As Prepared for Delivery
Ms. Sri Mulyani Indrawati, Managing Director of the World Bank
A Forum on Good Governance: From Vision to Action
Manila, December 6, 2010
Ladies and Gentlemen,
Thank you very much, Secretary Robredo, for that kind introduction.
Thank you also to the Asian Institute of Management, Makati Business Club, and the Movement for Good Governance for the partnership in organizing the event, and to Ateneo for the use of their facilities. It is a great pleasure and honor for me and the World Bank to be associated with such respected organizations.
I enjoyed the opportunity to travel to the Philippines on a number of occasions in my previous capacity. It is nice to be back on familiar turf, albeit now in my new guise as Managing Director of the World Bank.
This event comes at a time of renewed vigor here in the Philippines to tackle the country’s long-standing governance challenges. The well-known catch cry of the President’s election campaign “kung walang corrupt, walang mahirap (no corruption, no poverty)” has, in many ways, come to define the new government’s agenda and perhaps its greatest test.
Speaking from personal experience, I know that translating that vision into action is a tremendous challenge. Reforms, both at the policy and implementation levels, do not become reality overnight. Purely technical solutions, no matter how correct, are rarely successful. Vested interests, history, competing demands and varying expectations must be understood and managed. A country can move only as fast as its politics allows. The World Bank has engaged in this challenge in many of its member countries. Today I hope to draw on this experience as well as my own to discuss some of the ways in which the vision of good governance can be put into action.
In my remarks today, I am going to discuss some of these positive developments on promoting good governance, some of which might be relevant for the Philippines. I have to say from the outset, though, that it would be neither appropriate nor feasible for me to make any recommendation for the specific circumstances the Philippines is in—it is up to the Filipinos to decide the appropriate strategy for improving governance in the Philippines.
What is Good Governance?
People have different visions of “good governance.” The concept is hard to define and difficult to measure. Indicators of good governance are not without controversy.
By the World Bank definition used in our Governance and Anti-Corruption Strategy, governance refers to, “the manner in which public officials and institutions acquire and exercise the authority to shape public policy and provide public goods and services.”
Corruption is one outcome of poor governance, involving the abuse of public office for private gain, but good governance is far broader than anti-corruption alone.
We could debate the definition of good governance at length, but at its essence, to me good governance is about fairness and equity. It means that when government officials apply laws and policies, they do so impartially, not influenced by personal relationships, likes and dislikes. A good governance agenda, therefore, needs to reach beyond efforts to tackle corruption to build strong and sustainable institutions of the state. It also should empower citizens through transparency and participation.
Good governance is a high priority around the world. In a global opinion poll conducted by the World Bank in 2008, opinion-makers rated governance and anti-corruption as one the of top three development challenges. Opinion-makers in the Philippines rated the link between governance, corruption and poverty highest among all countries. This serves perhaps to emphasize the extent of the challenge you face here, but in my view also reflects a constituency for change – nobody in the world recognizes more starkly than Filipinos that governance is a central development challenge.
To the World Bank, good governance is first and foremost a means to improve development outcomes. At the macro level, our research suggests a two-way causality between development and governance: governance improves with per capita income, but better governance can also accelerate development. At the micro level, numerous studies show a direct link between less corruption and better development outcomes such as infant mortality, health care services and road quality.
If indeed equity, fairness and impartiality are the essence of good governance, then creating good governance involves all that goes into treating people impartially. This includes clear rules, laws and policies; a disciplined civil service with the capacity to implement the policies as intended; a transparent budget process that allocates public resources according to priorities; oversight mechanisms to monitor official actions; and the ability of individuals to seek effective redress when impartiality is not respected.
Governance therefore encompasses a multitude of actors: government agencies; formal oversight institutions, sub-national governments and local communities, civil society, the private sector, and political actors and institutions. In a well-functioning governance system, accountability relationships between these different actors help ensure that public policy supports development, that services are delivered efficiently and equitably, and that corruption is held in check.
With weak governance, policy can be captured, service provision and regulation distorted to favor the well-connected, and corruption can run rampant.
Given the complexity of actors and accountability relationships, how can one improve governance? I want to discuss four major categories of reforms that can improve governance, and can be considered elements of a strategy for good governance:
- The first category comprises reforms to improve the capacity, transparency and accountability of state institutions.
- A second category comprises reforms that increase opportunities for participation and oversight by civil society, the media and communities.
- A third category is reforms in the economic environment to create a more competitive private sector and reduce opportunity for corruption.
- Finally, a fourth category is reforms to strengthen political accountability
Let me elaborate on each of these reform categories to illustrate what I mean.
On the first, changing the way the state operates can make a big difference in the quality of governance. This includes rules on how it spends its money and accounts for it, procures goods and services, and hires, trains and rewards its civil service and judiciary.
