IMPLEMENTATIONPLAN FOR STRENGTHENING WORLD BANK GROUP ENGAGEMENT ON GOVERNANCEAND ANTICORRUPTION

Operations Policy and Country Sewices September 28,2007

ABBREVIATIONS AND ACRONYMS

AAA AML
AUSAID BP CAS CDD CFAA CFT CPAR CPIA CSO DFID DPO Analytic and advisory activities Anti-money laundering Australia Agency . for International Development Bank Procedure Country Assistance Strategy Community-driven development Country Financial Accountability Assessment Combating financing o f terrorism Country Procurement Assessment Report Country Policy and Institutional Assessment Civil society organization Department for International Development (United Kingdom) Development policy operation Extractive Industries Transparency Initiative Financial Action Task Force Forest Law Enforcement and Governance regional Ministerial initiatives Financial Sector Assessment Program Governance and Anticorruption Heavily indebted poor country Human Resources International Bank for Reconstruction and Development International Development Association Independent Evaluation Group International Finance Corporation International financial institution International Monetary Fund Department o f Institutional Integrity Interim Strategy Note
MDB

Multilateral development bank

MillenniumDevelopment Goal

MDG MIGA NEPAD NGO NVP OAS OECD OECD-DAC

Multilateral Investment Guarantee Agency New Partnership for Africas Development Nongovernmental organization Network Vice President Organization o f American States Organisation for Economic Cooperation and Development Organisation o f Economic Cooperation and DevelopmentDevelopment Assistance Committee Operations Evaluations Department Partnership Against Corruption Initiative Performance-based allocation (system) Public Expenditure and Financial Accountability Public Expenditure Review Public financial management Poverty Reduction Strategy Paper Quality Assurance Group Quality Enhancement Review Regional Vice President Sector Strategy Implementation Update Technical assistance United Nations United Nations Economic Commission for Africa United States Agency for International Development Voluntary Disclosure Program Vice Presidential Unit World Bank Institute World Development Report

OED PAC1 PBA PEFA PER PFM PRSP

EITI
FATF FLEG

FSAP GAC HIPC

QAG QER RVP

SSIU

HR

IBRD
IDA
IEG IFC IF1 IMF INT

TA
UN UNECA

USAID
VDP VPU WBI WDR

ISN

IMPLEMENTATION PLAN FOR STRENGTHENING WORLD BANK GROUP

ENGAGEMENT ON GOVERNANCE AND ANTICORRUPTION

CONTENTS

. ....................................................................................................................................... I1 . HOW WOULD SUCCESSFUL IMPLEMENTATION OF THE GAC LOOK?.............................. 1 1 1 . THREE LEVELS OF ACTION ...........................................................................................................
I BACKGROUND

1 2 2

. ........................... 9 V . EVALUATION, TIMING, RESULTS, AND NEXT STEPS............................................................. 1 1 V I. RISKS ................................................................................................................................................... 12 VI1. GOVERNANCE AND ANTICORRUPTION ACTIONS AND RESULTS FRAMEWORK .....14 ANNEX A. GOVERNANCE INDICATORS AND THEIR USES ........................................................ 19 ANNEX B. SUMMARY OF FEEDBACK............................................................................................... 23 ANNEX C. REPORT OF THE EXECUTIVE DIRECTORS, STRENGTHENING WORLD BANK GROUP ENGAGEMENT ON GOVERNANCE AND ANTICORRUPTION ...................................... 27
I V STAFFING AND BUDGET: CHANGE MANAGEMENT AND LEADERSHIP

A . COUNTRY LEVEL ................................................................................................................................... 3 B. PROJECT LEVEL ..................................................................................................................................... 6 C. GLOBALLEVEL ...................................................................................................................................... 8

Boxes
BOX

1: POTENTIAL WBG SUPPORT FOR IMPROVED GOVERNANCE & ANTICORRUPTION IN COUNTRY ASSISTANCE STRATEGIES (CASs) .......................................................................................................... 5 B O X 2: BANKPOLICIES, PROCEDURES, AND GUIDANCE: ADAPTATIONTO REFLECT GAC AND CLIENT NEEDS ............................................................................................................................................................... 6 B O X 3: WHAT FACTORS COULD HINDER GAC IMPLEMENTATION PLANIMPACT? ........................................ 13

IMPLEMENTATION PLAN FOR STRENGTHENING WORLD BANK GROUP

ENGAGEMENT ON GOVERNANCE AND ANTICORRUPTION

I.BACKGROUND

1. This Implementation Plan articulates concrete steps to implement the Governance and Anticorruption (GAC) strategy o f the World Bank Group (WBG) approved by the Board o f Directors in March 2007. The details o f the proposed action and associated results are set out in the attached matrix. In addition, for ease o f reference, the Report o f the Executive Directors to the Development Committee on Strengthening World Bank Group Engagement on Governance and Anticorruption o f March 28, 2007 (DC20070005) i s also appended. A draft o f the Implementation Plan (IP) was discussed at the Committee o n Development Effectiveness on July 30, 2007. I t s comments were incorporated into a version that was distributed to the Board o n August 17th, and then made available for comment (see paragraph 24). The plan i s based firmly on the GACs seven principles o f the WBGs GAC 2. Strategy:
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The WBGs focus on GAC i s based on i t s mandate to reduce poverty - a capable and accountable state creates opportunities for the poor. The WBGs GAC work must be country driven. Implementation i s adapted to individual country circumstances. The WBG will remain engaged even in poorly governed countries so that the poor do not pay twice.

The WBG aims to engage in i t s GAC work with a broad array o f stakeholders.
The WBG i l lstrive to strengthen, not by-pass, country systems.
0

The WBG will work with governments, donors, and other actors at the country and global levels to ensure a harmonized and coordinated approach.

3. The G A C Strategy articulated the rationale for a deeper World Bank Group focus on G A C issues and outlined broadly the sorts o f activities that can support and strengthen GAC outcomes at the country level. The Implementation Plan (IP), therefore, does not revisit these topics. Rather, this plan focuses on what the World Bank Group itselfwill do to support the G A C agenda and how it will work with governments, domestic stakeholders, and development partners to support country-level governance improvements and regional and global initiatives.

2 11. 4.
H O W WOULD SUCCESSFUL IMPLEMENTATION OF THE GAC LOOK?

At the center o f the G A C strategy i s the emergence o f a shared vision in which countries recognize the l i n k s between governance, corruption, growth, and poverty reduction, and where governments are taking active steps to address the governance barriers to faster and more inclusive growth and improved service delivery, and thus to poverty reduction. The vision o f success for G A C implementation would be when governance obstacles to sustainable development are reduced so that the poor have access t o services and growth opportunities. For this to occur, we would envision that:

A significant and growing number o f countries were seriously addressing their key governance impediments to development effectiveness and thus poverty reduction, and the WBG would be working closely with them in this regard;
our partners programs and projects supported by the WBG were increasingly addressing these G A C impediments in a systematic way; and countries and global partners value and respect the WBGs capacity in this area.

5. The initiatives under the I P intended to improve country policy and institutional governance and thereby poverty reduction, should, over time, also be reflected clearly in improvements in measured governance performance.
111. THREE LEVELS OF ACTION 6. Following the G A C strategy, the Implementation Plan f i r s t outlines WBG actions o n three main levels-country, project, and global. It then articulates the corresponding internal actions that are needed to support G A C implementation, focused o n staffing, budget, and change management. This plan builds o n a long history o f work in t h i s area at the Bank, especially over the last 10 years, and focuses o n deepening and improving, not reinventing. It presents what should be regarded as a menu o f activities, not a l i s t o f instructions, with the shape and nature o f the WBGs involvement in any country being determined by country teams and management, and by Regional and Network initiatives. Thus, while the size o f the menu may seem ambitious, it reflects the fact that different countries will select different aspects o n which to focus their efforts, and the priorities will emerge not as a centralized prioritization exercise but as the result o f an intensified process o f dialogue among partners and country teams.

7. This plan aims to kick-start the implementation o f the G A C agenda, which will be a long t e r m effort. I t s focus i s on the more immediate actions the WBG can take over the next 12 months or so-the specific actions to be taken by country teams, o n changes in Bank systems and processes, and the resource requirements needed to support an
1

The full paper, Strengthening World Bank Group Engagement on Governance and Anticorruption (DC2007-0005), the summary o f which i s attached as Annex C, outlines the Banks history o f engagement on governance and provides many examples.

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intensive process o f learning-by-doing. As this year-long learning-by-doing process unfolds, the medium-term challenges and actions will become clearer-and will be detailed in an implementation progress report that will be prepared after the f i r s t year.

A. Country Level

8. At the heart o f the Implementation Plan should be country strategies that effectively and systematically address G A C impediments to development and poverty reduction. Dialogue with government and stakeholders on how G A C issues impinge o n development would be significantly enhanced, and country teams would take every opportunityCountry Assistance Strategy (CAS) preparation, choice o f projects, preparation and implementation, high-level official visits, analytic and advisory activities (AAA), engaging systematically with government, business, and civil society stakeholders, policy dialogue, and Consultative Groups-to deepen the understanding between the countries and the Bank o f what can be done to support G A C improvements as part o f the governments overall development strategy, and to deepen WBG support. Implementation thus requires that WBG country teams address two distinct sets o f challenges: (a) better incorporating the G A C dimensions o f development into CASs, and (b) and implementing CASs so that G A C interventions support greater development effectiveness.
9. Many country teams have been doing just this, supporting clients working on ways to increase development effectiveness and service delivery as part o f countries poverty reduction strategies and Poverty Reduction Strategy Papers (PRSPs). This involves providing support for building transparent and effective institutions and incorporating governance improvement activities at the project level. The Implementation Plan envisages ways to deepen, systematize, and mainstream such approaches to a wider group o f countries in response to their demands.

10. This country-level process proposed for strengthening World Bank Group engagement o n governance and anticorruption-which we are labeling the CGAC process for short-would inform the CAS in a fundamental way, based o n consideration o f several elemenk2
a) Building o n the significant knowledge o f G A C issues that exist in the country and in the Bank, taking stock o f and understanding the critical governance and corruption impediments-including those in the overall country environment- to the countrys development and poverty reduction goals;

b) working with government and a wide range o f other stakeholders3 o n a

feasible strategy for addressing these G A C impediments, identifling potential

Note that the GAC implementation plan does not address the question o f how IDA resources w i l l be allocated. This question was answered decisively in the 2007 Board paper, which affirmed that the performance-based allocation (PBA) approach comprises the basis for IDA allocation. Similarly, this CGAC process does not affect the Country Policy Implementation Assessment (CPIA) system that underpins the PBA, but rather should permit more systematic determination o f the governance components o f the CPIA. See paragraph 24.

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entry points and areas o f engagement, or ways to deepen this engagement in the many countries where the WBG i s already successfully collaborating to support core and sectoral governance challenges;

c) elaborating the tools and instruments through which the WBG can help government enhance G A C reforms and address critical impediments to development;

d) assessing more systematically how governance and corruption affect the WBGs projects and portfolio, and developing strategies to mitigate those risks; and d) ensuring that the country team has the organizational capacity and resources
to effectively deliver on the WBGs contribution to an enhanced country-level engagement strategy on the GAC-development nexus.

