IJOM1ON (VIMd) 1uiwibeueVq )!wouo)] pue Uo!i)npavd AJiAod (SJO) saIAJas ajo) leuoiejado| r r X t a - 4 f . . - I /66L aDU!S lueg pl°oA 5t; le SSaJboJd! )IUe8 PIJOM X L. S IL uQilno June 2000 Helping Countries Combat C orruption Progress at the World Bank Since 1997 m The World Bank Operational Core Services (OCS) Poverty Reduction and Economic Management (PREM) Network Copyright © 2000 The International Bank for Reconstruction and Development / the world bank 1818 H Street, N.W. Washington, D.C. 20433, USA All rights reserved Manufactured in the United States of America First printing August 2000 The findings, interpretations, and condusions expressed in this book are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. 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The report details the progress made to date by the World Bank Group on its anticorruption and governance initiative. The initiative was launched by Mr. James D. Wolfensohn in September 1996. List of Acronyms and Abbreviations AfDB African Development Bank IMF International Monetary Fund AFR Africa Region INTOSAI International Organization of Supreme Audit AsDB Asian Development Bank Institutions AU Antibribery Undertaking LACI Loan Administration Change Initiative BEI Business Ethics and Integrity Department LCR Latin America and Caribbean Region CAS Country Assistance Strategy MDB Multilateral Development Bank CDF Comprehensive Development Framework MNA Middle East and North Africa Region CFAA Country Financial Accountability Assessment NGO Nongovernmental Organization COSO Committee of Sponsoring Organizations OAS Organization of American States CPAR Countr,y Procurement Assessment Review OCS Operational Core Services CPFA Country Profile of Financial Accountability OECD Organization for Economic Cooperation and CPIA Country Policy and Institutional Assessment Development CRD Urban and Rural Commune PER Public Expenditure Review CSA Control Self-Assessment PIP Project Implementation Plan DAC Development Assistance Committee PMR Project Management Report EAP East Asia and Pacific Region PREM Poverty Reduction and Economic Management EBRD European Bank for Reconstruction and PRSP Poverty Reduction Strategy Paper Development PSAL Programmatic Structural Adjustment Loan ECA Europe and Central Asia Region QAG Quality Assurance Group ESW Economic and Sector Work SAR South Asia Region FATF Financial Action Task Force SIGMA Support for Improvement in Governance and FINMI Financial Management Initiative Management in Central and Eastern European FY Fiscal Year Countries GAO U.S. General Accounting Office SOE Statement of Expenditure LAD Internal Auditing Department SSR Social and Structural Review IADB Inter-American Development Bank TI Transparency International IDA International Development Association TIR Transition Impact Review IDF Institutional Development Facility UNDP United Nations Development Program IFAD International Forum on Accountancy WBES World Business Environment Survey Development WBI World Bank Institute IGR Institutional and Governance Review WTO World Trade Organization Helping Countries Combat Corruption iii C ONTENTS )) 1. Executive Summary: The World Bank's Approaches to Combating Corruption 1 Progress on the Four Pillars of the Bank's Anticorruption Strategy 2 Minimizing Fraud and Corruption in Bank-Supported Projects 3 Helping Countries That Request Assistance 4 Mainstreaming Corruption Considerations into the Bank's Operational Work 5 Supporting International Efforts to Address Corruption 5 Conclusion: The Road Ahead 6 2. Minimizing Fraud and Corruption in Bank-Financed Projects 7 Strategic Compact 7 Creation of the OCS Network to Ensure Quality in Business Processes 10 Financial Management Reform 10 Procurement Reform 12 Monitoring and Evaluation 15 Dealing with Allegations of Corruption in Bank-Financed Projects 16 Sanctioning 17 Business Ethics and Integrity 18 External Independent Review 19 3. Helping Countries That Request Assistance 21 Diagnostic Tools 23 Country Assistance Programs 28 4. Mainstreaming Corruption Considerations into the Bank's Operational Work 37 Country Assistance Strategies 38 Regional Strategies 38 Research and Knowledge Sharing 40 Sensitizing Bank Staff to Corruption Issues 40 Helping Countries Combat Corruption v 5. Supporting International Efforts to Address Corruption 43 Collaborating with Other Multilateral Development Banks 44 Supporting the Efforts of Other International Organizations 46 The Continuing Partnership with the IMF 47 Consulting both the Business Community and NGOs 47 Communicating the Bank's Anticorruption Strategy to the World 48 6. The Road Ahead 49 Annex I 54 Anticorruption Action Plan: FY99 (Progress as of July 1999) 54 Anticorruption Action Plan: FY00 61 Annex II 67 Management, Procurement, and Financial Controls in Bank-Financed 67 Investment Projects Project Preparation, Appraisal, and Approval 67 Implementation and Supervision 68 Field Supervision 70 Other Oversight Functions 70 Annex III 71 Partial Inventory of the Bank's Governance and Institutional Reform 71 Programs FY98, FY99, and FY00 (lst half) Annex IV 103 Empirical Studies of Governance and Development: An Annotated Bibliography 103 vi Helping Countries Combat Corruption The World Bank's Approaches to Combating Corruption In 1996, President James D. Wolfensohn committed BOX 1 .1 the World Bank to "fight the cancer of corruption." This public commitment intensified the strategy the Corruption Is a Problem Common to Bank has long pursued to ensure internal probity and Businesses and Public Enterprises of to encourage the development of new approaches to ll uid fighting corruption in its borrowing countries. It also a nds helped catalyze a truly global response to the problem, *A recent report published by the Association which is essential if we are to make enduring progress. of Certified Fraud Examiners finds that organ- The purpose of this report is to identify the progress tionspublic and private-lose 6 percent the Bank has made to date in this difficult arena and to of annu revenue to fraud and corruption point out the many challenges still facing the Bank. The Ban is comittedto ensuing tht Bank each year. In the United States alone, fraud and The Bank IS committed to ensuring that Bank- cruto li 40bline er financed projects are free from corruption and to help- ing countries build transparent and accountable govern- * Ernst and Young, in a survey of certified fraud ment institutions. The reasons why the Bank has taken examiners, found that one out of four busi- a leading role in the fight against corruption are clear: nesses loses more than $1 million annually to * Corruption hurts the poor most severely: it diverts fraud and corruption and that 67 percent of public services from those who need them most and those polled believe that fraud is getting worse. More than three-quarters of respondents believe that the worst of the fraud could be * Corruption undermines public support for devel- prevented through the use of adequate policies opment assistance by creating an erroneous percep- and controls. tion that all assistance is affected by corruption. Helping Countries Combat Corruption * Corruption can impede developing countries' access * The Bank would mainstream its concern for cor- to increasingly discriminating private capital. ruption directly into its country analysis and lend- * The Bank has a fiduciary duty to its member coun- ing decisions. tries to ensure that financial support reaches its * The Bank would contribute to the international intended targets. effort to fight corruption. The report Helping Countries Combat Corruption: The Progress on the Four Pillars of the Role of the World Bank' put into motion a chain of Bank's Anticorruption Strategy events that fundamentally reformed the way the Bank thinks about and acts against corruption. Addressing For most of its history-like other development agen- corruption is politically very difficult and technically cies-the Bank did not explicitly address corruption in complex; it is a long-term task requiring enormous its development strategies but rather chose to raise the domestic leadership. Committed to working sinulta- issue in discreet ways with individual governments. In neously on many fronts, the Bank realized that it need- the mid- 1980s, however, the Bank shifted its business ed to have realistic expectations. To bolster its efforts, it emphasis toward policy reform and began to help therefore developed a broad Fiscal Year 1999 (FY99) countries eliminate rent-seeking behavior through a Anticorruption Action Plan that was distributed to all broader reform of trade regimes, financial sectors, and Bank staff in January 1999 (Annex I). The FY99 Action Plan aimed to strengthen Bank fiduciary activities, to public sector institutions. Good governance became an important theme and was addressed in landmark doc- broaden and deepen in-country work, to extend pro- ductive relationships with Bank partners, and to add- uments such as the 1983 World Development Report on Public Management and the 1989 Africa Long-Term ress questions of staff incentives and personal security. Perspectives Study as well as in subsequent reports in The following year, the Anticorruption Action Plan the 1990s. for FY 2000 builds upon the experience acquired since 1997 and continues to reflect the Bank's view that cor- The Bank's longstanding efforts to build a frame- work of integrity around its operations reached a ruption is a symptom of underlying weaknesses in watershed in September 1996, when President Wolfen- public sector institutions. (The FY00 Plan and an indi- sohn announced that the Bank would do everything cation of the progress made to date in each of the sohn~~~~~~~~~~ Plan's dimensions can be found in Annex I.) The Plan within its power to fight "the cancer of corruption.' In September 1997, the Bank's Board of Executive Direc- calls for a further broadening and deepening of the approach initiated in 1997 and a heightened focus on tors endorsed an anticorruption strategy that laid out g actions in four key areas: implementation and on-the-ground results. We are now working with more than 95 countries that have * The Bank would make every effort to prevent fraud requested assistance for broadly defined public sector and corruption in the projects and programs it institutional reform and with more than two dozen finances. countries that have requested assistance to deal specif- * The Bank would assist countries that ask for help in ically with corruption. Consistent with the Compre- curbing corruption. hensive Development Framework,2 the FY00 Plan calls for further outreach and collaboration with donors 2 Helping Countries Combat Corruption and other partners and for better integration of the post audits conducted by specialized firms on behalf of anticorruption agenda with other capacity-building the Bank. New anticorruption provisions were added to efforts of the Bank. the Bank's procurement guidelines and the Bank signif- icantly increased its financial management and pro- curement staff. A Loan Administration Change Initia- Minimizing Fraud and Corruption in tive (LACI) was introduced to help borrowers build Bank-Supported Projects capacity for strong financial management at the project level. Finally, the Bank also began to work with its While the Bank's concern about corruption is not new, clients on the broader issue of building country capac- the emphasis it places on this problem has grown dra- ity for financial management and procurement, intro- matically over the last few years. The Bank has always ducing new diagnostic assessments and following these had a strong internal integrity framework. Its Articles up with technical assistance to clients. of Agreement require that the Bank make arrange- These and other changes have led to a Bank that is ments to ensure that the proceeds of its loans are used more client-oriented, with improved quality of services only for the purposes for which the loans were granted and portfolio. Lending operations are better prepared and that due attention is given to considerations of and supervised, with 89 percent of new operations economy and efficiency, without regard to political or judged satisfactory in calendar year 1999 compared to other non-economic influences or considerations.3 82 percent at the start of the reform initiatives, and 82 Procurement, financial management, and audit proce- percent of operations receiving satisfactory supervision dures in Bank-financed projects focus on these goals, in FY99 compared to 76 percent in FY98. and the Bank has a set of established protocols aimed Although the Bank had been investigating allega- at ensuring that it takes only reasonable risks through- tions of fraud and corruption whenever these were out project development and implementation. (Annex brought to the attention of management, in May 1998 II describes the fiduciary framework under Bank- an Oversight Committee on Fraud and Corruption was financed projects.) established with responsibility for investigating allega- In order to strengthen its financial control capacity, tions of corruption involving Bank staff. In October in 1997 the Bank adopted the framework of the Com- 1998, the Committee's responsibility was broadened to mittee of Sponsoring Organizations of the Treadway include supervision of all investigations of fraud and Commission (COSO) on internal financial controls, a corruption within the Bank or in connection with state-of-the-art approach to internal controls now used Bank-financed contracts. This Committee is supported widely by leading financial institutions. In the same by a Secretariat that reviews and screens the allegations year, the Bank evaluated its fiduciary controls of Bank- or complaints involving fraud or corruption and by financed projects, thereby identifying the need to a team of professional investigators dedicated solely to strengthen its ability to supervise the fiduciary aspects conducting investigations of these allegations. In addi- of Bank loans and to help clients strengthen their own tion, a 24-hour international hotline was established to capacities. As part of the loan approval process, the enable the report of fraudulent or corrupt practices Bank began to improve the way it assessed borrower' within the Bank or in connection with Bank-financed procurement and financial management capacity and contracts. Over the past three years, 44 companies corruption risks. It also moved to intensify supervision and 10 individuals have been debarred from Bank of smaller procurement contracts through special ex- contracts.3 Helping Countries Combat Corruption 3 Dealing with corruption requires a culture of open- agement, to improve economic policies and legal/judi- ness in the Bank, a willingness to discuss difficult cial systems, and to develop and implement specific issues, and a strong emphasis on professional ethics. anticorruption measures. The Bank has made strength- Accordingly, more candor has been encouraged, and ening borrower capacity a priority through increased the Bank's professional ethics program was strength- lending,7 enhanced country-level advisory services, and ened as part of the Anticorruption Action Plan. the inclusion of "good and clean governance" as one of The improvements that the Bank has made over the the central pillars of the Comprehensive Development past three years to its system of management controls Framework. over investment lending were recently the subject of an Many countries-including Albania, Argentina, independent external review by the national audit office Bangladesh, Benin, Bolivia, Bosnia, Colombia, Ecuador, of the United States government, the U.S. General Ethiopia, Georgia, Guatemala, Honduras, Indonesia, Accounting Office (GAO).6 It is encouraging to note Jordan, Latvia, Mauritius, Morocco, Nicaragua, that two of the key findings of the GAO are that the Paraguay, the Philippines, Russia, Slovakia, Tanzania, "Bank has undertaken an ambitious and systematic Thailand, Uganda, Ukraine, and Yemen-have come to effort to identify and correct key weaknesses in its sys- the Bank with explicit requests for assistance. Annex III tem of management controls" and that "significant provides a detailed listing by country of some of the progress has been achieved." The GAO further notes the Bank's many and varied programs to fight corruption. many steps that the Bank has taken to strengthen its Fighting corruption is a complex, long-term prob- internal control activities, induding those covering lem, and it is important to maintain realistic expecta- financial management, procurement, and supervision. tions. The first step is to ensure high-level political sup- However, the report is very clear in its message that the port, without which an anticorruption effort is unlikely Bank still faces many challenges as it continues to imple- to succeed. To achieve this, our in-country operational ment reforms aimed at strengthening the system of work often starts with in-depth empirical survey work internal controls. The report makes a number of specif- to help diagnose the extent and nature of the problems ic recommendations that are very much in line with the and raise public awareness. The Bank conducts work- program of reforms under way in the Bank since 1997. shops to disseminate this analysis, bringing together The report cautions that full implementation of the public officials (including parliamentarians), the pri- changes to the Bank's system of internal controls faces vate sector, and civil society to develop anticorruption further challenges ahead. The report's generally sup- strategies. The strategies may then be supported by portive findings will nonetheless enable the Bank to Bank-supported interventions. Projects aimed at move forward with even more confidence that it is addressing corruption concerns have included, for headed in the right direction. example, tax administration in Latvia; judicial reform in Albania, Guatemala, and Morocco; administrative and civil service reform in Bolivia and Tanzania; and Helping Countries That Request Assistance regulatory reform in Georgia. Knowledge sharing is a vital component of the The Bank views corruption as a symptom of underly- Bank's assistance to countries in fighting corruption. ing institutional dysfunction, and thus employs a By conducting seminars in more than 35 countries, the proactive and holistic approach that attempts to help World Bank Institute (WBI) has been helping expand clients strengthen governance and public sector man- participatory dialogue among all segments of society, 4 Helping Countries Combat Corruption including parliamentarians, government officials, ernance issues, including the extent of corruption. This judges, auditors general, the media, and local non- is a crucial development because it illuminates not only governmental organizations (NGOs). WBI has also the problems but also what governments and the Bank conducted more than 40 training courses and work- are doing to address those problems. It should be shops in investigative journalism and parliamentary noted, of course, that International Development Asso- oversight-including, in some instances, the role of the ciation (IDA) lending levels have been influenced by auditor general. governance criteria for some time. Particularly noteworthy is the innovative "core A recent CAS retrospective found that the Bank has course" in controlling corruption that was piloted in made significant progress in addressing governance FY99 with officials and representatives from seven and corruption concerns over the last two years. Of the African countries. Using traditional and distance learn- CASs reviewed for this retrospective, 78 percent discuss ing techniques, this course resulted in the development governance and corruption and about two-thirds or revision of national anticorruption strategies in the attempt to mainstream governance concerns explicitly countries concerned. Building on this success, the core in country programs. Despite this progress, the retro- course will be replicated in Latin America and fran- spective found that we need to continue to improve our cophone Africa in FY01. The Internal Auditing Depart- diagnosis of the causes of corruption, in firmly estab- ment (LAD) has additionally conducted workshops with lishing CAS strategy in institutional realities, and in staff from the national audit offices of various countries explicitly assessing the risks of corruption to Bank- to help strengthen their financial control capacities. The financed projects and proposing remedial measures Bank shares its knowledge with other partners through where needed. Several recent CASs have made major an external anticorruption web site; by partnering with strides in all of these areas and are clearly examples of international organizations such as the Organization best practice in governance. for Economic Cooperation and Development (OECD), The Bank's Development Research Group has the United Nations Development Program (UNDP), devoted significant resources to research on corruption the regional Multilateral Development Banks (MDBs), issues and has added to a growing body of analytic and the Commonwealth Parliamentary Association; by work worldwide that clearly shows the strong links partnering with NGOs such as Transparency Interna- between governance and poverty (see Annex IV for an tional (TI); and through contributions to relevant annotated bibliography). The Bank's policy advice and international conferences and workshops. its contribution to international discussions on corrup- tion reflect the Group's findings. Mainstreaming Corruption Considerations into the Bank's Operational Work Supporting International Efforts to Address Corruption In an important shift from previous practice, the Bank now explicitly considers in its lending decisions the Mr. Wolfensohn's 1996 speech helped to focus global extent to which to the quality of governance and the attention on the problem of corruption. This attention magnitude of corruption affect a borrowing country's has resulted in better coordination among the interna- economy. As of January 1999, every Bank Country tional financial institutions and more sharing of infor- Assistance Strategy (CAS) is expected to examine gov- mation on all aspects of corruption. The five largest Helping Countries Combat Corruption 5 MDBs have established a joint working group to help have to be prepared for a long, hard struggle. In accor- coordinate policies and share information and the dance with its role as a development institution work- Bank has also strengthened its working relationships ing in poor countries that have weak controls and with the UNDP and bilateral donors. The Bank strong- capacities, the Bank can help and has helped to bring ly supports the OECD Antibribery Convention (and is corruption to the forefront of international attention an observer in the Working Group that developed and and is helping to confront the challenge corruption is monitoring it); contributed to the 1998 annual con- represents. But fighting the cancer of corruption is a ference of the International Organization of Supreme challenge not just for the Bank, it is a challenge for the Audit Institutions (INTOSAI), which focused on the entire development community-international finan- role of national audit offices in combating corruption; cial institutions and development agencies, civil socie- and played an important role in the founding of the ty, the private sector, and the public sector. If we all International Forum on Accountancy Development move forward with momentum, we have a real chance (IFAD), which facilitates the development of account- to make a difference. ing and auditing practices in developing and emerging Mr. Wolfensohn reinforced this point in October market countries. The Bank also works closely with a 1999, when he addressed the Ninth International Anti- number of NGOs, induding important human rights corruption Conference in Durban, South Africa, where groups, to develop a better understanding of how cor- more than 1,500 representatives of governments, the ruption undermines development and to improve our private sector, and international organizations shared strategy of fighting corruption at its source. country experiences and sought opportunities for fur- ther collaboration. In his address, Mr. Wolfensohn referred to the issue of corruption as key to the Bank's Conclusion: The Road Ahead work: So far as our institution is concerned, there is nothing It is two and one-half years since the Board of themoeiorattathisuofcrpin ............. A more important than the issue of corruption.... At World Bank endorsed the Anticorruption Strategy, and the core of the incidence of poverty is the issue of the Bank is just over two years into implementation of equity, and at the core of the issue of equity is the its Anticorruption Action Plan. In that short time, the issue of corruption... . Corruption has to be dealt attention given to governance issues inside and outside with by a combination of forces within a country. It the Bank has increased dramatically, the Bank's dia- can be assisted from outside. The Bank and other logue with its dient countries on these issues has organizations can help, but the real motive, the real engine, has to come from the inside.... There must become notably more open, and more than 600 specif- be partnerships; there must be coalitions for change; ic anticorruption programs and governance initiatives and so, we felt that, as an institution the best we could have been undertaken in almost 100 borrower coun- do was to try and assist in the building of the coali- tries (see Annex III). This is a substantial achievement. tions and in the forging of that interest in the issue of The Bank is proud that it has been able to play such corruption and inequity, and get it out there. a leading role within the development community in The chapters that follow detail the progress that the this area. Bank has made building each of the four pillars of its Corruption, by its very nature, will persist as a com- anticorruption strategy. plex and difficult problem, and the Bank and its clients 6 Helping Countries Combat Corruption Minimizing Fraud and Corruption in Bank-Financed Projects e World Bank has always had a strong integrity to development results and internal efficiency, Bank framework to ensure that loan funds are used for management presented to the Board a Strategic Com- * their intended purposes with economy and effi- pact in which management vowed to renew the Bank's ciency. Within this framework the borrower is respon- effectiveness in fighting poverty. Under the Strategic sible for project implementation, including the pro- Compact and a related cost-effectiveness review, the curement of goods, works, and services in a manner Bank identified the need to reform a number of key consistent with the Bank's policies, and for maintaining systems and processes, among them the Bank's fiduci- suitable financial management systems. The framework ary system. is outlined in Box 2.1. The Bank supervises borrower Endorsed by the Board on March 31, 1997, the performance. These arrangements aim at ensuring that Strategic Compact was an action plan to reorganize and the Bank takes only reasonable risks with respect to the reallocate the Bank's resources to correct identified use of loan funds given the capacities found in the weaknesses in its operations and to improve product countries that the Bank assists. Annex II provides a quality and service to dients. The Compact provided more detailed explanation of the Bank's integrity $250 million over a 30-month period to implement framework. changes aimed at strengthening the Bank's ability to fight poverty. Procurement and financial management were two Strategic Compact key areas where improvements in processes were need- ed and to which Strategic Compact funds could be As with any framework, the Bank recognized that the directed. This was because: effectiveness of its integrity framework needs to be con- *The impact of the change in the Bank's business stantly evaluated. In early 1997, in response to growing concerns that the Bank needed to pay greater attention over the last decade had been substantial. The Bank Helping Countries Combat Corruption 7 Management,PoueetanFiacaCorlsn Bank-Finane nvsmnt Projects ;02Q00 :0:t;;00l000 f0 0 0;0 The Banik works wit its borrowers from poect , accunti ng, ar desig through completion to ensure that nece ssay rqrmns managenent, procurement, and fin cial conttr:ols are in place it projects that it finances. 02 Ipnea and Supervision t1. Pr_c P_prain Aprisl and0SE\S\ APPIIW; *ED Procuremen mesre o maaeet, rourmntad Hoevr the ankmonitors and suprvises ithe rKfinniaontrols inproects for;Q whc ank implem0*enation o hs rangementsona on-; financing is sought. tin asis unti ; project and has * In appraising a project, the Bank indepdeently e l prcement guidelinesto ensure assesses the adequacy of the proposed arran transparent and competitive procurement Orac- ments for prject implementation, inicluing the tices. In addition, the Ban s recent ntro procurement and fitnnciamanaement 0 ducedspec rocurebmentasby texi r- arrangements, focusing i particular on the nal fir to samle of procurement insti alcapacity to carry out these anrange- withe Ban pro- ments, on the risi involved, anona plans curementguidines. to address any deficiencies. * n Fina :Managem:ent * The Bank proceeds to loan ndition whe er Bank-financed projects, the Bank reqtuires inter atia the procurement and financllm a hebo a t tmpl ng n- agement arrangements, inclding actions toita e te enhance procurement and/or financial manage- reporting, and ment ca are agreed between t Bank and e su e ensure that they the borrower. For procurement, the Loan Agree- can provide accurate and ti inrmation on ment refers to tie Bank's Procurement Ge- proect esources and enditures. Accountg lines, and specifies how they are to govern pro- information su t to the Bank must adhere curement procedures for the differet categories to accountigstandardscceptable to the Bank. and sizes of contracts r goods, works, nadd n,th and the project imple- related services. For financial mangment, the menting entities must proide to the Bank annu- Loan Agreement sets out the agreed arrange- alaui als of the project. ments for disbursing the loan and the financ0ia 8 Helping Countries (ombat Corruption BOX 2.1, continued :. 8 was no longer operating only in a world of large infrastructure projects, with large contracts in which oversight was relatively easy to exercise. Instead, it had moved increasingly to social, environmental, The responsibility for project implementa- and other new types of lending that, unlike the proj- tion, including the execution of the agreed ects of the earlier era, typically required numerous disbursement arrangements, rests with the small contracts. The Bank needed to find new mod- borrower. However, the Bank monitors and els that would allow it to cope better with the thou- supervises the implementation of these sands of small contracts that could not be cost-effec- arrangements on a continuing basis until tively supervised within its current way of doing project completion, including reviewing the business. relevant documentation in support of dis- ursemevnt. Thcumentior insrequiore to hol The Bank's internal capacity to deal with procure- any Special Accounts in banks acceptable to ment and financial management was eroding as the Bank. experienced and knowledgeable staff retired. The trend toward assigning generalists to specialized * Field Supervision work threatened to compromise quality in these Bank staff conduct field supervision mis- areas. sions about twice per year. In the conduct of * The Bank needed to move more aggressively in these missions, the Bank staff perform sam- assisting its clients to improve capacity-not just to ple post reviews of documentation support- ensure the observance of controls in Bank-financed ing withdrawals against Statements of projects, but as part of an overall improvement in Expenditures (SOEs) and Project Manage- ment Reports (PMRs), review the control environment that supports the preparation Over the term of the Strategic Compact, the Bank has of SOEs and PMRs, and perform post significantly increased the resources devoted to pro- reviews of procurement contracts and the curement, financial management, supervision, and procurement process that was followed. other key, core business processes necessary to main- tain a high standard of quality in project implementa- 3. Other Oversight FunKtions tion. Specifically, the Strategic Compact provided more than $30 million over a three-year period to increase Many other units throughout the Bank also the number of procurement and financial management proversidhtovera aitil lsev of contl ands o staff, increase the frequency and effectiveness of Coun- oversight over the use of Bank funds on try Procurement Assessment Reviews (CPAR), finance investment projects. These include the Inter- inesv pos reiw fpouemn otato nal udiing,Loa, an Leal Dparment; itensive post reviews of procurement contracts not nal Auditing, Loan, and Legal Departments; subject to prior review by the Bank, and support the thet Qulity Assrand ices Group; the PrOCu- financial management reform program. It also allowed mentwPoliy and SherOviersit Grou ithe oCn the Bank to spend more than $6 million in FY99 to NFtraud and CorrupthOeigh Committee on investigate allegations of corruption, and has further Fraud and Corruption. increased this funding to $6.9 million for FY00. After two full years of operation, the Strategic Compact's ini- Helping Countries Combat Corruption 9 tiatives are being integrated and mainstreamed into the material on anticorruption and the adequacy of con- Bank's normal business, thereby helping the Bank to trols in Bank-financed projects. Last, OCS is beginning carry out its mission of poverty reduction. to disseminate lessons learned from past corrupt activ- ities within Bank-financed projects, in order to raise the awareness of operational staff to the risks associat- Creation of the OCS Network to Ensure ed with the work of the Bank. Quality in Business Processes The Operational Core Services Network (OCS) was Financial Management Reform established in July 1997 to bring together those staff responsible for overseeing core business functions As noted earlier, project financial management was within the Bank, including the procurement, financial identified in the Strategic Compact as one of the core management (in cooperation with the Controller of functions in need of extensive improvement. Bank the Bank), and quality aspects of Bank-financed proj- management recognized that more emphasis needed ects; and to implement new processes in the areas of to be placed on borrower capacity building by financial management and procurement. Working strengthening financial management. The changing within the OCS Network structure, fiduciary and pro- mix of the nature of Bank-financed projects was mak- curement controls were strengthened and boards were ing it more and more difficult to adequately control the established for the oversight and review of financial potential for corruption in Bank-financed projects. management' and procurement' issues. The trend in lending had been for the Bank to move Acknowledging the importance of a strong system away from its traditional large infrastructure projects of controls and the assimilation of key business toward more decentralized, social sector projects processes into the project cycle, Bank management ele- involving hundreds of small contracts and requiring vated the head of the OCS Network to the rank of vice that disbursements be made increasingly on the basis president, effective February 1, 1999. This helped of Statements of Expenditures. emphasize to staff the importance that management To help compensate for the increased risks from was placing on an integrated system of financial man- the changing nature of Bank-financed projects, Bank