2006 Spring Meetings

The World Bank’s Governance Conditionality: Time for Reform
Friday, April 21, 2006 / 14:00-16:00 pm

MEETING NOTES

The purpose of this session was to discuss the nature and impact of the World Bank’s governance agenda and governance conditionality. The session was chaired by Caoimhe de Barra from Trocaire and panelists were Angela Wood, independent consultant, Sanjay Pradam, from the World Bank, and Jack Jones Zulu, from Jubilee Zambia. The session was organized by Afrodad, Eurodad, Christian Aid, CAFOD, CIDSE and Trocaire.

Presentation by Angela Wood (independent consultant)

Ms. Wood’s presentation was based on her study “Demystifying Good Governance: An Overview of World Bank Governance and Reforms.” There are two broad issues in this paper: analyze the Bank’s broad governance agenda and how it is mandated via loan conditionalities. The paper covers 20 countries, but only on Poverty Reduction Support Credits (PRSCs) and specifically on public sector governance conditionalities. As elements of the public sector, the broad areas that are covered are tax reform, anticorruption, public financial management, legal and judicial reform, civil service reform, and decentralization.

In this presentation, Ms. Wood emphasized the important role conditionalities play in implementing the Bank’s governance agenda. Her research shows that roughly 40 percent of PRSCs conditionality is focused on public sector governance, mainly public financial management. This number is huge, she said, and it is just the tip of the iceberg.  The Bank’s definition of governance conditionality is “sketchy” and so conditions might turn up in policies such as private sector development and macroeconomics.

The main question regarding conditionality is whether it is the right tool for bringing about good public sector governance. One problem is the issue of timing as promoting good governance takes years. It can take decades, even centuries for institutions to formalize. PRSC conditionality is only one year maybe six months, and so there is a real mismatch between what the government can be expected to do in that time period and what changes can be realistically expected.  Complicating this is the Bank’s overall poor record of institutional reform. Experience has shown that governance reforms are very difficult to do and that they require a lot of commitment from within the country. They cannot be done through a blueprint approach since it is necessary to understand cultural norms, historical traditions, and political culture in order to design reforms that are suited to a country’s particular environment.  The Bank is not very well placed to do this, given the rotation of its staff, and lack of emphasis on employment of staff with country knowledge.

There is also the question of conditionality effectiveness. A lot of the debate about conditionality is that it is an ineffective tool for promoting policy change let alone institutional change.  While the Bank might be able to convince, for instance, a national government to adopt audit mechanisms, it can’t force ministries or local governments to comply with them? It is thus very difficult for the governments and the Bank to monitor whether these reforms are actually being put in place and how effective they are. A fundamental limitation of conditionality is that it can actually undermine governance, because it’s something that is imposed from outside.

In terms of the Bank’s governance program in general, she argued that history does not support the view that good governance is a prerequisite for economic development. Historically, institutions have developed independent or in lieu of economic growth, and institutions have taken decades to be put in place. So why, she asked, is so much money and attention is being paid to good governance right now if it is not a prerequisite for economic development? In addition, she argued, the Bank is approaching good governance in a technocratic way and not in a way that would allow the poor to actually engage in the decisions. Further more, a difficult issue for the Bank is the issue of blurred boundaries: at what point does technical governance reform become political governance? It is also very difficult to tease out the Bank’s good governance agenda from its neo-liberal economic agenda. So, she asked, where does the Bank draw its boundaries and how much should the Bank scale up, or scale back its governance agenda?
 
Ms. Wood concluded, from her research, that the Bank should cut back its governance agenda. Governments, she said, can’t handle such large reform agendas. Priorities need to be identified and proper sequencing needs to be established. In addition, establishing good governance agendas and priorities needs to be done in a participatory, transparent process. If you are encouraging good governance then, you have to demonstrate good governance, so the Bank needs to start by looking at its own process of internal governance.