11. The G A C strategy consultations revealed that many countries wanted these issues to be addressed more systematically, and would welcome the WBGs deepened involvement. For these countries, the CAS would articulate this augmented partnership, as have several recent CASsa4 For others where G A C issues are judged to be a serious obstacle to poverty reduction, but where the client i s not yet ready to address these issues or to have WBG support in these areas, in keeping with the guiding principle o f remaining engaged, the CAS would outline potential entry points, seek creative ways o f providing support (for example using instruments such as community-driven development or third party delivery systems, so that the poor dont pay twice), andor propose AAA activities designed to increase awareness o f the impact o f G A C issues and promote a shared understanding o f appropriate G A C reforms. Careful attention will be given to h o w best to address GAC-related issues in fragile states where the institutions o f accountable states are not well developed, but where commitment to reform can often be strong.
12. Such country team CGAC processes would increasingly inform the WBGs CASs, which would reflect systematic treatment o f G A C impediments to development effectiveness: h o w the WBG would support G A C reform in the country to enhance development and poverty reduction and increase the development effectiveness o f countries public policy and public expenditure efforts, as well as Bank-supported programs. The areas o f emphasis will, o f course, differ across countries; B o x 1 highlights some where the Bank already has built a track record o f engagement. In FY08, it i s expected that a significant share o f new CASs-for a cross-section o f countries across Regions and with different governance situations-would be informed by such a stocktaking and engagement on GAC issues, or CGAC process, and that the quality o f treatment o f G A C issues in CASs would show a marked improvement. Some country
Examples include Albania, Bangladesh, Honduras, Indonesia, and the Kenya CAS Progress Report. In awareness o f the fact that development assistance can play a supportive and sometimes even catalytic role, but remains inconsequential if there i s not already some momentum and a sufficiently influential support base for a reform agenda. Poverty, A i d and Corruption, Transparency International Policy Paper, Washington, D.C. 2007.

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teams may also initiate the process at an interim point during the CAS cycle, responding proactively to entry points that emerge. After a years experience and evaluation o f results to date, it would be determined how such CGAC processes could be mainstreamed.
Box 1: Potential WBG Support for Improved Governance & Anticorruption in Country Assistance Strategies (CASs)
Mainstream governance reform in sectors by systematically addressing sector-specific GAC impediments to delivering outcomes, and b y enhancing sector-level transparency, participation, and accountability. Strengthen core cross-cutting governance and accountability systems including public management systems (e.g., financial and budget management, procurement, public administration, and independent oversight intuitions (e.g., SAI, PAC Supreme Audit Institutions, Public Accounts Committees, judiciary). Strengthen demand-side enabling frameworks and capacity by enhancing transparency/informationdisclosure, CSO capacity, use o f social auditlaccountability tools. Work collaboratively with the private sector and civil society in reform processes (business associations, chambers, CSOs, media). Monitor progress via results and governance indicators (including new generation o f actionable indicators under development).

13. As noted, such efforts to strengthen countries policy and institutional governance should, over time, be reflected in improvements in measured governance performance. Therefore, a critical part o f the Implementation Plan would be to measure governance better, in particular through more actionable indicators, in areas where good progress has already been made (such as public finance management), but increasingly in other sectors, where better governance should be reflected in improved service delivery. I t i s also important to continue to refine those tools that already exist in this area, and to remember that governance i s multi-dimensional, that different indicators capture different aspects o f governance, and that the appropriate indicator to use depends on the purpose (see Annex A, Governance Indicators and Their Uses).
14. For the first year, the IP mainly shows the internal WBG process results that are needed to generate the governance results that are intended. Over time, these should evolve increasingly into results that reflect changes on the ground more fully (for example, the governance outcomes reflected in the new CASs built on CGACs; projectlevel service delivery improvement measures; indicators o f better core governance in areas such as judicial reform and public finance management; and qualitative improvements derived from enhanced attention to demand-side issues).
In supporting reforms in these areas, the W B G w i l l work with donors, international institutions and other agencies to ensure a harmonized approach and coordination based on respective mandates and comparative advantage.

B. Project Level 15. At the sector and project levels, the emphasis will be on identifying and integrating opportunities to improve development effectiveness through GAC-related actions. Governance can thus be seen as the facilitating mechanism to achieve development outcomes through, for example, improved service delivery. This requires an emphasis on the appropriate incentives and accountability mechanisms needed at the project and sector levels to make good sector governance a reality. Fundamentally, it also requires developing strong country fiduciary systems and sound country systems o f transparency and accountability. It i s through the development o f such country systems, and reducing opportunities for corruption by streamlining excessive regulation or approval processes and effecting demand-side initiatives (including enhancing information access and developing community and other third-party oversight mechanisms), that the strongest likelihood for effective mitigation can be found. Recent work in the transport, education, and health sectors shows the potential o f such approaches. Institutional capacity building would play a critical role, especially for systems o f public procurement, financial reporting, and auditing and accountability, in which the Bank has already registered success and i s wellplaced to support countries wishes to go further. As implementation proceeds, such elements o f institutional and other capacity building, regulatory and sector reform, and incentive frameworks that reduce opportunities for corruption will be seen in an increasing number o f projects.
Processes have also been launched and will be deepened to ensure a systematic analysis o f G A C issues in sector work, sector programs, and projects. (Box 2 highlights the ongoing review o f WBG policy and procedures to reflect good practice G A C approaches.) The key i s to identify at an early stage where G A C risks are present and what the drivers are, and focus mitigation efforts on this group o f activities. This might include: (a) support for improved budget execution at the sectoral level, (b) improving

16.

Box 2: Bank Policies, Procedures, and Guidance: Adaptation to Reflect GAC and Client Needs
Bank staff are guided by policy, procedures, and a variety o f published and online guidance notes. These are being reviewed to reflect good practice approaches on governance and anticorruption. These include the following.
Guidance on Country Assistance Strategies, including BP2.11, which aims to have more detailed guidance on governance-relatedcontent, including detailed advice on how to review the nature of GAC risks, record emerging lessons o f good practice, and note how to effectively consult and engage civil society and other stakeholders. The WBG s disclosure policy andproject implementation details. Under current rules, the WBG does not systematically release information about project supervision or dialogue with the country about concerns that emerge during implementation. Operations Policy and Country Services (OPCS) and the Legal Department (LEG) are currently examining ways to make the WBGs disclosure policy less restrictive. INT guidelines and INT-sponsoredBankwide stafStraining. Existing procedures would be updated and revised to better deliver development impact in the country program context, drawing as appropriate on the Volcker Report and other inputs. Legal remedies. Guidance from LEG and OPCS on more systematic and appropriate approaches to exercising legal remedies. Publicfinancial management monitoring and controls. Implementation o f key recommendations of the Public Financial Management Working Group and the Financial Management Sector Board on monitoring and controls and related efforts to implement the new portfolio and risk management (PRIMA) system, and the financial management quality control framework, which i s currently being strengthened. Procurementpolicy review (OPCS) to enhance the efficiency and effectiveness o f the Banks procurement rules.

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line ministry capacity and incentives to undertake economic analysis o f projects and plan investments, (c) developing more robust regulatory institutions and (where feasible) competitive provision under light regulation, (d) changing incentives to improve the accountability o f state-owned enterprises and other government-controlled service delivery providers, (e) supporting enhanced information disclosure and beneficiary or c i v i l society demand-side oversight mechanisms, including community-driven approaches and ( f ) improving line ministry procurement and financial management processes. These approaches, which are not new for the WBG, will be considered systematically in developing programs and project^.^

These and other mitigation measures are being incorporated upstream in smart project design. In some cases, explicit G A C action plans which spell out explicitly a series o f measures designed to mitigate the G A C risks associated with the program or project have been found useful at the project level,. This experience will be disseminated. G A C focal points will be appointed in country and sector teams, and Regions may create G A C advisory teams-as in Albania, Bangladesh, Cambodia, India, and Indonesia-or other mechanisms to ensure that G A C issues are assessed appropriately in projects and AAA. Regions will also ensure that as necessary peer reviewers will advise on treatment o f G A C issues beginning at the concept stage. As partners are fully integrated into this endeavor, I F C and MIGA will also scale-up several ongoing approaches, including promoting the business case for G A C as a value-adding proposition for domestic and foreign businesses (integrity i s good for business); strengthening the corporate governance practices o f all investee companies; and assessing corporate codes o f ethics as part o f the corporate control environment. This will be done in collaboration with other stakeholders, who have developed significant experience in this area in recent times: one area the WB will be exploring i s creating external verification mechanisms for such codes. 18. The G A C Implementation Plan i s fundamentally about helping countries improve their systems o f governance, so that in turn the probability o f funds being misused i s reduced-it i s about strengthening and prevention, rather than better policing and sanctions. Nevertheless, more systematic and appropriate approaches to remedies clearly have a role to play in strengthening the WBGs approach to GAC. Updating and revising the existing procedures o f the WBGs Department o f Institutional Integrity (INT) will be one aspect o f this, but there i s also other work to be done in the area o f remedies8 As was noted in the recently issued Independent Panel Review o f INT (the Volcker report), there i s a need to develop a feedback loop in which the lessons learned through INTs work are systematically captured and incorporated into future project designs and sector and system reforms supported by the WBG.

17.

For a systematic discussion o f these issues, see The Many Faces o f Corruption: Tracking Vulnerabilities at the Sector Level, Campos and Pradhan, World Bank, 2007. One proposal that w i l l be investigated further i s to introduce into standard Bank contracts the commitment o f the contractor to have anti-bribery programs in place.

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C. Global Level

19. There are many initiatives under way around the world to address G A C issues in both the countries o f the Organisation for Economic Co-operation and Development (OECD) and in developing countries. The Implementation Plan identifies five particular areas for increased WBG involvement to support global initiatives-to fulfill the commitment, enshrined in the G A C strategy, not to act alone. The aim i s to leverage partnerships to establish harmonized policies, support the pooling o f resources, address transnational G A C issues, and ensure that the actions o f one player in the international system are not undone or undermined by another. These initiatives include the following:
Intensified support for multi-stakeholder engagement, including for peer learning networks and collaborative governance initiatives, such as the Extractive Industries Transparency Initiative (EITI) and the initiatives being developed in other sectors, such as in construction and forestry. For some, the WBG will be a sponsor (as in EITI), and for others an active participant.
In countries where G A C challenges pose serious obstacles to development, improved donor coordination-including the common response principles for donors in high-risk countries developed by the Governance NetworkCollective Action Against Corruption o f OECDs Development Assistance Committee (OECD-DAC)-can avoid negative competition and significantly enhance efforts to support change.

Harmonization o f GAC policies and procedures (including investigative practices) with other multilateral development banks (MDBs) and improved information sharing with national prosecutors, especially with respect to sanctions. It i s proposed to revive the MDBs Working Group on Governance and Corruption. Support o f global and regional legal conventions, with a special emphasis on asset recovery, notably by encouraging countries to sign and implement the UN Convention Against Corruption and the OECD Anti-bribery Convention,o and by the development and promotion o f the Stolen Assets Recovery Initiative (StAR). Working to build consensus on h o w G A C work can enhance development effectiveness, including through sponsoring a biannual conference o n such linkages and financial support for research into the impact o f G A C issues on development effectiveness.

lo

These common response principles are now being piloted through OECD-DAC. The formal name o f this convention i s the OECD Convention on Combating Bribely o f Foreign Public OfJicials in International Business Transactions.