agement, procurement, and supervision oversight, and management revised its policy on financial manage- on the quality assurance processes developed by OCS. ment" in August 1997 to reestablish the importance of Further, recognizing that corruption issues poten- strong financial management, with particular empha- tially involve all facets of the Bank's core business sis on accountability and safeguards at the project processes-procurement, financial management, and level. Subsequently, LACI was endorsed by the Board supervision-in June 1999 OCS added two staff mem- in July 1998 to further strengthen financial manage- bers to serve as a focal point in the Bank for sharing ment, principally through assessments of project knowledge on the design of projects to help prevent or financial management systems. Those assessments detect instances of corruption. include reaching agreements with the borrower on OCS works closely with the Poverty Reduction and measures to ensure that adequate financial manage- Economic Management (PREM) Network on issues ment systems are in place for project implementa- relating to the anticorruption agenda. It is also working tion." LACI introduced a new integrated project mon- to reform the Bank's training program to include more itoring system that brought together project financial 10 Helping Countries Combat Corruption management, disbursement, procurement and con- Strengthening the Bank's Internal Governance Struc- tract management, and physical progress through the ture. This has focused on: use of Project Management Reports (PMRs). It also u Defining the roles and responsibilities of all Bank introduced a forecast-based method of disbursing units involved in project financial management. funds by periodic advances to a project special account Financial Management Specialists must evaluate the based on PMRs. status and acceptability of project financial manage- The financial management strategy called for a bal- ment systems as part of the appraisal process, and anced approach emphasizing both the Bank's fiduciary must monitor the continuing adequate functioning and developmental responsibilities, and comprised the of the system throughout project implementation. following core principles. It specified that: * Ensuring that the financial management function is supThet Bankr wffould coloratenthen borrowers mand undertaken and managed by a sufficient number of supporcaaciyt theireffort t rojsrengthe fnanal man -qualified staff, that there is clear accountability, agementry capacity at the project as well as atthe and that financial management staff are adequately country level. trained and operate in an environment of cross- * Borrowers were to ensure that appropriate financial functional teamwork. As a result of the Strategic management systems are in place to effectively Compact, the Bank increased the number of finan- implement projects. cial management staff from a low of 25 to 78 in FY99. L2 - Borrowers would be able to request disbursement against loans on a quarterly basis for eligible expen- Augmenting Client Capacity. This constitutes a major ditures on the basis of borrower PMRs. thrust in the financial management strategy at the project and country levels: The plan for implementing these adjustments called Assessments carried out as part of the preparation for action in three areas: of each new project identify specific needs, such as Improving the Financial Management Process. This development of borrower internal control and has involved major shifts at several levels: accounting systems, training of financial manage- ment staff, and computerization of financial man- : Shifting project financial management work agement systems. Technical assistance is usually upstram, ith n-deth asessmnt o borower offered to the borrowers as part of project prepara- capacities at the preparation stage to ensure that the on to ensurerthatrbas finacia manaement borrower will have the required capacity in place to manage and report on the use of project funds. systems are in place prior to the loan becoming effective. * Rationalizing disbursement mechanisms through * At the country level, new diagnostic instruments the use of PMR-based disbursement. have been piloted. Country Financial Accountabili- * Requiring regular PMRs by the borrower on the use ty Assessments (CFAAs) and the abridged format of of the project funds, regardless of the disbursement Country Profiles of Financial Accountability method. (CPFAs) are being carried out to diagnose problems in the private and public sector financial manage- ment systems of the country and regulatory frame- Helping Countries Combat Corruption 11 work. In addition to their role as fiduciary diagnos- Supervision of the financial management systems tic tools at the country level, CFAAs and CPFAs also during project implementation is another important serve to identify a country's financial management element of the overall project financial oversight mech- development needs, with the objective of support- anisms. This matter has been given significant atten- ing such needs through the use of Bank assistance. tion, particularly since the Regions'3 now employ core The CFAAs and CPFAs are discussed in greater financial specialists to oversee the appointment of proj- detail in Chapter 3. ect auditors and to review and follow up on audit Implementation of LACI (recently renamed the Finan- reports. In a typical year the Bank receives more than cial Management Initiative orFINMIisc2,000 audit reports. Although not all audit reports are cial~~~~~ ~~ MaaeetIiitv,o'IM)i urnl received on time and the quality of audits and of audit under way. An assessment of LACI's first year of expe- reprsves onsideraby the wide oveage of audit rience identified areas both of success and of difficulty. The first year of implementation of the initiative has in the messages contained in audit reports, and the gener- al deterrent effect resulting from audits provide a line fact been marked by important successes: building up a of defense against corruption. Future action includes critical mass of financial management professionals m improvements to interal audit tracking systems to the Bank; putting in place procedures to ensure fiduci- ' ~~~~~~~~~~~ensure appropriate follow-up. ary requirements are met on new projects; assisting borrowers to build their institutional capacity; and mainstreaming financial management work as an inte- Procurement Reform gral part of the Bank's development objectives. In par- ticular, significant progress has been made in ensuring As part of the Strategic Compact, the OCS Procure- compliance with the operational policies covering ment Board conducted an assessment of the Bank's financial management. performance in the area of procurement, leading to an There have also been some important areas where assessment of emerging needs in the implementation difficulties were encountered; for example, the roll-out of procurement reforms. The assessment provided a of the new financial management assessment proce- candid analysis of weaknesses in the Bank's capacity, dures came late in the project cycle for many projects, and of opportunities and chalenges posed by changing leading to many which required additional work before external demands. It proposed a balanced strategy that loan effectiveness could trigger loan disbursement. would emphasize both the Bank's fiduciary and devel- Also, because some dients were not convinced of the opmental responsibilities. Actions were planned in four value of the new PMR-based disbursement, application areas: of this has been slower than anticipated. The review of first-year progress concluded that the Bank will need to Strengthening of the Bank's internal capacity be diligent if it is to ensure that financial management through hiring and training. and accountability issues remain a priority. Important Improving processes and instruments, including next steps are enhancing procedures and tools, (a) providing carity on the handling of investiga- strengthening implementation monitoring, and out- tions of corruption and (b) publishing sanctions reach to borrowers and Bank staff. In particular, the against bidders who have engaged in fraud, misrep- format and content of the PMR will be reviewed with a resentation, or corrupt practices under Bank- view toward achieving a balance between standardiza- financed projects. tion and flexibility. 12 Helping Countries Combat Corruption * Augmenting client capacity. processed for Burkina Faso, China, Cote d'Ivoire, Ghana, Kenya, Thailand, and Vietnam. Under prepara- tion are the Arab Republic of Egypt, Senegal, the West Bank and Gaza, and Yemen. Due consideration is given This section covers the first two areas. The last two are to the professional procurement capacity available in the local office, the general procurement environment Strengthening the Bank's Internal Capacity. Internal in the country, and the past performance of procure- capacity to carry out procurement has been strength- ment under Bank-financed contracts. Reviews that ened through recruitment and through the training of need clearance by the Regional Procurement Advisors existing staff in new skills. In procurement, 36 addi- have not been delegated. The delegation of these fidu- tional specialists and 11 analysts and assistants have ciary responsibilities will be reassessed annually and been hired since 1997. In addition, task team leaders can be revised upward or downward in accordance and technical specialists now must go through an with results and the performance of the field offices. accreditation process to qualify for procurement work: Decentralizing procurement staff has also to date, some 200 staff have been accredited as pro- improved response time and dialogue with borrowers curement proficient." While the initial target of 50 and the business community. Furthermore, the avail- additional specialists to be hired under the Compact ability of staff in the field permits closer supervision has not been met, the most recent estimates of gross and increases the opportunities to address procure- staff needs, taking into account the 200 accredited staff, ment issues before they become major problems. indicate that the Bank has made good progress toward It is essential that efforts to help countries reduce achieving the coverage anticipated under the Compact. corruption be complemented by internal efforts to The challenge now is to focus on hiring staff who can maintain the highest ethical approach to procurement. bring in new skills, such as procurement institutional Accordingly, a special Code of Ethics for Procurement capacity analysis. Staff was issued in April 1998 to reiterate to staff han- Staff training, for both specialists and non-special- dling procurement in Bank-financed projects the ists, has been overhauled and modernized with the importance of the Bank's Code of Professional Ethics assistance of the WBI. The number of staff trained and to provide a motivating spirit or force in the annually since the Compact started has more than day-to-day ethical behavior of the staff. In addition, doubled. the Bank's accountability framework was tightened, Another important procurement reform has been and now includes clear escalation rules for decisions the decentralizing of procurement staff to key field in instances when Country Directors disagree with offices. Delegation of fiduciary responsibilities to some the technical opinion of financial or procurement spe- field offices has taken place gradually in accordance cialists. with a framework that reduces risks by ensuring that Streamlined Processes and Instruments. Over the last the right levels of skllls, among other criteria, are in place. Partial delegation of fiduciary responsibilities has thre years th B hput ito placene ure- ment guidelines to improve its ability to ensure that been approved for Argentina, Bangladesh, Brazil, loan funds are used for their intended purposes, with Bolivia, Bosnia and Herzegovina, Hungary, India, Indoesia Mexco, akisan, ussi, Tukey,and economy, effficiency, and transparency. First, in 1997 a,rkey bing the Board of Directors approved amendments to the Ukraine. Reviews of requests for delegation are being operational policies that govern borrower procurement Helping Countries Combat Corruption 13 to make explicit the actions the Bank will take to deal capacity at the project and country level. At the project with allegations of fraud and corruption against bid- level, a new methodology for capacity assessment and ders, suppliers, and contractors.'5 These guidelines also determination of project design (including the setting require that borrowers include specific anticorruption of thresholds for prior and post reviews based on risk) undertakings in their contracts with suppliers and con- was developed. This was introduced in FY99, and staff tractors. In addition, Bank management issued instruc- have made good progress in the use of this new tool. tions in January 1998, subsequently amended in The Procurement Board periodically reviews experi- November 1999, that set out internal procedures for ences so as to share best practices and to amend the tool handling allegations of corrupt or fraudulent practices. based on experience. At the Country level, a new-style The revised guidelines state that it is the Bank's policy CPAR was developed to help guide borrower procure- to require that borrowers, as well as bidders, suppliers, ment reform programs. This is discussed more fully in and contractors under Bank-financed contracts, Chapter 3. observe the highest ethical standards during the pro- To help improve staff understanding of procure- curement and execution of such contracts. ment requirements, the Bank has issued several key pro- As part of the new strategy, the Bank focuses on curement guidance documents. Table 2.1 identifies the improving the diagnosis of borrower procurement key procurement instructions issued as of June 2000. TABLE 2.1 Procurement Instructions Issued as of June 2000 New CPAR Procedure 06/01/98 Methodology to carry out country procurement work; diagnosis of national and subnational procurement systems; evaluation of risks and formulation of reform plans. Assessment of Agency's Capacity to 08/11/98 Instructions and methodology to carry out implementation of agency procure- Implement Procurement; Setting of Prior ment capacity reviews; to assess risks; to prepare risk reduction plan and Review Thresholds; and Procurement supervision plan, including setting of prior review thresholds, based on risks. Supervision Plan Interim Instruction on Staff Review and 03/18/99 Instructions resetting the responsibilities and accountabilities of staff and Clearance Procedures for Procurement managers on procurement. Decentralization of Procurement Work 09/16/98 Instructions and criteria on how and under which circumstances delegation is possible and how to process it. Accreditation and Decentralization 03/10/99 Instructions and criteria to be used to accredit unlisted TaskTeam Leaders and/or technical specialists to perform procurement work. Hiring Government-Owned Universities, 8/19/99 Instructions on hiring of government-owned universities and research Research Institutes, Government Officials institutes, and hiring of government officials in the borrower's and Academic/Research Staff as country as consultants in Bank-financed contracts. Consultants in Bank-Financed Operations Selection and Employment of Consultants 11/16/99 Reminders to Bank staff about the policies and procedures related to the for PHRD Technical Assistance Grants selection and employment of consulting firms and individual consultants for PHRD grants and specifications related to the use of Bank Policy AMS 15.00. Guidance Procurement Note on Handling 6/8/00 Guidance Procurement Note on Handling Procurement Under Shopping Method Procurement Under Shopping Method elaborates on Paras 3.5 and 3.6 of the Guidelines with a view to provide for re- quired transparency and record keeping for verification and audit of transactions. 14 Helping Countries Combat Corruption As noted earlier, the Bank supervises borrower pro- Additional work is under way to further improve the curement contracting at different levels of intensity, compliance of Bank teams with the requirement for depending on the risks involved. The largest contracts post reviews. Table 2.2 summarizes where these special- are subject to prior review by the Bank. This means that ized audits have been conducted. the Bank is consulted at key points in the bidding process to ensure that the borrower is carrying out the TABLE 2.2 contracting in accordance with the Bank's guidelines, Summary of Special Procurement Audits in FY99 and in particular with due reference to economy, effi- ciency, fairness, and transparency. Depending on the1 nature and size of the bid, the Bank may review the AFR 30 Angola, Cameroon, Chad, Ghana, procurement process at up to three points, and the bor- Malawi,Tanzania rower cannot go ahead with the contract until the Bank EAP 8 China,Thailand, Indonesia formally issues a "no-objection opinion" on the con- ECA 6 Romania, Russia,Turkey tract. Bidders have the opportunity to complain during LCR 1 4 Argentina, Brazil, Colombia, Mexico, this process, and these complaints often serve to alert Paraguay, Peru,Venezuela the Bank of problems that may be related to corrupt MNA 3 Yemen,the West Bank and Gaza, practices. The Bank seeks to address these problems Egypt before the contract is let, thereby helping avoid corrup- SAR 4 Bangladesh, India, Pakistan tion or inappropriate practices through up-front detec- tion. As part of its prior review program, in FY98 the Twenty-six specialized audits were completed in Bank reviewed 10,430 contracts, with a total value of FY99. As a result of these audits, 22 instances of mis- $9.5 billion. procurement were identified, with a total contract value Increasingly, the nature of the Bank's business has of $37 million. The Bank finances annually an estimat- turned to smaLler, decentralized contracts that are not ed 45,000 contracts, totaling approximately $25 billion cost-effectively handled through prior review. These are to $40 billion. The audits have provided detailed knowl- usuaLly small contracts subject to local competitive bid- edge on some weaknesses or poor procurement prac- ding processes, often in the local language. The Bank's tices of borrowers that has been used to take corrective practice caLls for these to be reviewed on a sample basis action, to refocus supervision of post review contracts by Bank staff through ex-post review. Poor compliance more selectively, and in several cases to declare mispro- by Bank staff with this requirement was addressed curement. The audits also provided certain information under the Compact: first, the requirement to have a pointing to potential fraudulent or corrupt practices procurement-accredited staff member on the project that were subsequently investigated. team has enhanced accountability for this task; second, the creation of capacity in large country-based offices has helped systematize these reviews; and third, the Monitoring and Evaluation Bank has intensified post review of procurement since FY98 through ex-post procurement audits carried out Bank management has been working in close collabo- by firms or other specialists retained by the Bank. This ration with the Audit Committee of the Board on the is a major improvement over the situation before FY98, quality of the Bank's procurement policies and finan- when only a few post reviews took place every year. cial management. Since FY98, Bank management has Helping Countries Combat Corruption 15 provided an annual report to the Audit Committee on ment specialists in the Bank. Support by sector boards the status of the Bank's progress toward improving for quality enhancement of supervision had also procurement and financial management. Bank man- improved. agement has also turned to its oversight units for addi- tional review of its compliance with procurement and 3ABL" 2.3 QAG Rapid Supervision Assessment financial management procedures. In FY99, reviews - 7 ------------------- ____ were conducted to verify compliance with policies and u procedures and to assess how well operational staff and Procurement 88% 90% 94% managers were discharging their procurement respon- Financial Management 77% 68% 81% sibilities. The reviews concluded that at the corporate Overall Bank-wide Rating 63% 76% 82% level there had been progress on all fronts in meeting objectives, but that although internal controls had improved, one needed to improve performance with Dealing with Allegations of Corruption in ex-post audit requirements. This check triggered cor- Bank-Financed Projects rective action, and is leading to reviews by all of the Bank's Regional Vice Presidencies of their compliance Bribery and extortion are consensual offenses in pub- record. lic procurement, and corruption cannot always be The Quality Assurance Group (QAG) has also detected by normal preventive controls over procure- noted an improvement in the overall quality of the ment and financial management operations. In order Bank's portfolio. In its FY99 Annual Report on Portfo- to strengthen the Bank's overall control framework, in lio Performance, QAG noted improvements in the May 1998 an Oversight Committee on Fraud and strengthening of operational core services, especially Corruption (Oversight Committee) was established, of financial management and procurement. Specifical- with responsibility for ensuring a thorough, prompt, ly, the quality of the Bank's overall supervision had and responsible investigation of allegations of corrup- improved from 76 percent satisfactory in FY98 to 82 tion involving Bank staff. In October 1998, this percent satisfactory in FY99. Among the Regions, all responsibility was broadened to include the supervi- had made major improvements in supervision quality sion of all investigations of fraud and corruption since FY97, with the East Asia and Pacific Region within the Bank Group or in connection with Bank achieving and the Middle East and North Africa and Group-financed contracts. Fraudulent or corrupt South Asia Regions surpassing the objective of 85 practices include the solicitation, payment, or receipt percent satisfactory supervision in FY99. QAG also of bribes, gratuities, or kickbacks or the manipulation noted that older projects are now supervised as well as of loans or Bank-financed contracts through any form more recent projects, and that there has been impor- of misrepresentation. Fraudulent or corrupt practices tant progress in carrying out satisfactory supervision also include any situation in which staff members of projects at risk. Table 2.3 shows this improvement. have abused their positions or misused Bank funds or In fiduciary areas, progress was also noted in the other public funds for private gain. The Oversight supervision of financial management, rising from 68 Committee includes representation from IAD, the percent satisfactory in FY98 to 81 percent satisfactory Legal Department, and the Business Ethics and in FY99, mainly due to greater awareness of this area Integrity Department (BEI), and is chaired by a Man- and to an increase in the number of financial manage- aging Director. 16 Helping Countries Combat Corruption A Secretariat supports the work of the Oversight or to request that their names be kept confidential. Committee and ensures appropriate follow-up on all Given the importance of this function, the Bank matters reported to the committee. The Bank hired a hired the firm of a former U.S. Attorney General and former U.S. federal prosecutor to act as Secretary to the Deputy Under Secretary to the United Nations to con- Oversight Committee and the investigations function duct a review of these arrangements for detecting, has been strengthened with the recent hire of two addi- investigating, and sanctioning corruption in the Bank. tional investigators and three attorneys, all with con- The review is expected to lead to further improvements siderable experience in investigating fraud. Specialist in the organizational arrangements of the Investigative forensic auditors and a legal counsel are also retained as Unit and its governance. needed to assist in complex cases. To help ensure that allegations of fraud and corrup- tion are reported, the Bank established in October 1998 Sanctioning an international telephone hotline with multilingual capabilities, which operates 24 hours a day seven days a In 1996, the Bank approved new measures intended to week. It is available to Bank staff and the public."6 In fight fraud and corruption in Bank-financed projects. response to limitations identified in the course of an Subsequently, in November 1998, the President external review conducted by the GAO in September appointed the members of the Sanctions Committee, 1999, the hotline was improved with the addition of a who at present are as follows: two Managing Directors, collect-call number for areas where the AT&T number two Vice Presidents (including the Vice President, did not work."' The hotline is operated under contract Operational Core Services), and the General Counsel. with the Pinkerton Company,18 using the strictest stan- The Sanctions Committee has met on a number of dards of confidentiality to allow callers the option of occasions and is now developing a consistent body of remaining anonymous. All hotline reports are turned decisions (recommendations to the President) pertain- over to the Oversight Committee. As of March 14, ing to the debarment of firms and individuals found to 2000, the Bank had received 156 calls through the hot- have engaged in corrupt or fraudulent activities. In line. The Bank is working to make the hotline better order to ensure consistency with Bank procurement known throughout the development community in policies and practices, the Sanctions Committee's Sec- order to enhance its effectiveness. retariat is located in the Legal Department, Legal Pro- The Bank has also established several additional curement Adviser's office. Where the evidence has mechanisms to allow Bank staff or the general public to shown fraud or corruption, following the recommen- report allegations of fraud and corruption. These dation of the Sanctions Committee, the President has include an e-mail hotline address,1' an electronic form declared firms ineligible from being awarded Bank- to submit complaints directly to the Bank via the Inter- financed contracts. net,20 a telephone number at the Bank staffed during The Bank's investigations have yielded results in working hours,2' a system of pagers to contact investi- several different areas. For example: gators directly,22 and, for those individuals who do not The Bank has decared 44 firms and 10 individuals have access to a telephone or do not wish to communi- ineligible for the award of Bank-financed contracts, cate by telephone, a drop-box to mail in allegations.23 In for varying periods of time. One other firm has been all cases, this network for reporting allegations has issued a letter of reprimand but remains eligible for been designed to enable callers to remain anonymous Helping Countries Combat Corruption 17 Bank contracts. In all, as of June 1, 2000, of the 54 In November 1998, the Bank appointed a new firms and individuals declared ineligible for Bank- manager for BEI, bringing long-term experience of the financed contracts, 48 are debarred permanently private sector and ethics programs to the position. In from future Bank-financed contracts. addition, BEI was enlarged and its professional capaci- October 1997, the Bank filed a civil lawsuit against a ty strengthened during FY99 through the hiring of pro- fessional investigators and an Outreach Coordinator former Bank staff member and an outside contractor fesoainstgoradanOracCodntr formeraud, Bankstiraffme and beanh out contractor T for communications and training. The objective gov- for fraud, conspiracy, and breach of contract. The Bank obtained judgments against all of the defen- erning these changes has been to bring the BEI into line with the latest thinking about organizational ethics and the best practices of the world's leading institutions. In September 1998, two staff members were terrmi- BEI reports directly of the Office of the President, thus nated for the misuse of approximately $110,000 of ensuring independence and unfiltered access to the trust funds. President. It also participates in the Oversight Com- mittee. In 1999, BEI conducted more than 290 investi- The Bank is the first regional multilateral development bank to have made it policy to publish on its external gations of alleged staff misconduct. . . ~~~~The specific elements of BET's program that help web page the names of firms and individuals found to combat corruption include: have committed some form of fraud or corruption. This is done both for information purposes, i.e., to Ensuring that the Bank's Guiding Principles, Values, allow borrowers to update the list of ineligible bidders and Code of Professional Ethics are clearly commu- that should be denied Bank-financed contract awards, nicated to provide broad and specific guidance for and as a strong and effective deterrent on the business staff. Living our Values,2" the Bank's Code of Profes- community. In addition, management has used the sional Ethics, was updated and launched on Decem- Bank's internal kiosk communications system to regu- ber 8, 1999, and has been translated into seven addi- larly update all staff on the status of various investiga- tional languages and dialects (French, Spanish, tive initiatives. Russian, Chinese, Arabic, and two Portuguese dia- lects). The Code addresses conflicts of interest, out- side activities, use of assets, handling of private data, Business Ethics and Integrity bribery, kickbacks, gifts, fair treatment of staff, and other issues. It has been distributed to all Bank staff The BEI contributes to the successful implementation at Headquarters and in country offices. of the World Bank's anticorruption plan by promoting high standards of performance and conduct of Bank *Ensuring that supervisors and managers have the staff. It is an important component of the Bank's anti- skills, knowledge, a ancompetencies to make deci- corruption strategy, embracing clear, workable policies sions that are sound and legally grounded. In 1998, and procedures and a set of desired behaviors and atti- the Bank launched a program of Integrity Aware- tudes. Underpinning the Banks strategy is the principle observe high standards of personal integrity. By of transparency and the promotion of an open, positive osrve high stanars of pen integt By work environment. March 2000,48 seminars had been conducted, com- prising 34 in Washington, D.C., for about 1,000 18 Helping Countries Combat Corruption staff, and 14 in country offices, including Beijing, adjudication as a last resort. The proposed system Manila, Jakarta, Bangkok, and Hanoi; in Johannes- aims to prevent conflicts from escalating into seri- burg for staff from 45 resident missions in Africa; ous situations and to address those conflicts that do and for staff in Paris, Sarajevo, and Budapest. Plans become serious with greater transparency, speed, are under way to conduct seminars in Latin Ameri- and due process for all parties. ca and Eastern Europe. Ensuring that formal communications mechanisms External Independent Review such as helplines and hotlines are available to report suspected instances of improper conduct, that staff The improvements that the Bank has made over the are encouraged to make such reports, and that dis- past three years to its system of management controls ciplinary and corrective actions are taken in over investment lending activities was recently the sub- response to improper conduct. To enhance access ject of an independent external review by the GAO. It by field-based staff and other staff outside Bank was encouraging to note that two of the GAO's key headquarters in Washington, D.C., in 1999 BEI findings were that the "Bank has undertaken an ambi- launched its Ethics HelpLine.25 An ethics web page, tious and systematic effort to identify and correct key also unveiled in 1999, includes frequently asked weaknesses in its system of management controls" and questions (FAQs) on conflicts of interest, outside that "significant progress has been achieved." The GAO activities, computer usage, and private data, and further noted the many steps that the Bank has taken to provides two ways for staff to ask questions and to strengthen its internal control activities, including report allegations of misconduct through a secure those covering financial management, procurement, e-mail address.26 and supervision. The report made a number of specif- Ensuring that Bank policies and procedures govern- ic recommendations that are very much in line with the ing the general obligations of Bank staff and disci- program of reforms under way in the Bank since 1997. plinary measures when misconduct occurs meet the The report also points to the remaining challenges highest standards of the profession. In November facing implementation of the changes that have been 1996, the Bank's staff rules were strengthened to introduced over the last three years to strengthen con- include mandatory termination for staff who trols. In this context and in line with the GAO's recom- engage in the misuse of Bank funds or who misuse mendations, the Bank is acting to: their position for financial gain. A new section was Examine ways to strengthen the independence of added on the reporting of fraud and corruption that the investigative functions. addresses confidentiality and anonymity. In addi- tion, sections on conflicts of interest were revised. * Make the reporting of risks more explicit in project The new Harassment Guidelines put out by BEI documents and CASs, and to adjust supervision indude sections on retaliation and confidentiality.27 intensity to be commensurate with risks. A new grievance process that emphasizes the role of Take steps to better allocate anticorruption assis- informal dispute resolution has been developed and tance on the basis of risk using existing processes, in was implemented in FY00. The new process empha- particular through monitoring closely the require- sizes the use of dialogue and mediation, reserving ment that every CAS discuss governance issues. Helping Countries Combat Corruption 19 * Take measures to improve monitoring tools. suggestion from GAO and this report is in fact a first step in response to that recommendation. It is also comPutntogthern evenram more fntiorus and cfohesi worth noting that the Bank already has a public web site that contains an extensive array of information on In addition, and in line with the report's recommenda- the anticorruption activities of the Bank. The generally tion, the Bank is taking the initiative to introduce reg- supportive findings of GAO will enable the Bank to ular progress reports on anticorruption activities and move forward with even more confidence that it is to make those reports public-this was a constructive headed in the right direction. 