1. Political Economy in Project Design Presentation for “Political Economy of Governance Reform” MC2-800 on April 18, 2007 @ 11.30 AM Amit Mukherjee (ECSPE)

2. Presentation Outline Country Coverage: Armenia, Bulgaria, Indonesia, Philippines, Russia Themes: Public Sector Institutional Reform, Public Financial Management, Civil Service Reform, Decentralization, Judicial Reform Why: Need for & utility of such analysis How: content, timing What happened? Lessons

3. Why…Country Circumstances Armenia – Conflict & Challenge of Transition (capture by the state, uneven policy capacity, external shock, renewing growth & service delivery) Bulgaria – The Challenge of EU Accession Indonesia: Weak Governance Environment (weak institutions of accountability; corruption, collusion, nepotism; INT reviews of Second Sulawesi Urban Development Project) Philippines – institutional reform in a weak/soft state Russia – Entry points for reform in a resource-rich re- centralizing & increasingly opaque state => Country Context is Everything!!

4. Armenia Armenia – Conflict & the Challenge of Transition –capture by the state –uneven policy capacity –external shock –renewing growth & service delivery => Address Institutions of Accountability

5. Bulgaria Driver – The Challenge of EU Accession –Justice & Home Affairs red flags –Entry point – request to Bank from Govt & EU –Step by step approach built support from all branches of the state, EU and development partners Shared Vision thru Interim Performance Framework Resourcing the Judiciary – JEIR to build consensus Backtrack into institutional & constitutional issues Request for Operational Intervention –Solid support from CMU and Country Team –Bank work underpinned by political economy considerations and upcoming explicit political economy analysis as part of JEIR

6. Russia Seeking entry points for institutional reform in a resource-rich re-centralizing increasingly opaque and unaccountable state –Need for champions at federal and regional levels –How to engage with civil society? With whom to engage? –Risks: for the Bank, for government and civil society counterparts –Themes? Instruments? –Lessons for CIS and FSU countries? => Approach: Transparency the most feasible and appropriate window to accountability

7. Indonesia - How it was done Preparation stage: –Quick assessment of environment, vulnerabilities, risks –Consultations on strategy (including CMU, country lawyer, procurement, FM) –Clear agreement on governance issues and approach –Early actions to test commitment Appraisal/negotiations stage: –Upfront risk assessment & disclosure requirements –Governance and accountability arrangements –Extraordinary procurement arrangements for vulnerable activities

8. What Actually Happened Indonesia Preparation stage: first large procurement –Issues & concerns –Special background check of vendors –Sharing results with government –Project Governance Assessment for Bank due diligence – covered executive and legislature, discussed with government Amendments to all bid documents: conflict of interest, enhanced disclosure Enhanced scrutiny during Bank prior review

9. What Actually Happened - 2 Appraisal/negotiations –Governance and Accountability Action Plan –Clear definition of procurement arrangements and responsibilities –Independent Verification and Validation (IV&V) arrangements –Safeguards for project governance: Due diligence for procurement Disclosure of procurement and project progress Institutionalized civil society oversight and feedback Monitoring and evaluation framework explicitly addresses project governance issues

10. Lessons Country context & Bank authorizing environment! Peer-to-peer learning and knowledge-sharing approach works better!! Resources within the Bank: –Legal, RPA, RFM, PS/FS, INT, CMU, CT Specialist consultants for due diligence if needed Identify vulnerabilities, candid risk assessment, agree with govt on risk-mitigating actions: –Procurement plan, bid documents, IV&V approach –Supervision intensity Share assessment & findings with CD, CMU, CT BB implications – pros and cons Creative use of Bank AAA and lending instruments and donor partnerships