GAC Strategy Implementation: Global Level

The Bank is committed to not acting alone. Five areas targeted for increased Bank involvement:
Donor coordination, including common response principles, especially where GAC pose serious obstacles to development, Build global consensus on how GAC enhances development effectiveness biannual conference and support for GAC related research

M ulti-sta keholder engagement and voluntary codes of conduct (e.g., Extractive Industries Transparency Initiative)

Harmonize GAC practices with other

Support global legal conventions (e.g., UN Convention Against Corruption, OECD AntiBribery Convention, Stolen Asset Recovery Initiative (Star))

Iv. STAFFING AND BUDGET: CHANGE MANAGEMENT AND LEADERSHIP

Staffing. An Implementation Plan for a sound, well-accepted strategy will achieve l i t t l e without the right approach to staffing and resources. N o r will it succeed if governance issues are perceived internally as a matter o f concern only for staff o f a particular Network or Vice Presidential Unit (VPU), rather than-on the principle that governance i s everyones business-for all WBG staff, On staffing, there are two distinct needs. First, it i s critical to identify a group o f staff to act as focal points in the Regions and Networks to focus o n G A C issues, ask the relevant questions at the right time, and support management and task teams. While the WBG has some such staff, there i s a need for a clear and enhanced mandate for them to work in such roles, and for them to be linked to each other through an informal network.

20.

21. In addition, it i s clear that in areas where unsatisfied demand already exists or where increased activities already can be anticipated-public finance management, fiduciary systems, governance diagnostics, judicial reform, and social accountability mechanisms, for example-incremental staffing will be needed. This applies in particular to field offices, where enhanced specific governance skills, staff training could be especially valuable. The WBG will proceed cautiously, developing a comprehensive G A C human resources strategy that covers both enhancement o f staff skills and recruitment where necessary. Re-skilling o f staff, especially those in sectors, can help to increase capacity to address G A C issues, and training courses will therefore be developed on this, as well as on better linkages with existing courses, such as ethics training. This said, the skill needs, staffing profiles, and therefore the associated staffing gaps cannot all be anticipated :x-ante, since such needs will become clearer during the course o f implementation. Therefore, the human resources plan and i t s associated training would be developed over

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the course o f the first year o f the G A C Implementation Plan in close collaboration with
Regions and the Learning Board.

22. Budgeting. Already, some o f the incremental financial needs are clear: Support i s needed for the CGAC processes that will start right away; Regions and Networks are already clear o n the most critical staffing needs for country and sector governance expertise; and a more active participation in a range o f global initiatives such as StAR will need to be supported financially. For FY08, to support the build-up o f the implementation process, an incremental requirement o f about $14.8 million i s envisaged, in particular to support these areas. This would represent an increase o f eight percent o n the estimated $167 million o f budget expenditures related to governance activities that were supported in FY07 (including projects, AAA, and other governance-related tasks). I t can be anticipated that incremental support will have t o rise beyond this level, but this would depend o n the initial results, patterns o f demand, and lessons o f initial experience. 23. Change Management and Leadership. A number o f alternative approaches to leadership o f governance and anticorruption efforts at the WBG have been reviewed. Considerations about leadership have to be dominated by one core aspect o f the approach already noted: governance i s everyone's business. If G A C concerns are to be reflected throughout the WBG and in all sectors, and to be reflected in development effectiveness concerns, G A C cannot be perceived as the business o f a particular unit. Moreover, there are advantages to using existing institutional structures. Therefore, the following arrangements are proposed, at least for the f i r s t year o f the implementation o f the G A C The G A C agenda and i t s implementation would continue to be overseen by the responsible Managing Director. As the Volcker Report stressed, leadership i s centrally important to building good governance into the thinking o f all staff throughout the B ank...
There would be a Steering Committee or Governance Council created, to be chaired by the Managing Director. T h i s body would be composed o f high-level management representing the Regions, Networks, and other units with responsibilities for implementation o f the plan. T h i s group would meet regularly to oversee progress in implementation, to review staff and managerial incentives and their effectiveness," and to ensure participation across the institution.

There would be a Secretariat for this Committee and for the responsible Managing Director, which would gather materials, share them across the Bank to staff involved, develop an internal and an external website, and maintain a roster o f resource persons; this Secretariat would be housed in the Public Sector Governance group.

''

The strengthened incentive systems could include focused peer review and Quality Enhancement Reviews (QERs), Quality Assurance Group (QAG) reviews, CAS Guidelines, Independent Evaluation Group (IEG) evaluation, appropriate staff recognition, and other such approaches.

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d) After one year, this set o f arrangements would be revisited and, once the best approach to mainstreaming t h i s function was determined, suitably modified to
fit the new needs.

24. Staff incentives will also be critical in this effort. These come in three types. First, additional budget i s being provided for this initiative, and this i s always a strong incentive. Second, senior management will continue to emphasize the critical importance o f this initiative as part o f the WBGs mission, and staff respond well to such signals. Finally third, and perhaps key, staff performance, especially o f managers, in critical areas will be judged by their demonstrated commitment to the implementation o f this strategy.

v. EVALUATION, TIMING,

RESULTS, AND NEXT STEPS

25. As noted, this plan aims to kick-start an intensive process o f learning-by-doing, as part o f a longer multi-year agenda. Given the wide interest in this agenda and the many stakeholders around the world, the IP was subjected t o a process o f stakeholder feedback. The draft plan was sent to all those who participated in the successful consultations for the G A C strategy itself. I t was posted o n the WBGs external web for a month, and more than 60 submissions have been received, analyzed and incorporated as appropriate into this revised draft o f the plan. Face-to-face meetings with c i v i l society were held towards the end o f the feedback period. A summary o f the feedback i s attached as Annex B, and a full analysis i s being posted on the Banks website.
Ongoing Stakeholder Feedback: There are three key and related messages that came through very strongly in the feedback that was received o n the draft:

26.

The need for the World Bank Group to be working closely at the country level with a wide range o f stakeholders, including grassroots organizations, and not to be working out CGACs only with governments, ensuring that processes at the country level were truly participatory;
The need for some form o f independent oversight o f progress, both at the country level as well as at the level o f the overall program, for example through a possible external advisory council2; and
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The advisability o f further outreach activities, so that governments and other stakeholders are better aware o f what the G A C strategy i s and what it i s not, and especially that it i s not a new form o f World Bank Group conditionality.

Measuring Progress and Impact. The intended results o f this initial plan are outlined in the attached matrix. As highlighted earlier, these results focus o n what the WBG i t s e l f will do, but the actions outlined in the plan should also be mirrored in

27.

l2

Consideration o f this suggestion i s now being reviewed in light o f and together with the Volcker Panels similar recommendation to establish an Independent Advisory Oversight Board for INT.

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changes at the country level over time. Clearly, building institutions, changing system processes, and strengthening institutional and demand-side accountability for performance are long-term processes. However, as these take root, governance indicators should also improve; for example, sector policy and institutional reforms supported by t h e WBG should in due course be reflected in measures of, for example, education or road quality; reform o f public expenditure institutions and processes should be discernable over time in measures o f public procurement performance; and global initiatives should be evidenced by greater corporate transparency in key sectors, and some successes in restoring assets lost to countries through corruption.

28. As this year-long learning-by-doing process unfolds it will be important to track progress and identify the medium-term challenges and actions as well as any needed refinements. A methodology to track progress on G A C implementation will be developed that will inform an implementation progress report to be prepared after one year. The expertise and assistance o f the Independent Evaluation Group will be sought for this evaluation. Responding to Board interest in GAC strategy implementation, regular reporting on implementation i s anticipated while the strategy i s mainstreamed.

VI. RISKS
There are several risks that could hinder the plans impact, including deficiencies in i t s design as presented here and as to be modified, timing, sequencing, and resources. (Box 3 outlines some o f these risks and the mitigation measures that are proposed in the plan.) The greatest danger i s that o f business as usual or even o f a reversion to the time before the importance o f governance to development was more fully recognized. It i s the responsibility o f Senior Management together with staff to ensure that this does not happen. The best mitigation strategy i s therefore to continue to keep this key agenda in sharp focus in the critical first few years o f the plans implementation.

29.

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Box 3: What Factors Could Hinder GAC Implementation Plan Impact?

Risk

Mitigating Action

The W B G will revert to business as usual in assessing and addressing governance constraints to development.

Senior Management effectively communicates the importance o f addressing governance constraints to development and appoints country and sector managers who have the skills, commitment, and resources to translate this message into action. Implementation i s systematically monitored b y the Steering Committee, supported by a secretariat. The strengthened incentive systems could include appropriately focused peer review, and QERs, QAG reviews, CAS Guidelines, IEG evaluation, staff recognition, and other HR incentives) would also be important mitigating factors. Senior Management clearly communicates the developmental aspects o f G A C work to internal and external stakeholders, to be reinforced through a biannual conference. Country systems continue to be strengthened and considered as the preferred mechanism to deliver development assistance, and ring-fencing i s avoided. Remedies are applied in an appropriate way. Regions, supported by Networks, organize their staffing and resources to increase their capacity to provide just-in-time advisory services on governance. Improved consultant rosters and sources o f financing help to supplement staff shortages. Budget flexibility w i l l be critical in this regard-so that teams can respond quickly as opportunities arise. Creation and dissemination o f learning mechanisms through the Public Sector Governance Board, the Network Anchors, and the promotion o f the biannual conference to disseminate learning on the linkages between governance and development. The W B G and other donors implement new common response principles-currently being piloted by OECD-DAC-to strengthen coordination in difficult settings. Other MDBs and emerging donors are asked to join this effort.

GAC engagement i s viewed predominantly b y internal and external stakeholders as primarily about anticorruption in projects, and not more broadly as about helping countries build capable and accountable states.

The W B G will not have the capacity or flexibility to respond quickly to country expectations o f increased support for governance reform-which have been heightened as a consequence o f the global consultations.

Lessons about how engagement on GAC can most effectively increase development prospects are not adequately learned and institutionalized.

Donor coordination in countries where GAC i s seriously obstructing development i s inadequate.

14

VII. GOVERNANCE AND ANTICORRUPTIONACTIONS AND R E S U L T S FRAMEWORK

Action Area DescriDtion of Bank Activities ResDonsible Outline Results

CAC Strategy at the Country Level

Action Area: Country teams conduct a stocktaking C G A C process to assess G A C implications for develc ment effectiveness

Deepened engagement with countries on how GAC issues impinge on poverty reduction. Support countries to develop enhanced programs to address these issues and reflect such an enhanced understanding in the CAS.

Each country team with an upcoming CAS w i l l deepen RVPs, its engagement with its client and partners to take stock Country o f the countrys critical governance and corruption Teams impediments to achieving development goals at the country, sector, and project levels, assessing implementation, reputational, and fiduciary risks. Each country team will identify the further analytic, institutional, or diagnostic work needed to enhance the Banks Group knowledge. RVPs, Country Teams

Significant and credible increase of GAC programs o f support built into the CAS by the end o f FY08.
These CASs will have explicit governance indicators to monitor for positive change.

will agree with OPCS which FY08 CASs will incorporate such a process. After a years experience and evaluation o f results to date, it would be determined how such CGAC processes could be mainstreamed.
Action Area: Mainstreaming - GAC in sectors and improving core systems for development effectiveness

Countries are better equipped to address GAC issues at the sector level, where opportunities for interventions are often more immediate.
Skills are adequate to address core governance systems improvements.