20 Helping Countries Combat Corruption 4 V Helping Countries That Request Assistance T he Bank's primary goal is poverty alleviation and tor institutions, and thus focuses on underlying eco- economic development, and addressing the prob- nomic and institutional reform: lem of corruption in client countries is increas- Economic policy reform remains an important pil- ingly seen to be at the heart of the development chal- lar in this effort polcy reforms that simplify rules lenge. Corruption leads to misguided resource and regulations, eliminate monopoly power, reduce allocation, excessive government intervention, and the discretionary authority of public officials, inadequate service delivery. High levels of corruption and/or increase the transparency and accountability deter private sector investment, slow growth, and can of public processes and institutions will also help to hamper poverty reduction efforts in numerous set- reduce corrupt practices. tings. Just as it became evident in the 1980s that poten- tially good projects often fail in poor policy environ- Administrative and civil service reform is a second ments, so it has become evident in the 1990s that critical pillar of the strategy: government structures policy reforms are less likely to succeed when public and pay and employment policies need to provide institutions and governance are weak. For these rea- the incentives to promote honest and accountable sons, an important part of the Bank's anticorruption behavior on the part of civil servants. Decentralizing strategy is its commitment to help countries that government to move government closer to citizens request assistance in combating corruption. and thereby to empower citizens is now a major Figure 3.1 outlines the Bank's multipronged strat- component of the administrative reform agenda in egy for combating corruption, illustrating the range of many developing countries. Of course decentraliza- Bank work and providing examples of activity areas tion, in and of itself, is not necessarily empowering; under each of five broad headings. The Bank views careful consideration is needed in the design of corruption as a symptom of dysfunctional public sec- decentralization programs to ensure that govern- Helping Countries Combat Corruption 21 ment accountability is enhanced as part of the and increasing the availability of data for monitor- process. ing government performance is a fifth pillar of the strategy. New and innovative uses of the internet *Improving the functioning of legal and judicial 5sys- and other forms of information technology to dis- tems is a third pillar of the multipronged strategy, because well-functioning legal institutions are criti- seminate information on public spending and pro- curement, judicial decisions, regulatory activities, cal to enforcing the rule of law and providing and data on service delivery can also help to foster external monitoring and improve accountability * Improving public expenditure and financial man- and performance. agement in government is a fourth pillar. Efficient, Institutional reform and capacity building in the pub- accountable, and transparent revenue raising, budg- lic sector will succeed only when it is "owned" within eting, accounting, expenditure management, and the country and driven by a country's leaders, with auditing processes are essential for effective govern- participation and input from the legislature, the ment. private sector, and civil society. The Bank's role is to * Finally, strengthening public oversight and other support our clients-both committed leaders and external accountability mechanisms (including their citizenry-and provide assistance and advice to oversight between branches of the public sector) help them succeed. It is important, however, for the Bank to understand the politi- cal economy of a country, to FIGURE3.1 MultiprongedStrategyforCombatingCorruption recognize where efforts at reforms might have a chance and where they do not, and to allocate resources according- ly. In countries with strong domestic leadership and sub- stantial capacity, the Bank's main contribution to public sector reform may well be through policy advice and technical assistance for further capacity building in public sec- tor management. In other set- tings more of a "demand-side" approach may be appropriate, focusing on activities that * Ovif ot$eym$m~sRihelp build transparency and momentum and consensus for change. Determining the best 22 Helping Countries Combat Corruption strategy in any particular setting inevitably requires Diagnostic Tools working with our clients on a case-by-case basis to understand the situation on the ground, consider One of the key contributions of the Bank in the anti- alternatives, and come to a balanced and informed corruption and governance area has been the develop- judgment. ment and application of a constellation of diagnostic The Bank's toolkit for assisting clients who request and analytical tools designed to illuminate the actual help consists of several interrelated elements. Diagnos- workings of government institutions and processes; to tic tools help raise public awareness about the nature diagnose the causes, nature, and extent of corruption, and extent of corruption and thus help set priorities. and to help with the design of programs of interven- Workshops and other collaborative processes aim to tion and assistance. While these instruments have build coalitions of civil society, government, parlia- somewhat different purposes, each is an important tool ment, the private sector, and the media to provide the to help the Bank and client countries deepen their basis to improve the institutional environment. Final- knowledge of governance settings and the constraints ly, investment and adjustment loans and Institutional and opportunities that these settings provide for devel- Development Grants provide organizational and opment in general and Bank work in particular. financial support for the design and implementation Institutional and Governance Reviews (IGRs) are of reform programs, often in partnership with other a family of analytic instruments now being developed donors. Annex III provides an inventory of gover- and piloted. They are designed to bring a greater focus nance, anticorruption, and public sector institutional on and understanding of governance arrangements in reform activities undertaken in the two and one-half the public sector and their link to public sector years since the adoption of the strategy. The growth in performance. In-depth IGRs have been completed for the number of governance components in our loans Armenia (see Box 3.1), Bangladesh, Bolivia, and and the 600-plus entries in the inventory demonstrate Indonesia, and between five and seven others are the major expansion in anticorruption activity that under way in various Regions. In addition, numerous has occurred in the Bank in the past three years. other initiatives in this family of products-including All Networks and Regions in the Bank are active in diagnostic anticorruption surveys of citizens, firms, implementing the governance and anticorruption and/or policymakers-are being undertaken in several agenda on the ground, but responsibility for overseeing other countries (see below). These efforts differ the second, third, and fourth levels of the Bank's strat- significantly from each other because each is designed egy lies primarily with the Public Sector Board in the around specific country circumstances and the needs PREM Network. The Board is chaired by a Director of country teams and client countries. They none- and comprises representatives from each of the Bank's theless share the common goals of (1) focusing on six Regions, the WBI, and the Development Research performance by beginning with a problem (such as Group. By induding representation from each of these poor service delivery, corruption, or bad economic different vice-presidential units, the Board is able to policies) and tracing its governance roots; (2) working take a cohesive Bank-wide approach and to ensure with clients to use empirical methods and diagnostic extensive cross-regional collaboration and knowledge toolkits (including analysis of political economy sharing. issues) to understand current governance realities in the country concerned; and (3) using this deeper understanding to help shape feasible and effective Helping Countries Combat Corruption 23 programs of institution building for client countries and the Bank. The pilot IGRs focus on major problems of gov- A P na ernment performance in one or more of three arenas: Re iAeia e Policymaking. How can governments reform their i0rmenia is the first country in t p and policymaking institutions in order to generate poli- e t u e an nsuta cies that are more conducive to robust and equitable and rnance Review t R Nnewl tak economic growth? f the fre Sot U me w * Service delivery. What governance problems under- immediate confronted with acute nma lie poor service delivery? How can governments nomic instabitandaseverelyd reform institutions to improve public service deliv- posi0:tion. 00000 : 0 00000000000 00t 000 $00;f00;0 refry? WhiletuthensGRodrawsoonalreadysprblishedland ery? Vf000 t,f * Accountability. How can the accountability of pub- g lic officials be enhanced and corruption reduced? nlssadi netkn uvy fpbi fi Anticorruption Surveys of citizens, private firms, and noffiials policymakers-sometimes carried out in tandem with on ptsrto cd r in-depth IGRs-have grown rapidly as a tool for gov- tion, dget m ernance analysis. The aim of such surveys has been to eon their u f an measure the economic and social costs of corruption, sft w ses. T bra the quality of public service delivery and of the busi- da e ion cross- ness environment, and to identify public sector vulner- c t r hbet abilities. This sort of empirical approach focuses the deivery policy debate on institutions rather than on individu- p the i onf als, identifies reform priorities, and establishes bench- i po marks for measuring the effectiveness of future ec of h reforms. WBI and Europe and Central Asia Poverty vertical a b mechanisms. Reduction and Economic Management pioneered the The IGR fso ur:bexpen- use of anticorruption surveys in the ECA Region in dum g nciecero,ly FY98, and anticorruption surveys have been or are a r wit being undertaken in numerous other countries (over puha n to cd 20 in total as of December 1999) and Regions in FY99 ery in In- and FY00 and have helped generate a momentum in fro t ll i client countries to act on the specific patterns of cor- theCtry A tr y it to ruption; they are contributing to a worldwide data set adsisti n c . me that complements such worldwide surveys as the World d f Business Environment Survey (WBES). a t fai 24 Helping Countries Combat Corruption FIGURE 3.2: Examples of Results of Surveys of Figure 3.2 shows two examples of recent survey Citizens and Public Officials results, the first example showing citizen ratings of public services and the second showing the percentage Latvia: Report Card of Government Services of public servants who are believed to have "pur- Post Office chased" their positions. Results of these types of sur- State Educational veys inform a policy dialogue that aims to design effec- Institutions Office of tive anticorruption strategies. They help to give SocialBenefits concrete substance to the rhetoric of anticorruption. HealydthSerisid Furthermore, they can encourage greater participation andcitizenship of civil society in governance and anticorruption Prosecutor efforts, as representatives from government, civil socie- ty, and the private sector are invited to workshops to discuss survey results and help formulate action plans Courts to address any problems identified by the survey. Sur- Local Housing veys and workshops can thus raise awareness of gover- Authodqty Poice nance issues, build consensus, and identify priorities regarding reform programs. 0 10 20 30 40 Public Expenditure Reviews (PERs) have tradi- percent giving favorable rating tionally been the most common analytic instrument for economic and sector work in the area of public sec- tor reform. PERs vary significantly from country to Purchasing Public Positions: Officials'Perception country, but in general their focus has been primarily Customs on budget structure and composition and on processes Inspectors of public expenditure management, with some atten- InspecTors tion additionally paid to more general public sector Natural Resource issues. Over the last 10 years PERs have increasingly Lkensers _ focused on institutional issues such as budget manage- Judges ment and incentives in the public service, and many Ordmayr recent PERs directly address issues of accountability Investigators.an and corruption. For example, the 1998 PER for China Prosecutors - Georgia focused heavily on the institutional setup for public Local _ Albania expenditure management, including issues of decen- Officials Ministers tralization, and the ongoing PER for Indonesia focuses primarily on institutional issues. A recent PER for 0 20 40 60 Cambodia (which won an award for excellence in Bank percent of public officials believed to have purchased Economic and Sector Work) focused extensively on their positions public expenditure management and corruption issues. Table 3.1 shows the number of countries in which PERs have been conducted. Helping Countries Combat Corruption 25 TABLE 3.I concrete action plan. To accomplish this, the primary Public Expenditure Reviews Conducted by Region1 objectives of CPARs are to: Provide a comprehensive description and analysis of ___ - - the country's public sector procurement structure, AFR 32 22 69 including the existing legal framework, organiza- EAP 12 10 83 tional responsibilities and capabilities, and present ECA 25 10 40 procedures and practices, including how these may LCR 22 6 27 differ from the formal rules and procedures. MNA 9 4 44 SAR 5 4 80 . Perform a general assessment of the institutional, TOTAL 105 56 53 organizational, and other risks associated with the 'Completed in FY98 and FY99 or planned in FY00. procurement process. * Establish the basis for dialogue between the country An iportnt inovaionin PRs i recnt yars and the Bank on how to streamline and improve the has been an attempt to look beyond budget allocations to see how money is actually spent on the ground. Bud- economy, efficiency, and transparency of public sec- tor procurement. get-tracking surveys were pioneered in Uganda in the mid-1990s. These surveys compare budgetary alloca- * Develop a detailed action plan to achieve institu- tions with actual expenditures in the health and educa- tional improvements, including interim modifica- tion sectors by measuring the level of budget disburse- tions to existing practices in the country, so that ments that actually reach the schools and health clinics contracts being financed under current projects will they are supposed to reach. The Uganda survey found meet the Bank's procurement standards pending that only one-third of intended non-salary expenditure completion of the broader reform program. actually reached the relevant schools and health clinics. Encourage better commercial practices in the pri- In response to the survey results, the Ugandan govern- vate sector. ment changed the way it disburses funds by instituting new mechanisms that make actual disbursements more The CPAR has also served the important purpose of transparent (including publication in the local press ensuring that national procurement procedures are and posting directly in schools) and that improve the suitable for Bank financing. It has provided a sound capacity for citizen monitoring. The tracking survey basis for decisions on the level of intensity and approach was also able to compare official data on school enroll- for supervision in Bank operations, including whether ments to actual school attendance over time (the latter or not and to what extent the Bank's fiduciary responsi- turning out to be significantly greater), and this led to bility for procurement can be delegated to field offices. an improvement in the database and thus a more accu- New-style CPARs, which concentrate on overall rate basis on which to base policies and budgets. institutional procurement capacity, were piloted in The Country Procurement Assessment Review FY98. They have been completed in 16 countries, with (CPAR) endeavors to describe and diagnose the health seven more nearing completion. Another 28 are of the existing procurement system in a country. In the planned to be initiated in FY00, though experience process it generates a dialogue with the government, shows that not all will be completed in that fiscal year. focused on needed reforms that should be set out in a Governments and the private sector have been actively 26 Helping Countries Combat Corruption involved in the reviews. A dialogue with the concerned Financial management specialists have accelerated governments on the findings of the CPARs has started the program of producing CFAAs and their junior rela- to incorporate appropriate strengthening actions in the tion, the short-form CPFA. The Africa Region has pro- respective country assistance strategies. Governments duced 28 of these short-form assessments and South have responded quite positively to the new CPAR exer- Asia has achieved 100 percent coverage, but the focus is cise and have taken ownership of the diagnosis and rec- now shifting to the fuller CFAAs. At the end of FY99, 16 ommendations. Table 3.2 shows the CPARs completed CFAAs had been completed (see Table 3.3). A further in FY99 and planned for FY00. 26 CFAAs are planned for FY00, 13 of which will be for The Bank's tool for assessing financial management countries chosen as pilots for the CDF. CFAAs analyze issues is the Country Financial Accountability Assess- country-specific financial management risks and there- ment (CFAA). The CFAA describes and analyzes a fore indicate the Bank's vulnerability, including vulner- country's public financial management system and its ability to corruption, in the many environments in overall financial accounting environment for public which it operates. CFAAs help us to gauge the signifi- and private sector operations. Borrowers can request cance of each vulnerability and to take appropriate that the Bank undertake a CFAA to identify major financial management and risk minimization action. issues affecting public and private sector financial The effect of a CPAR or CFAA can be enhanced management in the country and, where necessary, help when its planning and execution is coordinated with make current practice consistent with international other institutional development and accountability standards. The CFAA recommendations then become diagnostic tools as well as with other CPARs and part of the dialogue with the borrower on the CAS and CFAAs. Other planned reviews (such as a PER, IGR, or are used to identify and develop specific operations and fiscal transparency review with the IMF) will therefore project components to strengthen the borrower's affect the scope, timing, approach, and staffing of financial management capacity. CFAAs and CPARs. Taking the CFAA and CPAR 13.ii 3.z Summary of tPARs in VY99 and Plans for FY0C AFR 5 5 5 completed (Mali, Niger, Benin, 6 (Nigeria, Uganda, Mozambique, Guinea, Mauritania) Burkina Faso, Zambia,Tanzania) EAP 1 1 1 completed (Vietnam) 2 (Philippines, Indonesia) ECA 3 3 3 completed (Croatia, Bulgaria, 6 (Latvia, Russia, Albania, Slovakia, Poland, Romania) Kazakhstan) LCR 3 8 5 completed (Guyana, Dominican 7 (Honduras, Panama, Peru, Ecuador, Republic [draft], Uruguay, Haiti [draft], Colombia, Bolivia,Trinidad and Tobago) Guatemala [draft]) MNA 2 2 2 completed (Jordan, Morocco) 3 (Lebanon, Yemen, Egypt) SAR 2 3 none completed; Bangladesh, India, 4 (Bangladesh, India, Nepal, Pakistan) and Pakistan started TOTAL 16 22 16 28 Helping Countries Combat Corruption 27 TABLE 3.3 Country Financial Accountability Assessments (CFAAs) and Country Profiles of Financial Accountability (CPFAs) AFR CPFA (19): Benin, Botswana, Burkina Faso, CPFA (5): Angola, Eritrea, CPFA (5): Cote d'lvoire, Guinea, Madagascar, Burundi, Ghana, Kenya, Lesotho, Malawi, Ethiopia, South Africa, and Mauritius, and Rwanda Mali, Mozambique, Namibia, Niger, Senegal, Uganda Sierra Leone, Swaziland,Tanzania,Togo, Zambia, and Zimbabwe EAP CPFA (1): China CPFA (1): Cambodia CFAA (2): Korea and Thailand ECA CFAA (2): Armenia and Latvia CFAA (2): Croatia and Moldava CPFA (1): Kazakhstan LCR CFAA (2): Argentina and Colombia MNA CFAA (2): Egypt and Yemen CPFA (3): Jordan, Lebanon, and the West Bank and Gaza SAR CPFA (5): Bangladesh, Bhutan, CPFA (2): India and Sri Lanka Maldives, Nepal, and Pakistan together with these tools, the aim should be to provide The Africa Region's early initiatives focused on six complete diagnostic coverage. The range of tools is countries-Benin, Ethiopia, Malawi, Mali, Tanzania, expanding through the use of more participatory sur- and Uganda-whose Presidents approached the Bank veys and workshops. Within the Bank, this will nor- to request help, including help with Antibribery mally involve close coordination among PREM, OCS, Undertakings (AUs) in Bank-financed project docu- and WBI staff. There are benefits from carrying out ments. The Bank undertook to work with the govern- both reviews at the same time by a single team in which ments of each of the six countries, with the goal of the right skills (financial management and procure- developing a comprehensive understanding of the ment, public and private sector) are represented. nature of corruption in each setting. Each mission tried to determine whether or not AUs were appropriate to the setting, to explore those settings, and to identify Country Assistance Programs what other anticorruption initiatives might be feasible and worthwhile.2" A Growing Program. Most of the Bank's early work in The Bank's assistance to countries has expanded 1998 (i.e., the first year after the adoption of the Bank's rapidly since 1998 and now extends to all Regions. A anticorruption strategy) focused on about a dozen partial list of our activities is available in Annex III. countries, mostly in two Regions-ECA and Africa Additionally, Box 3.2 lists those countries with which (AFR). The ECA Region and WBI carried out innova- the Bank has developed a substantial program of pub- tive work in Albania, Georgia, and Latvia in 1998, lic sector and governance reform. It is important to working at the request of each country's top leadership note that this is not a list of countries that the Bank has to diagnose the extent and nature of corruption, to singled out in which to investigate corruption, and that bring stakeholders together for intensive dialogue, and the occurrence of a country on the list is in no way to design action plans and follow-up projects to indicative of the presence or absence of corruption in address specific problem areas. that country. Rather, this is a list of countries in which 28 Helping Countries Combat Corruption the Bank is working with governments and/or civil work with client countries is continually expanding, society, at their invitation, to help understand and sys- and this list is thus not meant to be exhaustive. tematically address problems of public sector perform- Size and Distribution of Lending Portfolio, ance and corruption. This work is conducted some- FY97-99. The Bank's portfolio of lending in support times under the rubric of a specific anticorruption of public sector governance and institutional reform, program and sometimes under the more general broadly defined to include both adjustment lending umbrella of public sector institutional reform. Our (providing general budgetary support with conditions relating to public sector reform) and investment lend- BOXS 3.2ing (financing specific technical assistance activities to BOX 3.2 - - improve public sector performance), is very signifi- cant. It rose from $4 billion to $7.5 billion during Some Countries with Bank FY97-99. Lending for technical assistance, including Involvement in Anticorruption stand-alone technical assistance projects and technical and Governance Issues assistance embedded in other projects, totaled approx- imately $2 billion to $2.5 billion per year-equivalent Albania Latvia to about 9 percent of total Bank lending (see Figures Argentina Lebanon 3.3 and 3.4). Armenia Malawi The number of components in the lending pro- Azerbaijan Mali gram has increased in each of the foUowing core areas Balkans Stability Pact Mauritius Bangladesh Moldova of the Bank's work (see Figure 3.5): Benin Morocco * Public Expenditure and Financial Management Bolivia Mozambique (FM) Bosnia Nepal Bulgaria Nicaragua * Public Enterprise Reform (PE) Burkina Faso Nigeria Cambodia Pakistan * Tax Policy and Administration (TP&A) Cameroon Papua New Guinea * Civil Service Reform (CSR) Chad Paraguay China Philippines * Legal/Judicial Reform (LEG) Colombia Poland Dominican Republic Romania * Regulation of the Private Sector (REG PRIV) Ecuador Russia * Decentralization (DEC) Ethiopia Slovakia Georgia Sri Lanka * Multisector (more than one of the above). Ghana Tanzania Guatemala Thailand The Bank's Evolving Governance and Public Sector Guinea Uganda Strategy. The Bank is now rethinking its strategy for India (some states) Ukraine the direction of future operational work on gover- Indonesia Venezuela nance and institutional reform. The Public Sector Kazakhstan Vietnamn Kenya Yemen Board (PREM Network) has prepared a new strategy Korea, Rep. of Zambia document, Reforming Public Sector Institutions and Strengthening Governance: A World Bank Strategy. The Helping Countries Combat Corruption 29 FIGURE 3.3 Lending for Public Sector Reform in FY97-99 strategy takes a careful look at the lessons of Bank experience and suggests four broad directions of Lending for Public Sector Reform in FY97-99 ($ billions) change: We are broadening our approach, emphasizing "bot- 6 - _ X W tom-up" empowerment, transparency, and compe- tition in public service delivery (where feasible), as 4- _ gwell as "top-down" reforms inside government. As part of this broadening effort, we are increasing the number of community-based development projects and programs, to help empower local communities 0 so that they are able to influence development activ- ities and the allocation and implementation of pub- lic spending. FIGURE 3.4 Lending for Technical Assistance in FY97-99 * We are working closely with clients to understand the situation on the ground and to design approach- LendingforTechnical Assistance in FY97-99 ($billions) es that are feasible given institutional realities. This connects dosely with our push for better, deeper, and 2.5 more participatory learning work (both analysis and 2.0 * * F participatory learning activities), as discussed earlier 1.5 ~~~~~~~~~~~~~~in this chapter. 1.0 _ _ + * We are taking a longer-term approach in our lending$ 0.5 where possible, to provide time and space for insti- tutional reform. We are now pursuing both longer- '97 '98 99 term programmatic adjustment loans (for example, a three-year adjustment loan to Thailand for publc sector reform, discussed below) and longer-term FIGURE 3.5 investment loans (for example, 10- to 12-year gov- Number of Public Sector Components in FY97-99 erance-related investment loans in Bolivia and Ghana). 120 We are strengthening our in-house skills and ourpart- 00 lnerships. We are working hard, through the matrix 8 I7 structure, to strengthen our staffing and manage- I '98 ment and to forge collaborative arrangements with * I 9 UNDP, other MDBs, bilateral donors, and NGOs. 40 * I | * * Table 3.4 lists some of our partners in key substan- 20 tive areas. 0 FM PE TP&A CSR LEG REG. DEC MULTI PRIV 30 Helping Countrifes Combat Corruption ABi.L''. 3.' Some of the bank's Key Partners in Governance and Institution Building M`t tt "# Anticorruption Council of Europe, Financial Asian Development Canadian International Transparency International (TI), International and Action Task Force on Bank (AsDB), African Development Agency Chamber of Commerce, Institutional Chamber Governance Money Laundering, Global Development Bank (CIDA), Department for of Commerce, Institutional Reform and the Coalition for Africa, Interpol, (AfDB), European International Develop- Informal Sector (IRIS at U. Maryland), Centro OECD, Organization of Bank for ment (DFID), Develop- Latinoamericano de Administracion para el American States Reconstruction and ment Assistance DeSarrollo (CLAD), Carter Center, Asia Development (EBRD), Committee (OECD DAC), Foundation Inter-American UNDP, Swedish Interna- Development Bank tional Development (IADB), IMF Agency (SIDA), Danish International Develop- ment Agency (DANIDA), USAID, NORAD/Min. of For. Affairs (Norway), Min. of For. Affairs (Netherlands) Civil Service Commonwealth Secretariat, AsDB,AfDB, UNDP Civil Service College (UK), International Reform Commonwealth Association IADB, IMF Institute for Administrative Sciences, for Public Management International Personnel Management, (CAPAM), Public Management Tinker Foundation Committee and Public Management Service (OECD PUMA), Support for Improve- ment in Governance and Management in Central and Eastern Europe (OECD SIGMA) Decentralization OECD (Fiscal Affairs) IADB UNDP; many bilaterals, IRIS (at U. Maryland), Georgia State University, including the United One World, University of Toronto, Wharton States, Canada, Switzer- School, British Know How, Open Society Institute land, Denmark, Italy, Eurasia Foundation, Escola de Administracao Netherlands, Belgium Fazendaria (Brazil), Instituti de Estudios Superiores en Administracion (Venezuela) Legal/Judicial European Network on AsDB, AfDB, Caisse Centrale de Co- Asia Foundation, Ford Foundation, Lawyers Reform Justice, International EBRD, IADB operation Economique Committee for Human Rights, National Center Development Law Institute, (CCCE), CIDA, DANIDA, for State Courts, U.S. Department of Justice, Inter-American Institute DFID, Deutsche Gessell- Singapore Supreme Court, Federal Judicial for Human Rights (Costa Rica) schaft furTechnische Center (U.S.), Danish Center for Human Rights Zusammenarbeit (GTZ), Japan International Cooperation Agency, SIDA, UNDP, USAID Tax Policy and Inter-American Center IADB, IMF United Nations Arthur Andersen, Barents Group, Crown Administration of Tax Administrations Conference on Trade Agents, CRC-Sogema, Data Torque Ltd., Group (CIAT), OECD (Fiscal and Development Systems Corporation, Intertek Testing Services, Affairs) (UNCTAD) KPMG,TransSenda International,WM-Data, Western Australian State Revenue Department continued on next page Helping Countries Combat Corruption 31 TABLE 3.4 Some of the Bank's Key Partners in Governance and Institution Building, continued tX~ - Public Commonwealth Secretariat, AsDB, IMF CIDA, DFID, Ministry of Center for Budget Policies and Priorities Expenditure CAPAM, International Fed- Foreign Affairs (France) Institute for Democracy in South Africa Analysis and eration of Accountants, Management INTOSAI, OECD PUMA and SIGMA Parliaments International Parliamentary UNDP, CIDA, DFID, Min. Canadian Parliamentary Centre, National Union, Commonwealth of For. Affairs (Norway), Democratic Institute, Institute for Democracy Parliamentary Association Min. of Foreign Affairs and Electoral Assistance (Sweden) (Netherlands) Media Commonwealth Press Union, CIDA, Ireland, Ministry TI, Centre Quest-Africain des Media et du Commonwealth Broadcast- of Foreign Affairs, Developpment (WANAD), Association of ing Association, Common- (France) Ministry of Journalists (Tanzania), Uganda Management wealth Journalists Associa- Foreign Affairs (Norway) Institute, Radio Nederland, Groupe de tion, International Federation Recherche et d'Echanges Technologiques of Journalists, OECD, OAS (Trust of the Americas) Innovative Approaches to Lending. The Bank has been with a recommendation in the Bank's anticorruption actively developing a variety of new and innovative report, the Government has established a broadly approaches to lending and nonlending services. Some representative anticorruption working group under examples from various Regions include the following: the Minister of State for Good Governance. The The Bank is helping Guatemala build institutional working group presented its initial report to the capacity in it judiciarytosupportthefightagainConsultative Group in May 1999. In addition, the capcit initsjudciay t supor th fiht gaist Financial and Legal Management Upgrading Project corruption, improve access to justice, and build social communication programs in indigenous lan- (FILMUP) has strengthened the Office of the Audi- tor General, the Institute of Financial Management, guages. The program has adopted a participatory the Institute of Accountants, and the National Board methodology for judicial assessment and imple- theInstitof Accountants and Auditors. Following through on mentation that has helped identify real issues, that th Ab count ry teamthas initie ork on has promoted ownership of the reform, and that has added to the peace and reconciliation process. Also accountability and transparency program that will focus on legal and procurement reform, the in Gateala,an ntegate Finncil Maageent strengthening of public accounting and auditing Project is accelerating the flow of funds to social sec- tors and is improving efficiency, transparency, and practices, and improved service delivery. accountability in government financial operations. In Indonesia, anticorruption measures were intro- The Civil Service Reform Projectrecentlyimple- duced in January 1998 under the joint Bank/IMF Thente Civil Senzanic targefom P aroge-sct reentl - reform program for Indonesia and were included in mented in Tanzblia empl ntar d large-caler preatren -the Bank's Policy Reform Support Loan, approved ment in public empoye d geter te par- in July 1998. Actions included the phase-out of car- ticipation in public service delivery, setting the stage tesadtelfigo'nraeinltaedsotos for longer-term public sector reform. In accordance 32 Helping Countries Combat Corruption the transparent integration of extra-budgetary BOX 3.3 funds in the government budget; the development of a legal framework for transparent, competitive bidding for public infrastructure projects; and the Longer-Term Lending for Governance auditing of banks. Follow-up activities are deepen- and Institutional Reform: ing this agenda by supporting institutional reforms, The Thai Example including administrative and fiscal decentralization, Thailand's public sector reforms wil be support- civil service reform, and legal and judicial reform. theirsProramiSrtural Adjust- Together with UNDP and the Asian Development ed by the first Programmatic Structural Adjust- Bank, the Bank is hoping to sponsor the creation of ment Loan (PSAL) approved by the Bank's a ne GoernncePartersip hatwill provide Board. The PSAL model enables objectives to be inew Governance Partnership that laid out over a longer time horizon but allows "multiple paths to get there," accommnodating The Bank is sponsoring a public sector reform loan the fact that reforms of various agencies and to help the Government of Thailand build perform- institutions are likely to proceed at different ance-based government institutions. The recently paces. The Public Sector Reform Loan I is the approved $400 million loan to strengthen public first of three annual loans that together will con- financial management in Thailand is expected to take stitute the PSAL program. This first loan will several years to complete. The program is supporting disburse in a single tranche to support the initial measures to improve revenue and expenditure man- steps of reform in five areas of the government's agement, strengthen accountability and transparen- reform program: public expenditure manage- cy, and develop human resources (see Box 3.3). ment, human resources management, revenue In Latvia, the Bank has prepared a Governance Pro- management, decentralization, and accountabil- grammatic Structural Adjustment Loan (PSAL) to ity and transparency. The subsequent loans support the reform process. The PSAL considers a (depending on future financing needs) are con- three-year reform horizon, emphasizing the design tingent on the continuing strong commitment of the reform program in the first year and its imple- of the govemment to reform and on the satis- mentation in subsequent years. It also sets a series of factory progress of reform in four of five areas. benchmarks requiring achievements in anticorrup- Progress in reformn will be measured against tion at the legislative and executive levels and in the semiannual benchmarks that the Thai govern- judiciary, including specific actions to target conflicts ment has set for itself of interest and to support the separation of power. Other benchmarks measure improved efficiency and transparency in the public sector. These include (a) sector; (d) strengthening the incentives and account- strengthening the