During my time as finance minister in Indonesia, I focused on the way the state manages its money, from collection of taxes to accounting for spending. Legal reforms were part of this, but the more difficult aspect was rebuilding the organization of the Ministry, and investing in people. In particular, tackling corruption in the tax administration took a major redesign including new procedures, a new organization and renewal of human resources.
Similarly on the expenditure side we reformed the Ministry’s organization, made considerable investment in information systems and implemented changes in human resource policies. As a result, we rationalized the budget process, made those in charge of taxpayers’ money more accountable, and established the audit trails necessary to do so.
Accountability can also be exacted through prosecution of those who abuse power. Effective law enforcement is crucial for building public trust and increasing the opportunity cost for corruption. Effective anti-corruption agencies can play an important role and examples from Hong Kong and Singapore, among others, demonstrate this. Similarly, in Indonesia: the anti-corruption commission, the KPK, has made huge progress and now is an institution that Indonesians are proud of and can trust, and in which the state has invested considerable authority and resources to make it work. Unfortunately, there are numerous examples around the world of low-capacity anti-corruption agencies with limited authority, little means and consequently little impact on corruption.
The second category is about providing citizens with access to information. Involving those affected in decision making and decentralizing decision-making to local governments and communities empowers people and limits the discretion of those in office.
Access to information can fundamentally alter the relationship between citizens and the state. India and Mexico are recent examples where far-reaching freedom of information acts has begun to empower citizens through systematic disclosure of government information. From my own experience, the World Bank just went through a major change in the way it releases information—from a disclosure policy, where we determined what got released, to an access policy—where everything is available, unless the information is restricted according to specific rules. I note here that, again, capacity is important: for the World Bank to be able to make this move required investing in information systems and staff training. Similarly, Mexico’s information access law is made operational thanks to a fiercely independent Federal Institute for Access to Information in charge of enforcing the law’s provisions.
Partial access to information can be effective as well: publishing more information on the budget was a good entry point for reforms in the new South Africa when it moved to majority government in 1994. In the Philippines, the procurement law gives civil society the right to observe procurement processes and participate in bids and awards committees. This limits backroom deals and corruption in contract awards. I know that in the Philippines the Makati Business Club has been very active in this arena together with other civil society organizations.
Decentralizing decisions to local governments can be a powerful tool to improve governance, if well designed. In principle, local governments are closer to the people who can more easily supervise them, and competition among jurisdictions promotes efficiency and accountability. Sub-national governments such as the State of Minas Gerais in Brazil and the City of Bogota in Colombia, have become beacons of good governance after decentralization. The Philippines itself is full of local examples of good governance, including the City of Naga under the stewardship of now-Secretary Jesse Robredo.
The challenge in many countries is to find ways to scale up these islands of good governance and sustain their progress over time.
What has been successful in our experience is direct involvement of communities in government programs. Countries as different as Bolivia, Zambia, China, Vietnam and Bangladesh have implemented community-driven development programs. These programs, apart from delivering on development objectives of the community, also seem to be a good tool to promote good governance beyond the program itself. The programs show high rates of economic return as well as less corruption and lower construction costs for community infrastructure. In the Philippines, the principal-led school construction builds schools at little more than half the costs it takes the Department of Public Works and Highways to build the same school.
On the third category, increasing competition in the economic environment can be a powerful tool to improve governance. How can this be done? Abolish unnecessary business regulations that may give rise to abuse of power. Reduce high tariffs that make smuggling tempting. Or establish competition policies that limit monopoly powers of the well-connected. All of these make economic sense and reduce the opportunity for rent-seeking. The dismantling of the License Raj system in India from the early 1990s onwards marked the country’s emergence as an economic powerhouse, while reducing the opportunities for corruption throughout the economy. One of the most successful middle-income countries for the last two decades is Chile, which consistently ranks among the highest in terms of low corruption and high state capability, and is one of the most liberalized economies in the world. Again in my country, during the Soeharto era, major trade liberalization in the 1980s not only gave a boost to manufacturing industry and exports, but also cut the benefits from smuggling and rent seeking in customs.
Finally, on political reforms. This is not an area of expertise for the World Bank. It can be a powerful tool in improving governance through increasing competition for office, improving transparency in the political system and ultimately making politicians accountable to people. The Philippines itself went through major constitutional reforms more than 2 decades ago, much like my country at the end of the 1990s. These ground rules of the state and how the state can and cannot exercise power do not change that often. But reforms of specific political institutions such as election laws and party finance can advance the quality of political decision making, increase the trust in the state, and improve governance. Even relatively mundane, technical reforms, such as the automation of vote counting recently introduced in the Philippines, can transform the election process and limit opportunity for abuse. Countries such as Brazil and Mexico ensure fairness of elections by maintaining political independence and technical competence of authorities charged with overseeing elections.
Towards a Strategy for Good Governance
Reforms in each of these categories are far easier said than done. Each of them will encounter resistance from vested interests or those benefitting from the status quo, or simply intransigence and ignorance. Each of them will require spending political capital as well as money and resources, and can be technically challenging. In addition, each of them will require political will and the mobilization of interest groups that would benefit from better governance.