Network VPUs o\IVPs) w i l l develop and pilot a new generation o f GAC-focused diagnostic and monitoring A A A products-both sector-specific and cross-cutting-for use on a demand-driven basis by clients and by country teams. With Network assistance, each RVP will take stock o f whether the supply o f specialist core public financial and administrative management skills i s sufficient to meet the underlying demand.
SDN to (i) sponsor training for countries and The World Bank Group staff to enable them to better incorporate demand-side and civil society initiatives (including support for demand-side initiatives at sub-national levels) into programs and operations supported by the Bank; (ii) sponsor training for social development staff to enable them to more effectively work with sector and technical staff on the demandside o f The World Bank Group operations; (iii) design and implement quality management and M&E systems to assure the effectiveness o f these scaled-up efforts; and (iv) institute programs o f lesson-learning on what

PREM and N V P sector specialists

PREM, RVPs, HR

S D and HD w i l l have issued guidance in this regard in the areas o f transport, health, and education. Other sectors will be encouraged to do likewise. GAC HR strategy issued to accompany 1st year evaluation.

Facilitating - country team engagement on the demand-side of governance

Countries are supported to enable them to have a strengthened focus on demand-side drivers o f accountability.

SDN, EXT, WBI

Significant increase in new operations in FY08 in which there i s support for the demand side o f governance in all Regions.

15
Action Area Description o f Bank Activities Responsible Outline Results

works, and disseminate them widely through open websites, training, toolkits, and guidance notes. Ensure resources are available on terms suitable to support demand-side activities. Building on past experience, work with partners to develop a funding mechanism that can effectively finance project and program-related demand-side activities, including capacity building and training for civil society groups, to complement existing but limited resources for this (DGF, trust funds). Prepare staff guidance for civil society engagement, including on demand-side approaches to ensure positive civil society roles in such areas. PREM, SDN, WBI Funding mechanism in place and new grants available in FY08.

Provide guidance to staff on demand-side good practice and mandate issues vis-&-vis civil society engagement. Encourage and work with f i r m s to incorporate anticorruption into corporate governance.

SDN, EXT, LEG

Guidance note issued.

Working collaboratively with the private sector

IFC and WBI will take lead to intensify efforts to make the business case for anticomption, working especially with new IFC partner companies.

IFC, WBI

Significant increase in new IFC and other The World Bank Group engagements in which the firms have adopted enhanced corporate governance measures (including explicit anticorruption plans).

Help professionalize voice of organized business and related stakeholders in dialogue on investment climate. Enhance quality o f The World Bank Group engagement in collaborative initiatives that set voluntary standards o f business conduct.

Scale-up programs of support to business associations, chambers o f commerce, and professionalassociations to strengthen their capacities to participate in public policy dialogue on the business environment. Establish a World Bank Group-wide technical working group to provide, in collaboration with expert external stakeholders, knowledge management and support on market-focusedglobal collaborative initiatives; to identify good practices and share them both internally and with nonBank stakeholders; to generate research on their developmental impact; and to deepen our knowledge as to how these voluntary commitments can usefully be applied at country level. Establish a technical working group to promote the more systematic utilization in relevant Bank operations and strategies o f governance indicators and diagnostic tools by: educating staff on the appropriate use of different types o f indicators; actively engaging operationaltask teams to promote the mainstreamed use of appropriate indicators for monitoring performance of relevant Bank lending products.
The Bank will support broader country use o f Public Expenditure and Financial Accountability (PEFA) indicators and advocate countries voluntary disclosure o f PEFA indicators and analyses.

WBI

Such associations will have developed new advocacy programs in this area. New collaborative initiatives adopt programs to enhance their developmental impact, including voluntary codes o f conduct where possible.

PREM, Global Programs Group, IFC and other NVPs

Measuring governance better

Countries, stakeholders and staff use indicators more systematicallyto better monitor operational effectiveness, and understand the links between GAC and development.

PREM, WBI, and OPCS

New governance indicators and associated guidance issued.

RVPS

PEFA exercise undertaken in increased number of countries, and with increased number

16
Description o f Bank Activities Responsible Outline Results of countries disclosing their indicators. Governance indicators for transport, health, and education issued. New research proposals in this area approved.

Sectoral networks to develop governance indicators at the sectoral level, and apply them in sector operations, focused on indicators that can be replicatedacross countries.
The Research Committee will issue a call for proposals for research that explores empirically, using new and existing governance indicators, the relationship between specific governance interventions and development outcomes. GAC Strategy Implemeatation in Bank Support4

NVPS

DECVP, Research Committee

Countries build GAC issues more systematically into their projects, notably for capacity building, including those supported by the Bank. Address GAC dimensions o f development effectiveness throughout project cycle.

Increase the number of projects that include elements to address GAC issues, including capacity and institution building for country systems in financial management and procurement, accountability at the sector level, and participation in decision making and other demand-side approaches for strengthening governance. Country and project teams will systematically address governance and corruption risk to development effectiveness throughout the project preparation and implementationcycle through means such as systematic analysis o f corruption risk in project preparation; smart project design; enhanced information disclosure; stronger supervision, including through participatory or third-party monitoring and review o f GAC-related aspects o f each operation; more systematic pursuit o f remedies; and, where appropriate, development o f proj ectspecific anticorruption plans. Bank systems will be adjusted to reflect good practice approaches on governance and anticorruption. For projects incorporating governance and anticorruption plans (GAAPs) or corruption-related measures, supervisionwill include review o f GACrelated aspects, and each implementation supervision report (ISR) will explicitly report on progress in implementing GAAPs and project-relatedmeasures to improve governance and mitigate corruption

RVPs, OPCS, WBI

New operations include capacity building in sector governance and fiduciary institutions. Indicators o f measurable change would be included. Guidance on addressing risk in projects, including GAC risks, has been issued. Annual report to be prepared on how GAC issues have been addressed and mitigated throughout the Regions.

RVPs, project teams, OPCS

Strengthen quality management on GACrelated aspects of operations.

RVPs, Project teams, QAG

The Banks quality management processes will assure adequacy o f coverage o f the GAC dimensions o f development effectiveness for relevant country AAA and operationalproducts
Improve donor coordination on GAC approach. Harmonize GAC policies and procedures (e.g. investigative procedures, sanctions) among MDBs, possibly through a revived MDB GAC working group. Investigate scope for common response principles for donors to improve donor coordination in countries with severe GAC constraints to development effectiveness.

OPCS, RVPs

Global eve1
INTLEG Target agreement on harmonizationo f sanctions policies by end-2008.

PREM

17
Action Area

Description of Bank Activities Scale-up support for collaborativegovernance initiatives and peer-based networks, such as EITI.

Responsible EXT, WBI, Networks

Outline Results Support provided for new peer-based arrangements (e.g., construction industry). StAR has facilitated the asset recovery process in additional countries. First biannual conference in 2008. Relevant research proposals approved.

Strengthen support for multi-stakeholder engagement. Support global and regional GAC conventions. Foster global learning on the GAC-development nexus.

Intensify support for the implementationof GACrelated conventions and initiatives, including the United Nations Convention Against Corruption, and the Stolen Asset Recoverv fStAR) Initiative. Coordinate a biannual conference on GAC at the WBG Annual Meetings. Intensify global research on the impact of GAC on development, including establishment o f an electronic working paper series.

PREM, WBI, NVPS DEC, WBI, PREM

Organimi

en tation

Identify a group o f staff to improve GAC coordination and awareness in RVPs and NVPs.

Strengthen the Banks human resources for GAC strategy implementation.

Country teams and S M U s (both within RVPs and Network anchors) will designate a senior staff member to be the focal point on governance and anticorruption and will allocate time in the work program to enable that staff member to advise on GAC-relatedissues o f the units products. Each RVP will put in place an appropriateregional coordination process andor structure and operationalizethis in FY08; t h i s process will work under the leadership of a senior person(s) designated by the VP. For Networks, HD and SDN will each establish immediately a VPU-level steering group (including representation from RVPs) to facilitate and monitor implementation o f actions to mainstream GAC. The Networks, supported by Regional governance focal points, will work with the Regional learning coordinators to develop GAC-related learning programs and event, and will identify critical GAC staff shortages that may need to be filled by recruitment Initiate a GAC skills needs and assessment exercise that will be completed by the first annual review. The plan will lay the basis for a more comprehensive scale-up strategy to be implemented in FY09 and beyond, and will include (i) identification of any specific GAC frontier areas where additional in-house skills will be required; (ii) attention to the specific needs of field offices; and (iii) to how commitment to GAC strategy implementation can be incorporated into staff (especially management) performance evaluations).
Make available an additional $14.8 million in incremental resources to fund the first year of implementationo f the GAC strategy in FY08 for the CGACs ($2.6m), immediate skills gaps ($7.2m), supporting governance work in sector anchors, PREM, DEC, WBI ($2.8m), and support for global initiatives and communications($2.2m).

RVPs

Bankwide team in place before end 2007.

RVPs

HD, SDN

Sectoral VPUs with PREM and Regional focal points OPCS and HR, with PREM, HD, SD, Legal, and FP

GAC HR strategy to be issued along with first year report.

Provide the financial resources for GAC implementation, through new resources and internal reallocations.

CSR

First annual report to jetail incremental :xpenditures and issociatedresults.

ANNEXA. GOVERNANCE INDICATORS AND THEIRU S E S 1. Governance i s multi-dimensional. A governance system comprises a wide variety o f processes, systems, organizations, and rules (that is, institutions) on the public bureaucracy supply side and on the demand side through which non-executive oversight institutions and citizens hold the bureaucracy accountable for performance. Governance can thus be measured by using (a) broad indicators that monitor the overall performance o f the system (for example, Transparency Internationals Corruption Perception Index); and (b) spec@ indicators that focus more narrowly o n the quality o f disaggregated elements o f a countrys overall governance system (for instance, the Public Expenditure and Financial Accountability, or PEFA, sub-indicators for public financial management). While both types o f indicators are useful, they serve different needs. Broad indicators better track overall outcomes, such as growth, while specific indicators are more suited to monitoring changes in particular areas o f governance. Specific indicators o f governance are also more likely to be actionable (that is, they provide information that can be acted o n through particular reforms). However, merely because they are actionable does not necessarily also mean that they focus on actions that are the most
relevant in terms o f improving governance outcomes.

2.

3. A further distinction, for both broad and specific indicators, i s between (a) measures o f the quality o f the institutions and processes themselves (the formal and informal rules o f the game), and (b) measures o f the outcomes produced by these institutions. Inevitably, because the quality o f institutions and what they produce are usually not directly measurable, governance measurement o f both rules and outcomes will contain an element o f subjectivity.

4. A typology o f indicators i s shown in Table A 1 . I t distinguishes between specific and broad measures as well as measures o f the quality o f processeshles and o f the outcomes produced by these rules. As the second and third columns o f the table illustrate, there exist a wide variety o f specific indicators that can be used to measure the quality o f particular governance processeshles and o f governance outcomes. And, in recent years, there have been substantial advances in both the range and quality o f governance indicators. 5.
Examples o f widely-used indicators that measure processes or rules include:

The Public Expenditure and Financial Accountability (PEFA) indicator set, which comprises 28 specific measures to track the quality o f public financial management systems, and which has been applied in over 75 countries Jwww.pefa. ora).
The institutional sub-indicators included in the World Banks Country Policy and Institutional Assessment (CPIA) index-notably CPIA 13 (the quality o f public financial management systems) and CPIA15 (the quality o f public

20

ANNEXA

administration), which are publicly available for all IDA recipient countries (;www.worldbank. ordida). The Global Integrity Index (GII), which measures at a very disaggregate level the quality o f check-and-balance arrangements to prevent the abuse o f power, curb corruption, promote public integrity, and assure citizens access to their government in 43 countries (www.nlobalintearity.orq).