institutions that coordinate and ability of public sector employees; (e) rationalizing monitor public sector and anticorruption reform; the interaction between the public and private sec- (b) supporting the development of instruments for tors by streamlining the system of regulation and multiyear planning and control, including budget fostering privatization; (f) introducing mechanisms management and performance monitoring; (c) for the public to provide feedback on the perform- reforming the institutional structure of the public ance of the public sector as well as to litigate against Helping Countries Combat Corruption 33 the state; and (g) increasing the access of the public Consistent with and in addition to its innovative pro- to public sector information. gram of lending and nonlending services, the Bank is In Guinea, the Bank is supporting a major program making the reporting of risks in project documents of decentralization to give local citizens a say in and CASs more explicit, and is adjusting supervision budget allocation and in monitoring the delivery of intensity to be commensurate with risks. In addition, public services. The move to strengthen citizen the Bank is using existing processes to better allocate voice and . its anticorruption assistance on the basis of risk, in vceadparticipation IS a clear example of the broader approach envisioned in the public sector particular through monitoring closely the require- ment that every CAS discuss governance issues. This is discussed more fully in the next section on main- Bring GornmetClosertohGnePeople For the que cery fowing independence consultative proces, the Bank prepared two in 1958, Guina was governed by a top-down, complementary Adaptable Program Loans to sup- centraizd lbureaucratic comand ad contl port the govmment's effort to implement a new state. The country experienced economic stagna- approach. a Village Community Support Program, tion, deterioration of basic irasruture,and which works direy with local communities, and a reduced availability and quality of social services, Capacity Building for Service Delvery Program, especially in rural areas, Where iimore than 70 which works to str the ait of the public percent of the population lived. In i98,0 a ne sector to sup0prt communities. Taken together, government committed itself to a ne institution- these progams wi help foster the following gover- al framework with mnuch greater Ae,fiitive rterms: decentralization: the new legal framework for - Poitica, the representation of the elected CRD decentralizationestabishd33 urban and 303 co ls is being enhanced by broadening their rural communes (CRDs). Yet despite these changes m (; m~~~~~~emberhip to indude representatives from a in the formal rules, participation by rural citizens wide range of sil, cultural, ethnic, and eco- and the provision of services to rural areas noXic groupings Further, Prefecture Develop- remained low. ment Councils (PDCs) are being established, In the mid-1990s the newly appointed Pime with membership elected by and accountable to Minister and reform-minded government working s n t t a t a o dosely~~~~ wit the Worl mil * a CR3 anifXwiih the authionty to advise on pro- closelywiththeWorld Bank, initiatedanintensive grams and budget trade-offs across CRDs. process of civic consultation to ntifdn wvhat c n ro at will be done to more effectively ensure results at the become accountale s adm stins to rural front-line of devlment. As a fo wp to t ar go ve rnmen 34 Helping Countries Combat Corruption streaming corruption considerations into the Bank's approach to national anticorruption programming, operational work. emphasizing the need for a collaborative partnership Participatory Learning and Workshops. WBI, between the state (legislature, executive, and judici- which had worked as a partner on regional programs ary) and civil society (including the media and the and sponsored numerous corruption surveys and private sector). Reforms are more likely to succeed workshops in AFR, ECA, and other Regions, also when various stakeholders are involved in the design developed the concept of comprehensive participatory and implementation of an anticorruption strategy, as coalitions as a means to identify and strengthen those these coalitions create a consensus for reform as well institutions with a mandate to fight corruption.29 as a sense of participation in improving the quality of WBI's approach focuses on a comprehensive, holistic governance in a country. BOX 3.4, continued * Fiscally, a $10 million demand-driven Local tralized delivery and management systems- Investment Fund has already been established and, more broadly, capacity building-at the to support basic social and infrastructure proj- prefecture and CRD levels; improving participa- ects identified by communities. The Fund will tory mechanisms (such as school parent-teachers furnish matching grants directly to CRDs. Addi- associations, health center management conmnit- tionally, a pilot initiative is under way that will tees, and farmners groups) at the point of service enable some CRDs to keep head taxes (which delivery; and the introduction of a perforrnance now have to be paid to the central government) incentive system that will reward high-perform- within their locality, with revenues shared ing CRDs and teams of public officials at the pre- according to a fixed formula between prefec- fecture and central level on the basis of results as tures, subprefectures, and districts. Further, as measured by the quantity and quality of service an initial step in increasing the direct access of delivered to the local population. rural communities to the national budget, these head tax resources will be matched by directThaiisttathendoa105yarpcssf headtransfersofbudgetarybe manchedbdor-uedt reform there will be an overall increase of 80 percent tresourcs ofromth cugentery anddonor-fun in access to and in the quality of all services deliv- resources from the center. ered to the rural population. Underlying such gains Administratively,ia major initiativeisbeing intro- are prospective fiscal reforms: whereas currently duced to realign subnational administrations to close to three-fourths of funds budgeted for sectoral reflect the growing shift in accountability to line ministries are spent on administrative activities rural communities. This initiative includes a upstream,the Guinean program aims to ensure that revision of the administrative framework gov- at least 70 percent of all operating funds allocated to erning roles and responsibilities of different lev- sectors reach the service delivery leveL els of government; the establishment of decen- Helping Countries Combat Corruption 35 A noteworthy development has been the piloting of tion, in exposing corrupt practices, and in improving the Anticorruption Core Course in the Africa Region. professional techniques. This led to advanced, second- Using a three-phase process and education through generation investigative journalism workshops for distance learning, the course took a proactive approach journalists and editors, concentrating on the identifica- to reach out to representatives of government, civil tion of key repositories of public information in the society, and the private sector in an engagement to fight country. corruption and to broadly improve governance. Imple- Institutional Development Grants. The Bank has mented in Benin, Ethiopia, Ghana, Kenya, Malawi, Tan- also used IDF grants to initiate upstream, non-project zania, and Uganda in June 1999, the course culminated work on public sector reforms, including public pro- in the presentation of action programs at the Ninth curement reform. These grants use indigenous capaci- International Anticorruption Conference in Durban, ty as much as possible and have proven useful in stim- South Africa, in October that year. At the Conference, ulating early work on institutional topics. For example, country teams presented a detailed Action Plan of a $500,000 IDF Grant recently approved for Peru sup- institutional reform in areas in which it has to date ports the development of the Ombudsman's office proven difficult to realize tangible results. The Core through technical assistance, training, and logistical Course demonstrated that an inclusive and participato- support (including advisory services, strategic work- ry approach, together with empirical knowledge and shops, and evaluation studies). Areas to be covered rigorous analysis, can successfully help countries devel- include (a) institutional image and media relations; (b) op strategies to fight corruption. internal organization and budget control; (c) assess- WBI has also been active in training for Parlia- ment of local governments and pension plans; (d) ments and the media. For example, the WBI-Canadian supervision of the provision and regulation of public International Development Agency flagship Parlia- services; and (e) poverty and senior citizens issues. The mentary program, focusing on the critical issue of the grant will also help the office carry out a dissemination "Role of Parliament in Curbing Corruption," was campaign, including the preparation and distribution attended by Parliamentarians from Latin America and of materials and regional workshops. the Caribbean, Africa, the Middle East, South and East The impressive response that the Bank has received Asia, and Central and Eastern Europe. The seminar has from so many countries interested in tackling the been replicated in Africa and is now planned for South problem of corruption highlights the need for the Asia, Southeast Asia, the Middle East and North Africa, Bank to go beyond an ad hoc response to each request. and Eastern Europe. The first-generation media work- It points to the need for the Bank to mainstream a con- shops focused on raising awareness and discussion of cern for corruption into all of its lending operational the media role in informing the public about corrup- programs. 36 Helping Countries Combat Corruption C H A PT E R F 0 U R Mainstreaming Corruption Considerations into the Bank's Operational Work third pillar of the Bank's anticorruption strate- its resources where they are likely to have positive gy, as outlined in the 1997 paper Helping Countries impact if it is to achieve its goal of poverty reduction. Combat Corruption: The Role of the World Bank, Second, fiduciary obligations require the Bank to be involves mainstreaming corruption considerations into concerned about lending in situations where it cannot the Bank's operational work. The paper noted the be sure that its funds will be used to promote econom- importance of taking corruption and governance con- ic development and poverty alleviation. cerns into account in the Bank's lending program. The For both of these reasons the Bank has taken a num- strategy provides that: ber of important initiatives to broaden and deepen its Corruption should be explicitly taken into account in mainstreaming efforts relating to corruption. The Bank country risk analysis, lending decisions, and portfolio and other donor agencies had come under increasing supervision if it affects project or country perform- pressure and criticism in the 1996-98 period for con- ance and the government's commitment to deal with tinuing to work in countries in which corruption was it is in question. perceived to be a significant impediment to develop- The mainstreaming of governance and anticorruption ment. As a result, the IDA 12 replenishment approved in concerns is important for two reasons. First, recent early 1999 included for the first time explicit gover- research by the Bank underscores the finding that nance conditionality.30 Accountability, transparency, the development aid is unlikely to achieve its goals in set- rule of law, and participation represent four major pil- tings characterized by dysfunctional economic policies lars of governance that are critical to the development and weak public institutions. The Bank needs to focus process and the effective use of IDA resources. Helping Countries Combat Corruption 37 Country Assistance Strategies As a next step, more explicit guidance is being developed to deal with corruption in CASs. For coun- The Bank's Anticorruption Action Plan for FY99 called tries where poor governance and corruption pose sig- for all CASs to include an open and honest discussion nificant developmental risks, the CAS should outline of governance issues and the corruption risks facing the country's agenda for improving governance and Bank-financed projects. As noted previously, virtually combating corruption and should include a moni- all CASs now address these issues to varying degrees- torable program to assess progress. The choice and a very significant change over the past two years. design of instruments should reflect a good under- A recent retrospective study of CASs prepared from standing of existing institutions and the best way to January 1998 through June 1999 found that the Bank reform them. For countries where poor governance had made significant progress in addressing gover- and corruption pose a significant risk, the CAS should nance and corruption concerns since the previous ret- discuss the conditions under which particular instru- rospective. Of the 37 CASs reviewed, 78 percent men- ments should be used. Progress in improving gover- tioned governance and corruption and about nance and combating corruption, assessed against two-thirds made an effort to mainstream the issues monitorable benchmarks, will increasingly be factored into the Bank's strategy. Despite this remarkable into the choice and design of lending instruments. progress, the retrospective found that room for It should be noted here that governance concerns improvement remained in diagnosing the causes of are also being mainstreamed into the preparation of corruption in a particular country, rooting the strategy Poverty Reduction Strategy Papers (PRSPs) by client in institutional realities on the ground, explicitly assess- countries. The Public Sector Board has prepared tool- ing the risks of corruption to Bank-financed projects, kits to highlight the links between governance and and proposing appropriate remedial measures. Around poverty and to help guide analysis in individual coun- one-third of CASs integrated anticorruption activities try settings, and in-depth efforts are now under way in into technical assistance and lending programs; CASs several countries (including Benin, Cameroon, and for countries where governance and corruption pre- Uganda) to mainstream governance concerns into the sented significant risks (defined on the basis of a set of PRSP process. external indicators, as well as on Bank assessments) tended to cover these issues more, but not necessarily better, than CASs as a whole. Regional Strategies We are beginning to see significant government ini- tiatives to address corruption in some of the countries With the new importance afforded to the issue of anti- whose CASs have explicitly discussed governance corruption, the Bank's Regional vice presidencies have issues. For example, in Kenya, the government has developed strategies outlining their Region's priorities begun to tackle corruption in a number of ways, and programs to address governance concerns. The including setting up a high-level Change Team com- challenges facing each of the Regions are as varied as prising highly reputable people, making operational an their countries. Their approaches have nonetheless Anticorruption Agency, and drafting new anticorrup- consistently followed the four pillars of the Bank's tion legislation. strategy-namely, focusing on anticorruption meas- 38 Helping Countries Combat Corruption BOX 4.1 Unbundling Corruption in Transition Countries As the countries of Eastern Europe and the Former different contexts. A different focus for each group Soviet Union continue to make progress in estab- of countries can be summarized as follows: lishing dynamic market economies, corruption in Countries with relatively smaer problems with the region has also continued to develop new administrative corruption and state capture dimensions and pose new challenges. Media should aim to capitalize on favorable condi- reports throughout the region tell of the ability of tions for strengthening political accountability powerful firms and individuals to influence (often and transparency through further institutional through bribes) the legal, policyi and regulatory reforms. environments in their own interests, and unofficial payments for basic public services have become The focus on countries with relatively low lev- pervasive in some settings. A new report to be els of administrative corruption and relatively released in September, Anticorruption in Transition: high levels of state capture should be to expand Confronting the Challenge of State Capture, political and economic competition to unblock approaches the region's problems with corruption potential for further structural reforms. and vested interests by examining two related, yet * In countries with relatively high levels of distinct, aspects of corruption: administrative cor- administrative corruption and relatively low ruption, the use of corruption to distort the imple- levels of state capture, stress should be placed mentation of existing laws, rules, and regulations, on enhancing state capacity to improve the pro- and state capture, the use of corruption to distort vision of basic public goods. theformnulation of laws, rules, and regulations. Sup- * Finally, countries with relatively high levels of ported by a 1999 survey of over 3,000 enterprise both administrative corruption and state cap- managers in 22 transitions countries, the Report ture must focus on breaking the hold of vested provides empirical proxies for the severity of the problems of administrative corruption and state capture throughout the region. A typology of cor- Strengthening the commitment to tackle corrup- ruption in the region is derived from the data to tion will not be easy, for the status quo benefits provide insights into the causes and consequences powerfil interests. Yet the costs of complacency of administrative corruption and state capture. On are extremely high. Managing expectations and the basis of the typology, the Report recommends underscoring the long-term nature of reform wi}l ways to target anticorruption efforts, to sequence be key, but should not come at the expense of the reforms, and to calibrate realistic expectations in decisive actions needed to build credibility. Helping Countries Combat Corruption 39 ures at the project level and at the country level, main- Sensitizing Bank Staff to Corruption Issues streaming anticorruption measures into Bank opera- tions, and collaborating at the international level. The One of the key strategies in mainstreaming a concern ECA Region, facing a particularly visible and daunting for corruption in the Bank has been an internal train- challenge in this area (see Box 4.1), has developed a ing program to raise staff awareness of the problem. Al multipronged strategy combining (a) economic policy Bank Regions have held orientation sessions for their reforms (for example, liberalization and regulatory/tax staff to raise awareness of the risks of corruption, of the simplification); (b) the strengthening of public sector Bank's anticorruption policies, and of their implemen- institutions, including civil service reforms, public tation to date. The European and Central Asia Region finance, audit, procurement, and legal-judicial reforms; of the Bank conducts procurement workshops for staff and (c) raising public awareness and oversight by civil that include the specific topic "Bank Experience of society. Corruption Issues in Procurement?" As noted previous- ly, BEI has engaged in more than 200 outreach events in the last 15 months. Along with the Appeals Committee, Research and Knowledge Sharing BEI also cosponsored in 1999 the first Conference on Ethics and Dispute Resolution for International Orga- The Bank's Development Research Group has devoted nizations, which drew the participation of more than significant resources to research on corruption issues, 25 organizations. Since 1998, the PREM Network has providing useful insight into the problem of corrup- sponsored more than 60 brown bag lunches on topics tion. It has added to a growing body of analytic work including Combating Corruption: The Role of State- worldwide that clearly shows the strong links between Society Interaction to Governance and Accountability, governance and poverty (see Annex IV for an annotat- and Identifying and Assessing Political Will for Anti- ed bibliography). The Group's findings have been corruption Efforts. reflected in the Bank's policy advice and in its contri- OCS has also been working across Bank boundaries bution to international discussions on corruption. The to provide training to reinforce staff's commitment to Bank's body of knowledge has been additionally anticorruption in Bank-financed projects. Starting in expanded through analytic and project work in the August 1999, OCS began to partner with BEI in an effort Regions, and Bank staff have worked hard to dissemi- to link staff accountability with the Bank's anticorrup- nate it through the Bank's external web site and tion agenda. The annual Procurement Forum, hosted by through participation in many external conferences. the OCS Procurement Group, has provided sessions on A growing number of PREM Notes3' have been anticorruption issues. In November 1999, OCS also commissioned to summarize good practices and key organized a seminar on the implications for the Bank of policy findings on topics relating to poverty reduction, public financial accountability in borrower countries. economic management, and governance and public Two Regions-East Asia and Pacific (EAP) and sector reform. The OCS network is also planning to ECA-have formed external advisory groups of experi- disseminate lessons learned from completed investiga- enced individuals to help them sharpen their strategies tions into allegations of corruption on Bank-financed for combating corruption (see Box 4.2 for the EAP projects.32 example). 40 Helping Countries Combat Corruption BOX 4.2 - East Asia and Pacific Region Anticorruption Advisory Group The East Asia and Pacific Region has established an Region. The most recent meeting, in Bangkok on advisory group to help it chart an effective and par- February 10, 2000, focused on how the World Bank ticipatory anticorruption strategy. The group could involve the private sector more actively in includes two former heads of government from combating corruption. While the group has given East Asia and senior figures from Transparency much practical advice to the Bank, perhaps its most International, the private sector, and academia. To useful function so far has been to provide a forum date, the advisory group has met three times with for the Country Directors and other members of the EAP regional management team to discuss gen- the Region's management team to debate the most eral strategy, as well as issues such as the appropri- effective ways to combat corruption in their client ate roles for donors, governments, civil society, and countries. the private sector in tackling corruption in the Helping Countries Combat Corruption 41 C H A P TE R F I V E ;; -: Supporting International Efforts to Address Corruption Corruption is an international as well as a domestic on each organization's comparative advantage and problem, and efforts to curb it have to be taken at mandate and are mutually supportive. For example, the international level as well as at the domestic certain international organizations, such as the OECD, level. The international dimension complicates any sin- the Organization of American States (OAS), and the gle government's attempts to bring corruption under Council of Europe, have elaborated international control: in order to help its borrowing countries deal conventions that define corruption offenses and pro- effectively with all aspects of the issue, the Bank has vide for cooperation in the investigation and prosecu- made it policy to work in partnership with other inter- tion of these offenses. The convention sponsored by national actors in pursuing the goal of reducing cor- the OECD focuses on the criminalization of bribery ruption. of foreign public officials in international transactions, Significant efforts are now under way to improve while conventions sponsored by OAS and the Council international cooperation in the prevention, detection, of Europe deal with a broader set of issues, including and prosecution of corruption. These efforts involve internal as well as international corruption. For their international organizations, regional organizations, part, the MDBs, including the World Bank, have and international business groups, and encompass a emphasized the importance of preventing fraud and range of experience in the international community, corruption in the award and execution of the with some governments and civil societies starting to contracts they finance, while responding to their mem- openly discuss their problems of corruption. The inter- bers' requests for financial and technical assistance national organizations also have recently become seri- in developing their national strategies to combat cor- ous players in this arena, with the World Bank leading ruption. Other international initiatives include efforts among the multilateral development banks. to curb international money laundering, which is a The measures that international organizations have serious component of the corruption issue for some deployed in addressing the issue of corruption are based governments. Helping Countries Combat Corruption 43 The Bank has supported international anticorrup- The other MDBs have also initiated their own anticor- tion efforts by: ruption programs. The Inter-American Development * helping coordinate both cross-border and in-coun- Bank, for example, coordinates the Donors' Consulta- tive Group for Central America, which was originally established to coordinate the foreign assistance provid- * forming strategic collaboration arrangements with ed to countries affected by Hurricane Mitch. More other organizations, and specifically, the Group has undertaken to ensure the * deepening its knowledge about corruption and dis- proper and transparent use of funds provided for reconstruction and transformation activities. In addi- tion, the Asian Development Bank has increased its efforts in the areas of governance and anticorruption Collaborating with Other Multilateral and is in the process of recruiting expert staff to inves- tigate fraud and corruption. Following is a brief Development Banks description of the programs initiated by each of the MDBs to confront the problems that corruption poses The Bank informs its partners of anticorruption pro- to th member goeprnments grams in its client countries and regularly undertakes joint or coordinated activities. Together with the other * African Development Bank (AfDB). The AfDB's MDBs, the Bank participates in a working group on policy on good governance, approved by its Boards governance, corruption, and capacity building. This in December 1999, focuses on accountability, trans- group has identified four areas of cooperation: parency, combating corruption, participatory gov- ernance, and legal and judicial reforms. In concert ria renancing an uerstanding offor mallocati ncesrit- with other organizations, the AfDB will pursue finanrelated to governance for allocatingconcessional interventions in these areas through economic and finances. sector work, policy dialogue, and lending and non- * Improving the governance environment; for exam- lending activities. In the context of its economic and ple, by supporting IFAC standards, governance sector work, the AfDB will continue to address assessments, joint surveys, alternatives to project issues of good governance in its Country Strategy implementing units and salary top-ups, public Papers and Public Expenditure Reviews. Gover- expenditure management reform, and new lending nance is a key criterion for rating country perform- products. ance, as reflected in the fact that six out of the 20 questions on the AfDB's 1999 Country Policy and * Improving project management; for example, by IntuioaAsemntqsinareeledo assisting the implementation of fiduciary standards governance. The possibility of the AfDB collaborat- for small countries, standard procurement prac- igwt h ol aki odciggvrac tices, and reviews of supreme audit institutions. and tiorvy has bee nd , and corruption surveys has been discussed, and a * Examining specific anticorruption activities and bilateral donor has offered financial support to facil- procedures, including, for example, unified itate this approach. approaches to investigation, appeal, and disbarring; Asian Development Bank (AsDB). As a major mul- cost-effectiveness; and staff liability. tilateral development institution and one of the 44 Helping Countiles Combat Corruption leading sources of development funding in Asia, the each country, modeled on the one in Russia. The AsDB has included combating corruption as part of EBRD's Legal Transition Team is working in several its broader work on issues of governance and capac- countries on the laws and regulations necessary for ity building. The AsDB recognizes the importance the establishment and efficient operation of nation- of accountability for public officials and transparen- al stock exchanges and security exchange commis- cy and predictability in government operations- sions. critical principles in the fight against corruption. Inter-American Development Bank (IADB). The The emphasis of the AsDB's anticorruption policy IADB has been involved in funding state modern- upon strengthening the essential prerequisites for ization programs and governance programs for the effective public administration is intended to ensure last nine years, and has mounted specific operations that the fundamental building blocks for transpar- to address corruption on a regional and national ent, predictable, and accountable administration are basis since 1998. Within the IADB, a task force has in place. These building blocks include an appropri- been established to review the IADB's experience ate legal framework and effective enforcement mechnism, aprofssinal,cometen, mtivaed, and to prepare an integrated anticorruption policy mechanisms; a professional, competent, motivated, that will deal with (a) ensuring internal standards and meritocratic civil service; transparent procure- for IADB staff, (b) ensuring that IADB-funded proj- ment practices; effective internal control systems; ects are properly designed, executed, and evaluated and a well-functioning, independent audit office. and that JADB funds are properly disbursed and Participation, a major principle in the World Bank's utilized; and (c) ensuring that issues of anticorrup- governance policy, is also relevant to the work of the 9 ~~~~~~~~~~~~~tion and governance form part of the LADB's dia- AsDB. Experiences in Hong Kong (China) and Sin- logue with its borrowing members. In addition, gapore have demonstrated that public support is a issues of modernization of the state and governance critical asset in the long-term struggle against cor- ruption. ~~~~~~~~~are being mainstreamed within the regional depart- ments of the IADB. For example, in the region that European Bank for Reconstruction and Develop- includes Argentina, Bolivia, Brazil, Chile, Paraguay, ment (EBRD). The EBRD has a legal mandate to and Uruguay, five operations dealing with state address political issues in its country assessment reform were approved in 1999, for a total of $318 documents. This mandate requires that it operate in million. The project pipeline for these countries also countries that are moving toward the holding of free includes operations to support reform of legisla- elections and pluralist, multiparty democracy. The tures and expansion in the judicial area. Concern for EBRD thus openly addresses political issues, espe- preventing opportunities for corruption is also cially in the context of its biennial country strate- addressed in projects not specifically related to state gies. Each project proposed to the EBRD is submit- reform, such as social projects (health, housing, ted to a Transition Impact Review (TIR) that education) within which local communities are assesses the project's potential effects on the coun- increasingly undertaking the responsibility of mon- try's transition toward a market economy. The TIRs itoring the delivery of social services. The IADB has thus contribute to an analysis of the impact of proj- also encouraged research work on the effects of cor- ects on a wider private sector. EBRD is also working ruption, especially in the area of public health. to set up Foreign Investment Advisory Councils in Helping Countries Combat Corruption 45 Supporting the Efforts of Other donors, with in-depth participation by the Bank, to International Organizations put together rigorous indicators of governance. * Financial Action Task Force (FATF). FATF is the Organization for Economic Cooperation and leading international initiative in fighting money Development. Through its participation in the laundering. Housed at the OECD, FATF brings OECD Working Group on Bribery in International together bilateral and multilateral donors concerned Business Transactions, the Bank has supported the with the problem of international money launder- OECD initiative to outlaw the bribery of foreign ing. Participating as an observer first in 1997, the public officials and end the tax deductibility of Bank continues to attend some FATF meetings. foreign bribes. On December 17, 1997, the OECD * Organization of American States (OAS). The Inter- member countries and five nonmember countries American Convention Against Corruption, which -Argentina, Brazil, Bulgaria, Chile, and the Slovak was adopted in 1996 under the aegis of the OAS, is Republic-signed the Convention on Combating now in force among 18 countries in the Latin Amer- Bribery of Foreign Public Officials in International ica and Caribbean Region. The parties to the Con- Business Transactions. The Convention is in force vention agree on common definitions of corruption among 20 countries, including four countries eligi- offenses and on the means to cooperate in the inves- ble to borrow from the Bank (Bulgaria, Hungary, tigation and prosecution of these offenses. In 1997, Mexico, and the Czech Republic). The Convention the OAS Assembly adopted the Inter-American Pro- requires parties to it to make it a crime under their gram for Cooperation in the Fight Against Corrup- domestic law to bribe a foreign public official. The tion, which, among other things, calls for coopera- OECD Working Group monitors each party's tion with other international organizations, progress in irnplementing the Convention. In Phase including the Bank, with the goals of enhancing the I the domestic legislation of each country is put understanding of each organization as it fights cor- before the group for comment and critique. In ruption, avoiding duplication of effort, and assessing Phase II, due to begin in the latter part of 2000, on- the prospects for joint projects. Together with Radio site visits will be made to review how the legislation Nederland and other parties, WBI is collaborating is being enforced. The Bank participates in the with the Trust of the Americas to raise public aware- meetings of the Working Group as an observer. ness about corruption in Latin America and train Support for Improvement in Governance and journalists in investigative journalism. Management in Central and Eastern European . Council of Europe. Since it established its Multidis- Countries (SIGMA) and Development Assistance ciplinary Group on Corruption in 1994, the Coun- Committee (DAC). Two other OECD initiatives cil of Europe has opened for signature two conven- related to governance include the technical assis- tions on corruption, one dealing with the criminal tance work