Presentation by Sanjay Pradam (World Bank)

In his remarks, Mr. Pradam reported on the origins, progress, and challenges in the Bank’s governance work. In terms of origins, the governance work really took off in 1997. There were two triggering events.  The first was a speech by then Bank president, Mr. James Wolfensohn that called corruption a cancer on development. This was the first time the “c” word had been used in the Bank.  The second was the World Development Report of 1997 on the role of the state. This report marked a shift in the framework of thinking about development work. In the 1980s and 1990s the emphasis had been on getting prices right and promoting markets. The core theme of this report was that state effectiveness, or capability, matters a good deal in development, as does accountability to the citizenry.

In terms of progress, this is still a relatively new area for the Bank, but since the late 1990s public sector governance units have been set up in each of the Bank’s regions and major programs are being implemented by a multidisciplinary team. He emphasized that the Governance Group is and always will be in a learning mode. When discussing challenges, Mr. Pradam agreed with Ms. Wood that governance is essentially a country-owned process and that reform needs to be context-specific, thus determining the policies and next steps needed to promote good governance in any given situation is a challenge.  In its own governance work the Bank has been focusing very much on transparency, and there is an 80 percent success rate in transparency in public finance management. In the area of administrative and civil service reform, the Bank has realized that very ambitious programs such as civil service reform, generally don’t work (particularly in weak governance environments) and that a more targeted approach on those issues is needed.

He also stressed that the Bank’s approach to governance is not a technocratic one, but a strategic one. It is both a change agenda and a process. It has been important to realize that there is a supply side and a demand side to governance. Because the Bank primarily works with governments, it generally works on the supply-side of governance which has to do with improving the organization and leadership of state institutions to deliver public goods and services. On the other hand, the demand-side of governance is just as important, if not more so, because ultimately good governance requires parliamentary oversight, check and balance mechanisms, and monitoring from civil society. The Bank has been struggling on how to promote the demand side of good governance, and is doing so through grants and partnerships with other donors and CSOs.

Presentation by Jack Jones Zulu (Jubilee Zambia)

In his comments Mr. Zulu said what is critical is to first understand the political context, cultural aspects, and institutional landscape in which you are trying to implement good governance.  If one doesn’t consider and understand these aspects, then they will runn into difficulties. He also noted that the poor understand their problems and they should talk for themselves and therefore a change agenda should come from the bottom up.

He said that in a number of countries, like Zambia, which went through the Poverty Reductions Strategy (PRS) process, it is said that 80 percent of CSO recommendations were incorporated in the final document. But what is not said is that the other 20 percent is the 20 percent that matters most -- the macroeconomic framework, the neo-liberal agenda which includes privatization, trade liberalization, financial liberalization and so on. Using the examples of the Zambia National Bank and the Zambia Electricity Supply Corporation, he said that privatization is having a negative impact on the poor. Institutions are being privatized despite broad opposition from citizens and people’s needs have not been taken fully into account. His last point was a question. Where does the power lie? He said African states are impotent, and state legitimacy matters perhaps even more than state effectiveness.

Discussion: First Round

The first participant commented that the demand side is really where you need to start rather than the supply side if you want development. A second participant expressed the view that, if governments have been put in place in a democratic manner, they should have legitimacy in terms of handling domestic issues and thus should not require conditionalities or intervention of any kind. A third asked if the Bank had looked at how it relates to universities in developing countries. A fourth asked how the Bank identifies reformers?

Ms.Wood spoke first and picked up on the supply / demand issue. She commented that CSOs have mobilized around debt relief through the Heavily Indebted Poor Countries (HIPC) initiative.  This is a good example of a demand-sided governance issue, even though the Bank had a role to play by responding to the demand.  Regarding governance reforms, more effective institutions which are accountable and transparent particularly to the citizenry are certainly desirable. However, furthering these through conditionalities is not necessarily the right approach because conditionalities can create perverse incentives, such as promoting accountability towards donors rather than to citizens themselves.

