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The World Bank’s New Approach to Good
Governance: Promises and Risks The World Bank has always recognized that economic institutions in borrowing countries should function more efficiently, more openly, and with greater accountability. What is new is the much greater recognition of bad governance. It is clear that misgovernance—distorted fiscal policies, unregulated banks, poorly defined property rights, discretionary business regulations, to name just a few of its forms—benefits a few privileged groups, at great expense to society at large. What hinders good governance is often the power of the vested interests that have a stake in the status quo and therefore resist changes. Evidence suggests that a state with transparent and effective institutions is associated with: · Higher income growth, national wealth, and social achievements.· Institutionalized democratic competition and meritocratic government.· Policies and a legal framework that are not "captured" by vested interests.· A civil society and free media whose independent voice enhances the accountability of the government.There is also clear evidence of the severely negative impact of ethnic fragmentation and ethnic tensions on economic development. Ethnically fragmented countries (and regions within countries) tend to provide fewer and poorer quality public goods, such as education. In contrast, institutions that guarantee minority rights and provide opportunities to resolve conflicts have been shown to offset the side effects of polarized societies. New Priorities Require New Approaches The World Bank’s recent focus on good governance means a much deeper appreciation of the complementarities of reforms across different realms- political, economic, social, and regional. Although since its very inception the Bank has been in the business of improving governance, this heightened recognition has had a profound influence both on what it does and how it does it. Consequently, the Bank is: · Supporting reform of public sector management. Innovative adjustment loans to Albania and Latvia—supporting strengthened governance—have addressed the roles and responsibilities of government ministries and agencies, the developing conflict of interest, legislation and asset disclosure rules, and enhancement of the judicial system.· Supporting increased fiscal transparency. Introducing a Treasury system in the Russian Federation has provided the basis for timely audits of fiscal accounts. Similar programs have been developed in Hungary and Kazakhstan and are under discussion in other countries in the region. In Albania the Medium-Term Expenditure Framework has facilitated a more open budget process, revealed links of government policies to budget outlays, and provided the public with better access to relevant information.· Dealing with the scourge of corruption. Corruption is often the nourishment that sustains nontransparent institutions and inefficient policies. Bosnia and Herzegovina, Kazakhstan, Kyrgyzstan, Poland, Romania, and Slovakia recently received World Bank assistance for diagnosing problems of corruption and developing strategies for reform. Governance and anticorruption workshops were conducted in a number of countries, including Bosnia and Herzegovina, Poland, and Romania.· Building local capacity and fostering community-driven development. The Local Initiatives Project in Bosnia and Herzegovina gives low-income micro-entrepreneurs access to credit, through NGOs that serve as microfinance institutions. Half of the loans approved have gone to women and a fifth to returning refugees or displaced persons.· Monitoring and evaluating the impact of reform, both to encourage greater accountability among the Bank’s counterparts and to enhance safeguards in the Bank’s lending activities. In operations that aim at reducing red tape, bribes, and other extra costs of doing business, the Bank has started directly surveying local firms to monitor impact.· Investigating the impact of state capture and political institutions on the quality of governance, economic growth, and poverty alleviation. A recent report, Anti-corruption in Transition, investigates for the first time the patterns, levels, and causes of corruption and provides ideas and recommendations for designing and implementing effective anti-corruption strategies. Another major new Bank report, Transition after a Decade, highlights the critical role of new businesses as engines of growth in transition economies.In developing Country Assistance Strategies, the Bank consults extensively with member-state governments as well as civil society, the private sector, local governments, and legislators. Posting information in national languages on the Web provides excellent opportunities for public access and lively discussions. Project development and monitoring now involve a wide range of stakeholders, especially for projects that include community-driven development components. Broad-based consultations are conducted not just within the country but also with other donors. The Bank recognizes that reforms can be truly effective and sustainable in the long-term only through country ownership and hopes that the Bank-assisted institutional reforms will become integral parts of government policies and gain public acceptance. Ultimately, of course, involvement of society in developing and implementing reform must be driven by the countries’ own institutions and political processes. Yet with all these changes, the Bank can only go part of the way toward removing obstacles to good governance. Its statutes limit involvement in domestic political affairs—and rightly so. Risk of Reform Overload Viewing reforms as interrelated, across sectors, entails some serious risks: · First, by trying to address the roots of poor governance, the Bank may overload the reform agenda and overstretch both its own limited capacities and those of its counterparts.· Second, even the most committed reformers might shy away from undertaking a huge mass of comprehensive and simultaneous reforms, including fiscal relations, civil service, pensions, education and health, banking sector, regulatory institutions, and so on.· Third, overloading the reform agenda can undermine the credibility of genuinely reform-minded governments. Can they be blamed for the slow process of institutional development that took decades to achieve in other countries?· Fourth, can the Bank really transfer the highest standards of knowledge in so many areas, simultaneously in many countries?Selectivity, Flexibility, Gradualism After grappling with these questions for quite a while, we became more selective, relying more on our partners and implementing projects with potential demonstration effects. Our approach to adjustment operations has become more gradual, and we have become more flexible in defining conditionality. Clearer division of labor across different multilateral institutions and bilateral donors is also important. It is encouraging to see a broad consensus on issues of good governance among multilateral institutions and bilateral donors. But it is also important that each institution focus on its comparative strength. If each institution tries to tackle the same problems undermining good governance, the risks of overloading the agenda and overstretching capacities increase substantially. Our clients will be best served by establishing a clear focus in their relations with each multilateral and bilateral agency. Such a focus will allow them to set concrete and achievable goals for each part of the reform agenda—and to designate responsibility and capacity to various development institutions and bilateral donors to meet the goals within their particular sphere of competence. Johannes Linn is the World Bank’s Vice President for the Europe and Central Asia Region. This article is based on the speech he presented at the Conference on "Good Governance and Transparency in the Transition Countries," held in Prague, May 15, 2001. |
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