of SIGMA and the governance work of law aspects and the other with the civil law aspects DAC. SIGMA is a joint initiative of the OECD and of corruption. It has also established a follow-up the European Union, supporting public administra- mechanism to monitor the implementation of these tion reform efforts in 13 countries in transition. conventions. The Multidisciplinary Group is cur- DAC is coordinating a joint effort by numerous rently discussing a Model Code of Conduct for Pub- 46 Helping Countries Combat Corruption lic Officials. The Bank has observer status in the Board in mid-1997 on The Role of the IMF in Gover- Multidisciplinary Group and has participated in a nance Issues. These guidelines seek to enhance the number of its activities. IMF's role in this area, in particular by developing the * United Nations Development Program. The Bank following: is collaborating with the UNDP on a growing num- A more proactive approach in advocating policies ber of initiatives. In 1997, the UNDP developed the and the development of institutions and adminis- Program for Accountability and Transparency to trative systems that eliminate the opportunity for address corruption as a problem of poor governance bribery, corruption, and fraudulent activity in the in selected countries. This program fits into a grow- management of public resources. ing inventory of anticorruption-related programs Enhanced collaboration with other multilateral and projects to improve accountability and trans- institutions, in particular the World Bank, to make parency through financial management reforms better use of complementary areas of expertise. and integrity improvement initiatives. The UNDP has established anticorruption partnerships with The Bank works closely with the IMF in designing and Transparency International (TI) and the Global implementing much of its in-country anticorruption Coalition for Africa. and governance agenda, especially with regard to eco- * World Trade Organization (WTO). The Bank has nomic policy and public reform. been working with the WTO in the area of public procurement by supporting the WTO's initiative to both the Business Consulting bt h ums draft an international agreement on transparency in government procurement and encouraging Bank Community and NGOs borrowers to adopt its principles. The Bank has made special efforts to coordinate close- • Interpol. The Bank has participated as an observer ly with NGOs that have first-hand knowledge and at quarterly meetings on corruption at Interpol. experience with corruption in the Bank's client coun- These meetings have focused on issues such as tries. Transparency International (TI), which has more auditing, money laundering, and international than 70 national chapters that fight corruption at the crime. The Bank has a seat on a semipermanent national level, has contributed significantly to making committee, the International Group of Experts on corruption a public issue in the press and elsewhere Corruption, based at Interpol. and is cooperating with international organizations, including the World Bank, in taking action against cor- ruption. TI aims to curb corruption through interna- The Continuing Partnership with the IMF tional and national coalitions that (a) encourage gov- ernments to establish and implement effective laws, In growing recognition of the adverse impact of poor policies, and anticorruption programs; (b) build public governance and corruption on economic stability and support for anticorruption programs and enhance growth, the IMF has increased its attention to gover- public transparency and accountability in internation- nance issues in the programs it supports. This shift is al business transactions and public procurement; and reflected in the guidelines issued by the IMF's Executive (c) encourage all parties to international business transactions to operate at the highest levels of integrity. Helping Countries Combat Corruption 47 In addition, the Bank has worked with the Global This message is reinforced through WBI's various Coalition for Africa to support country efforts to journalism programs in Africa, Latin America, and address governance issues and develop sustainable Eastern Europe. approaches to the control of corruption. In October 1997, the Global Coalition for Africa hosted the Non- Inceigatptio and roininternan govermentl Oraniztionsmeetng i Naiobi, Conferences. In 1998, the Bank participated as an governmental Organizations meeting in Nairobi, obevra h 2hTrana ofrneo Kenya, consisting of delegates from various regions of Serer At th tiannual Confenceof Africa who endorsed the principles of the Lima Decla- SurmAdiIntuioshednMneve, Uruguay. The conference focused on the role of ration Against Corruption. these institutions in combating corruption and on their limitations in effecting change. Indeed, one of Communicating the Bank's Anticorruption the problems repeatedly identified was that, in countries where bribery is not a crime and where Strategy to the World anticorruption laws do not exist, the auditors are limited in their abilities to address this problem. The Bank has been very active over the past two years Tis ha ahdirectiefeto how the Bakbndit in eplaningitsantiorrptin statey tooutide This has a direct effect on how the Bank and its in explaining its anticorruption strategy to outside client countries can prevent and detect corruption audiences in many different forums, including interna- in pojets. tional conferences, university workshops, media brief- ings, and interviews. In October 1999, Mr. Wolfensohn addressed the Using the Media to Explain the Need to Control Ninth International Anticorruption Conference33 in Durban, South Africa, where more than 1,500 Fraud and Corruption in Bank-Financed Projects. representatives of governments, the private sector, The Bank uses the media to explain the importance andeintational organts share cory of controlling fraud and corruption. To provide and sough ni ties for furtr concrete examples of its own policy at work and as collaboration. The Bank was both a cosponsor of a deterrent to others, the Bank has, as a matter of t conference a ank wac patpan hosting poliy, ublihedthe esuts f inernl inestga- the conference and an active participant, hosting polc phed the e resultso in thernalntio ga several workshops, including the final segment of tions when they have resulted in the sanctioning of th B oecus,Te hleg fBidn companies involved in Bank-related procurement. th WB. oecus,TeChleg fBidn Coalitions in the Fight Against Corruption in Africa. 48 Helping Countries Combat Corruption Ci H A PTE R S IXS The Road Ahead In a little more than two years, the Bank and the The Bank will continue to push forward in its international community have taken enormous efforts to address the problem of corruption over the strides in the global fight against corruption. For the next year. The significant resources allocated to detect- Bank, the strategy continues to be one of consolidation ing and preventing fraud on Bank-financed projects and change: strengthening systems the Bank established demonstrates the Bank's commitment to resolving the during its first 50 years and undertaking new initiatives problem of corruption. On the internal front the Bank and approaches to attack corruption closer to its source. is continuing to build up its procurement and financial This approach is illustrated in the Bank's overall management systems. We are also reinforcing the development strategies. From the governance reports Bank's commitment to the highest standards of ethical in the early 1990s to the 1997 World Development behavior by strengthening our investigative capabilities Report, The Changing Role of the State, and the World in order to be as effective as possible in detecting and Bank's Policy Research Report of 1998, Assessing Aid, preventing corruption in Bank-financed projects, and the Bank has underscored the centrality of good gover- by rolling out an ambitious program of integrity nance to long-term development. awareness aimed at Bank staff. Good governance is also underlined forcefully as We will also expand and deepen our efforts to help the first pillar in the CDF. The Bank believes that countries fight corruption over the coming year. We poverty reduction is about more than economic poli- will continue with a substantial lending program in cies; it is about long-term social and structural devel- support of public sector reform and governance, focus- opment. Corruption will be reduced only through the ing on improving incentives and capacity in the public commitment of leaders and the continued opening sector, enhancing transparency and accountability, and of economic decision-making. Improving public sec- empowering citizens to monitor the quality of govern- tor performance by helping build borrower capacity ment services and be sure their voices are heard and is a key component of the Bank's strategy in going taken into account in decision making on resource forward. allocation. We will also continue to use our various Helping Countries Combat Corruption 49 diagnostic tools-including in-depth institutional and Although much progress has been made in imple- governance reviews, corruption surveys, and public menting the Bank's anticorruption agenda, many expenditure and financial management assessments- arduous battles still lie ahead. Corruption, by its very to assess the performance of institutions and help nature, will persist as a difficult and elusive problem. in designing feasible strategies for improvement. A Many corruption issues are deeply rooted in political series of analytic toolkits we are currently piloting and institutional power structures. It will take years with our clients and development partners will help us before some of the Bank-supported reforms become all work together more systematically to this end sustainable, both within the Bank and among its bor- (including helping countries in the preparation of rower countries. This fact is reiterated in the GAO's Poverty Reduction Strategies). We will also make a recent report on the integrity of the Bank's system of special effort over the coming year to draw initial controls, which points to the many challenges facing lessons of experience from our work so far. As part of the Bank as it implements reforms aimed at strength- this effort, we are undertaking a major initiative with ening its internal controls. Reforms such as LACI may OECD DAC and other partners to develop a robust require revision as the Bank adjusts to the capacity set of governance indicators that can be useful in constraints facing its clients. Furthermore, as we understanding corruption trends, measuring perform- begin the evaluation process, it may also take years ance in particular countries, and tracking changes over before the effects of these initiatives can be measured time. in a reliable way. On the mainstreaming side, all CASs will continue Nevertheless, we remain cautiously optimistic, to be expected to diagnose the state of governance and reassured by the knowledge that governance issues are the risk that corruption poses to Bank-financed proj- being confronted openly and directly. There are no ects in the countries concerned. We will make further quick or simple solutions to such issues, but the Bank's efforts to mainstream the issue in country programs efforts over the past two years represent a quantum and in sector strategies and projects across the Bank, leap in recognizing and dealing with the problem. The and we will continue to enhance staff training and Bank must continue to set an example of integrity knowledge-sharing opportunities to this end. internally and to seek new avenues for partnership with Our support of international efforts will also con- governments, civil society, and the private sector. Work tinue. We have significantly deepened our partnerships in these areas is well under way. In fact, we must be over the past two years, and we will continue to work even more aggressive in our capacity-building efforts- closely with the other multilateral development banks, and that is the essence of our anticorruption strategy. UJNDP, OECD, NGOs (including TI), and our bilateral We have to be prepared for a long, hard struggle, and partners to share experience, undertake joint analytic we have to work together. Fighting the cancer of cor- work, and press forward with important cross-bound- ruption is a challenge not just for the Bank, but for the ary initiatives such as the implementation of the OECD entire development community, induding internation- anti-bribery convention. We also hope to increase our al financial institutions and development agencies, civil partnerships with private sector firms, many of whom society, the private sector, and the public sector. We have shown significant interest in joining the effort to must continue to move forward. We have a real chance address the problem of corruption. to make a difference. SO Helping Countries Combat Corruption N OT E 5m 3 . 1. Helping Countries Combat Corruption, The Role of the ance Group for the Europe and Central Asia Region. World Bank, September 1997. The Board also includes observers from the OCS Pro- 2. The Comprehensive Development Framework (CDF) is curement and Operational Services Groups. a holistic approach to the chalenges of development 9. The Procurement Board comprises the Director of the that draws on the community's collective experience OCS Procurement Group, the Regional Procurement and learning. It integrates the macroeconomic and Advisors of all six of the Bank's regions, the Legal Advi- financial side of development with the structural, social, sor for Procurement and Consulting Services, the Direc- and human side. The CDF embodies the premise that tor of the Bank's Institutional Procurement Depart- equitable and sustainable development cannot take ment, and two at-large members (a representative from place if either side of the developmental equation is the Public Sector Group of the Poverty Reduction and considered in isolation from the other. Economic Management Network and the sector manag- 3. International Bank for Reconstruction and Develop- er for the Rural Development Department), and ment, Artides of Agreement (as amended effective Feb- observers from the Financial Management Board and ruary 16, 1989), Article III, Section 5(b). the Operational Services Group. 4. Borrowers are the Bank's dient countries who are recip- 10. OP/BP 10.02 Financial Management (August 1997). ients of Bank loans. 11. No project funds are disbursed until the loan becomes 5. A full listing of the companies and individuals debarred effective. can be found on the Bank's web page at http://www 12. Financial management staff incdudes full-time equiva- .worldbank.org/html/opr/procure/debarr.html. lent financial management specialists and financial 6. The U.S. GAO report entitled WORLD BANK: Manage- management officers, who are dispersed between head- ment Controls Stronger, but Challenges in Fighting Cor- quarters and country offices. The Operational Core Ser- ruption Remain, GAO/NSIAD-00-73, April 2000. vices-Financial Management Sector Board establishes accreditation criteria and approves staff requests for 7. The number of projects with public expenditure and accreditation. financial reform components increased from 21 (9 per- accreditation. cent of total projects approved) in FY97 to 52 (18 per- 13. The Bank is organized into six regions-Africa (AFR), cent ) in FY98 and 82 (28 percent ) in FY99. The pro- East Asia and Pacific (EAP), Europe and Central Asia portion of adjustment loans with anticorruption or (ECA), Latin America and the Caribbean (LCR), Middle fiscal transparency components increased from 8 per- East and North Africa (MNA), and South Asia (SAR). cent in FY98 to 27 percent in FY99 and 50 percent to 14. This formal accreditation process reduces the risk of date in FY00. procurement work being carried out by staff not com- 8. The Financial Management Board comprises a chair- petent to do it and sharpens accountability, as accredita- man; the Regional Financial Management Advisors for tion can be revoked for poor performance of procure- all six of the Bank's Regions; two representatives from ment duties. the Loan Department, one of whom is its Director; two 15. Bank's Procurement Guidelines, Section 1.15 Fraud and at-large members (currently a sector leader from the Corruption; and Bank's Consultant Guidelines Section Private and Financial Sectors Development Group); and 1.25 Fraud and Corruption. Most recent edition in force, the Director of the Support Services and Quality Assur- January 1999. Helping Countries Combat Corruption 51 16. The telephone number in the United States and Canada 29. The pillars of integrity include the executive branch, is 1-800-831-0463. watchdog agencies, parliament, civil society, the media, 17. The telephone number to use to contact the World the judiciary, police and prosecution, and the private Bank from anywhere in the world at no expense to the sector. caller is 704-556-7046. 30. Additions to IDA Resources: 12th Replenishment, Decem- 18. Pinkerton has 250-plus offices in the United States, ber 1998 and March 1999. Latin America, Canada, Europe, and Asia-more than 31. These indude, among others, Corruption and Develop- 20 countries worldwide, with a network of trusted part- ment, PREM Note 4, May 1998; New Frontiers in Diag- ners in other regions. nosing and Combating Corruption, PREM Note 7, Octo- 19. The address is investigationsThotline@worldbank.org. ber 1998; Using an Ombudsman to Oversee Public 20. Contact http://wblnO018.worldbank.org/acfiu/acfi- Officials, PREM Note 19, April 1999; Fostering Institu- 20. .nsf. tions to Contain Corruption, PREM Note 24, June 1999; The Law and Economics of Judicial Systems, PREM Note 21. The Secretariat can be reached between the hours of 26, July 1999; Assessing Political Commitment to Fighting 9:00 a.m. and 5:30 p.m., Monday through Friday, at Corruption, PREM Note 29, September 1999; Mobilizing 202-458-7677. Civil Society to Fight Corruption in Bangladesh, PREM 22. The pager number is 1-800-915-7820. Note 30, October 1999; Rethinking Civil Service Reform, 23. The drop-box address is: PMB 137,4736 Sharon Road, PREM Note 31, October 1999; An Anti-Corruption Suite W, Charlotte, NC 28210, USA Strategy for Revenue Administration, PREM Note 33, 24. Living Our Values. Code of Professional Ethics, December October 1999; Reforming Tax Systems: Lessonsfrom the 24. Living Our Values: Code of Professional Ethics, December 19s RMNt 7 pi 00 l r vial 1999. 1990s, PREM Note 37, April 2000. All are available through the Bank's external website: www.worldbank. 25. The Ethics HelpLine, which is in addition to the Hotline org/publicsector/anticorrupt/premnotes.htm. for Fraud and Corruption, can be accessed by dialing 32. In collaboration with the Oversight Committee on 202-458-7000. Collect calls accepted. Fraud and Corruption, OCS has begun to gather dosed 26. The Ethics Web Page will be accessible to the general cases involving allegations of corruption on Bank proj- public in the fall of 2000. ects to develop case study training materials. 27. World Bank Harassment Policy, March 1, 2000. 33. Transparency International co-hosted and co-organized 28. There was already a history of World Bank involvement the conference. in anticorruption activities in some of these countries- 34. "Bank" means both IBRD and IDA; "loan" includes most notably Uganda, where the WBI had already spon- "credit"; "Loan Agreement" includes "Development sored several service delivery surveys and "integrity Credit Agreement.' workshops" to raise awareness of the corruption prob- 35. The InternationalAccounting Standards, published lem and promote domestic dialogue on how to address annually by the International Accounting Standards it, and the AFR developed "budget-tracking" to compare Committee and widely adopted by the accounting budgetary allocations with actual expenditures. profession, is an example of accounting standards that are acceptable to the Bank. 52 Helping Countries Combat Conuption (D et (D . LA PA , !& 11 r,X.. - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ------ 4~~~~~~~~- - - - - - - - - - - - - - _- - -. 4 - '- ' - - - - - -- -0 TOPIC START DATE ACTION STATUS Knowledge and Awareness 1. Staff training 10/98 Region-specific orientation Anticorruption orientation workshops for regional staff were held sessions for all staff in five Regions: (including resident missions); AFR 6/9/99 specialist training. EAP 7/1/99 ECA 7/8/99 LCR 2/23-2/24/99 MNA 5/24-5/25/99 Anticorruption module was included in procurement training course. Two workshops for procurement specialists were held on capacity assessments and the new CPARs. Seminars and workshops included "Anticorruption Diagnostic Tools,"2/99; "Mainstreaming Anticorruption in the CAS,"4/99; 'Reducing Corruption: A Search for Lessons of Experience,"5/99. Twelve Integrity Awareness Seminars were conducted for over 300 supervisors and managers at headquarters, and six seminars for 127 staff at four resident missions (RMs) in Southeast Asia-Beijing, Hanoi, Bangkok, and Manila. (4/99) New Employee Ethics Orientation: Over 25 twenty-minute sessions on the Code of Professional Ethics, policies, and procedures were conducted.Video for country offices was prepared in Spring 1999; It is currently being distributed to all country offices. Numerous brown bag lunches on corruption and governance were organized. 2. External 8/98 Updating of external relations Briefing notes were prepared for Annual Meetings; Updated briefing note relations strategy, key messages for for managers and staff was prepared in January. strategy for Annual Meetings, and briefing materials 3. Briefing for 11/98 Briefing to the Board Done 11/17/98 Executive on implementation of Directors the anticorruption initiative to date. 54 Helping Countries Combat Corruption TOPIC START DATE ACTION STATUS Knowledge and Awareness 4. PREM Notes: 4/98 A series of PREM notes provid- Completed PREM Notes include: Corruption and Development, New Anticorruption ing practical guidance to Frontiers in Diagnosing and Combating Corruption, Using an Ombudsman to series operational staff on corruption Oversee Public Officials, Using Surveys for Public Sector Reform, Fostering diagnosis and public sector Institutions to Contain Corruption, and Assessing Borrower Ownership Using reform approaches. Reform Readiness Analysis 5. Knowledge 7/98 The KMS will progressively External and internal websites were established. Management document country System (KMS) experience. anticorruption site 6. Workshop 5/99 Workshop to review and take The workshop "Reducing Corruption: A Search for Lessons of Experience' on corruption stock of the Bank's experience was attended by about 50 staff from across the Bank and some and draw lessons. representatives of the EBRD and the IDB-5/99. 7. Outline for 10/98 A PRR would be a major publi- Outline for possible World Development Report on institutions (including possible cation, including empirical corruption) in 2001 submitted in 1/99. Policy and work on types and causes of Research Report corruption, and reform strate- (PRR) on gies and examples. corruption Controlling Corruption in Bank-Financed Projecs 8. Support to 10/98 1) Creation of focal point in 1) Done 5/99. teams on OCS for links between project project design design and corruption. 2) Pro- 2) Identification and collection of good practice in project design to assist duction of a series of notes anticorruption commenced. documenting approaches to project design that reduce opportunities for corruption. 9. Reporting 9/98 Presentation of proposal to In 10/98, the jurisdiction of the Oversight Committee was expanded to fraud and clarify the rules for reporting include review of all allegations of fraud and corruption in Bank-financed corruption and handling internal and projects, and the hotline was launched. In 3/99, the committee hired proposal to external allegations of fraud a permanent secretary. In 6/99, the Investigation Unit of IAD merged with the senior and corruption in Bank projects secretariat to form a single investigative unit. In 1 1/98,a Sanctions management (including the immediate Committee was established to review the results of investigations and reporting of allegations, to make recommendations to the president with respect to declaring wherever received in the contractors ineligible to be awarded Bank-financed contracts. In FY99, organization, to a central the Sanctions Committee recommended the debarment of seven reference point). firms and two individuals.These recommendations were accepted by the president and are posted on the Bank's external website. Helping Countries Combat Corruption 55 TOPIC START DATE ACTION STATUS (ontrolling Corruption in Bank-Financed Projects, continued 10. Procurement 7/98 Completion of scheduled All of the 21 planned CPARs were started and 18 were completed during capacity build- CPARs in high-risk countries. the year. A major program of upgrading Bank procurement capacity was ing and risk Procurement Board to provide launched, including recruitment of additional staff, provision of new tools analysis assistance to teams in imple- to staff, and workshops. Procurement capacity assessments have been menting new procedures for included in all projects appraised after 11/1/98. project capacity/risk analysis and in evaluating experience. 11. Financial 7/98 1) Implementation of Loan 1) Assessment of the financial capacity of all implementing agencies and management Administration Change steps to strengthen financial management in project design have been of Bank Initiative, and included in all projects appraised from 7/98. projects 2) Increased use of Country 2) Nine CFAAs initiated in FY99. Several CPFAs (a shorter Financial Accountability Assess- form of the CFAA) are also being carried out. ments (CFAAs) by Regions. 12. Workshop on 4/99 Workshop with Bank and Done 10/99. procurement external experts on modern practices procurement practices to generate ideas that might be useful for the Bank. Assistance to (ountries 13. Country 7/98 Continuation of ongoing work A complete inventory of activities in FY99 has been compiled and is available requests for in cases of clear commitment. upon request. Some highlights from this inventory include: assistance To date over two dozen anticorruption workshops in over 21 countries across all regions, countries have requested Bank anticorruption diagnostic missions to 7 countries, assistance.Typical first steps are * over 24 country-specific corruption related studies and reports, and mounting of surveys and corruption diagnostic and service delivery surveys in about 9 countries. conducting of workshops. Next steps may include an IGR (see 18 below) and/or other policy and institutional reform work. 56 Helping Countries Combat Corruption TOPIC START DATE ACTION STATUS Assistance to Countries, continued 14. Research, 7/98 WBI core course on country Some highlights from the inventory (see 13 above) include: training, and experience in curbing corrup- The "Core Course on Corruption,'which has been developed and is being dissemination tion; workshops to strengthen piloted in the Africa Region. Seven countries (Benin, Ethiopia, Ghana, Kenya, of best practice media, parliament, and other Malawi, Uganda, and Tanzania) are participating in the pilot, the first phase institutions; regional integrity of which took place 6/14-6/1 8/99.The second phase began on 6/18/99 workshops; careful consideration and was conducted over a four-week period via distance learning of expanded research program technology.The third phase took place in 10/99 at the 9th International for DEC. Anticorruption Conference in Durban, South Africa (WBI). * Over 30 training workshops held for policymakers, parliamentarians,, auditors and members of the media and of the judiciary, at both regional and country levels (WBI). * Numerous research reports prepared including, among many others, Aggregating Govemance Indicators (DRG,WBI), Assessing Political Will and Opportunity forAnticorruption (DRG), Corruption and Political Finance in Africa (AFR, PREM), Corruption, Public Finances and the Unofficial Economy (DRG), Making Voice Work: The Report Card on Bangalore's Public Service (DRG), Moral Hazard and Optimal Corruption (DRG), Regulatory Discretion, Corruption and the Unofficial Economy (DRG) World Bank Enterprise Survey: survey instrument completed. (DRG) Diagnostic tools and survey instruments to assess the extent of corruption have been developed, and are currently being used in several countries. (WBI and ECA-PREM) Mainstreaming 15. Accountability 9/98 Designation of a unit/group Completed in five of six regions. within regions with clear accountability and resources to develop and mainstream the anticorrup- tion agenda in each Region. 16. Diagnosis of 9/98 Explicit attention in every CAS The coverage of governance issues in CASs increased markedly in FY99. governance to the state of governance and Notable CASs include those for Albania, Bangladesh, Bolivia, Bulgaria, conditions in corruption in the country and its Colombia, Gabon, Indonesia, Kenya, Papua New Guinea, the Philippines, every CAS impact on both country strategy and Thailand. and financial risks to Bank projects 17. High-risk 9/98 Special attention to Ongoing, with more intensive attention in FY00: PREM/OCS will work countries corruption in CASs, ESW, together to identify high-risk countries/operations, developing frameworks and project design in for providing advice and actually providing advice in some high-profile countries with high indica- countries. tors of corruption. Helping Countries Combat Corruption 57 TOPIC START DATE ACTION STATUS Mainstreaming, continued 18. Institutional and 10/98 Four to five pilot IGRs in FY99. IGRs undertaken in Armenia, Bangladesh, Bolivia, Ethiopia, and Indonesia, Governance They will include diagnostic including the development of diagnostic toolkits. Missions were undertaken Reviews (IGRs) work on the state of govern- to all five countries during FY99. Expected completion times: Armenia: end '99; ance and public sector per- Bangladesh: end '99; Ethiopia: to be determined; Bolivia:July '99; Indonesia: formance and will provide input end '99. A workshop to assess these pilots will be held in the fall of FY00. for country strategy formula- tion and project design. Possible pilot countries include Armenia, Bolivia, Bangladesh, Ethiopia, and/or Indonesia. Supporting Intemational Efforts and Partnerships 19. Annual 10/98 Seminar on corruption (co- Done 10/98. Meetings sponsored with IMF) and booth with Transparency International (TI) and ADB. 20. MDBs and 12/98 Second meeting of MDBs' PRMPS (PREM Public Sector Group) participated in the second meeting of bilateral donors working group to share the MDB Working Group on Governance, Corruption, and Capacity information and coordinate Building to share information and coordinate approaches. 12/14/98 approaches; expanded inter- actioncwith bilater dnors Anticorruption seminar of 5/18/99 drew upon the experiences of the action with bilateral donors. EBRD and IDB. Representatives of the two institutions participated. Regions and PRMPS have developed relationships with many partner organizations such as Canadian International Development Agency (CIDA) and Danish International Devlopment Agency (DANIDA). 21. NGOs 7/98 Continued collaboration There have been ongoing contacts and collaboration at central and with TI and other NGOs regional level, including, among others, regular interactions with TI. working on anticorruption. 22. OECD 7/98 Continued participation in Work- PRMPS maintains observer status on the OECD Working Group and ing Group on Bribery. Assisting continues to attend sessions. The Bank participates in outreach activities OECD in explaining the anti- of the OECD to explain the convention to nonmember countries. bribery convention to non- OECD countries and encourag- ing its ratification. 23. Professional 7/98 Continued enhancement of In place for the financial management and procurement families. bodies and working relationships with associations International Organization of Supreme Audit Institutions, International Federation of Consulting Engineers, Interna- tional Chamber of Commerce, and others. 58 Helping Countries Combat Corruption TOPIC START DATE ACTION STATUS Supporting Intemational Efforts and Partnerships, continued 24. Crime and 7/98 Participation in UN and Interpol Interpol conference attended in Lyon, 10/98. money laund- meetings on international crime ering and continued participation in the OECD's Financial Action Task Force. Staff Incentives 25. Projects and 7/98 Selective review of projects Ongoing with more intensive attention planned in FY00. program and programs to assess how evaluation effectively corruption risks have been addressed. 26. Staff Survey 3/99 Inclusion of questions on Bank The 1999 Staff Survey included questions associated with ethics and corruption culture and willingness of staff for the first time. Favorable responses were provided by 73% of staff on to report corruption in next Staff their willingness to use the Hotline, 78% on being pressured to compromise Survey. ethics, and 63% on observing violations of ethics. A relatively low proportion (36%) provided a favorable response on having discussed the Bank's anticorruption agenda in work groups. Ethics had the second highest favorable rating institutionally after Technology. Intemal Controls and Security Concems 27. Security plan 9/98 Preparation of action plan to Done; measures were announced 12/2/98. increase security for Bank staff (local and HQ staff). 28. Ethics program 10/98 Development of a modern Efforts are under way to update the Code of Professional Ethics and ethics management pro- to define a communications strategy. gram to define and support Extensive integrity awareness training for staff is ongoing (see 1 above). the professional values of In FY99, BEI closed 437 investigations into allegations of misconduct by the Bank. staff. In 337 of these cases the allegations were substantiated and disciplinary action was taken. * Investigative capacity is being enhanced: in FY99 two trained investigators were hired and a training program,"How to Conduct Investigations" I : I I was conducted for 30 staff from IAD, LEG, HR, OCSPR, and BEI. Helping Countries Combat Corruption 59 TOPIC START DATE ACTION STATUS Internal Controls and Security Concerns, continued 29. COSO and inter- 7/98 Review of adequacy of Review of overall internal control was carried out by IAD and reported to nal controls internal controls. the Audit Committee for FY98 (FY99 is in progress). * Continuation of Control CSA workshops were carried out by Controllers and some business units in Self Assessments (CSAs) FY98 and FY99. CSA workshops include instructions on the proper in Bank units. use of funds, and although the primary focus of the workshops is not on corruption and fraud, they provide a setting where participants can give indications of concern in these areas. In these cases participants are referred to the proper authorities in the Bank for follow-up and resolution. * Quarterly reporting to Semiannually, internal control issues are identified, and the status of Audit Committee. previously identified issues is updated and reported to the Audit Committee. (CTR) * Annual Attestation through Managing Directors and Vice Presidents are required to comment on the letters of representation by adequacy of internal controls in their areas of responsibility by submitting VPs. an annual letter of representation on the adequacy of internal controls, identifying any significant control breakdowns. Representation letters were signed by VPs in FY98 and FY99. * Auditing of major risk IAD carried out audits of high-risk Bank activities during FY98 and areas of the Bank. FY99. Business units are taking actions to address control issues raised in the CSA workshops. In the Finance area, business units are required to document key risks, identify the mitigating controls, and test key transactions to verify the adequacy of controls. All the above documentation is reviewed by Controllers in preparation of the annual assertion by management, and by the external auditors in their attestation, that the Bank's system of internal control over financial reporting meets the COSO Internal Control-Integrated Framework criteria. 