What is needed, therefore, is a strategy to translate the vision of good governance into action. With this, I do not mean a comprehensive strategy that encompasses all possible reforms. A comprehensive strategy may be appealing, but is neither realistic, nor feasible in most countries. What I mean is a set of strategic choices that make improving governance feasible, realistic and, in the end, successful. These choices will of course differ from country to country and from time to time.
I certainly do not pretend to have the answers to what this strategy should be for the Philippines. Rather, let me just share some thoughts on what strategic choices I believe are crucial to make for any country.
First, selectivity is crucial for success. A sensible approach to improving governance is to target key areas, such as specific government agencies, where openings for change already exist. This may be the case because there is high demand in specific areas for reforms, or because the pay-offs of reform would yield more support for subsequent reforms elsewhere. More ambitious reforms, if political support is strong, could target some of the more disreputable agencies in government to demonstrate the government’s determination to reform.
In Indonesia, we chose to focus only on a few agencies, including the anti-corruption commission, because we believed a strong agency that was a credible threat to corruptors was essential in achieving results. We also targeted the revenue agencies, not only because we needed the money, but also because tackling reforms in agencies with a reputation for high corruption. This signaled that we were very serious about anti-corruption. Furthermore, those agencies had much interaction with citizens and businesses and their reputation affected the image of the whole country. Cleaning them up could therefore boost Indonesia’s image in international rankings such as Transparency International’s corruption perception index.
In the Philippines, there may also be opportunities in government finances. Demand for better governance is very high in this area, and scope for improvements is considerable. I understand, and applaud, existing government initiatives to empower citizen oversight of public finance, by increasing transparency of the budget, promoting civil society participation in budget deliberations, and preparing a roadmap for reforming public financial management.
Second, building on past success creates success. Efforts to improve governance that succeed most often take an incremental approach. Early successes can serve to build momentum for reform by convincing government officials, businesses, and citizens to join the movement.
Building on past success may well be a good strategy for the Philippines. Procurement reform is arguably the most coherent and sustained governance reform in the Philippines in the last decade. Sustained efforts to deepen this reform, including rolling it out to the local government level, will help to solidify one of the basic building blocks of public sector governance.
In a similar vein, the government could build on the strength of existing agencies or programs by reallocating money towards better governed ones. In Indonesia, for instance, we moved away from ill-targeted oil subsidies, a program prone to corruption and smuggling, and instead provided the intended recipients with cash transfers.
This moved considerable resources away from an organization with a checkered past in administering a government program at considerable budget savings.
I note that this is an area where the Philippines is making great strides, particularly in terms of targeting government programs for the poor. This morning I had the pleasure of visiting a community benefiting from the 4P program—the conditional cash transfer program administered by the Department of Social Welfare and Development—the department that ranks highest in public perception for fighting corruption. This program is effective in targeting the poor and improving MDGs. Together with the National Household Targeting System it has the potential to replace several inefficient programs prone to leakage and patronage, and can therefore improve governance.
Third, emphasize activities that build trust in the government’s commitment to the reform agenda.
Governments often encounter a healthy degree of skepticism when they announce plans to improve governance. A lack of trust in government can greatly reduce the willingness of citizens and officials to work towards change. It is important to find ways in the near term to enhance trust in government.
Recent research in Africa suggests that improving trust also depends on good service delivery in people’s everyday life, such as the ability of citizens to get the simplest formal documents like birth and death certificates, marriage licenses, and land titles. The government’s drive in the Philippines to simplify the processes to register businesses is good example of this type of reforms. Systematic efforts to maximize transparency and information disclosure can also be a key element of trust building.
Fourth, organize and coordinate the Strategy for Good Governance
Formulating, coordinating and monitoring a strategy for governance reforms require an institutional structure or “home” in government to translate vision into action.
In Indonesia, we established a committee comprising the Ministry of Finance, the Supreme Audit Agency and the Anti-Corruption Commission. The committee met on a regular basis to assess problems, set targets, review progress and revise our approach. Other countries in the region have appointed a senior official as an “anti-corruption czar” to lead and coordinate good governance and anti-corruption efforts.
There is no single “correct” way of organizing governance reforms, but there is no doubt in my mind that an institutional home is needed to tackle what is likely to be the most difficult challenges a government faces.
I believe the prospects for governance reforms in the Philippines are very good at this point in time. A new administration is in place with a clear mandate to improve governance. Public opinion, civil society and important parts of the business community are behind the government in this endeavor. The Philippines has a number of key policies and programs in place that can make a real difference. The skills and solutions are here. The key challenge then is to capture this positive spirit and translate it into action – to pull together a strategy to achieve the government’s vision that has clear targets and a management structure to keep reforms on track.
In closing, let me say that, the World Bank is eager to further support the Philippines in improving governance and my sincere hope is that you can turn the vision of good governance into a reality.
Maraming Salamat Po!