The Open Budget Index (OBI), which assesses the public availability o f key budget documents, the quality o f information they provide, and the timeliness o f their dissemination in 59 countries (www.internationalbudg;et.org).
0

The OECD Procurement Index, which assesses the quality o f procurement systems in 22 pilot countries (www.oecd.org).
Doing Business indicators, which measure the quality o f formal government regulatory rules on business for 175 countries.

As Table 1 also shows, these spec@ process measures generally can straightforwardly be aggregated to produce broad measures o f the quality o f processes/rules (such as in the second row in column 2).
Table A l . A Typolopy o f Governance Indicators, with Examples
Measuring Quality o f ProcessesLWes Measuring Outcomes
0

6.

Specific Measures

PEFA indicators* CPIA sub-indicators* Global Integrity Index (GII) subindicators* Open Budget Index (OBI) subindicators* OECD Procurement Index* Doing Business Overall CPIA* Overall GII* Overall OBI* Overall DB Index*

Investment Climate Assessments**

Business Environment & Enterprise Surveys (BEEPS)**

Worldwide Governance Indicators (WGI) - selected sub-indicators)***

Broad Measures

0
0

Transparency International** * WGI*** Freedom House* Polity I V (executive constraints)*

0
0

0
0

Sources: *Expert assessments **Surveys ***Combination.

7. The third column o f Table 1 l i s t s an additional set o f indicators that measureboth broadly and narrowly-the outcomes produced by governance institutions. Leading examples include the following.
a) The Enterprise Surveys (sometimes branded as Investment Climate Assessments and, for ECA, the Business Environment and Enterprise Survey, or BEEPS), which measure for up to 100 countries the perceptions o f firms as

21

ANNEXA

t o the quality o f performance o f specific public regulatory and infrastructural agencies (www.enterprisesurveys.org).

b) The Worldwide Governance Indicators (WGI) produced by DEC and WBI, which provide six aggregate measures (based on 33 different survey sources) o f the outcomes produced by governance systems, including the extent o f corruption, for over 200 countries since 1996. It i s important to note that W G I

do not constitute an official World Bank rating for governance, and that W G I are also not used for resource allocation at the B a M I D A , which i s the role o f the CPIA in the IDA performance-based allocation (PBA) system (www.govindicators .or&. Index

c) Transparency Internationals Corruption Perceptions (www.transparency.org/policy research/surveys indicedcpi). and economic freedoms around the world (www.freedomhouse.org).

d) Freedom Houses indexes that measure the state o f political rights, civil rights
e) The Polity I V measures o f the extent o f executive constraints on the decisionmaking power o f the executive (www.cidcm.umd.edu/polity).

Governance indicators can be used for multiple purposes. They can be used to 8. raise broad awareness about the importance o f governance; as a diagnostic tool to inform governance reform at country level; to monitor the progress o f governance reform over time and benchmark governance improvements regionally and/or internationally; to allocate aid (by bilateral and multilateral agencies); to conduct research on the economic impact and determinants o f governance; and to assess country risk (for example, by risk agencies and investors).
Which indicator is the right one to use thus depends on the purpose. The illustrations below highlight four quite different ways in which the Bank uses governance indicators :

9.

a) For allocation o f aid resources:

0

The CPIA (and more specifically i t s governance subcomponent) i s the only governance indicator used in IDAS P B A system to allocate IDA resources across eligible countries.

b) For diagnostic AAA and policy advice at country level:

Here the hll range o f governance indicators (broad and specific; measures o f processes/rules or o f outcomes) might be used, with the choice dependent o n the purpose o f the AAA, which could include better understanding o f the governance situation in the country; awareness raising concerning these issues; in-depth diagnosis o f specific governance shortfalls and their consequences; and the comparative assessment o f the quality o f governance sub-systems.

22

ANNEXA

c) For the design and monitoring o f specific governance reforms supported by Bank operations:
0

Specific indicators are the appropriate ones to use here-with the choice as to which specific indicators (for example, specific measures within the PEFA, DB, GII, or enterprise survey data sets) dependent o n which ones can help most closely track progress in the specific governance areas being reformed. At the sectoral level, the most appropriate indicators may not be survey or expert-based but technical outcome indicators amenable to improvement through governance reform, including transmission and distribution losses in energy, or percentage o f centrally allocated funds reaching schools in education.

d) For research, two types o f indicators could be used:

For research o n broad governance outcomes, broad cross-country indicators with wide country coverage (for instance, WGI).
0

An emerging research agenda i s linking new specific process indicators to specific governance outcomes (that is, assessment o f the actionworthiness o f the wide range o f specific governance reforms).

Some final caveats about indicators. First, an indicator i s just one tool for 10. providing a broad-brush picture o f levels and trends over time in governance performance at the country or sector level. Governance i s complex and multi-dimensional, and assessments o f governance should be based o n a wide variety o f indicators, and not just one or a few in isolation. In this context, there i s often value for analysts and policymakers to review the underlying disaggregated data used to construct a broad indicator, together with in-depth country-specific governance and anticorruption diagnostics. Second, any estimate o f governance i s accompanied by margins o f error. These 11. are not unique to indicators based on perceptions data, but are present in all efforts to measure governance or the investment climate. For many indicators, the margins o f error are not acknowledged or disclosed-that is, the (unavoidable) degree o f imprecision in measuring governance i s not made explicit; others such as WGI transparently indicate these margins. It i s important to take these margins o f error into account when assessing levels and changes in governance, and to recognize that many small differences observed between observations and over time are unlikely t o be statistically or practically significant.

23

Annex B, Summary o f Feedback

IMPLEMENTATION PLAN FOR STRENGTHENING WORLD BANKGROUP ENGAGEMENT ON GOVERNANCE AND ANTICORRUPTION

CONDUCTED AUGUST 2007 - SEPTEMBER 2007

IntroductionBackground. A draft Implementation Plan for Strengthening World Bank Group Engagement on Governance and Anticorruption ("Implementation Plan" for short) was prepared, on which feedback was sought during the period August 20 September 20, 2007. Since the governance and anticorruption (GAC) strategy was approved in March 2007 following an extensive con~ultation,'~ the process focused o n obtaining feedback from a cross sample o f those who had participated earlier. This note summarizes the main messages and recommendations received. Full statements filed by organizations and a longer summary o f sample comments can be found at www.worldbank. org/governancefeedback. Description o f feedbaci Implementation Plan was sought via the web and through focused discussions with stakeholders in Europe, Washington, and several developing countries. The majority o f participants in the winter consultation process were informed about the feedback exercise on the Implementation Plan via email so they would have an opportunity to provide additional input. The feedback process was organized by EXT, OPCS, and P R E M in conjunction with WBG country teams. The WBG received 60

1.

2.

process and guiding questions. Feedback on the draft

Guiding Questions for GAC Consultations 1. Does the Implementation Plan proposal for developing countrylevel GAC strategies (CGACs) give sufficient emphasis to country ownership and leadership in governance reform and anticorruption efforts? If not, how can this proposal be strengthened? 2. Does the Implementation Plan give sufficient emphasis to poverty reduction and improved development effectiveness as the focus o f World Bank Group engagement on governance and anticorruption? If not, how can this emphasis be strengthened? 3. Does the Implementation Plan identify the priority skill gaps that the World Bank Group needs to address in order to strengthen its' work on governance and anticorruption? If not, what other priority skill gaps need to be addressed? 4. Does the Implementation Plan provide an adequate platform for engaging systematically with government, business, and civil society stakeholders on G A C reform and development outcomes? H o w can the partnership and stakeholder engagement aspects o f the Implementation Plan be further strengthened? 5 . D o you have other suggestions that will strengthen the World Bank Group's efforts to help countries improve governance and anticorruption, and thereby development effectiveness?

l3 Between November 2006 and January 2007, the World Bank Group conducted a global multistakeholder consultation process on i t s strategy paper, Strengthening World Bank Group Engagement on Governance and Anticorruution. More than 3,200 representatives from governments, civil society, donor agencies, parliaments, and the private sector participated in the consultations, which were held in 37 developing countries, 12 developed countries and 4 global dialogues through face-to-face meetings/workshops, videoconferencing, and electronic feedback via the World Bank's website. Feedback provided during the consultations was reported to the World Bank's Executive Board o f Directors and helped to inform the revised strategy paper, which was unanimously endorsed by the Board in March 2007.

24

ANNEXB

submissions, mostly via the web and emai1.I4 N o w that the country governance and anticorruption (CGAC) process has started, additional dialogues and follow-up activities with stakeholders will continue at the country and project levels, and in some areas (for example, stolen asset recovery) internationally.

3. Overview o f main findings. Overall, the majority o f the stakeholders responding welcomed the WBGs increased emphasis on G A C issues. There i s continued debate about how best to balance development efforts focused o n economic growth, efficiency and poverty reduction with a focus o n improving governance and reducing corruption. Stakeholders appreciated the complexity o f the governance strategy adopted by the WBG and sought more detailed information o n implementation. In particular, they sought clarity on the role and division o f labor between stakeholders, including donors, and the WBGs procedures to address instances when the government i s not an active participant in the governance work, or when weak relations exist between governments and other stakeholders. Some o f the recurring themes provided in the feedback include: i) how to provide support for country-owned, country-level G A C strategies; i i )enhancing and integrating systematic engagement among stakeholders, i i i ) ensuring adequate resources, staff and capacity building for effective implementation, and iv) improving transparency, communication capacity, and information sharing.
Support for country-owned country-level GAC strategies. There was considerable support that the Implementation Plan should be country-driven and there was a suggestion that governments make a formal pledge in writing stating their commitment to good governance [Bangladesh, citizen; Mongolia, civil society; Anonymous]. Several stakeholders reiterated the need for the Bank to fully recognize country specific-sensitivities and unique operating environments, and thereby customize the Implementation Plans accordingly [Individual, Dominican Republic; Former WBG Ombudsman]. Stress that countries and fragile states , .. need special attention that starts by restoring systems and capacity. [Multilateral Development Bank]. In terms o f information sharing, it was recommended that the WBG provide details o n roles and responsibilities o f the WBG staff and other stakeholder agencies, including contact information that would be readily accessible for citizens [Mexico, C i v i l Society].

4.

5. Enhancing and integrating systematic engagement among stakeholders. Response was mixed, and most respondents wanted to see more systematic engagement not just between the WBG and stakeholders, but t o see programs that foster such engagement among different stakeholders in order to build country ownership and increase the likelihood o f success. This requires a participatory approach and the use o f watchdog monitors o n the one side, and on the other, more public-private partnerships [Mauritania, C i v i l Society; several individuals]. Reviewers understood why the WBG was targeting governments for action plans, but thought that c i v i l society and other stakeholders were mentioned marginally.y [Civil Society], The plan must place greater
l4 Written submissions received (in addition to feedback submitted through the web-based form that was provided include: African Development Bank, Economic Bank for Reconstruction and Development, Federal Ministry for Economic Cooperation and Development and German Technical Cooperation, United States Agency for International Development, Partnership for Transparency Fund, Transparency International, World Vision.