30. Hotline 10/98 Launching of hotline for The hotline was established by the Oversight Committee in 10/98. It is reporting internal fraud and available toll-free in the U.S. and in most countries where the Bank corruption. has offices, 60 Helping Countries Combat Corruption A N N E X O N E Anticorruption Action Plan: FYOO (Progress as of June 2000) I eWMImakwRbiWt*Vpd t.Jue 000)-SS TOPIC START DATE ACTION STATUS Strategy Setting, Knowledge, and Awareness 1. Strategy setting 11/99 Public Sector Strategy Paper Strategy Paper sent to CODE in 1/00.To be discussed by Board on 6/15/00. and dissemina- and Governance Update- tion presentation to Board. 2. Anticorruption Ongoing Expansion of internal and Ongoing. External website upgraded in 4/00 for Spring Meetings. web sites external web sites to progress- ively document country experience. 3. Staff and client Ongoing Continuation of staff and client WBI core course for seven AFR countries concluded, with the third and final training; staff training programs, with emphasis phase taking place at the 9th International Anticorruption Conference awareness on active, hands-on training, in Durban, South Africa, in 10/99. Core course planned for LAC in 2000. SAR Addressing issues coming out of staff regional orientation workshop held on 5/2/00. Public sector group the March 1999 Staff Survey, rethinking staff training priorities and modalities in light of WB Staff Survey. including awareness of and willingness to use hotline. 4. PREM Notes Ongoing Continuation of anticorrup- Eight additional PREM Notes published to date in FY00: tion series (with at least 10 more PREM notes on various Assessing Political Commitment to Fighting Corruption anticorruption topics). The Law and Economics of Judicial Systems * Mobilizing Civil Society to Fight Corruption in Bangladesh * Rethinking Civil Service Reform * An Anticorruption Strategy for Revenue Administration * Court Delay: Lessons of Experience * Reforming Tax Systems: Lessons from the 1990s * Reducing Corruption: Lessons from Venezuela S. Anticorruption Spring,'00 Conference on analytic Postponed to FY01. conference developments of operation- al relevance. 6. Anticorruption Spring,'00 Preparation of ECA anticorrup- Draft completed. ECA External Advisory Group met in 4/00 to discuss in Transition rtion eport for Prague 2000. the draft. Report to be finalized in 6/00. Economies Helping Countries Combat Corruption 61 TOPIC START DATE ACTION STATUS Controlling Corruption in Bank-Financed Projects 7. Implementation Q2 FY00 Assessment and reporting to Report completed and presented to the Board in Q3 FY00. of financial management and the Board management on experience with the imple- and procure- mentation of the first year's ment reforms reforms in financial management and procurement.Adapting implementation of the re- forms in light of the findings. 8. Project design Ongoing Provision of assistance to Ongoing operational staff, through best practice dissemination and advice, in project design features that can contribute to reduced corruption in Bank- financed projects. 9. Procurement Ongoing Twenty-six CPARs in FY00, Ongoing. Review of first-year experience completed in 2/00. capacity build- with a focus on higher-risk ing and risk and priority countries. Review analysis of first-year experience. 10. Procurement Ongoing Procurement audits in FY00 Continuation of procurement audits on selected projects in countries with audits at the across all regions. Documenta- large lending portfolios or risky operational environment. project level tion and communication to staff of lessons from audits and investigations. 1 1. Financial Ongoing At least 21 CFAAs and 5 Profiles Ongoing. Review of first-year experience completed in 2/00. management in FY00 with a focus on higher- of Bank projects risk and priority countries. Review of first-year experience. Helping Countries That Request Bank Support 12. Implementation Ongoing Intensive implementation Ongoing assistance in about 95 client countries of institutional of credible, concrete (list of some countries posted on external website reforms reforms in countries that 11/99). have a clear commitment and request assistance. 13. Impact evalua- Ongoing Heightened emphasis on Ongoing review and evaluation of projects and programs. Quality plan tion measuring the impact and formulated and being implemented for monitoring portfolio.OED evaluating the results of the review scheduled for FYOO-FYO1. Surveys ongoing (see 18 below). Bank's anticorruption assistance on the ground (including OED review); second-generation anti- corruption surveys. 62 Helping Countries Combat Corruption TOPIC START DATE ACTION STATUS Helping Countries That Request Bank Support, continued 14. Special topics 3/00 Political finance and corrup- Ongoing tion: Investigation of the boundaries of Bank involve- ment in this area, to inform a possible policy note in the following fiscal year;distilling results from anticorruption surveys on this and relalted political economy variables. Mainstreaming Anticorruption in Bank Operations 15. CAS main- Ongoing Continuation of governance Work under way to develop guidance for handling governance in CASs streaming diagnosis in every CAS; closer (as part of 16 below). Ongoing review and evaluation of projects and linking of governance and programs. Quality plan formulated and being implemented for monitoring corruption diagnoses to the portfolio. lending program. Particular attention to high-risk countries. 16. Anticorruption 12/99 Finalization of Bank policy Cross-Bank working group established to review Bank's fiduciary and lending note on anticorruption and responsibilities in adjustment lending and to establish clearer guidelines lending-including adjust- to link governance and country assistance strategies. Policy note "Fiduciary ment lending-in high-risk Framework for Adjustment Lending"to be discussed with CODE and Audit countries (from both fidu- Committee in 5/17/00. Incorporates previous work on high-risk countries. ciary and mainstreaming perspectives). 17. Governance Ongoing Refinement, evaluation, and The Bank has led a discussion with OECD-Development Assistance Committee indicators; internal dissemination of (OECD DAC) and is working in partnership with Department for International Principles/ Code existing governance indica- Development, United Kingdom (DFID, UK), to develop an appropriate of Good tors; preparation of draft "governance scorecard." DFID-financed secondment planned for FY01. Governance principles [or code] of good governance" 18. Diagnostic Ongoing Evaluation of Institutional Pilot IGRscompleted in Armenia,Bangladesh,Bolivia,and Indonesia.Workshop work IGRs; and Governance Review on lessons learned held 12/14/99. Ongoing/new work planned or under Anticorruption (IGR) pilots and anticorrup- way for Argentina, Balkans, Benin, Caribbean, Ethiopia, Jordan, Kenya, and Surveys; SSRs tion surveys, and expansion Morocco. Public officials and/or corruption surveys planned, under way, or of work into other countries; completed in Albania, Argentina, Armenia, Bangladesh, Bolivia, Cameroon, linking IGR toolkits and Ghana, Guinea, Guyana, Indonesia, Kenya, Macedonia, Paraguay, Russia, methodology with Structur- and Thailand. al and Social Reviews (SSRs). 19. CPAR and Ongoing Development and dissemination Draft guidelines for CFAAs prepared. Pilot under way in ECA to coordinate CFAA main- of guidelines for best practice IGR and CPAR/CFAA work. One-day workshop held in 11/99 to discuss streaming and sequencing of CPARs and coordination issues in preparing guidelines for CPAR. CFAAs, in order to link them to IGRs and incorporate them into key operational work. Helping Countries Combat Corruption 63 TOPIC START DATE ACTION STATUS Mainstreaming Anticorruption in Bank Operations, continued 20. IDA 12 12/99 Assistance in defining gov- Ongoing (see 17). ernance criteria for IDAI 2. 21. Sector strategy Ongoing Mainstreaming of anticor- Ongoing papers ruption concerns in key sector strategy papers. Supporting International Efforts and Partnerships 22. Annual 9/99 Kiosk on Governance and Public Done 9/25/99-9/29/99 Meetings Sector Reform, with UNDP, Sup- port for Improvement in Gover- nance and Management in Central and Eastern European Countries (SIGMA), Public Management Committee and Public Management Service (PUMA), and the Common- wealth Secretariat. 23. MDBs and Fall,'99 Third meeting of MDBs'working MDB meeting on 1/13/00-1/14/00,in videoconference between Bilateral donors group to share information Washington, D.C., and Manila. Follow-up working group video and coordinate approaches; conference took place on 4/12/00. Meeting of bilaterals in Maastricht, expanded interaction with Netherlands, 4/25/00-4/26/00. bilateral donors. 24. NGOs Ongoing Partnering with NGOs at the Ongoing; IGRs, surveys, and workshops provide good mechanisms regional and country level for deepening our relationships with in-country NGOs. in a systematic way. 25. OECD Ongoing Participation in the OECD Ongoing; meetings held 10/99,12/99, and 2/00 in Paris. Working Group on Bribery to monitor and assess the imple- mentation of the anti-bribery convention. 26. Professional Ongoing Continued enhancement of Ongoing; meeting held with INTOSAI representative in Durban, South Africa, bodies and working relationships with 10/99.Various collaborative conferences and seminars, including associations Internation al Organization of 'Parliaments and the Media: Building an Effective Relationship,' hosted by Supreme Audit Institutions the Parliament of India, 2/00. (INTOSAI), International Federatior of Consulting Engineers (FIDIC), International Chamber of Com- merce (ICC), Commonwealth Parliamentary Association, Com- monwealth Press Union,Com- monwealth Journalists Associa- tion, and and other professional bodies. 64 Helping Countries Combat Corruption A, W-00, -6 0 A" , TOPIC START DATE ACTION STATUS Supporting International Efforts and Partnerships, continued 27. Crime and Ongoing Participation in UN and Interpol Meeting with Interpol in Durban, South Africa, money meetings on international crime 10/99; meeting of FATF in Portugal 9/99. laundering and continued participation in the OECD's Financial Action Task Force (FATF). Intemal Controls and Securty (oncerns 28. Ethics 10/99 Presentation to senior manage- Revised Code of Ethics, ethics website, and ethics helpline launched program ment of updated Code of Prof- 12/08/99. Code, Orientation Guide, videotape, brochure, calendar, tear-off essional Ethics, ethics helpline, wallet card-each advertising fraud hotline, ethics helpline-distributed and ethics web page; distribution in 2/00 to all managers for dissemination to all staff before 7/01/00. Code of updated code for signature translated into seven languages. Operating Standards and Procedures by all employees. Continuation forInquiries and Investigation and Guidelines for HelpLine Operations of new employee orientation. delivered 12/99. Poster with hotline and helpline information to be Delivery of manual of standards displayed permanently in all WBG facilities to be delivered and procedures for the opera- by 6/00. tions of the BEI, including information on conducting in- vestigations and the operations of the ethics helpline. Mandatory integrity training for Integrity awareness: As of 5/01/00,52 four-hour seminars for over supervisory staff: Over 28 integrity 1,000 staff conducted in Washington, D.C., Beijing, Hanoi, Manila, Jakarta, awareness seminars scheduled; Bangkok, Budapest, Paris, and Johannesburg. Over 40 sets of training integrity awareness training for materials sent to Africa and Latin America Regions. resident mission in Jakarta (9/99). Addition of language Staff Rule 8.01 revised in 1/00 to include new sections on "Reporting concerning whistle blowing of Fraud and Corruption-Confidentiality and Anonymity. Staff Rule to Staff Rule 8.01. 3.01 to be distributed to all staff by 7/01/00. Helping Countries Combat Corruption 65 TOPIC START DATE ACTION STATUS Internal Controls and Security Concerns 29. COSO and 7/99 Continuation of Control Self- CSA workshops currently being carried out by Controller's and business internal Assessment (CSA) process, unit partners. Rolloutto be completed in Q2 FY01. Internal control controls completion of initial rollout, and issues identified semi-annually; 'Internal Controls at the Bank-FY2000, handover of implementation and COSO, Mid-Year Progress Report" published and discussed with the maintenance activities of COSO Audit Committee in 2/00. Next report due in 7/00. lAD's internal control and CSA process to the business report for FY99 issued in Q2 of FY00. units. Identification of internal control issues and update of status of previously identified issues, with semi-annual report to the Audit Committee. MDs and VPs to comment on the Scheduled for 7/00. adequacy of internal controls in their areas of responsibility through annual letter of repre- sentation, identifying any signifi- cant control breakdowns. Annual assertion of adequacy Scheduled for 7/00. of internal controls for financial reporting by the President to Audit Committee. 30. Investigations Ongoing Increase in internal capacity to The Secretariat to Oversight Committee, currently comprising 16 staff conduct investigations. (2 co-managers, 8 investigators, 2 investigative analysts, 2 research analysts, and 2 program assistants) aims to increase staff to include 10 to 15 full-time investigators within six months. Development of database to BEI developing a case-tracking database, to be operational in the next facilitate the tracking of cases. few months. Working Group formed by Oversight Committee, the Use of lessons of investigations Legal Advisor for Procurement, and OCS to prepare case studies for to educate Bank staff on how to distribution to Bank staff. Several "fraud alerts"and other advisories already prevent and detect fraud in their posted on Secretariat's internal website. projects. 66 Helping Countries Combat Corruption A N N E X T W O Management, Procurement, and Financial Controls in Bank-Financed Investment Projects The Bank34 works with its borrowers from project summarized in the Project Appraisal Document. The design through completion to ensure that necessary specific agreements with the borrower on these management, procurement and financial controls are arrangements for a particular project are specified in the in place in projects that it finances. legal agreements (including the General Conditions). For procurement, the Loan Agreement refers to the Bank's Procurement Guidelines, and specifies how they Project Preparation, Appraisal, and Approval are to govern procurement procedures for the different categories and sizes of contracts for goods, works and During project preparation the Bank assists its borrow- related services and the rules for prior and post review ers develop and establish the arrangements that are of individual procurement procedures (including necessary to assure adequate management, procure- thresholds that take into account perceived risks as ment and financial controls in projects for which Bank identified through the Bank's assessment of the Bor- financing is sought. The arrangements are reflected in rower's procurement capacity). A Procurement Sched- project documents including a Project Implementation ule to the Loan Agreement sets out the criteria for Plan (PIP), which sets out detailed arrangements for packaging the contracts, the various methods of pro- managing and implementing the various activities curement that may be used, the thresholds within required to achieve the project objectives, including the which those methods apply, and any other arrange- arrangements for procurement and financial manage- ments that may be specific to the project. ment. For financial management, the Loan Agreement In appraising a project, the Bank independently sets out the agreed arrangements for disbursing the assesses the adequacy of the proposed arrangements loan, and the financial management, accounting, audit for project implementation, including the procure- and reporting requirements. Financial covenants in the ment and financial management arrangements, focus- loan agreement require the borrower to (i) maintain a ing in particular on the institutional capacity to carry financial management system, including records and out these arrangements, risks involved, and action accounts, and prepare financial statements, in a format plans to address any deficiencies. acceptable to the Bank, adequate to reflect the opera- The Bank proceeds to loan negotiation when, inter tions, resources and expenditures related to the project; alia, the procurement and financial management (ii) have the records, accounts and financial statements arrangements, including remedial action plans, are for each year audited by independent auditors; and (iii) agreed between the Bank and the borrower. These are furnish the audited financial statements to the Bank by Helping Countries Combat Corruption 67 an agreed date. The Loan Agreement sets out the reviews and issues a "no objection" for the initial adver- requirements for the use of a Special Account (a dedi- tisements, the bidding documents and the borrower's cated borrower account to which loan funds are bid evaluation report and recommendation for award. advanced), Statement of Expenditures (a disbursement The Bank normally conducts ex-post reviews on a sam- procedure for reimbursing the borrower based on a ple of the remaining contracts. description of expenditure incurred) and/or Project In addition, the Bank has recently introduced spe- Management Reports (a disbursement procedure for cialized procurement audits by external firms to review reimbursing the borrower based on reports that link a sample of procurement contracts for compliance expenditures with physical implementation) if they are with the Bank's procurement guidelines. permitted under the loan. Such procedures are permit- The Bank requires that borrowers (including bene- ted in accordance with perceived risks as identified ficiaries of Bank loans), as well as bidders/suppliers/ through the Bank's assessment of the borrower's finan- contractors under Bank-financed contracts, observe cial management capacity. the highest standard of ethics during the procurement and execution of such contracts. In pursuance of this policy, the Bank: Implementation and Supervision * will reject a proposal for award if it determines that Procurement the bidder recommended for award has engaged in corrupt or fraudulent practices in competing for the The responsibility for project implementation, includ- contract in question; ing the execution of the agreed procurement arrange- ments, rests with the borrower. The Bank monitors and will cancel the portion of the loan allocated to a supervises the implementation of these arrangements contract for goods or works if it determines that on a continuing basis until project completion. representatives of the borrower or of a beneficiary of To ensure transparent and competitive procure- the loan were engaging in corrupt or fraudulent ment practices, the Bank has established procurement practices during the procurement or the execution guidelines. The Bank has found that International of that contract, without the Borrower having taken Competitive Bidding, i most cases, is the most eco- timely and appropriate action satisfactory to the nomic and efficient method of procurement. In other Bank to remedy the situation; cases, other methods such as National Competitive will declare a firm ineligible, either indefinitely or Bidding, Limited International Bidding, Shopping for a stated period of time, to be awarded a Bank- (International and National), Direct Contracting may financed contract if it at any time determines that be preferred, all of which are governed by procurement the firm has engaged in corrupt or fraudulent prac- policies and procedures. tices in competing for, or in executing, a Bank- For major contracts above the threshold specified financed contract. Further, the Bank can require, in the Loan Agreement, and also for significant trans- in contracts financed by a Bank loan, a provision actions, the Bank normally reviews the bidding docu- requiring suppliers and contractors to permit the ments, the borrower's bid evaluation and the award Bank to inspect their accounts and records relating recommendation in advance of the contract's being to the performance of the contract and to have them awarded. For contracts subject to prior review, the Bank audited by auditors appointed by the Bank. 68 Helping Countries Combat Corruption Financial Management management system at the beginning of project implementation and periodically thereafter. The Under Bank-financed projects, the Bank requires the Bank reviews the auditor's independence, qualifica- borrower and the project implementing entities to tin,eprnc,ademsorfrnead mainain inanialmanaemen sytemsinduing tions, experience, and terms of reference and maintain financial management systems-including informs the borrower and project implementing accounting, financial reporting, and auditing systems - etiswhhrteautoiscepbl.I()te sufficient to ensure that they can provide accurate and equied auditefa ia ateentare t timely information on project resources and expendi- reurdadtdfnnilsaeet ar no timely ifrainoprjcrsucsadepd- received by the due date, (b) the auditor's opinion tures. indicates deficiencies in the accounting and internal Accounting. Accounting information submitted to controls (including ineligible expenditures) or in the Bank must adhere to accounting standards the reliability of the financial statements, or (c) the acceptable to the Bank.35 When project implementa- Bank considers the scope or quality of the audit to tion begins, the borrower and the project imple- be unacceptable, the Bank may refuse to extend the menting entities must have in place accounting and closing date of the loan and normally delays negoti- internal control systems that accord with such ations or Board presentation of any new loans ben- accounting standards and both (a) reliably record efiting the defaulting entity. and report all assets and liabilities and financial The Bank may suspend disbursements on a loan if it transactions of the project, and (b) provide suffi- does not receive audited financial statements. If the cient financial information for managing and mon- audited financial statements reveal major deficiencies itoring project activities, in internal controls the Bank may suspend disburse- Financial Reporting. The borrower and the project ments on that loan until it is satisfied that the borrow- implementing entities provide to the Bank annual er and the project implementing entities have taken audited financial statements of the project, which adequate remedial action. include (a) an assessment of the adequacy of accounting and internal control systems to monitor Disbursement expenditures and other financial transactions and .. The responsibility for project implementation, includ- ensure safe custody of project-financed assets; (b) a ing the execution of the agreed disbursement arrange- determination as to whether the borrower and proj- OJ_ ments, rests with the borrower. The Bank monitors and ect implementing entities have maintained adequate sentses th thenbor the B ankemo ni s docmenatin o al reevat tansctins;and(c) supervises the implementation of these arrangements documentation on all relevant transactions; and (c) on a continuing basis until project completion. verification that expenditures submitted to the Bank Bank staff also review the relevant documentation are eligible for financing, and identification of any in support of disbursement. After loan signing, the ineligible expenditures. Loan Department sends the borrower written instruc- Auditing. The borrower is required to have the proj- tions on the procedures for withdrawing loan funds. ect financial statements for each year audited, in The borrower is required to hold any Special Accounts accordance with auditing standards acceptable to in banks acceptable to the Bank. If the Special Account the Bank, consistently applied, by independent bank is a commercial bank, a letter from that bank stat- auditors acceptable to the Bank. The borrower is ing that funds will not be set off, attached or seized is also required to have the auditor review the financial required. Helping Countries Combat Corruption 69 Borrowers submit withdrawal applications to the ments; the acceptability of audited financial statements Loan Department to request loan disbursement. On received; the status of audited financial statements out- each application, the borrower certifies that standing; unsatisfactory matters requiring follow-up; * it has not previously withdrawn from the loan for and remedial actions under way or to be undertaken. the expenditures; * the goods and services covered by the application are Other Oversight Functions purchased in accordance with the loan agreement; Many other units throughout the Bank provide an tepdu aer eilsrsadditional level of control and oversight over the use of * for Statements of Expenditures and Project Manage- Bank funds on investment projects: ment Reports, all documentation authenticating the * Loan Department-Reviews and signs off on the expenditures will be made available upon request. financial management and disbursement aspects of Loan Department staff examine each applications to loan agreements. confirm that Legal Department-Drafts loan agreements; * it was signed by an authorized borrower signatory; reviews and clears compliance with legal aspects of Bank policies; reviews the adequacy of the legal * the expenditures claimed were incurred and are eli- gible under the loan; and framework for project implementation. * the supporting documentation submitted with the Quality Assurance Group-Conducts interim application is adequate. assessments of the quality of the project portfolio, including supervision, financial management and For Project Management Reports, the task team in the monitoring & evaluation. region also reviews and signs off on the disbursement. * Procurement Policy and Services Group-Pro- vides expert advice and support in the area of pro- Field Supervision curement, and follows up on allegations of non- compliance with Bank procurement guidelines, and Bank staff conduct field supervision missions about reviews all large contracts. two times per year. In the conduct of these missions, OCS Network (Procurement/Financial Manage- the Bank staff perform sample post reviews of docu- ment/Resource Management/Quality Group)- mentation supporting withdrawals against Statements Provides input and advice to the design of projects of Expenditures(SOEs) and Project Management to limit opportunities for misuse of Bank hinds. Reports (PMRs) and review the control environment that supports the preparation of SOEs and PMRs, and Internal Auditing Department-Performs audits perform post reviews of procurement contracts and the to assess the integrity of the internal controls of procurement process which was followed. Supervision business processes, including those associated with reports that Bank staff are required to submit upon the project cycle. their return indicate the continuing acceptability of the borrower's and the project implementing entities' mOversigBanComit o uin . . o ~~misuse of Bank funds. accounting, financial reporting, and auditing arrange- 70 Helping Countries Combat Corruption A N N E X T H R E E Partial Inventory of the Bank's Governance and Institutional Reform Programs FY98, FY99, and FYOO (1 st half) Since 1996, the Bank has launched numerous oper- Since most, if not all, Bank operations contain some ations pursuant to its anticorruption agenda. components that could be expected to have a positive While the decision to target corruption is relative- anticorruption impact, a complete list of Bank opera- ly new, the Bank has had a long history of promoting tions that are likely to contribute to the reduction of reforms that effectively improve the management of corruption would be unwieldy. public resources and reduce opportunities for corrup- To keep the list manageable and targeted, only those tion. Examples of reforms that have an impact on lev- programs targeted explicitly at anticorruption, els of corruption and the quality of governance improvements in governance, and/or institutional include: reform in the public sector have been included in the * Structural adjustment programs that support the inventory. The list is organized by region and country, liberalization of markets, prices, trade and exchange with cross-cutting Bank-wide initiatives included at the end. Programs are organized according to the regimes, countries with programs to strengthen folwncaeris governance following categories: * Public enterprise sector reforms that result in the Grant-based assistance to reduce corruption sale and liquidation of public enterprises ESW and Mission Reports on corruption In-country workshops and surveys on corruption * Private sector reforms that relax governments con- Governance-related lending. trols and cut off rent-seeking opportunities This list focuses on governance programs under * Reforms in service delivery and infrastructure pro- implementation or active preparation in FY98, FY99, grams to give greater voice and decisionmaking and the first half of FYOO. The extent of Bank activity power to local communities (i.e. community action in this area is increasing rapidly, and thus more recent programs). initiatives may not be reflected in the inventory. Helping Countries Combat Corruption 71 Countries with Programs to Strengthen Governance AFRICA Regional programs (FY99) Research program on determinants of corruption in Africa. (FY99) Study on Corruption and the Financing of Politics in Africa. (FYOO) Sourcebook for community-driven development Angola (FY98) CPFA Benin (FY99) IDF Grant. Reinforcement of (FY99) CPAR Anticorruption Unit in Presidency. (FY99) Pilot IGR to assess areas of weak governance and poor public sector performance (FYOO-O1) CFAA Burkina Faso (FYOO) CPAR (FYOO) Study on the governance underpinnings of service delivery. Cameroon (FY98-FYOO): Consultant reports on public expenditure and public investment. (FYOO) Development of good governance and anti- corruption action plan. (FYO1) CFAA (FYO1) CPAR Cape Verde Chad (FYOO) IDF Grant to support National Assembly (FYOO) Development of good governance and anti- corruption action plan. (FYOO) CFAA (FYOO) CPAR (FY01) PER C6te d'lvoire (FY98) CPFA (FY99) Country regulatory framework paper. (FYOO-01) CFAA 72 Helping Countries Combat Corruption (FY98) Corruption Workshop for Bank Staff and Clients (WBI). (FYO0-01) Preparation of a regional project to reform the public (FY98-00) Regional Investigative Journalism Workshops-print and procurement systems of member countries of the Union Economique radio journalists (West and East Africa-WBI). et Monetaire Ouest-Africaine in West Africa. (FY99) Role of African Parliaments in Curbing Corruption (WBI). (FY99) Anticorruption Core Course for seven African countries (WBI). (FY99) Workshop:The Media's Role in Curbing Corruption (WBI). (FY99) Information for Accountability Workshops: Supporting Accountability and Anticorruption Strategies in Sub-Saharan Africa (International Records ManagementTrust/Danish Governance Trust Fund). (FY99-00) Support to the African Parliamentarians Network against Corruption (WBI). (FY00) Presentations at Ninth International Anticorruption Conference in Durban, South Africa. (FY00) Investigative Journalism Teleseminar Series: Anglophone and Francophone Africa (WBI) (FY98) Anticorruption seminar (WBI). (FY99) Private sector development and judicial reform project. (FY98) Anticorruption seminar as part of IDF Grant to Anticorruption (FY99) Transport Sector Investment program. unit. (FYOO-01) Preparation of Public Expenditure Reform Credit with (FY99-00) Participant in WBI Core Course on Anticorruption. financial accountability components (FY00) Participant in Investigative Journalism Teleseminar Series (WBI). (FYOO-01) Preparation of Legal and Judicial Reform Project. (Approved FY92) Public Institutional Development project. (FY00) Participant in Investigative Journalism Teleseminar Series (WBI). (FYOO-01) Strong transparency components dominate the overall Chad-Cameroon Pipeline package. (Approved FY94) Public Sector Reform and Capacity Building project. (FY98) Economic Reforms Support project. (FY99) Privatization and Regulatory Capacity Building project. Participatory process linked to PRSP (Approved FY96) Capacity Building project. (FY99) Structural Adjustment Credit 111. (FY00) Technical Assistance Credit on Management of Oil Revenue (FYOO-01) Strong transparency components dominate the overall Chad-Cameroon Pipeline package. (FY00) Conference on Good Governance, focusing on corruption (Approved FY93) Economic ManagementTechnical Assistance. (22-24 November 1999). project (FY00) Participant in Investigative Journalism Teleseminar Series (WBI). Helping Countries Combat Corruption 73 Countries with Programs to Strengthen Governance, continued AFRICA, Continued Eritrea (FY99) CPFA (FYOO-01) CFAA (FYOO-01) CPAR Ethiopia (FY99) IDF Grant. Civil Service Reform and (FY98) Anticorruption mission and report; Follow-up (New operations are on hold Capacity Building. work is based on decision to designate Ethiopia as owing to the war with Eritrea) the pilot country in Africa for introducing the Anti -corruption Clause in Bank procurement. (FY98) CPFA (FY98-01) PER, conducted annually in Ethiopia (FY98) CPAR (FY99-00) Pilot IGR to assess areas of weak governance and poor public performance. (FYOO-O1) CFAA Gambia,The Ghana (FYOO) CFAA and CPAR under way. (FYOO-01) Participatory CAS and CDF process consulting government, donors and civil society. (FYOO-O1) Study to develop a consistent, cross-sectoral decentralization strategy, following through on anti- corruption survey, the institutional reform of ministries, and the development of measures to monitor and evaluate government performance. Guinea (FY98) CPFA (FY99) Mission to respond to request from President for assistance to fight corruption (FY99-00) CPAR (FYOO) Follow-up to Mission-assistance to develop anticorruption strategy and action plan Guinea-Bissau (FY98) IDF Grant. Notary and Registration (FY98) Strengthening Customs Administration. Service. Kenya (FYOO-01) Preparation and implementation (FY98) CAS. Best practice. of IDF Grant for support to the Kenyan (FY99) CAS. Addressed problem of corruption and public Anticorruption Authority. sector management. Lesotho (FY99) Policy dialogue on Civil Service Reform is part of Policy Framework Paper process. 74 Helping Countries Combat Corruption W - =w e -- : : ! 