY00) * IDF: Capacity building in the accounting profession and au- diting entities (Algeria, FY99-present) Tax * Report on corporate tax system in economic and export * IDF: Introduction of VAT (Islamic Rep. of Iran, FY98-02; growth (Egypt, Arab Rep, FYR o ) Jordan, FYOO-02) * Public Sector Review (Qatar, FY02) TA Credit for Economic Reforms (Dlibouti, * Public sector pensions study (WNest Bank and Gaza, FY97-present) FYO I-present) Public Sector and Administrative Reform Adjustment * Strengthening public sector management study (West Loans aordan, FYO 1-02 [PSRL 1-2, focusing on legal, civil Bank and Gaza, FY00) service, restructuring, e-government, financial * Public sector strengthening reimbursable TA (Saudi Arabia, management]; Morocco, preparation work, FY02) FY03 [communications, investment, tourism, utilities regu- Administative Rehabilitaton Loan (Lebanon, FY96-FY02) lation, postal service, pensions, parts, social services]) Public enterpnse institutions upgrading (Tunisia, FY96-02 * Business environment, civil service, and business linkages [performance contracts]) task force report (Egypt, Arab Rep., FY00) * Civil Service Modernization Credit (Yemen, * Public administration network of knowledge website FYOO-present) (West Bank and Gaza, FY00) * Statistical Information System Prolect (Algeria, FY0 I) * Decentralization Note (Yemen, FY02) * IDF: Strengthening use of NGOs in provision of social * Decentralization dialogue (Morocco, FY02) services (Lebanon, FY00-03) * Cost-effectiveness study for the health and education sec- tors (Oman, FYOO-0 1) * Education expenditure analysis study (Kuwait, FY03) 114 Reforming Public Institutions and Strengthening Governance Upstream Engagement, Knowledge, Financing, Preparation, Supervision, and and Learning Implementation of New Operations (ESW and Diagnostics) (Lending) '