25

ANNEXB

emphasis o n the involvement o f all actors and stakeholders. Society must be involved in such a way that it can influence the direction o f reforms [Africa, Academia]. The plan has not emphasized the creation o f an environment in which participants from different segments o f society can work together to review results o f successful (and unsuccessful) practices and reforms. [Civil Society; several individuals]. I s the Bank working in partnership with other actors and donors systematically? There i s a need for one-stop shopping, and the Bank should take the lead in creating such a platform. [Canada, Academia]. The plans focus o n governance cooperation among the international financial institutions (IFIs) could be strengthened and broadened, and not limited to cross-debarment and investigatory procedures. [Multilateral Development Bank; C i v i l Society, several individuals]. It was suggested that the plan did not make clear that the country-level process for developing CGACs must build on existing analysis and strategies that may already have significant country buy-in. This may involve joining up with other donors such as USAID, DFID, or the E C in assessing the status o f governance in a particular country.
Adequate resources, staff and capacity building. While acknowledging that this 6. i s a one-year plan with a budget likely to expand in future, there was considerable interest and debate about the adequacy o f resources that accompany the Implementation Plan. Comments ranged from critical (resources insufficient to the tasks described) to cautious (waiting to see what subsequent budgets would be made available). [Multilateral Development Bank; C i v i l Society].

Reviewers noted that the Implementation Plan allocates only relatively small incremental resources and staffing towards the G A C plan. [Civil Society]. Fulfilling the G A C Strategys objectives would seem to require a significant commitment o f resources above and beyond what i s included in the plan, including significant personnel changes, and perhaps the creation o f a Governance Unit with cross-cutting responsibilities [Multilateral Development Bank].

There were numerous comments about the need for the WBG to engage in capacity building with stakeholders in pursuit o f governance, but skepticism about whether i t s own existing staff could be adequately prepared to meet the challenge through capacity building for staff. Re-skilling existing staff i s probably not sufficient [Multilateral Development Bank].

7. Transparency, communication and information sharing. Several comments focused o n transparency, communication and information. One called for demystifying and standardizing governance indicators. It was also suggested that indicators need to be more accessible to citizens through local newspapers and other channels, not just through the internet since many citizens do not have internet connections. Reviewers said that for governance efforts to succeed, communication would be essential at all levels, and urged that there be more capacity building for communication specialists in governance issues. It was also suggested that research showed the importance o f support for freedom o f information and media development initiatives, including reform o f information

26

ANNEXB

sectors, and that the WBG should take a stronger role in these areas, including lending and technical assistance. [Canada, Academia; several individuals].

8. Other issues. The feedback process highlighted several other themes o f interest to stakeholders. A few commentators questioned the WBGs credibility to implement the governance agenda, saying that in their opinion it lacked internal governance and transparency itself. In general, stakeholders urged the WBG to make sure the implementation process i s a bottom-up participatory approach involving citizens at the community level [Civil Society, Mongolia, several individuals]. Greater emphasis should be placed o n lessons learned from country experience, and to the political economy o f the change process. Several participants expressed the need for the WBGs continued support for judicial sector reforms [Africa, Academia; Multilateral Development Bank]. Some participants reiterated the need for the Bank to more readily involve multinational companies and theprivate sector, in general, in i t s development work and in governance.
Next steps. At the request o f the Board, Management i s revising the draft Implementation Plan to take into account the recommendations received during the feedback exercise. The WBG will continue to engage with stakeholders at the global and country levels. Stakeholders will be involved in both the formulation and implementation o f CGAC strategies.

9.

27

ANNEX C

ANNEXc. REPORT OF THE EXECUTIVE DIRECTORS, STRENGTHENING WORLD BANK GROUP ENGAGEMENT ON GOVERNANCE AND ANTICORRUPTION
This paper (DC2007-0005) i s attached as Annex C.

DEVELOPMENT COMMITTEE
(Joint Ministerial Committee
o f the

Boards o f Governors o f the Bank and the Fund On the Transfer o f Real Resources t o Developing Countries)

DC2007-0005 M a r c h 28,2007

REPORT OF THE EXECUTIVE DIRECTORS STRENGTHENING WORLD BANK GROUP ENGAGEMENT ON GOVERNANCE AND ANTICORRUPTION
Attached for the April 15,2007, Development Committee Meeting i s a report to the Executive Directors and accompanying paper entitled Report o f the Executive Directors Strengthening W o r l d Bank Group Engagement o n Governance and Anticorruption. The accompanying paper consists o f (i) a one-page summary o f the guiding principles for engagement o n governance and anticorruption; and (ii) the Executive Summary o f the document that was endorsed at the meeting o f the Executive Directors held o n M a r c h 20,2007.

* * *

DEVELOPMENT COMMITTEE REPORT OF THE EXECUTIVE DIRECTORS

STRENGTHENING WORLD BANK GROUP ENGAGEMENT ON GOVERNANCE AND ANTICORRUPTION

At the 2006 Spring Meetings, the Development Committee asked the World Bank Group (WBG) to set out a broad strategy for helping member countries strengthen governance and deepen the fight against corruption. In September 2006, the WBG presented a paper, Strengthening Bank Group Engagement on Governance and Anticorruption, at the Annual Meetings in Singapore. The Development Committee on that occasion issued a communiqui5 (DC2006-0017) which included the following guidance:
Actions to promote good governance are crucial to successful development and poverty reduction, and helping member countries on these issues is therefore important to the Banks mission and to achieving the MDGs. Tackling corruption f this. Theprincipal objective of the effectively andprmly is a significant part o Banks governance work should be to help develop capable and accountable states to deliver services to the poor, promote, private sector led growth and tackle corruption effectively. We supported the Banks engagement in governance and anticorruption work. Country ownership and leadership are key to successful implementation. Governments are the key partners o f the Bank in governance and anticorruption programs, while, within its mandate, the Bank should be open to involvement with a broad range o f domestic institutions taking into account the specijkities o f each country. We also emphasized that predictability, transparency, and consistent and equal treatment across member countries are the Banks guiding principles. I n stepping up attention to governance and anticorruption in Country Assistance Strategies] we asked the Bank to further develop and use disaggregated and actionable indicators, recognizing that I D A resources will continue to be allocated through the existing Country Policy and Institutional Assessment and Performance Based Allocation system. We recognize that the strategy will evolve with implementation and in light o f experience, but the paper sets out aframework for continued Bank engagement in this work and the further consultation which is planned with partner countries, with the Fund and with other donors and multilaterals, with civil society, and with the private sector. Given the importance o f this issue, we f Board oversight o f the strategy as it is further stressed the importance o developed and then implemented, and we look forward to a report from the Board at our next meeting.
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In light o f this guidance, the WBG undertook an extensive round o f international consultations to explore the views o f stakeholders as to how the WBGs work on

governance and anticorruption can be strengthened to reduce poverty. From November 10,2006 to January 26,2007 t h e WBG held consultations with representatives from governments, donor agencies, parliaments, civil society organizations, private sector, media, and other stakeholders. The consultations were held in 35 developing countries and 12 donor countries, during four global events, and through online web feedbackreaching more than 3,200 stakeholders worldwide. Summary reports from these consultations are posted on the World Banks external website. Management presented the feedback from these consultations to the Executive Direcctors on January 30,2007. As agreed with the Board, Management subsequently updated the paper that was presented to the Development Committee in Singapore, to reflect key messages from the consultations and respond to issues and concerns stated in the Development Committee Communiqu6. This updated version o f the paper was discussed at a meeting o f the Boards Committee o f Development Effectiveness (CODE) on March 7, 2007. Suggestions and comments made at the CODE meeting were then incorporated into a revised version o f the paper that was discussed at a formal meeting o f the Executive Directors o n March 20,2007. At that meeting, the Executive Directors unanimously endorsed the Strategy, and agreed to send to the Development Committee for information the attached paper, Strengthening World Bank Group Engagement on Governance and Anticorruption, which i s the Executive Summary o f the longer Board-endorsed strategy. An implementation plan i s under preparation and will be submitted to the Executive Directors by the end o f the current fiscal year.

MARCH 21,2007

ABBREVIATIONS AND ACRONYMS

CPIA DEC EITI GAC Country Policy and Institutional Assessment Development Economics Extractive Industries Transparency Initiative Governance and Anticorruption International Bank for Reconstruction and Development International Development Association International Finance Corporation International Monetary Fund Department o f Institutional Integrity Multilateral development bank Millennium Development Goal Multilateral lnvestment Guarantee Agency Organisation,for Economic Co-operation and Development Performance-basedallocation system Public Expenditure and Financial Accountability United Nations World Bank Group World Bank Institute

IDA IFC IMF INT MDB MDG MIGA OECD PBA PEFA UN WBG WBI

IBRD

T H E GUIDING PRINCIPLES FOR STRENGTHENING WORLD BANK GROUP ENGAGEMENT O N GOVERNANCE AND ANTICORRUPTION
1. The W o r l d Bank Group (WBGs) focus o n governance and anticorruption (GAC) follows from its mandate to reduce poverty-a capable and accountable state creates opportunities for poor people, provides better services, and improves development outcomes.

2. The country has primary responsibility for improving governance--country ownership and leadership are key to successful implementation, and the WBG i s committed to supporting a countrys o w n priorities. A countrys government remains the principal counterpart for the WBG.
3. The WBG i s committed to remaining engaged in the fight against poverty, and
seeking creative ways o f providing support, even in poorly-governed countriesdont make the poor pay twice.

4. The form of WBG engagement on GAC will vary from country to country, depending o n specific circumstances-while there i s n o one-size-fits-all, the WBG will adopt a consistent approach towards operational decisions across countries, systematically anchored in national strategies, supported by WBG Country Assistance Strategies, with no change in the performance-based allocation system for IDA countries or IBRD resource allocation system. 5. Engaging systematically with a broad range o f government, business, and civil saciety stakeholders i s key to GAC reform and development outcomes-so, consistent with i t s mandate, the WBG will scale up existing good practice in engaging with multiple stakeholders in i t s operational work, including by strengthening transparency, participation, and third-party monitoring in i t s o w n operations.

6. The WBG will strive to strengthen, rather than bypass, country systems-better

national institutions are the more effective and long t e r m solution to governance and corruption challenges and to mitigating fiduciary risk for all public money, including that from the Bank.

7 . The WBG will work with donors, international institutions, and other actors at the country and global levels to ensure a harmonized approach and coordination based o n WBG should not act in respective mandates and comparative advantage-the
isolation.