7 -f - :=Cw=t'W=XT (FY98) Anticorruption Seminar for Parliamentarians (WBI) (FY99) Three Introductory Investigative Journalism Seminars including Radio and Television journalists (WBI). (FY99-00) Governance and Corruption Survey (WBI/Danish Govern- ance Trust Fund). (FY99-00) Participant in WBI Core Course on Anticorruption. (FY00) Participant in Investigative Journalism Teleseminar Series (WBI). (FY00) Support to GOE/CSR Program, development of Investigative Journalism curricula (WBI). (FY98) Improving Cabinet decisions on public expenditure management (WBI). (FY98-00) Seminar for Public Accounts and Finance Committees (FY98/FY99) Economic Reform Support Operation project 1/11. (WBI). (FY99) Adaptable Program Loan Public Sector Management program. (FY99) Seminar for Economic and Financial Journalists on Transparency and Integrity (WBI and African Virtual University). (FY99-00) Participant in WBI Core Course on Anticorruption. (FYO0-01) Governance and Corruption Survey. (FY00) Participant in Investigative Journalism Teleseminar series (WBI). (FYO-01()Governance and Corruption Survey. (FY99) Adaptable Program Loan. Capacity Building for Service Delivery. (FY99-00) WBI Core Course on Anticorruption. (Approved FY93) Parastatal Reform and Privatization Technical (FYOO-01) Governance and Corruption Survey. Assistance project. (Approved FY95) Institutional Development and Civil Service Reform project. (FY99) Institutional Development and Civil Service Reform project. (FY01) Proposed Public Sector Adjustment Credit will focus on accountability and transparency in the use of public resources. Helping Countries Combat Corruption 75 Countries with Programs to Strengthen Governance, continued AFRICA, continued Liberia (FYOO) Collaborating with IMF to remove monopolies on petroleum products and rice imports. Madagascar (FY98) CPFA Malawi (FYOO-O1) IDF Grant. (FY98) Anticorruption mission and report. Reinforcement of Anticorruption Bureau Mali (FY99) Anticorruption mission and report. (FY99) CPAR Mauritius (FY98) CPFA Mauritania Mozambique (FYOO) IDF Grant. Supporting the Technical (FYOO-O1) CPAR Group for Public Sector Reform (FYOO-O1) Governance central to CAS. (FYOO-01) Report on accountability and transparency in the delivery of public services. Niger (FY99) CPAR (FYOO-O1) CFAA Nigeria (FYOO) Missions to develop comprehensive approach to anticorruption. (FYOO) CFAA and CPAR 76 Helping Countries Combat Corruption (Approved FY97) Public Management Capacity Building project. (FY99) Structural Adjustment Credit 11. (FY99-00) Participant in WBI Core Course on Anticorruption. (Approved FY94) Institutional Development project lI.The five major (FYOO-01) Governance and Corruption Survey components include: (i) improving civil service policy and information framework; (ii) strengthening capacity of department of personnel management; (iii) strengthening institutional capacity of the Ministry of Finance; (iv) support the Department of Statutory Bodies; and (v) strengthen the Malawi Institute of Management. (Approved FY96) Fiscal Restructuring and Deregulation Program project (FRDP). (FY99) FRDP II. (FYOO) Structural Adjustment Credit will support financial management reform, the office of Auditor General,judicial and legal reform, and decentralization of the administration of the civil service. (FY98) Seminar for Public Accounts and Finance Committees (WBI). (Approved FY96) Economic Management Credit. (FY99) Seminar for Economic and Financial Journalists on Transparency and Integrity (WBI and African Virtual University). (FY99) Seminar for Public Accounts and Finance Committees of Parliament (WBI). (FY98) Household and Private Sector Corruption Surveys (WBI). (FY98) National Integrity Meeting (WBI). (FY98) Support for Anticorruption Legislation (WBI). (FY98) Introductory and Advanced Investigative Journalism Seminars (WBI). (Approved FY96) Public Resource Management Credit. Approved FY93) Legal and Public Sector Capacity project. (FYOO-O1) Preparation of multi-faceted public-sector reform project. (FY99) Public Finance Reform Credit. (FYOO) Preparation of governance and corruption surveys. (FYOO) Preparation of Economic Management Capacity-Building Project (FYOO) Initiation of training program for parliamentarians and which will have components for strengthening economic and journalists (WBI). financial management. Helping Countries Combat Corruption 77 Countries with Programs to Strengthen Governance, continued AFRICA, continued Rwanda (FY98) CPFA Sierra Leone Senegal (FY98) IDF Grant. National Consultation on Civil Service Reform. South Africa (FY99) IDF Grant. Setting up Institute for Public (FY98) CPFA Finance and Auditing. Tanzania (FY98-00) Anticorruption mission and report-follow-up to the mission is the initiation of an accountability and transparency program. (FYOO) CPAR Uganda (FYOO) IDF Grant. Strengthening the capacity (FY98) CPFA of the Ministry of Ethics and Integrity (FY99) Anticorruption mission and report. (FY99) Study on corruption and the financing of politics. (FY99) Anticorruption report on the agenda of the Consultative Group Meeting and of February meeting of Global Coalition for Africa. (FYOO) CPAR Zambia (FY99) CAS. Strong anticorruption components. Zimbabwe 78 Helping Countries Combat Corruption (FY99) Economic Recovery Credit. (Approved FY93) Public Sector Management Support project: to strengthen capacity to implement adjustment program and longer-term growth strategy, focusing on fiscal management. (FY00) Governance and anticorruption component included in the new Economic Rehabilitation and Recovery Credit. (FY00) Regional Johannesburg police to improve security and governance. (FY98) Introductory and Advanced Investigative Journalism (Approved FY93) Financial and Legal Management Upgrading project. Seminars-Business Journalists (WBI). (Approved FY93) Private and Public Sector Management project. (FY98) Integrity Workshop for Parliament (WBI). (Approved FY97) Structural Adjustment Credit 1. (FY99) Introductory and Advanced Investigative Journalism (FY99) Tax Administration Program project. including Radio and Television (WBI). (FY00) Public Sector Reform Project focuses on service delivery, (FY99) Strengthening of Parliamentary Oversight (WBI) meritocratic public service, performance management and (FY99-00) Participant in WBI Core Course on Anticorruption. budgeting, pay reform, and ethics. (FY00) Participant in Investigative Journalism Teleseminar series (WBI). (FY98) National Integrity Meeting Ill (WBI). (Approved FY95) Institutional Capacity Building project. Includes (i) (FY98) 3 Investigative Journalism workshops (WBI). central government capacity building; (ii) local government capacity- (FY98) National Integrity Survey (WBI). building; (iii) legal sector reform; (iv) accountancy profession; and (v) (FY98) Integrity Meeting and Workshops for Parliament and training funds. Judiciary (WBI). (Approved FY97) Structural Adjustment Credit 111. (FY99) National Integrity Meeting IV, (WBI). (FY99) Education Adjustment Credit allocates funds directly to (FY99) National and District Media Training Investigative communities. Journalism-TV & Radio (WBI). (FY00) Preparation of Public Expenditure Reform Credit (PERC) with (FY99) 10 District Integrity Meetings (WBI). components to strengthen governance and accountability. (FY99-00) Participant in WBI Core Course on Anticorruption. (FY00) Participant in Investigative Journalism Teleseminar series (WBI). (FY99) Public Sector Reform and Export Promotion Credit. (FY00) Public Sector Capacity-Building Project to make public service delivery more effective and efficient, facilitate economic growth and thence reduce poverty. (FY98) Workshop on Training of Trainers for Development of Local Integrity (WBI). Helping Countries Combat Corruption 79 Countries with Programs to Strengthen Governance, continued EAST ASIA AND PACIFIC Regional programs (FY98) Regional strategy review and issues note (Klitgaard) (FY99) Regional Strategy & Action Plan. (FY99-00) East Asia Anticorruption Advisory Group. Meetings held with Regional Management Team and Advisory Group (6/99 Washington DC; Singapore 9/99; Bangkok, 2/2000). (FY00) Handbook for Fighting Corruption. (FY00) East Asia: Regional Study 2000 (chapter 6) (EAPVPC/EASPR) (FYOO-01) Study: constraints on the media to help curb corruption. Cambodia (FY99-00) IDF-financed TA for financial (FY99) Preliminary survey on "the business environment accountability development. and governance in Cambodia" (Danish Trust Fund) (FY99) PER-Governance, corruption issues discussed up front in the context of estimating the extent of revenue loss (especially from illegal logging) and expenditure leakages/diversions. (FY99-00) IDF grant: has surveyed public officials and private citizens as input for upcoming Action Plan for Enhancing Governance and Fighting Corruption. (FY00) Translation of"Parliamentarians Guide to Curbing Corruption' (WBI) China (FY99) Assistance to develop bidding law, (FY98) Accounting Reform and Development Project. procurement regulations, and a National Audit Office with an audit Management Informa- tion System. (FY99) IDF Grant. Strengthening of Enabling Environment for China's NGO Development. Indonesia (FY98) IDF Grant. Legal Reform. (FY99) Anticorruption Strategy Missions. (FY99-00) Asia-Europe Meeting (ASEM) Grant. (FY99) Anticorruption Action Plan for Internal Bank Improving Local Government Expenditure Activities. Transparency. (FY99) Strong anticorruption focus in CAS-PR. (FY99-00) ASEM Grants. Social Safety Net (FY99-00) Anticorruption Handbook. Monitoring with Civil Society and NGOs. (FY99) Civil Service Review (draft). (FY00) UNDP/WB Partnership on Governance. (FY99) PER - focus on budget management. (FY99) Governance Baseline (under purview of Partnership). (FY00) Translation of"Parliamentarians Guide to Curbing Corruption"(WBI). 80 Helping Countries Combat Corruption (FY99) Democracy and Governance Conference; Seoul, Korea (WBI) (FY00) Manila Social Forum, November 1999, highlighted session on governance and issues linking poverty and corruption. (FY99) Regional Seminar on parliaments role in curbing corruption (WBI). (FY00) Combating Corruption in Asia-Pacific (WBI, AsDB) (FY00) Parliamentarians Workshop (FY99) Program on Corporate Governance and Enterprise (Approved FY95) Fiscal Technical Assistance project. Restructuring with State Economic and Trade Commission (WBI) (FY93-00) Reform, Institutional Support and Pre-investment Project (feasibility of introducing tax police). (FY9S-99) Economic Law Reform Project. (FY95-99) Fiscal TA for improving tax administration. (FY99) Accounting Reform and Development Project to strengthen financial Management for state enterprises and government bodies. (FY99) State-Owned Enterprise Reform Project. (FY99) Technical Cooperation Credit 4 subcomponent supporting the National School of Administration in exploring adequate anticorruption measures and mechanisms. (FY99) Regular Meetings with Indonesia Corruption Watch, Interna- (FY99) Policy Reform and Social Safety Net Structural Adjustment tional NGO Forum on Indonesian Development and other NGOs. Loans including transparency and other anticorruption (FY99) Procurement Complaint Monitoring System.Wide and collusion conditions. distribution to the Country Team in FY00. (FY99) Seminar series on Public Sector Reforms. (FY00) CFAA (FY00) Integrity Awareness Seminar. (FY00) Parliamentary Workshop (WBI). Helping Countries Combat Corruption Si Countries with Programs to Strengthen Governance, continued EAST ASIA AND PACIFIC, continued Korea, Rep. of (FY99-00) IDF Grant. Financial Accountability & (FY99) Comprehensive anticorruption program and Good Governance. report. (FYOO) Policy and Human Resource Development (FYOO) Country Economic Memorandum (CEM) with (PHRD) Grant. Financial Accounting Standards governance component. Board. (FYOO) PHRD Grant.Transparency of Regulatory Environment. Lao PDR (FY99) IDF Grant. Civil Service Reform. Malaysia (FY99) Structural Policy Review (FY99) PER. Analyzes public expenditure/public sector management issues. (FYOO) CAS. Includes governance and transparency. Mongolia Papua New Guinea (FY98-99) IDF Grant. Independent Commission (FY98) CAS. Strong governance focus. Against Corruption (ICAC). Draft legislation (FY99) CEM focused on improving governance (both for establishment of ICAC. public sector and corporate) and included an anti (FY99) Financial Management Improvement -corruption strategy. project. (FYOO) PER included strategies to combat fraud and waste (FYOO) Informal assistance to TI (funded by and improve governance. Swedish Governance Grant) in proposal to monitor Government's privatization program using the'islands of integrity approach! (FYOO) Consultant Trust Fund established to support structural reform related activities, with a small portion of these funds earmark- ed to supportTI in anticorruption activities. Philippines (FY97) IDF Grant. Results monitoring. (FY98) Transparency study. (FY98) IDF Grant. Assistance to government (FY99) PER accounting system-Public Expenditure (FY99-01) CAS. Includes governance and anticorruption Management Improvement. agenda. (FY99) Special PHRD Grant. Upgrading the (FYOO) Judicial Assessment. financial framework. (FYOO) SSR looks at medium-term challenges in public (FY99) ASEM Grants. Poverty monitoring, sector management,judicial system, and corporate strengthening for financial infrastructure governance. and financial monitoring and reform (FYOO) Rural Development Trends and Study. (FYOO) PHRD Grant. Social and environmental (FYOO) Client Feedback Survey on Special Zone of Peace assessments. and Development Social Fund. (FYOO) Anticorruption Report and recommendations submitted to government. 82 Helping Countries Combat Corruption (FY99) Anticorruption seminar (ROK). (FY99) SAL II Corporate Governance. (FY00) Establishment of the Korean Financial Accounting Standards Board. (FY00) Comprehensive Package of Anticorruption Measures announced by ROK, Anticorruption Legislation pending before National Assembly. Government target of raising TI ranking from 43 to 20 by 2003 as part of goal to reach 'transparent state." (FY00) International Conference on Combating Corruption, Seoul. (FY00) Seminar on the role of audit committees. (FY98) Fiscal Technical Assistance project. (Approved FY91) Public Sector Training project. (FY00) SAL (under preparation, anticipated Board date FY00- governance focused operation, including public sector reform and institutional support, focus on oversight entities, privatization, and specific elements to combat corruption and support the rule of law. (FY98) Draft Terms of Reference for Asian Institute of Management. (FY99) Banking System Reform Loan (FY98) Workshop on financial management. (FY00) Social Expenditure Management Project, Housing Finance TA, (FY99) Policymaker workshops to bring together policymakers National Roads Improvement Management program. concerned with corruption. (FY00) Governance component of SSR. (FY99) Identification and development of an integrated program of procurement training and TA to prevent/detect fraud and corrup- tion and incorporate program into FY00 projects. (FY00) Integrated TA in financial management to prevent/detect fraud and corruption. (FY99-00) Judicial Assessment:Judicial System Performance in the Philippines. (PRMPS/Danish Governance TF). (FY00) World Bank anticorruption training for Manila based staff. Helping Countries Combat Corruption 83 Countries with Programs to Strengthen Governance, continued EAST ASIA AND PACIFIC, continued Thailand (FY98) IDF Grant. Financial Accountability (FY99) CAS. Analyzes corruption risks. and Good Governance. (FY99-00) Economic Management Assistance Project (FYOO) PHRD Grant. Financial Accounting (technical assistance on civil service reform/public Standards Board. expenditure management /customs reform). (FYOO) ASEM Grant. Institute of Directors. (FY99-00) Public Finance Review renamed: Selected Topics (FY99-00) PHRD Grant. Legal Reform. Economic in Public Finance (including public expenditure laws and civil society participation. management, fiscal transparency, and decentralization). (FY98-00) PHRD Grant. Preparing Public Sector (FY99-00) Various reports on accounting and auditing Reform 1. program. (FY99) IDF Grant. Strengthening the National (FY99) Anticorruption Strategy. Decentralization Committee. (FY99) Anticorruption Staff Handbook. (FY99-00) Australian Trust Fund Grant. Support (FYOO) Translation of "Parliamentarians' Guide to Curbing of Budget Reform. Corruption" (WBI). (FY99-00) Danish Trust Fund Grant. Anti- corruption Surveys of Households and Businesses. (FYOO) PHRD Grant. Preparing Public Sector Reform 11. Vietnam (FY98) IDF Grant. Improve government account- (FY99) Fiscal Transparency Study (jointly with IMF); to in- ing system. crease budgetary transparency (at National, Provincial, (FYOO) The Bank has been providing TA on and Commune levels) strengthening procurement since 1996. (FYOO) PER will address transparency issues further- An IDF in FYOO will extend this, specifically to reviewing progress on fiscal transparency. assist government formulate and implement (FYOO) A Bank paper on Anticorruption will be a public procurement ordinance.The objec- finalized in FYOO, and will contribute to a donor paper tive is to match standards required for entry on governance-to be discussed with Government. to WTO. 84 Helping Countries Combat Corruption (FY99) Policymakers' workshop series on public sector reform (FY99) Economic and Financial Adjustment Loan (corporate (including fiscal transparency and corruption). governance). (FY99-00) Workshops for accountants and auditors. (FY99-00) Sector Investment Program (NGO governance) (FYOO) Establishment of the Thailand Financial Accounting (FYOO) Public Sector Reform Loan (PSAL) with large transparency Standards Board. and accountability component. (FYOO) Training for auditors in public sector. (FYOO) Public sector reform and debt management chapters of SSR. (FYOO) Corruption surveys and review of regulations. Corruption (FYOO) Economic and Financial Adjustment Loan III (corporate surveys include public officials, business sector and households. governance). Results of the surveys will be used to organize anticorruption workshop with WBI. (FY99-00) Procurement training for Project Implementation Units. Training workshops have been organized regularly by World Bank Office Bangkok procurement cluster. (FY99-00) Workshop series on economic law and civil society partici- pation law reform that have some aspects of corporate good gov- ernance and transparency and public participation in policy formulation. (FYOO) Establishment of the Institute of Directors. (FYOO) Training for directors of listed companies. (FYOO) Parliamentary Workshop (WBI) (FY99-00) CDF pilot governance/anticorruption workshops. (FYOO) Structural Adjustment Credit 11 (SAC 11) includes measures on (FYOO) The Bank is strengthening monitoring of Bank-financed con- governance, including expanding budgetary transparency (at local tracts. In addition to ex-post reviews for all large Bank- financed and central levels) and providing an enabling environment for civil contracts, a selection of small contracts is being surveyed. society organizations. (FYOO) Active in donor working group on governance.The Govern- ment and National Assembly have identified public administration reform and anticorruption as key themes. (FYOO) Technical advice and back-up to Swedish-funded diagnostic survey of corruption (WBI). (FY99) Workshop on fiscal transparency for government officials (with IMF). (FYOO) Two workshops on Analytical Framework and Methodology of the PER for central and local government officials. (FYOO) Conference on Project Management and Implementation with session on transparency and anticorruption. Helping Countries Combat Corruption 85 Countries with Programs to Strengthen Governance, continued EUROPE AND CENTRAL ASIA Regional programs (FY99) PREM Note on new frontiers in diagnosing and combating corruption in ECA. (FY98/99) ECA Regional Anticorruption Study. (FY00) Chapter on Parliamentary Oversight in ECA Region" (WBI). Albania (FY99) TA. Conduct a Unit Cost Comparison (FY98) CAS. Considerable discussion of corruption risks. Study, donor coordination, tax/customs, and (FY99) Anticorruption mission, report and dissemination. needs assessment to strengthen Judicial (FY99) Dissemination and monitoring of Government Inspection Panel. Action Plan, promotion of civil society participation, (FY99) TA. Unit Cost Comparison Study, donor health services. co-ordination, tax/customs mission. (FY99) Publication and dissemination of anticorruption (FY99) TA. Judicial Inspection Panel, consolidate conference Report (including Government Action Plan Central Budget Office for courts, advance Alter- and Survey Results). native Dispute Resolution, plan dissemination (FY99) Tax/customs assessment. of published laws and judicial decisions. (FY00) Preparation of anticorruption strategy. (FY99) IDF Grant. Public procurement recom- (FY00) CAS. Update continues emphasis on governance mendations of A/C program, including private and anticorruption. sector outreach. (FY99) TA. Support for small grants to NGOs. Government/civil society roundtables on corruption. Armenia (FY00) IDF on governance. (FY99-00) Pilot IGR. (FY97) IDF on public procurement. Azerbaijan (FY99) CAS. Notable attention to governance and corruption. Bosnia-Herzegovina _ 86 Helping Countries Combat Corruption (FY98) Multi-country surveys of public officials, enterprises, and households and other instruments to diagnose patterns of corruption. (FY99) OECD/Organization for Security and Cooperation in Europe Workshop on Anticorruption in Transition Economies (WBI). (FY99) Council of Europe Workshop on Corruption and Crime. (FY99) USAID/OECD Workshop on Anticorruption in CIS and CEE Countries. (FY98) Joint Bank/EU Seminar on Anticorruption Strategy and Collaboration. (FY99) Anticorruption Monitoring by Civil Society in Latvia, Albania and Georgia (WBI/Danish Governance TF). (FY00) Regional Seminar for Parliamentarians (WBI). (FY00) 2 Investigative Journalism Workshops (WBI, OECD). (FY98) Anticorruption seminar (WBI). (FY98) Structural Adjustment Credit to improve public administration, (FY98) Co-finance diagnostic surveys, support government-NGO de-politicize civil service, improve competence of judiciary working groups, incremental work on administration and (required testing of judges), and strengthen Judicial Inspection judicial reform. Office. (FY98) Diagnostic surveys on education and health. (FY99) Judicial Reform & Public Administration Credit to improve (FY99) Donor/Government Co-ordination Meetings (every three (financial, personnel and performance) accountability; increase months). professionalism of judiciary and access to up-to-date legal inform ation; improve court administration. (FY99) Support for the Center for Educational Assessment and Evaluation (to reduce corruption in higher education sector). (FY99) New diagnostic tools to analyze institutional causes of (FY96) Institution-building Technical Assistance Project. corruption (IGR). (FY01) Public Sector Reform Credit. (FY99) Measuring Public Sector Performance in Armenia (Danish Governance Trust Fund). (FY00) Survey on businesses and households. (FY00) Public Sector Reform Adjustment Loan: policy conditions on judicial reform, public administration, civil service reform, licensing and expenditure management and auditing to improve accountability and governance. (FY00) Institutional Building Technical Assistance 11: support of the Public Sector Reform Adjustment Loan (FY99) Public Finance Structural Adjustment Credit. Helping Countries Combat Corruption 87 Countries with Programs to Strengthen Governance, continued Xw I0~- 0 71ti EUROPE AND CENTRAL ASIA, continued Bulgaria (FY99) CAS. Pays attention to corruption risks. (FY99) CPAR (FYOO) Identification mission on public administration reform, governance, anticorruption, and legal and judicial reform. Croatia (FY99) CPAR Georgia (FY98) IDF Grant. Public Procurement Reform. (FY99) Anticorruption mission and report. (FY99) IDF Grant. Approved for Strengthening (FY99) Public Sector Reform Missions report progress in State Chancellery and Public Service Bureau. implementing public service reform-related recomm (FY99) TA to finance short-term Institutional endations from June 1998 Workshop. Reform Adviser for Ministry of Finance to, inter (FY99) Public Sector Reform missions provided technical alia, tackle governance-related issues. assistance to simplify licensing regime (new law on (FYOO) PHRD Grant. Approved for licensing licensing passed April 1999), institutional strengthening reform for institutional strengthening of the of tax administration, and civil service reform. licensing and regulatory framework, analysis of intergovernmental finance, and strengthening the tax administration. (FYOO) CFAA proposed to be conducted. Hungary Kazakhstan (FYOO) IDF Grant. Public procurement. (FYOO) Review of Government's anticorruption program. Latvia (FY98) IDF Grant. State Audit Office. (FY98) Preparation of tax administration project. (FY98/99) IDF Grant. Public-Sector Reform. (FY98) CAS. Highlighting governance and anticorruption (FY98) TA. Assess corruption vulnerability in issues. tax administration. (FY99) Corruption diagnostic surveys and report. (FY98) TA. Review system of income and asset (FY99) Anticorruption mission and report. declarations. (FY99) Report on regulatory reform. (FY98) TA. Review anticorruption law. (FY99) Report on judicial reform. (FY99) Foreign Investment Advisory Service (FYOO) Procurement cost study. "Red Tape" study. (FY99) TA. Regulatory reform. (FY99) TA. Judicial reform. (FY99) TA. Review amendments to anticorruption law. (FYOO) TA. Improve regulatory drafting. Macedonia (FYOO) CAS. Highlighting governance and anticorruption. 88 Helping Countries Combat Corruption (FY98) Anticorruption seminars run byWBI. (FY99) Judicial Reform Program project. (FY98) Diagnostic work on de-licensing, procurement, and state (FY99) Transport Ministry Restructuring project. audit, co-financed diagnostic survey, public workshop. (FY99) Structural Adjustment Credit III addresses licensing and public (FY99) Civil Service Reform Workshop. procurement reform, and action plans for fiscal institutional reform. (FYOO) Dissemination of Corruption Survey Report. (FY99) Structural Reform Support project provides for TA to support Structural Adjustment Credit. (FY02) Public Sector Reform Credit (PSRC) in lending program. (Approved FY93) Pensions Administration and Health Insurance project. (Approved FY97) Public Financial Management project. (FYOO) Diagnostic work on corruption and delicensing. (Approved FY94) Technical Assistance loan. Approved FY97) Treasury Modernization project. (FY98) Public Sector Resource Management Adjustment Loan (PSRMAL). (FY99) Legal Reform project. (FY01) PSRMAL 11 (FY98) High-level workshop to create Government's anticorrup- (FY99) State Revenue Service Modernization project. tion program, run by School of Public Administration and WB. (FYOO) Governance Structural Adjustment Loan. (FY98) Public conference to discuss Corruption Prevention Council strategy adopted by Cabinet. (FY99) Public conference to disseminate Corruption Diagnostic Re- port and develop recommendations on 5 most vulnerable areas. (FYOO) Competitive Assessment of energy sector and workshop. Helping Countries Combat Corruption 89 Countries with Programs to Strengthen Governance, continued EUROPE AND CENTRAL ASIA, continued Moldova Poland (FYOO) IDF Grant. Monitoring subnational (FYOO) Diagnostic research and report,'Corruption in government performance. Poland: Review of Priority Areas and Proposals for Action" (FYOO) CAS Update. Noting governance and anticorruption issues. (FYOO) Country Public Procurement Assessment mission and report. (FYOO) Informal Payments in Healthcare, report. (FYOO) Participation in KERM (Council of Economic Ministers) Anticorruption Team. (FYOO) Assistance to high-level Anticorruption Group. Romania (FY99) CPAR (FYOO) Corruption surveys continue with USAID funding. Russia (FY98) IDF Grant. Legal and Institutional Frame- (FY99) Evaluating and strengthening expenditure controls work for Development of Public Procurement. for greater fiscal accountability. (FY98) Introducing"Case-by-Case privatization methods and use of independent, competitively chosen financial advisors to prepare and sell state assets (published as Bank monograph). (FY99/00) Corruption Diagnostic. (FYOO) Procurement Cost Study. (FY02) Preparation of Tax Administration Modernization Project II. Slovakia (FYOO) Public administration assessment. Tajikistan (FY98) IDF Grant. Public Procurement System. Turkey Ukraine (FY98/99) CIDA/USAID/TACIS (Technical Assist- (FY99) Study on informal economy. ance for Commonwealth of Independent States) TA project to support economic reform and integrity. (FY99) TA. Project for public feedback on municipal services. (FY99) IDF Grant. Improving public procurement. (FYOO) TA. Civil service reform and deregulation. Uzbekistan 90 Helping Countries Combat Corruption (FY98) Structural Adjustment Loan II. (FY01) PRSC I. (FY00) Diagnostics and workshop in Krakow City council. (FY00) Rural Development Project component on strengthening (FY00) Parliamentary conference on corruption and politics. subnational government administration. (FY00) Public conference on public procurement (jointly with the Institute for Public Affairs), where CPAR was launched. (FY00) Anticorruption/ governance/public administration/legal & judicial reform mission with a $50M lending program. (FY98) Workshop on Enterprise Reform, to foster rules-based (Approved FY95) Tax Administration project. competition, greater financial transparency, an independent (Approved FY96) Legal Reform project. regulatory regime, and reduced administrative discretion in (Approved FY96) Standards Development project. licensing. (FY99) State Statistical System project. (FY00) Diagnostics and workshop in 6 Oblasts. (FY98/FY99) Structural Adjustment Loans (SAL2 and SAL3) contain conditionality regarding competitive restructuring of infrastructure monopolies, reducing barriers to entry, implementing international accounting and auditing standards for greater transparency. Also contain conditionality in terms of production by Russian Govern- ment of strategy for public administration reform/civil service reform. (FY00) Diagnostics and workshop. (Approved FY96/FY99) Institution Building Technical Assistance I/Il. (Approved FY92) Technical Assistance for Treasury Data Systems. (Approved FY96) Public Financial Management Project. (FY98) Anticorruption seminar (WBI). (FY98) Treasury Systems project. (FY98) National Integrity Survey (WBI). (FY99) Public Administration Reform Loan with conditionality (FY98) Deregulation, public administration reform workshop. regarding transparency and accountability in the civil service and (FY99) Parliamentary workshop on Anticorruption (WBI). streamlining licensing, registration, business inspections, and (FY99) 4 Regional investigative journalist workshops (WBI). customs operations. (FY99) Integrity component in the Ministry of Justice judicial training program (MOJ/WBI/ERIS). (FY99) Two service delivery surveys/corruption workshops at Oblast level (WBI). (FY99) People's Voice Conference. (Approved FY94) Institution Building Technical Assistance. Helping Countries Combat Corruption 91 Countries with Programs to Strengthen Governance, continued LATIN AMERICA AND THE CARRIBEAN Regional programs (FY99/00) Fighting Corruption in Bank-financed (FY98) Work with Latin American Center for Develop- projects-Guide for Task Managers. ment Administration (CLAD)/OAS/IDB Publication and Dissemination, to promote networks and information exchange. (FY99) Workshop for senior staff on mainstream (FY99) Paper for the Consultative Group for the ing anticorruption work in LCR. Reconstruction of Central America:"The Fight Against Corruption: A World Bank Perspective' (FY99-00) Public Sector Modernization Projects in Latin America and the Caribbean: An Analysis of the Portfolio and Lessons Learned (Danish Governance TF- work under way). Argentina (FY99) IDF Grant. Support implementation of (FY99) CFAA the Ethics Code by the Oficina National de (FY00) Report on various aspects of governance and anti- Etica Publica. corruption, based on three consultants' studies. (FY99) Assistance to the Oficina Nacional de Etica Publica in organization of anticorruption conference. Brazil (FY00) Background note on governance and anti- corruption for CAS. 92 Helping Countries Combat Corruption (FY98) Participation in the Eighth International Anticorruption Conference (Lima, Peru). (FY98) International Anticorruption Forum (WBI). Held in Miami with participants from Bolivia, Chile, Colombia, Dominican Republic, Ecuador, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, San Salvador. (FY99) Participation in Central America Regional Integrity Workshop (WBI). (FY99) Participation in IlIl Congreso Internacional del CLAD sobre la Reforma del Estado (Madrid, Spain). (FY99) Participation in Symposium on Enhancement of Probity in the Hemisphere (Santiago, Chile). (FY00) Participation in Central America: Fiscal Transparency and Anticorruption Workshop (Tegucigalpa, Honduras). (FY00) Participation in IV Congreso Internacional del CLAD Sobre la Reforma del Estado (Mexico City). (FY00) Participation in Ninth International Anti-Corruption Conference (Durban, South Africa). (FY00) Participation in IX OLACEFs conference in Asuncion, Paraguay, on collaboration between the World Bank and Supreme Audit Institutions. (FY00) Participation at 14th Annual New Developments in Financial Management Conference in Miami, FL, with 350 participants from 50 countries between MDBs and Supreme Audit Institutions. (FYOO-03) Regional Program to raise awareness and promote investigative journalism (WBI, OAS) (Approved FY95) Provincial Development Loan II. (Approved FY96) Public Investment Strengthening Technical Assistance loan. (Approved FY97) Pension Administration Technical Assistance loan. (FY98) Provincial Reform Adjustment loans (Rio Negro, Salta, San Juan, and Tucuman). (FY99) Argentina Year 2000 project. (FY98) Model Court Development project. (FY99) Social and Fiscal National Identification System Program project. (FY99) Special SAL. (Approved FY97) Mato Grosso State Privatization project. (FY98) Minas Gerais State Privatization project. (FY98) Pension Reform Learning and Innovation Loan. Helping Countries Combat Corruption 93 Countries with Programs to Strengthen Governance, continued LATIN AMERICA AND THE CARRIBEAN, continued Bolivia (FY99) IDF Grant. Strengthen institutional (FY99) CAS. Best practice. capacity of the Ministry of Finance's Internal (FYOO) IGR Auditing Department. (FYOO) CFAA (FY99) Institutional Reform Project. (FYOO) CPAR Colombia (FY98) Anticorruption component of IDF Grant. (FY99) CFAA (FYOO) Technical support for anticorruption (FYOO) Anticorruption component of Cali city develop- amendments to national procurement law. ment strategy study. (FYOO) CPAR Dominican Republic (FY99) CAS. Best practice. (FY99-00) CPAR (FYOO) CFAA Ecuador (FYOO) Preparation of IDF proposal for Com- (FY99) Contributed to publication of Etica y Corrupcion: mission for Civic Control of Corruption. Estudio de Casos by Napoleon Saltos Galarza. (FYOO) CPAR El Salvador Guatemala (FY99-00) CPAR Guyana (FY99) CPAR Haiti (FY99-00) CPAR Honduras (FY99-00) CPAR Jamaica (FYOO) Background note on governance and anticorruption for CAS. Mexico (FY99) Background note on governance and anticorruption. (FY99) Government seminar on public sector reform and anticorruption. (FY99) Anticorruption seminar for state comptrollers (Mazatlan). Nicaragua 94 Helping Countries Combat Corruption E--W w--- (FY98) Ministerial Integrity Workshop (WBI). (Approved FY95) Judicial Reform project. (FY98) Establish a National Integrity Committee and Unit (WBI). (FY98) Financial Decentralization and Accountability project. (FY98) Household Service Delivery Survey (WBI). (FY99) APL. Institutional Reform. (FY98) Private Sector Service Delivery Survey (WBI). (FY99) National Integrity Workshop (WBI). FYOO Help Government in Anti-Corruption Initiative (FY99) Public Financial Management Project. Corruption vulnerability study of tax and customs administration with preparation of Risk Maps. (FY99) Survey: A New Approach to Judicial Reform Policy-making: Stakeholders'Views vs. Court Statistics (Danish Governance TF) (FY99) Corruption surveys of households, businesses and public (Approved FY95) Technical Assistance for Modernization of the State. servants (WBI). (Approved FY97) Judicial Reform project. (FY99) Technical Assistance for the preparation of Anticorruption Action Plan (WBI). (FY99) Anticorruption surveys (WBI) (Approved FY97) Public Sector Modernization project. (FY98) Legal Reform Workshop (WBI). (FY98) Integrated Financial Management 11. (FY98) Tax Administration Technical Assistance Loan. (FY99) Judicial Reform project. (Approved FY93) Public Administration project. (Approved FY96) Public Sector Modernization Structural Adjustment Credit. (Approved FY96) Public Sector Modernization Technical Assistance Credit. (Approved FY94) Tax Administration Reform project. (Approved FY97) Public Sector Modernization project. (FY98-99) Two National Integrity Workshops (WBI). (Approved FY95) Institutional Development Credit. (FY98) Household Service Delivery Survey (WBI). (FY98) Financial Sector Adjustment Credit (FY99) Disaster Relief Integrity Project (WBI). (FYOO) Preparation of anticorruption component of Economic ManagementTechnical Assistance Credit. Helping Countries Combat Corruption 95 Countries with Programs to Strengthen Governance, continued LATIN AMERICA AND THE CARRIBEAN, continued Panama (FY00) CPAR Peru (FYOO) CPAR Uruguay (FY99) IDF Grant. Improve government auditing (FY99-00) CPAR and financial management. Venezuela MIDDIJL EAST AND NORTH AFRICA Regional Programs (FYOO) Anticorruption strategy note. (FYOO) MNA Good Governance Algeria Djibouti Egypt, Arab Rep. (FYOO) Preparatory work for note on Public Sector- Private Business relationship. Jordan (FY99) Public Procurement Modernization. (FY99) Public Sector Review (FY99) CPAR (FY99) CPFA (FYOO) CFAA Lebanon (FY98) Procurement Legislation Reform. (FY99) Public Expenditure notes (sectoral and overview). (FY99) CPFA Morocco (FY99) Public Procurement Reform. (FY99) Informal background paper on corruption in Morocco. (FY99-00) CPAR (FYOO) CDF Governance and Public Sector Reform- draft under discussion. (FYOO) CAS. Gives attention to public sector reform and governance issues. West Bank/Gaza (FY99) Government Financial Management (FY99) Public Sector Review. Information System. (FY99) CPFA (FYOO) CDF Governance and Public Sector Reform- draft under discussion. (FYOO) PER. Publication and dissemination. Tunisia (FY99) Social and Structural Review- focus on public sector performance. 