FIGHTING CORRUPTION AND POVERTY: ARE WE GETTING IT RIGHT? Presentation for Workshop: From Montesinos to PRSPs October 21 & 22, 2002 Helen Sutch, PRMPS

What is the logic of today’s workshop? Our focus on corruption springs from the recognition that it is the most serious single obstacle to achieving the Bank’s overall objective of poverty reduction. But are we tackling corruption in the right way? How should we go about the task of helping countries develop institutions that will be resistant to corruption and effective in reducing poverty?

Good governance leads to higher investment & growth % Investment share in GDP Income per capita Growth Rate 20% -1.5% 0% 1% 2% 1.5% -0.5% -1.0% 0.5% 15% 10% High Medium Low High Medium Low Quality of Governance Quality of Governance in this case was measured by perceptions of 4,000 firms in 67 countries on: (i) protection of property rights; (ii) judicial reliability; (iii) predictability of rules; (iv) control of corruption. Source: World Development Report Survey, 1997

Good governance goes hand in hand with better development outcomes Infant Mortality and Corruption 10 20 30 40 50 60 70 80 90 Weak Average Good Control of Corruption x Development Dividend 2,000 4,000 6,000 8,000 10,000 12,000 Weak Average Good Regulatory Quality x Development Dividend Per Capita Income and Regulatory Burden Literacy and Rule of Law 25 50 75 100 Weak Average Good Rule of Law x Development Dividend Per Capita Income and Voice and Accountability 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Weak Average Strong x Development Dividend Note: Based on a collaborative research project, the bars depict the simple correlation between good governance and development outcomes. The line depicts the predicted value when taking into account the causality effects (“Development Divided”) from improved governance to better development outcomes.

Milestones in Anticorruption 1996 JDW’s Annual Meetings speech 1997 WB Anticorruption Strategy WDRs 1997, 2000, 2001 “Assessing Aid” 1999 onwards: almost every CAS assesses governance and corruption 2000 “Anticorruption in Transition” defines state capture, administrative corruption, and the “anticorruption environment”

Good governance and anticorruption have many dimensions Structure of Government Executive decision-making structure Legislative oversight Independent and effective judiciary Decentralization and intergovernmental relations International dimensions: rules for foreign investors, trading partners, donors Political Accountability Political competition, credible political parties Transparency in party financing Disclosure of parliamentary votes Asset declaration, conflict-of-interest rules Competitive Private Sector Economic incentive framework/policies Competitive restructuring of monopolies Regulatory simplification for entry Transparency in corporate governance Collective business associations Civil Society Voice & Participation Freedom of information Public hearings Role of media/NGOs Governance monitoring Anticorruption Public Sector Management Meritocratic civil service with monetized, adequate pay Public expenditure management (budget preparation and execution, financial accountability, procurement, audit) Decentralization with accountability Service delivery (health, education, infrastructure, courts and other dispute resolution mechanisms) Tax and customs

Understanding the environment, working with the people in it… Anticorruption surveys of households, businesses and public officials (PREM, WBI), also surveys of courts and investment climate, public expenditure tracking Institutional and Governance Reviews Development of governance indicators Workshops to catalyze the preparation of country strategies WBI core course for senior officials

Governance and anticorruption knowledge sharing has grown…integrating PREM, DEC, WBI, Legal, and OPCS across thematic groups… Anticorruption Administrative and civil service reform Decentralization E-government Legal institutions of market economy Public expenditure management Tax policy and administration

The PRSP process is an important link… All PRSPs recognize importance of governance (a major advance, comparing pre-PRSP world) Governance deficits becoming explicit Civil society participation spurring some demand for good governance Improved understanding of implementation capacity constraints

But what is the common factor? Stovepiping: or methodological separatism we deal with institutions as though they were as separate as their names indicate: courts, parliament, civil service, tax administration… We assume that the private and public sectors are separate and different, and respond to different incentives…

Questions for the day As we move into PRSP and LICUS territory, are we tackling anticorruption and governance in the right way? Do we need to do more to understand the drivers of corruption before we can shape and implement effective strategies? Can we do better? And if so.. What, concretely, should we change?