The World Bank's Experience

1 DEVELOPMENT IN: PRACTICEG overnance-The World Bank's Experience813 -1 A: .. ~~. ; . Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized: ~D E V E L O P M E N TI N P R A C T I C EGovernan; World bank 'sExperienceGovernanceThe World bank 'sExperienceTHE WO R L D B A N KWASHINGTON, 1994 The International bank for Reconstructionand Development / THE World BANKAll rghts reservedManufactured in the United States of AmericaFirst printing May 1994 The Development in Practice series publishes reviews of the WorldBank's activities in different regions and sectors.

2 It lays particularemphasis on the progress that is being made and on the policies andpractices that hold the most promise of success in the effort to reducepoverty irG the developing findings, interpretations, and conclusions expressed in thisstudy are entirely those of the authors and should not be attributed inany manner to the World bank , to its affiliated organizations, or tomembers of its Board of Executive Directors or the countries of Congress Cataloging-in-Publlcarion DataInternational bank for Reconstruction and : the World Bank's Experience / The World cm. -(Development in practicc)Includes bibliographical 0-8213-2804-21.

3 World bank . 2. Finance, Public-Developing communication in public administration-Developing Title. [I. Series: Development in practice (Washington, ) '532'091724-dc2Q 94-5011 CIPC ontentsPREFACE vIi IA C K N O W L E D G M E N T S B R EVIAT ONS A ND ACRONYMS xiEXECUTIVE SUMMARY x-iII The World Bank's Experience with Governance, 1991-93 IPublic Sector Management IAccountability 12 Legal Framework for Development 22 Transparency 2nd Information 292 Issues that Arise in Relation to World bank Activities 37 Govremance and World bank Processes 37 Policy Dialogue on Govemance 40 Participation and Governance 442 Military Expenditures 47 Human Rights 52vv i -GOVERNANCE3 Findings and Future Directions 55 BoxesDefinitions of Governance xivMeasuring Governance in bank Operations xvPrivate Sector Assessments 3 Client and Civil Service Attitudinal Surveys in Zambia 4 Institutional Foundations of Utility]

4 Regulation 6 Public Sector Reform in Argentina 7 The Importance of Institutions: Evidence from the East AsianMiracle Economics .8 The Governance Approach to Civil Service Reform 10 Toward an Anti-Corruption Strategy and Judicial Reform in Latin America: New Areasof World bank Involvement 17 Promoting Financial Accountability in Asia 19 Achieving Microlevel Accountability: Voice Mechanisms in WorldBank Projects 21 Legal Reform and Institution Building in the Republics of the FormerSoviet Union 25 Legal Framework for Private Sector Development in TransitionalEconomies. 26 Legal Reform and Women in Africa 28 Transparency of Financial Reporting Systems 32 Strengthening the Legal Framework for Public Procurement 35 Governance and Country Strategies 38 Technical Assistance Handbook 40 Governance Issues at Consultative Group Meetings 42 Demobilization and Reintegration 50-Defense Budget Restructuring in Argentina 52N O T E S 60B I B L I O G R A P H Y 63 PrefaceTrwo years ago the World bank published Governance andDevelop-nient ( World bank 1992b)

5 , its first report expressly on the topic of that report, the bank explored the meaning of govcinance and why it isimportant for development. Governance was defined as the manner in whichpower is exercised in the management of a country's economic and socialresources for World Bank's interest in governance derives from its concern for thesustainability of the programs and projects it helps finance. If sustainabledevelopment is to occur, the 1992 govemance report concluded, a predictableand transparent framework of rules and institutions for the conduct of privateand public business must exist.

6 Good governance is epitomized by predict-able; open, and enlightened policymaking (that is, transparent processes); abureaucracy imbued with a professional ethos; an executive arm of govern-ment accountable for its actions, and a strong civil society participating inpublic affairs; and all behaving under the rule of analyzing governance, the World bank draws a clear distinction be-tween the concept's political and economic dimensions. The Bank's mandateis the promotion of sustainable economic and social development. The bank 'sArticles of Agreement explicitly prohibit the institution from interfering in acountry's internal political affairs and require it to take only economic consid-erations into account in its decisions.

7 Thus, the Bank's call for good gover-nance and its concern with accountability, transparency, and the rule of lawhave to do exclusively with the contribution they make to social and economicdevelopment and to the Bank's fundamental objective of sustainable povertyreduction in the developing purpose of this report is to summarize the Bank's activity in the areaof governance in the past two years. The record shows that the Bank's work onviii GOVERNANCE governance has greatly expanded, albeit with different points of emphasis, inall regions of the developing World and in the countries that are in transitionfrom 'socialist to market the pattern established, by the 1992 report, the current reportdescribes developments under four sub-headings of governance: (i) publicsector management; (ii) accountability; (iii) legal framework for develop-ment; and (iv) transparency and information.

8 Despite their inevitable overlap,these headings provide a template against which the Bank's governance workcan be the four, public sector management (PSM) is the most readily identifieddimension of the Bank's governance work. The language of PSM is predomi-nantly, technical: changing the organizational structure of a sector, agency toreflect new objectives. and to retrain staff; making budgets work better throughbetter integration of capital and recurrent components; sharpening civil ser-vice incentives through new pay and grading structures. or placing publicenterprise managers under performance contracts.

9 Behind the emphasis onPSM as a key dimension of governance is the"-growing conviction that anefficient government is a sine qua non for sustainable economic growth. Theother three dimensions of governance underpin PSM. Collectively; all fourprofoundly affect the performance of the public sector by shaping the environ-ment in which it exists. Accountability and transparency are desirable quali-ties in the private sector and make government agencies responsive; and thelegal system supplies a framework of rules for the public and private development in both the. public and private' sectors occurs whenthe various dimensions of governance reinforce one another.

10 Institutionaldecay and loss of capacity ensue when the governance conditions in a countryare result of the World Bank's work on governance has been innovation:in the types of projects undertaken; in fresh ways of preparing projects; and inthe development of new topics for economic and sector work and for research;Another result, not susceptible to measurement but nevertheless important, isthe way governance concerns have influenced 'the regular economic and projectwork of the bank . In the process, the complementarity of the public and theprivate sectors and the importance of public sector management have beenunderscored.