96 Helping Countries Combat Corruption (FY99) Urban Property Rights project. (FY99) Municipal Integrity Systems in Latin America (WBI). (Approved FY90) Technical Assistance project for Pre-investment and Institutional Development. (Approved FY93) Judicial Infrastructure Development project. (FY98) Supreme Court Modernization project. (FY98) Public Sector Modernization project. (FY99) Tunis workshop on Cabinet-Level Decision-making (WBI). (FY01) Budget Systems Modernization Project. (Approved FY97) Technical Assistance project. Supports Government decision-making related to macroeconomic reforms and the associated policy and programming framework. (FY01) Public Sector Reform Loan (in preparation). (FYOO) Accountability and Transparency component of Civil Service Reform under preparation. (FY99) Procurement Financial Management Training (FY94) Technical Assistance for Revenue Enhancement. (FY99) Anticorruption Workshop for government, private (FY99) Policy Reform Support Loan. (Expenditure management, sector and civil society to initiate a joint strategy Procurement,Judicial Reform). regarding anticorruption activities. (FYOO) Preparation of legal and judicial development projects. (FYOO) Follow-up to Workshop, including support to secretariat of steering committee, preparation of action plans and back- ground briefs. (FY98/99) Service Delivery Survey and workshops (WBI). (FY99/00) Preparation of legal and judicial development projects. (FY99)Procurement Financial Management Training. Helping Countries Combat Corruption 97 Countries with Programs to Strengthen Governance, continued MIDDLE EAST AND NORTH AFRICA, continued Yemen (FY99) CAS. Pays particular attention to corruption and civil service reform. (FYOO/01) PER SOUTH ASIA Regional programs (FY99) Corruption issues in South Asia-paper. (FY99) Supervision and Procurement best practices paper. (FYOO/01) Staff training on corruption. Bangladesh (FY99) IDF Grant. Improve government auditing (FY98) CAS. Strong discussion of governance issues. and financial management. (FY98) CPFA (FY99) TA. Assist Controller and Auditor General (FY99) Diagnostic case studies on corruption in to develop ability to conduct project audits. government. (FY99) Bangladesh Procurement Assessment Study. (FY99-00) CPAR (FY00) Country paper on Corruption. (FY00) IGR (FY00) CFAA Bhutan (FY98) CPFA India (FY99) IDF Grant. Upgrade institutional (FY99) Corruption issues-Country paper. capacity of Auditor General of India. (FY99) Governance issues addressed in state studies. (FY00) CDR (FY99) CPFA (FY00) Economic reports with substantial governance component (Rajasthan, Andhra Pradesh) Maldives (FY98) CPFA Nepal (FY99) IDF Grant.Third IDF Grant to upgrade (FY98) CPFA institutional capacity of Auditor General. (FY99) Corruption Issues-Country paper (FY99) CPAR Pakistan (FY98) CPFA (FY99) Corruption Issues-Background paper. (FY99) PER (FY99) Governance paper for Pakistan 2010. (FY99/00) CPAR Sri Lanka (FY99) Corruption issues-Country paper. (FY99) CPFA (FY00) Governance and Accountability report. (FY00) Report on the media (WBI) 98 Helping Countries Combat Corruption (FY99) Procurement and Financial Management Training. (FY99) Legal and Judicial Development. (FY99) Public Sector Management Adjustment Credit. (FYOO) Civil Service Modernization. (FY99) Anticorruption seminar for parliamentarians (WBI, Canada, TI-Bangladesh). (FYOO) Regional Workshop for Editors (WBI). (FY98) Anticorruption seminar (WBI). (FY01) Legal and Judicial Reform Project. (FY99) Survey on corruption by TI-Bangladesh. (FY98) Anticorruption seminar (WBI). (FY99/00) Governance and anticorruption components under preparation for Uttar Pradesh Program Loan 1 (FYOO-O1) Pakistan Tripartite Baseline Survey. (Approved FY96) Improvement to Financial Reporting and Auditing project. (FYOO) Anticorruption workshop and Action Plan. Helping Countries Combat Corruption 99 BANKWIDE ACTIVITIES (FY99-00) Public Sector Strategy Paper:"The World Bank: Addressing the Challenge of Reforming Public Institutions and Strengthening Governance." PREM Notes: (FY98) PREM Note 4:"Corruption and development" (FY99) PREM Note 7:"New frontiers in diagnosing and combating corruption" (FY99) PREM Note 1 9:"Using an ombudsman to oversee public officials" (FY99) PREM Note 23:"Using surveys for public sector reform" (FY99) PREM Note 24:"Fostering institutions to contain corruption" (FY99) PREM Note 25:"Assessing borrower ownership using reform readiness analysis" (FY00) PREM Note 26:"The law and economics of judicial reform" (FY00) PREM Note 29:"Assessing political commitment to fighting corruption" (FY00) PREM Note 30:"Mobilizing civil society to fight corruption in Bangladesh" (FY00) PREM Note 31 :Rethinking civil service reform" (FY00) PREM Note 33:"An anticorruption strategy for revenue administration" (FY00) PREM Note 34:aReducing court delays: Five lessons from the United States" WBI Books and Working Papers: (FY98)"Curbing Corruption"(WBI Development Series) (FY98) The Importance of Supreme Audit Institutions in Curbing Corruption (FY98) Social Marketing Strategies to Curb Corruption (FY99) New Perspectives in Curbing Corruption (WBI with TI) (FY00) The Role of Media in Curbing Corruption (FY99-00) DRG and other research (papers in final or draft form): * "Aggregating Governance Indicators' * 'Governance Matters" * Review paper on the consequences of corruption. * "Assessing Political Will and Opportunity for Anti-Corruption" * "Corruption and Political Finance in Africa" * "Corruption, Public Finances and the Unofficial Economy" * "Making Voice Work:The Report Card on Bangalore's Public Service" * "Moral Hazard and Optimal Corruption" * "Regulatory Discretion, Corruption and the Unofficial Economy" * "Decentralization Data Project"(Danish Governance TF) * "Does 'Grease' Payment Speed Up the Wheels of Commerce?" * "Corruption, Composition of Capital Flows and Currency Crisis" * "Rotten Bureaucracy and Endogenous Capital Controls" * "Who Must Pay Bribes and How Much?'draft-under review for publication * "The effects of corruption and taxation on growth: Firm level evidence,draft-under review for publication.Joint with Ray Fisman, Columbia University * "The cost of doing business: Ugandan firms' experiences with corruption"-Africa Region Working Paper Series No.6 (forthcoming) "Special Governance Zone"concept development in transition and developing economies 100 Helping Countries Combat Corruption Bank-Staff Training Partidpation in International Efforts Training Workshops: (FY98-99-00) Observer status at (FY98) 48 Integrity Awareness Seminars at headquarters and OECD Working Group on Bribery, resident missions. International Chamber of Commerce Standing Committee on (FY99) Anticorruption Diagnostic Tools (PRMPS, WBI). Extortion and Bribery, (FY99) Mainstreaming Anticorruption in the CAS (PRMPS,WBI). DAC Experts Group on Monitoring Performance in Good Governance, (FY99) Reducing Corruption: A Search for Lessons of Experience United Nations Office of Drug Control, and (PRMPS,WBI). Interpol International Groups of Experts on Corruption. (FY99) Regional Orientation Workshops in AFR, EAP, ECA, LAC, MNA (Regions, WBI). Preparation for SAR (FYOO). (FY98-99-00) Participation on MDB Working Group on Governance, (FY99) New Employee Orientation: Ethics component (OPE). Anticorruption and Capacity Building. (FY99-00) Procurement Innovations Workshop (Danish Governance TF) Helping Countries Combat Corruption 101 A N N E X F O U R _ -- Empirical Studies of Governance and Development: An Annotated Bibiography MOw~~~~s Ades, Alberto and Rafael di Tella. 1996. Review of empirical contributions of causes Corruption negatively affects investment, and "The Causes and Consequences of and effects of corruption. corruption is associated with the lack of Corruption: A Review of Recent Empirical competition in the product market and with less Contributions." IDS Bulletin 27(2). independent judicial systems. Ades, Alberto and Rafael di Tella. Cross-country regressions using 32 countries, Active industrial policy is associated with increased 1997."National Champions and Corruption: with subjective indicators of corruption and corruption, which offsets part of the effects of an Some Unpleasant Interventionist Arith- industrial policy from the World Competi- active industrial policy in increasing investment metic." Economic Journal, 107,1023-1042. tiveness Yearbook. rates. Alesina, Alberto and Beatrice Weder. 1999. Cross-country regressions for up to 90 coun- Foreign direct investment over the 1970-95 period "Do Corrupt Governments Receive Less tries, exploring the relationships between aid, is reduced by host-country corruption levels, using Foreign Aid?"NBER Working Paper foreign direct investment, and corruption. one corruption indicator, but no relationship is No. 7108. found when using any of six other corruption indicators. Alesina, Alberto; Sule Ozler, Nouriel Cross-country regressions for 113 countries for In countries and time periods with more changes Roubini and Phillip Swagel. 1 996."Political the 1950-82 period using annual data. in government (peaceful or otherwise), growth is Instability and Economic Growth."Joumal lower. Slow growth in turn increases the likeli- of Economic Growth, 1(2):189-211. hood of coups, but not of peaceful changes in government. Barro, Robert. 1991 "Economic Growth in a Cross-country growth and investment Coups, revolutions, and political assassinations are Cross Section of Countries.'Quarterly regressions for 98 countries for the 1960-85 associated with slower growth and lower invest- Journal of Economics, 106,407-433. period. ment rates. Barro, Robert. 1 996."Democracy and Cross-country growth regressions, examining Democracy is positively related to growth through Growth."Journal ofEconomic Growth, the impact of democracy (as measured by factor accumulation: democracy is not significant 1(1):1-27. the Freedom House indexes) on growth. when education and investment are included in the regression. A curvilinear relationship best fits the data, with partly democratic countries exhibit- ing the fastest growth rates. Helping Countries Combat Corruption 103 Authors Methodology Main Findings Brunetti, Aymo, Gregory Kisunko, and Conduct a survey of business establishments Credibility promotes investment and economic Weder. 1 997."lnstitutional Obstacles to around the world to construct an index of growth. Doing Business: Region-by-Region Results the"credibility of rules,composed of "the from a Worldwide Survey of the Private predictability of rule-making, subjective Sector." Policy Research Working Paper perceptions of political instability, security of No. 1759. World Bank,Washington, DC. persons and property, predictability of judicial enforcement, and corruption." Cross-firm and cross-country regressions as used to test the relationship between the credibility index and economic growth. Burkhart, Ross and Michael Lewis-Beck. Time-series cross-sectional regressions analy- The positive relationship between per capita 1 994."Comparative Democracy:The Econ- zing the relationship between income levels income levels and democracy is mostly attributa- omic Development Thesis."American and democracy, as measured by the Freedom ble to the effects of income on democratization; PoliticalScience Review, 88:903-910. House indexes. democracy has little effect on income levels. Burnside, Craig and David Dollar. 1997."Aid, Panel regressions measuring the relationships Aid has a positive impact on growth in developing Policies, and Growth. "Policy Research between aid, policies, and growth for 56 countries with good fiscal, monetary, and trade Working Paper No. 1777. World Bank, countries over six four-year time periods. policies. Aid does not appear to affect policies Washington, DC. systematically either positively or negatively. Burnside, Craig and David Dollar. 1998. Panel regressions explaining the impact Aid spurs growth and poverty reduction only in a "Aid, the Incentive Regime, and of aid on growth in developing countries. good policy environment. In developing countries Poverty Reduction. "Policy Research with weak economic management, there is no Working Paper No. 1937. World Bank, relationship between aid and change in infant Washington, DC. mortality. Where economic management is stronger, there is a relationship between aid and the change in infant mortality. Chong, Alberto and Cesar Calder6n. 2000. Geweke decomposition is used to test the Improving institutional development promotes "Empirical Tests on the Causality and causality and feedback between institutional economic growth in developing countries. Feedback Between Institutional Measures measures from BERI and ICRG (such as Causality also operates in the other direction, with and Economic Growth."Economics and contract enforceability, nationalization growth leading to higher ratings on the ICRG and Politics (forthcoming). potential, infrastructure quality, bureaucratic BERI indexes. delays, and a composite index of the above four) and economic growth. Chong, Alberto and Cesar Calder6n. 1997. Cross-country regressions using measures of Improvements in institutional efficiency reduce "Institutional Change and Poverty, or Why risk of expropriation, risk of contract repudia- the degree, severity, and incidence of poverty. is it Worth it to Reform the State?"Mimeo- tion, law and order, corruption in government graph.World Bank,Washington, DC. and quality of bureaucracy for institutional development,and measures proposed by Foster-Greer-Thorbecke (1984) for poverty. Chong, Alberto and Cesar Calder6n. 1998. Cross-country regressions using a composite For poor countries, institutional efficiency is "Institutional Efficiency and Income index of institutional efficiency based on positively linked with income inequality, and for Inequality: Cross Country Empirical measures of corruption of government, quality rich countries it is negatively linked with income Evidence."Mimeograph.World Bank, of bureaucracy, law and order tradition, risk inequality. Washington, DC. of expropriation, and risk of contract repudiation. *BERI stands for Business Environmental Risk Intelligence; ICRG stands for International Country Risk Guide. 104 Helping Countries Combat Corruption Authors Methodology Main Findings Clague, Christopher, Philip Keefer, Stephen Cross-country regressions using time-series Property and contract rights are significantly Knack, and Mancur Olson. 1 996."Property cross-section data, testing the impact of associated with a proxy for the time horizons of and Contract Rights in Autocracies and autocrats'time horizons, and the duration of autocrats (the log of years in power), and, in Democracies."Joumal of Economic Growth, democracy, on several measures of property democracies, with the duration of democratic 1(2): 243-276. and contract rights. government. Clague, Christopher, Philip Keefer, Stephen Cross-country regressions testing an objective "Contract-intensive money" is significantly related Knack, and Mancur Olson. 1 999."Contract indicator of contract enforceability:"contract- to growth, to investment, and to the size of -Intensive Money."Joumal of Economic intensive money"is the share of M2 not held contract-dependent sectors such as insurance. Growth, 4(2):185-212. in the form of currency outside banks. Cukierman, Alex, Steven Webb, and Cross-country regressions used to develop Legal independence is a statistically significant Bilin Neyapti. 1994."Measuring Central four different rankings of central bank: determinant of price stability among industrial Bank Independence and Its Effect on legal independence, governors'turnover rates, countries, but not developing countries.The rate Policy Outcomes." Intemational Center responses of specialists to questionnaire on of governors'turnover contributes significantly to for Economic Growth Occasional Paper central bank independence, and an aggrega- explaining inflation in developing countries and No. 58:1-62. tion of the first two. in explaining variations in inflation across the over- all sample of countries. An inflation-based index of overall central bank independence, combining legal and turnover information, helps explain cross-country variations in the inflation rate. Cull, Robert. 1 998."How Deposit In- Cross-country regressions in levels and Explicit deposit insurance is positively correlated surance Affects Financial Depth." differences. with subsequent increases in financial depth if Policy Research Working Paper No. 1875. adopted when government credibility and World Bank, Washington, DC. institutional development are high. Demirguc-Kunt, Asli and Enrica Detragiache. Panel logit regressions using rule of law, Banking crises are more likely to occur after 1 998."Financial Liberalization and Financial corruption, and contract enforcement as financial liberalization. However, the effect of Fragility. "Development Research Group. measures for institutional development as financial liberalization on the fragility of the World Bank, Washington, DC. determinants of the probability of financial banking sector is weaker when the institutions crisis after interest-rate liberalizations. are more developed. Dollar, David and Lant Pritchett.Assessing Qualitative and quantitative analysis ex- The impact of aid on growth and infant mortality Aid: What Works, What Doesn't, and Why. plaining the interaction of government depends on "sound economic management,"as 1998. Oxford University Press for the policies and the quality of governance. measured by an index of economic policies and World Bank, Washington, DC. institutional quality. Evans, Peter B. and James E. Rauch Cross-country growth regressions, testing Growth is strongly associated with higher values (2000)."Bureaucratic and Growth: the impact of bureaucratic structure and of the Weberian State Scale. A Cross-National Analysis of the meritocracy, as measured by a "Weberian Effects of "Weberian" State Structures State Scale" constructed from expert opinions on Economic Growth."American for 35 developing nations. Sociological Review, forthcoming. Fischer, Stanley. 1 993."The Role of Regression analog of growth accounting Growth is negatively associated with inflation, Macroeconomic Factors in Growth." used to present cross-sectional and panel large budget deficits, and distorted foreign Journal of Monetary Economics. regressions showing relationship between exchange markets. Hence good polices are 32:485-512. growth and macroeconomic factors. conducive to faster growth. Helping Countries Combat Corruption 105 Authors Methodology Main Findings Friedman, Eric, Simon Johnson, Daniel Across 69 countries, higher tax rates are Corrupt governments become small governments Kaufmann, and Pablo Zoido-Lobat6n. associated with less unofficial activity as a and only relatively uncorrupt governments can 1 999."Dodging the Grabbing Hand: percentage of GDP, but corruption is associated sustain high taxes. The Determinants of Unofficial Activity with more unofficial activity. Entrepreneurs in 69 Countries. " Forthcoming in Journal go underground not to avoid official taxes of Public Economics. but to reduce the burden of bureaucracy and corruption. Dodging the "grabbing hand" in this way reduces tax revenues as a percentage of both official and total GDP. Grier, Kevin and Gordon Tullock (1989). Growth regressions for regional groups of Nations with fewer civil liberties grow more slowly "An Empirical Analysis of Cross-National countries, using the Freedom House civil in the African and Latin American samples; no Economic Growth: 1951-80,"Joumal of liberties index as "a proxy for the political relationship is found for the Asian sample. Monetary Economics, 24:259-276. infrastructure"of nations. Hall, Robert and Charles Jones. 1999. Cross-country regressions using two indexes: Differences in capital accumulation, productivity, "Why Do Some Countries Produce So one of government anti-diversion policies and therefore output per worker are driven by Much More Output Per Worker Than (GADP) constructed by Knack and Keefer differences in institutions and government Others?" QuarterlyJournal of Economics, (1995) with data from the ICRG, and one from policies. 114:83-116. Sachs and Warner (1995) on trade openness. Helliwell, John. 1 994."Empirical Linkages Cross-country regressions exploring the Higher income levels encourage democratization. Between Democracy and Economic relationships between income levels, demo- Any effects of democracy on income growth Growth."British Journal of Political cracy, and income growth. appear to be through increasing education and Science, 24:225-248. investment rates. Huther, Jeff and Anwar Shah. 1998. "Apply- Construction of an index of governance A positive relationship exists between fiscal ing a Simple Measure of Good Governance quality. Index includes citizen participation, decentralization and quality of governance. to the Debate on Fiscal Decentralization." government orientation, social development, World Bank Operations Evaluation and economic management. Department Policy Research Working Paper No. 1894. World Bank, Washington, DC. Isham, Jonathan, Daniel Kaufmann and Cross-national dataset used on the perfor- Controlling for other determinants of performance, Lant Pritchett. 1 997."Civil Liberties, mance of government investment projects economic rates of return on projects in countries Democracy, and the Performance of financed by the World Bank to examine the with the strongest civil liberties average 8 to 22 Government Projects." The World Bank link between government efficacy and percentage points higher than countries with the Economic Review. 1 1(2):219-42. governance. weakest civil liberties. Johnson, Simon, Daniel Kaufmann, and Cross-country regressions from Heritage Countries with more regulation tend to have a Pablo Zoido-Lobat6n. 1 998."Regulatory Foundation, Global Competitiveness Survey, higher share of the unofficial economy in total Discretion and the Unofficial Economy." ICRG, Freedom House to explain the size of GDP. Higher tax burden leads to more unofficial American Economic Review. 88(2): 387-392. the unofficial economy in three regions: Latin activity. Countries with more corruption tend to America, OECD, and the former Soviet bloc. have a larger unofficial economy. Johnson, Simon, Daniel Kaufmann, John Firm-level regressions using "unofficial"activity A comparison of cross-country averages shows McMillan, and Christopher Woodruff. 1999. of private manufacturing firms in Eastern that managers in Russia and Ukraine face higher Forthcoming. Joumal of Public Economics. European countries: Russia, Ukraine, Poland, effective tax rates, worse official corruption, Slovakia, and Romania. greater incidence of criminal protection, and have less faith in court system.The firm-level regressions for three Eastern European countries find that official corruption is significantly associated with hiding output. 106 Helping Countries Combat Corruption Authors Methodology Main Findings Kauffman, Daniel and Aart Kraay and Simultaneous model used to isolate the A strong causal relation exists between gover- Pablo Zoido-Lobat6n. (1 999a)."Govern- direct effects of differences in governance nance and development outcomes for all six ance Matters." World Bank Policy Working on three measures of development out- aggregate indicators.They find that their results Paper No.2196. comes: GDP per capita, infant mortality, and hold whether or not OECD countries are included adult literacy.They use a very large set of in their sample. indicators drawn from commercial sources and investor surveys.They allocate these indicators to six clusters and use a latent variable model to estimate a common element in each cluster. Kaufmann, Daniel, Aart Kraay, and Simple variant of an unobserved components Aggregate governance indicators are more Pablo Zoido-Lobat6n. (1 999b)."Aggre- model used on a sample of 160 countries to informative about the level of governance than gating Governance Indicators." World combine information from different sources any individual indicator, but the standard errors Bank Policy Working Paper No.2795. into aggregate governance indicators.These associated with estimates of governance are still include rule of law, graft, and voice and large relative to the units in which governance is accountability. measured. Kaufmann, Daniel and Shang-Jin Wei. In a general equilibrium model in which Firms that pay more bribes are also likely to spend "Does 'Grease Money' Speed Up the regulatory burden and delay can be endo- more, not less, management time with bureau- Wheels of Commerce?" 1999. NBER genously chosen by rent-seeking bureaucrats, crats negotiating regulations, and face higher, not Working Paper No 7093. red tape and bribery may be positively corre- lower, cost of capital. lated across firms. Using data from three worldwide firm-level surveys, the relation- ship is examined between bribe payment, management time wasted with bureaucrats, and cost of capital. Knack, Stephen and Gary Anderson. 1999. Cross-country regressions examining changes Income growth for the poorer quintiles is more "Is 'Good Governance' Progressive? Un- in income growth for different income sensitive to the quality of governance (measured published manuscript. quintiles, and changes in Gini coefficients by ICRG and BERI indexes) than is income growth over time. for richer quintiles. Gini coefficients decline more where the (initial) quality of governance is higher. Knack, Stephen and Philip Keefer. 1995. Cross-country regressions using two subjec- Institutions that protect property rights are crucial "Institutions and Economic Performance: tive indexes of institutional development for economic growth and rates of investment as Cross-CountryTests Using Alternative from ICRG and BERI.The ICRG index combines a share of GDF.The institutional indexes explain Institutional Measures. "Economics and quality of the bureaucracy, corruption in economic performance much better than do the Politics. 7(3):207-227. government, rule of law, expropriation risk, Freedom House indexes, or frequencies of coups, and repudiation of contracts by government. revolutions, and assassinations. The BERI index combines bureaucratic delays, nationalization potential, contract enforceabi- lity,and infrastructure quality. Knack, Stephen. 1 996."lnstitutions and Cross-country growth regressions testing Unconditional convergence in per capita incomes the Convergence Hypothesis:The Cross- for convergence effects. is not found in broad cross-country samples. It is National Evidence." Public Choice, 87: found however for a sample of nations with 207-228. high-quality institutions as measured by indexes from ICRG and BERI. Helping Countries Combat Corruption 107 Authors Methodology Main Findings Knack, Stephen and Philip Keefer. 1 997a. Institutional indexes from BERI and ICRG are Institutions are important determinants of 'Why Don't Poor Countries Catch Up? A interacted with initial per capita income in "convergence"-weak institutions prevent poor Cross-NationalTestof an Institutional Ex- cross-country growth regressions. countries from exploiting"catch up"opportunities. planation. "Economic Inquiry. 35:590-602. Knack, Stephen and Philip Keefer. 1 997b. Cross-country regressions using indicators Trust and civic cooperation have significant 'Does Social Capital Have an Economic from the World Values Surveys on interper- impacts on economic performance. Group Payoff? A Cross-Country Investigation." sonal trust, civic cooperation, and member- memberships, hypothesized to have positive Quarterly Joumal of Economics. 112: ships in groups. effects by Putnam (1993) and negative effects by 1251-1288. Olson (1982), have no relation to economic performance. Kormendi, Roger C. and Philip G. Meguire. Cross-country growth regressions with 47 Growth and investment rates are higher, other 1985."Macroeconomic Determinants of countries for the 1950-77 period. Independent things equal, in countries with greater civil Growth."Joumal of Monetary Economics, variables include the Freedom House civil liberties.The effect on growth appears to be 16:141-163. liberties index,a proxy for"economic rights, entirely through increasing investment. such as freedom from expropriation or the enforceability of property rights and private contracts.' La Porta, et. al. 1 997a."Legal Determinants Cross-country regressions using measures of Countries with better investor protections have of External Finance."Journal of Finance. legal rules protecting investors and the bigger and broader equity and debt markets. 52(3):1131-1150. quality of their enforcement (measures in- clude rule of law, shareholder rights, one- share = one-vote, creditor rights). The data on these qualitative, but objective (except for rule of law), variables are presented in La Porta et.al. (1998 [1996]). La Porta, et. al. 1 997b."Trust in Large Cross-country regressions using measures of Trust has important effects on economic Organizations. AEA Papers and Pro- trust from the World Values Surveys. performance. ceedings. 87(2):333-338. Levine, Ross. 1 997."Law, Finance, and Panel regressions using institutional variables Countries with more developed institutions (legal Economic Growth." Mimeograph. (such as creditor rights, enforcement of and regulatory systems) have better-developed World Bank, Washington, DC. contracts, and accounting standards) as financial intermediaries, and consequently grow instrumental variables. faster. Loayza, Norman. 1996."The Economics of Endogenous growth model with data on The size of the informal sector is negatively the Informal Sector: A Simple Model and Latin American countries in the early 1990s. correlated with the rate of economic growth in Some Empirical Evidence from Latin Causal variables include corporate income countries where the statutory tax burden is larger America. "Carnegie-Rochester Conference tax rate, labor market restrictions, strength than optimal and the enforcement system is weak. Series on Public Policy. 45:129-162. of the enforcement system. Mauro, Paolo. 1 995.'Corruption and Cross-country regressions using subjective Corruption is negatively linked with economic Growth."QuarterlyJournal of Economics indices of corruption, the amount of red tape, growth. 110(3):681-712. the efficiency of the judicial system, and various categories of political stability. Rauch, James E. and Peter B. Evans (2000). Cross-country regressions of bureaucratic Subjective ratings of bureaucratic quality and "Bureaucratic Structure and Economic quality and corruption on indexes of bureau- corruption from ICRG and other sources are Performance."Journalof Public Economics, cratic structure and meritocracy, constructed positively related to the meritocratic hiring index, 74,49-71. from expert opinions for 35 developing but are unrelated to indexes of compensation and nations. internal promotion and career stability. 108 Helping Countries Combat Corruption Authors Methodology Main Findings Rodrik, Dani. 1 997."TFPG Controversies, Cross-country regressions and correlations Institutional quality, initial income, and initial Institutions, and Economic Performance using index constructed by Easterly and education do well in rank ordering East Asian in East Asia."NBER Working Paper No. W5914. Levine (1996) using data from Knack and countries according to their growth performance. Keefer (1995). Scully, Gerald. 1 988."The Institutional Cross-country regressions of income growth Controlling for changes in the K/L ratio, income Framework and Economic Development.' for 1960-80 for 115 nations, using the Free- growth is higher where countries are rated more Joumal of Political Economy, 96(3):652-662. dom House indicators as proxies for property highly on the Freedom House indexes. rights and the rule of law. Tanzi,Vito and Hamid Davoodi. 1997. Cross-country regressions using measures of The presence of corruption tends to increase "Corruption, Public Investment, and corruption, government revenue, O&M ex- public investment while lowering its productivity. Growth." IMF Working Paper WP/97/139. penditures, and quality of public investment. Wei, Shang-Jin. 1 997."How Taxing Is Cross-country regressions using measures of Increases in either tax rate on multinational firms Corruption on International Investors?" two year bilateral flows of FDI as explanatory or corruption levels in host government reduces NBER Working Paper No. 6030. variable, tax rates, corruption, GDP, population, inward FDI and corruption is not treated differently distance, wage, and linguistic ties. in different parts of the world. World Development Report. 1997. The Survey of the importance of the role of the The survey showed that entrepreneurs in some State in a Changing World, Oxford University state in development. A specially commission- parts of the world live in constant fear of policy Press for the World Bank,Washington, DC. ed survey of 3,600 firms in 69 countries for the surprises and that the institutional framework publication reported on perceptions of the was not well enough entrenched to withstand stability of laws and policies, adequacy of in- changes in government without serious dis- frastructure, taxes and regulations, and crime ruption. Sound policies by themselves can and corruption. improve results. Benefits are magnified where institutional capability is also higher. Zak, Paul and Stephen Knack. 1998. Cross-country regressions for 40 market Trust is strongly related to growth rates.With data "Trust and Growth. IRIS Center Working economies, using survey measures of inter- on 11 countries beyond those analyzed by Knack Paper No.219. personal trust. and Keefer (1997), this relationship is found to be robust to variations in specification or period examined, and to the use of religious composition variables as exogenous instruments for trust.Trust is higher in nations with less income inequality and ethnic heterogeneity, and with more reliable legal mechanisms for enforcing contracts. Helping Countries Combat Corruption 109 The World Bank 1818 H Street N.W., Washington, D.C. 20433 USA Telephone: 202-477-1234 * Facsimile: 202-477-6391 Telex: MCI 64145 WORLDBANK - MCI 248423 WORLDBANK Internet: www.worldbank.org - E-mail: books6&worldbank.org A FREE PUBLICATION