STRENGTHENING WORLD BANK GROUP ENGAGEMENT ON GOVERNANCE AND

ANTICORRUPTION

1. This paper articulates the World Bank Groups (WBGs) strategy for heightening its focus o n governance and anticorruption (GAC) as an integral part o f i t s work to reduce poverty and promote growth. It i s an updated version o f the paper that was presented to the Development Committee in Singapore in September, 2006. Following the guidance o f and issues raised by the Development Committee, the WBG undertook an extensive round o f international consultations to explore the views o f stakeholders as to how the WBGs work o n governance and anticorruption can be strengthened to reduce poverty,
2. Consultation Overview. From November 10, 2006 to January 26, 2007 the WBG held consultations with representatives from governments, donor agencies, parliaments, civil society organizations, private sector, media, and other stakeholders. The consultations were held in 35 developing countries and 12 donor countries, during four global events, and through online web feedback-reaching more than 3,200 stakeholders worldwide. Summary reports from these consultations are posted on the web. The consultations uncovered a striking convergence o f views which has been incorporated into the updated strategy presented here. All groups o f stakeholders acknowledged the special challenges to development posed by weak governance and corruption and welcomed the WBGs interest in providing stronger. support for addressing these challenges. The question i s not whether but how the W B G can be a useful partner for G A C reform under different circumstances. Consultations have opened new entry points and potential partnerships and show directions for broader and deeper engagement. They also have created high expectations that the Bank will follow up o n the consultations by incorporating the lessons learned and by providing greater support.

3. Governance and Curruption. Governance and corruption are not synonymous. 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 i s one outcome o f poor governance, involving the abuse o f public office for private gain. Public office i s abused when an official accepts, solicits, or extorts a bribe and when private agents give or offer bribes to circumvent public policies and processes for competitive advantage and profit. I t i s also abused through patronage and nepotism, the theft o f state assets, or the diversion o f state revenues. Corruption can also take place among private sector parties, yet interface with and affect public sector performance.
4. The principal purpose o f the WBGs engagement on governance and anticorruption is tu support poverty reduction. On a daily basis, poor people around the world are unable to access health clinics, schools, or other essential services because their public systems are unresponsive or because they themselves cannot or will not pay bribes. Corruption and weak governance often mean that resources that should fuel economic growth and create opportunities for poor people to escape poverty instead enrich corrupt elites. Where transparency and accountability mechanisms are weak or lacking, poor peoples needs are often marginalized and development outcomes suffer, In some cases, extremely poor governance and corruption have contributed to financial and economic collapse, public alienation, and even violence and failed

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states, with disastrous consequences for the poor. Thus, improving governance and reducing corruption are crucial to helping poor people escape poverty and helping countries to achieve the Millennium Development Goals (MDGs). The WBGs G A C work thus aims to help develop capable and accountable states and institutions that can devise and implement sound policies, provide public services, set the rules governing markets, and combat corruption, thereby helping to reduce poverty. The behavior o f the state, and of other key stakeholders such as the private and financial sectors, shapes the quality of governance and impacts development outcomes. Excessive regulation, for instance, increases the cost o f doing business and often provides opportunities for corruption. B y contrast, reforms that clarify the role o f the state, reduce excessive regulatory burden, and promote competition can result in stronger firms, more jobs, and better public services. Hence governance reform and anticorruption are essential to helping the WBG in i t s main mission to serve the poor.

5.

In addition to i t s developmental mandate to reduce poverty, the WBG also has a fiduciary 6. obligation, enshrined in i t s Articles o f Agreement, to ensure that its funds are used for their intended purposes. Aid funds face risks from corruption and weak governance, and both donors and recipients want assurances that this assistance will be protected. In the spirit o f the mutual accountability framework o f the Monterrey Consensus, efforts to strengthen governance and increase aid flows need to be pursued in tandem to help countries achieve the MDGs.
7. An Evolving Agenda. GAC has been o n the WBGs agenda since James Wolfensohs cancer o f corruption speech at the 1996 WBG-IMF Annual Meetings; the 1997 Helping Countries Combat Corruption: The Role o f the World Bank; the 1997 World Development Report, The State in a Changing World; and the 2000 World Bank strategy paper, Reforming Public Institutions and Strengthening Governance. Over the past decade, there has been a wealth o f accumulated research and experience-with country-based innovations often leading the way. Governments around the world are trying t o improve governance and tackle corruption, and they are seeking support and learning from international experience t o craft and implement complex programs o f reform, build supporting coalitions, and monitor their impact. Development institutions have the opportunity and responsibility to help them, and the Bank i s responding through the scaled-up engagement set out in this paper.

8. Guiding Principles. The process o f preparing this strategy-including guidance from the Banks Board, the Development Committee, and global multistakeholder consultations-has helped crystallize seven guiding principles for G A C work by the WBG going forward. These guiding principles reflect an emerging consensus, and build o n the lessons o f experience. The
principles are:

1. The WBGs focus o n G A C follows from i t s mandate to reduce poverty-a

capable and accountable state creates opportunities for poor people, provides better services, and improves development outcomes.

2. The country has primary responsibility for improving governance-country ownership and leadership are key to successful implementation, and the WBG is

3
committed t o supporting a countrys own priorities. remains the principal counterpart for the WBG.

A countrys government

3. The WBG i s committed to remaining engaged in the fight against poverty, and
seeking creative ways o f providing support even in poorly-governed countriesdont make the poor pay twice.

4. The form o f WBG engagement o n G A C will vary from country to country, depending o n specific circumstances-while there is no one-size-fits-all, the WBG will adopt a consistent approach towards operational decisions across countries, systematically anchored in national strategies, supported by WBG Country Assistance Strategies (CASs), with no change in the performance-based allocation system for IDA countries or IBRD resource allocation system.

5. Engaging systematically with a broad range o f government, business, and civil

society stakeholders i s key to G A C reform and development outcomes-so, consistent with i t s mandate, the WBG will scale up existing good practice in engaging with multiple stakeholders in i t s operational work, including by strengthening transparency, participation, and third-party monitoring in its own operations. national institutions are the more effective and long term solution to governance and corruption challenges and to mitigating fiduciary risk for all public money, including that from the Bank. country and global levels to ensure a harmonized approach and coordination based o n respective mandates and comparative advantage-the WBG should not act in isolation.

6. The W B G will strive to strengthen, rather than bypass, country systems-better

7. The WBG will work with donors, international institutions, and other actors at the

In work o n governance and anticorruption, including interactions with other partners, WBG institutions must act within the constraints imposed by the Articles general limitation o n interference o n a members political affairs and on basing decisions o n a members political character or o n non-economic considerations. In keeping with existing practice, as part of the overall framework o f cooperation with its members, in undertaking multi-stakeholder engagement, the WBG will, in consultation with government, make sure to work within the countrys constitutional and legislative framework, seek the approval o f government where it i s required b y i t s operational policies and procedures, and avoid engagements that are not consistent with the Articles framework.

9. Lessons u f Experience. The WBGs strengthened governance and anticorruption strategy builds o n more than a decade o f global experience working with country, donor, and c i v i l society partners. Key lessons include the following:

A large body o f research shows that in the longer t e r m good governance is associated with robust growth, lower income inequality, child mortality, and illiteracy; improved

country competitiveness and investment climate; and greater resilience o f the financial sector. Research also indicates that aid projects are more likely to succeed in well-governed environments. Institutional reforms can succeed, especially when there i s committed country leadership and coalition o f reformers, so WBG programs must work closely with reform leaders in government and in collaboration with a broad range o f stakeholders. Governance challenges are far from uniform across countries, so the WBGs strategies must be differentiated and strongly based o n local knowledge, innovation on the ground, and extensive consultation and collaboration with local constituencies. Strengthening accountability requires capacity in government and institutions outside central government, such as parliament, civil society, media, and local communities, as w e l l as an enabling environment in which these stakeholders can operate responsibly and effectively. Excessive regulatory burden and unwieldy public sector enterprises can be associated with poor governance and corruption. A thriving, competitive, and responsible private sector can be a strong source o f support for better governance. Even when opportunities for governance reform at the national level are limited, there may be entry points at the local level. In some settings, the entry point might be bottom-up participatory reform, such as community-driven development, especially when it also supports the development o f local government transparency, capacity, and accountability.

While there has been progress in tackling administrative corruption, deep-seated political or systemic corruption-including the link between money and politics and the capture o f state institutions by some powerful interests at the national and local levels-is harder to address. In these cases, traditional public sector management interventions need t o be supplemented with transparency and related reforms as well as wider engagement with multinationals, the domestic private sector, the financial sector, and c i v i l society. The pace o f change often will be slow. What is importantthat the trends show sustained and must be the basis for assessing impact-is improvement over time.
All o f these lessons point t o the need for significant Bank engagement on the ground, and a longterm perspective that recognizes that governance reform i s a continuing endeavor, with large variations from one country to another.

10. Scaling up Based on the Lessons Learned. Over the past decade, the WBG has engaged in many GAC initiatives at the country, sectoral, and project levels, with country-based innovations often leading the way. The WBGs experience w i t h supporting reforms has been mixed. While many initiatives have been successful, generally they have been ad hoc and not

consistently applied across countries. Moreover, donors have not been consistent, sending mixed signals to governments about the importance of GAC reforms, weakening their potential

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effectiveness. While some countries have shown improvements in governance and anticorruption, others have deteriorated. In order to make greater progress, there i s a need to build on lessons learned and more systematically scale up successful approaches in a consistent manner across countries. For the Bank, a scaled-up approach also means reviewing i t s own staffing, skills, use o f resources, and the incentives guiding managers and staff.

11. The Bank Group Strategy. The WBGs strategy i s to help developing country governments, in light o f their distinct national challenges, to identify their own priorities for improving governance and to articulate and implement programs responding to those priorities, in a manner that i s effective and sustainable over the long term. The strategy takes a comprehensive approach that involves working at the country, operational, and global levels to enhance and integrate governance and anticorruption measures, deploying the full range o f WBG activities to assist partner countries in achieving demonstrable results for sustained poverty reduction. The strategy seeks to build on lessons o f experience, to systematically scale up programs that have a track record o f success, including programs strengthening public management and governance in infrastructure, extractive industries, health and education, and the financial and private sectors. Many o f these programs focus on increasing transparency o f decisionmaking, and involve beneficiaries and other stakeholders in policymaking and oversight. In addition, the strategy aims to ensure the highest fiduciary standards in Bank-financed operations, in large part by preventing opportunities for corruption through improved project design, greater disclosure, enhanced participation, and strengthened monitoring and supervision.
12. Country LeveL A central focus o f the Banks work i s supporting the development o f more effective and accountable states, in partnership with other actors, including multilateraI and bilateral organizations. Reforms to strengthen the accountability and transparency o f state institutions are an increasingly important focus o f partner countries, and, thus, the Bank needs to provide more consistent, continuous, and systematic assistance to government programs in governance and anticorruption. For IDA borrowers, lending and grant allocations will continue to be based on the Banks performance-based allocation system; for IBRD borrowers, allocations will continue to reflect creditworthiness as well as performance and governance concerns. In all cases, consistent treatment o f countries will be a key objective.
13. Consistent Approach Across Countries. A systematic and disciplined CAS process, with carehl upstream attention to GAC challenges, will be the basis for ensuring a consistent approach across countries. This process will ensure that the strategy i s matched, in a transparent and consultative manner, to the challenges that poor governance may pose for growth and poverty reduction in the country, The evolving, complex, and diverse nature o f country circumstances makes it undesirable to rigidly classify countries in any way; no lists or rankings o f countries i s being considered. Instead, in countries where governance i s a central issue for poverty reduction, formulating and implementing the CAS will be supported by appropriate diagnosis and feature governance as a central theme, in support o f the countys own priorities. There are a variety o f ways to incorporate governance in CASs, with no one-size-fits-all approach. Even in the most poorly governed countries, the WBG w i l l seek to stay engaged, in some cases with shorter interim strategies while agreement i s pursued with the government on medium-term priorities. I f there i s a substantial probability that the governance environment will change during the CAS period in a way that will significantly affect aid effectiveness, alternative scenarios for implementation o f the program may be specified explicitly in the CAS, with

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triggers for moving between scenarios. These triggers will consist of monitorable actions to be taken by the government. If any further mid-course correction i s warranted, a Progress Report or other appropriate document will be presented to the Board for discussion.

14. Governance Performance and WBG Assistance. For IBRD-eligible borrowers, the CAS sets out IBRD lending envelopes that derive from the Banks creditworthiness analysis, which explicitly considers governance as it impinges on political stability or economic policies and outcomes. In IDA-eligible countries, this linkage is achieved through the performance-based allocation system (PBA). The high weight assigned to governance in the PBA, through the Country Policy and Institutional Assessment (CPIA), ensures that better governed countries are allocated a higher per capita share of IDA resources. The Bank will continue to rely on the PBA for allocating scarce IDA resources across lower income countries.
15. Staying Engaged, Even in the Most Poorly Governed Settings. The WBG will seek to stay engaged, even in the most poorly governed countries. In these exceptional circumstances, where the central government cannot adequately administer the proceeds of Bank-financed operations, the WBG will seek creative ways o f engaging to provide services directly to the poor using instruments such as community-driven development and third-party delivery systems which do not rely on central government administration for disbursing resources. The Bank also will seek to use policy dialogue, analytic work, and technical assistance to try to build support for a stronger engagement on governance. In the rare instances where the Bank and the government cannot agree on an effective program of governance reform, the Bank will prepare an interim strategy note outlining the limited areas o f engagement which are viewed as having the potential for positive development impact as well as presenting triggers for moving to a regular CAS when progress i s made. In these circumstances, IFC and M I G A may still play key roles as partners in pursuing a socially responsible investment policy (as elsewhere), as strategic engagement with the private sector remains a potentially important means for change in high-risk settings.

16. Entry Points for Reform. The scope, sequencing, and speed o f GAC reforms will be tailored to t h e country context and the governments program. Where country leadership i s undertaking major governance and anticorruption reforms, the Bank will match such resolve by rapidly scaling up technical and financial assistance to support these reforms. Where weak governance and corruption pose obstacles for development and government commitment i s more uneven, the Bank will strive to find appropriate entry points-scaling up support for government programs to improve governance and combat corruption, ensuring that governance issues are adequately addressed in the sectors in which the Bank engages, and seeking to expand government interest in reform through country dialogue, analytic work, and technical assistance. The range o f entry points include:
Helping strengthen state capability and accountability. In all countries where governance i s a challenge, there w i l l be a continuing focus o n public financial management of both revenues and expenditures, procurement, auditing, the judiciary, and legal reforms, as well as a renewed engagement with governments on civil service and transparency reforms. In addition, greater systematic attention w i l l be given to addressing governance issues in infrastructure, extractive industries, health, education, financial and private sectors, strengthening local governments and

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community participation, and building capacity in supreme audit institutions and other formal oversight institutions.
Expanding private sector engagement. The WBG, including IFC and MIGA, will engage more closely with the private sector to address corruption, for example by supporting national and sectoral business coalitions for change and voluntary codes o f business conduct. The WBG will also continue to deepen i t s support for improving the enabling environment for the development o f competitive private and financial sectors and increased private investment. Engaging more systematically with a broad range o f stakeholders. As stated in the Development Committee CommuniquC, Governments are the key partners o f the Bank in governance and anticorruption programs, while, within its mandate, the Bank should be open to involvement with a broad range o f domestic institutions taking into account the specificities o f each country. While working with the government as i t s principal counterpart, the WBG will scale up existing good practice in working with a broad range o f stakeholders. The aim i s to help strengthen state accountability, thereby also providing impetus for gains in state capability. For instance, as affirmed by the consultations, the Bank, consistent with i t s mandate and in collaboration with other multilateral and bilateral organizations, will continue to support initiatives that: enable citizens to access information and participate in the development o f policies, spending priorities, and service provision; promote community participation to improve local governance; strengthen the enabling environment and capacity o f civil society and the media to monitor public policymaking and implementation; and encourage greater oversight over public procurement, asset declarations, and other important dimensions o f government performance. The Bank will revise i t s disclosure policy to improve the Banks own transparency, and will enhance current guidance to staff in order to consistently apply best practices on consultation and participation in Bank-financed operations.

Project Level. A t the project level, the Banks strategy aims to improve the development impact and integrity o f Bank-funded projects. Actions to prevent opportunities for comptionthe best way to mitigate fiduciary risk-include:

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Helping countries to strengthen country systems, as the long nm solution to mitigating fiduciary risk in Bank-financed operations, while also taking measures to protect Bank-financed projects in poorly governed settings; Incorporating concrete good governance and anticorruption objectives in sectoral programs, tailored to each sectors distinctive features and potential risks; Working with governments to identify risky operations and ensure upstream risk mitigation, including preparing anticorruption action plans as part o f high-risk operations where appropriate; Improving the quality o f project design, supervision, and evaluation, and enhancing third-party monitoring o f Bank-financed projects by improving the timely disclosure

o f proj ect information (including anticorruption action plans) and increasing upstream consultation and participation throughout the project cycle, based on lessons learned and good practice; Focusing on fiduciary quality concerns during joint reviews with governments o f the Banks project pipeline and financing portfofio; channeling resources and attention, especially during supervision, toward projects deemed to be o f high risk; and Establishing anticorruption teams, particularly in the field, to review project design, risk rating, and anticorruption action plans and, together with governance advisers (especially field-based), also to serve as a focal point for dialogue on governance and anticorruption issues with governments and other stakeholders.

Where operations are co-financed, the Bank will coordinate with those partners.

18. The Banks Department o f Institutional Integrity (INT) will continue to investigate allegations o f corruption in Bank-financed projects, and when corruption i s detected, the WBG will publicly sanction corrupt f i r m s and promote follow up actions by government and internally. In addition, the WBC will enhance collaboration between the Banks investigative team and the countrys own anticorruption institutions. Feedback from the consultations urged that TNT take additional steps to improve its transparency and partnership approaches. Currently, INT i s being reviewed by an independent panel o f experts, with the goal o f strengthening INTs operations and effectiveness. 19. IFC and M I G A will work directly with the private sector to strengthen ethical corporate practices across their operations, encouraging clients to join public-private coalitions for reform, and reinforcing that integrity i s good for business.

20. Global Level. Finally, at the global level, the Bank will support harmonized approaches with other international actors. The strategy aims to strengthen the WBGs bilateral and multilateral partnerships in accordance with the Paris Declaration, with a view to:
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Harmonizing governance and anticorruption initiatives with the IMF, United Nations, regional development banks, and other donors, including in public financial management, procurement, and judicial reform; Promoting coordinated action in countries where governance and corruption problems pose challenges for development, including consulting with other partners when considering limited engagement; Recognizing the limitations o f the Banks legal framework, there should be a division o f labor among donors-to be articulated in the CAS-with others taking a lead in areas that are outside the Banks mandate or comparative advantage;
As part o f a process o f joint sanctions reform by the multilateral development banks (MDBs), making investigative rules and procedures more consistent, strengthening

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information sharing, and establishing mechanisms to recognize each others sanctions decisions; Continuing to work closely with the private sector, civil society, youth, and the media to support change coalitions such as the Global Integrity Alliance as well as sectorspecific initiatives such as the Extractive Industry Transparency Initiative (EITI) and Publish What You Pay, while raising the cost o f corrupt behavior through increasingly harmonized MDB sanctions and the WBGs new Voluntary Disclosure Program; Supporting implementation o f key international conventions such as the OECD AntiBribery Convention, the UN Convention against Corruption, and regional initiatives; Helping enhance a countrys ability to track, freeze, and confiscate the .proceeds o f corrupt behavior, including through technical assistance for asset recovery and monitoring o f use o f recovered assets; and
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Working with developed countries, the OECD, and the private sector to provide assistance on anti-money laundering, and greater cooperation to address tax havens and asset restitution.

21. Monitoring for Resulfs. Monitoring i s key to accountability. Recognizing that IDA resources will continue to be allocated through the existing Country Policy and Institutional Assessment (CPIA) and Performance Based Allocation system, the Development Committee asked the Bank t o further develop and use disaggregated and actionable indicators. Disaggregated and actionable indicators can serve two purposes-to inform the CPIA and to help track progress in specific reforms implemented by governments. Over the past year there has been significant progress in the development and use o f disaggregated and actionable indicators, such as the public financial management indicators developed b y the multidonor Aggregate worldwide Public Expenditure and Financial Accountability (PEFA) initiative. governance indicators (gathered by DEC and WBI) are research products that draw on a wealth o f information from non-WBG efforts to monitor governance and exist alongside many other products (e.g., enterprise surveys) to provide comparative information for policymakers; they are not official ratings by the WBG, and they have no formal role in any WBG operational decisionmaking. During the recent consultations, the majority o f stakeholders endorsed an approach o f using a mix o f indicators-aggregate governance indicators, country monitoring and evaluation systems, specific disaggregated indicators, and outcome indicators-judiciously and with care, keeping in mind their strengths and limitations for particular purposes.

22. Role ofthe Board. The Banks Board will continue to have an important role in the development o f the Banks country strategies, to ensure that they are consistent across countries and continue to have broad support in the international community. If country circumstances change in ways that warrant a shift in the Banks approach, an appropriate document will be presented to the Board for discussion. In addition, for all CASs that present alternative scenarios, the CAS and the midterm CAS Progress Report will continue to state clearly which scenario applies as well as what conditions would trigger alternative scenarios. N e w country developments will continue to be discussed at Steering Committee meetings, and Management

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views o n appropriate financing levels will be presented to the Board in a timely manner. In the exceptional cases when changes in country circumstances warrant a significant change or a suspension o f Banks operations, Management will seek the Boards support. The Board will continue to be involved in reviewing individual projects, including any that are delayed because o f corruption concerns. In addition, the Board has provided guidance and feedback o n refining this strategy and will provide oversight as it i s implemented.

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Going Forward. This strategy implies a change in h o w the WBG does business, including providing incentives to managers and staff to engage proactively o n the ground o n governance issues; addressing staffing, skills, and resource needs to operate effectively in challenging governance settings; and developing a stronger results framework, with greater progress on strengthening country monitoring and evaluation systems, specific disaggregate governance indicators, and outcome indicators. The emphasis o f the strategy will be o n the front lines, tapping into local knowledge and engaging closely with partner countries. Operational guidance to staff will be developed, reflecting ongoing innovations in the field. Bank country teams will be reporting back to the stakeholders that participated in the consultations, to share with them h o w their inputs were reflected in this enhanced strategy and to engage them in the implementation phase. Given the complexity o f the effort, the WBG will also need to proceed pragmatically. In addition, partnerships will need to be strengthened, including with local institutions such as universities, civil society groups, and businesses to increase the Banks technical know-how and develop common approaches. Furthermore, given the importance o f learning in these fields, the Bank will continue to support research on causes and effects of governance and corruption and their links to growth and development. This agenda demands innovation and experimentation as well as rigorous monitoring and evaluation o f results-all in a spirit o f openness to learning what works, what does not, and why. The specific initiatives needed to fully operationalize this strategy will be outlined in an Implementation Plan, to be prepared and submitted to the Board by the end o f the current fiscal year.