Mr. Pradam also began by referring to the demand / supply issue, by stating that the Bank works on the demand side but in careful arms-length fashion, by providing resources to CSOs who work on transparency policy issues that are trying to hold the state to account.  He emphasized that these organizations have no direct link to World Bank in order to limit their autonomy.  Ultimately what the Bank wants to do is support domestic coalitions for reform. Answering the question about whether it is appropriate or legitimate for the Bank to use conditionalities with democratically elected governments, he raised the issue of corruption as an example where elections don’t prevent government officials from enriching themselves at the expense of the poor. Unfortunately elections do not guarantee good governance. The Bank’s governance agenda is aimed precisely at encouraging governments to be more transparent and accountable to its citizenry. He agreed that there should be closer working relations between the Bank and universities. The World Bank Institute does quite a bit in that area but the Bank needs to do more. On the point of choosing reformers, the Bank doesn’t choose reformers apriori, but tries to identify existing reformers within governments. Further, governments are not monolithic as they have both reformers and those which oppose change.  He also stated that his Group does not work on privatization or trade liberalization issues.

On the question of whether conditionalities are justified, Mr. Zulu said yes, but the more important question is who should craft these conditions. They should ideally come from the bottom up and be country-owned. Civil society can do a lot when it is empowered, he said and illustrated this through the example of how advocacy by Jubilee Zambia is changing the way the government is dealing with foreign loans. He also elaborated on a point he had made about the PRSs and civil society. He said CSOs don’t have any illusions about the decision-making nature of the process, but they did value at it as a platform which allows them to engage, often for the fist time, with government as well as donors. And finally, he emphasized the fact that governments can not monitor themselves. There needs to be an independent watchdog.

The first speaker commented that political party finance is a major issue for developing countries. He also pointed out that the word “incentive” had not been mentioned as an alternative to conditionalities and asked whether there a role for incentives? The second speaker, asked Ms. Wood if she saw a role for some Bank conditionalities, positive conditionalities such as social safe guards, environmental protections, or anticorruption. And, he asked, does the Bank as a donor have a right to impose basic budgetary or financial conditionalities to make sure the money is well-spent and spent in the right areas? A third participant underscored the need to look at the Bank’s internal governance systems, and a fourth said that there needs to be more oversight of what the Bank is doing or should be doing in a country and that there seems to be a good deal of similarity in the reforms undertaken by different countries, suggesting a greater use of a “boilerplate” approach than admitted by the Bank. 

Ms. Wood responded first to the last round of comments from the panel. On incentives, she said, through the eyes of the Bank conditionalities are supposed to be incentives, but, in fact, they often have negative effects. On the Bank using positive “conditionalities”, she answered that she was not in a position to say what positive conditionalities would be, that it was necessary to go down to the local levels to come up with a positive agenda. She agreed with the comments about Bank governance systems and the need for oversight, as well as the point about the similarities in the reform agendas. She said that looking through the PRSCs there is a huge variety in the number of conditionalities but there seemed to be a lot of similarity in reform agendas.

Mr. Pradam picked up on the point about political party finances saying indeed it is a crucial issue in terms of corruption, and the Bank is working on it by getting other agencies and organizations involved, and doing assessments. The Bank is really constrained in this area because of its articles of agreement which prohibit it from getting involved in country-level partisan political affairs. Regarding incentives, the Bank’s Country Performance and Institutional Assessment (CPIA) provides strong incentives and a great deal of weight is given to governance in the CPIA. About the Bank’s internal governance, he said, he was not the right person to address that question as this is a question for the Executive Directors. He also emphasized or clarified that, in terms of conditionalities, only a very small piece of the Bank’s work on governance is done through conditionalities, and he mused that maybe the only good conditionality is one that is focuses on strengthening transparency and accountability. More than 70 percent of governance projects, in fact, are not supported through PRSCs, but rather through technical assistance contracts. 

Regarding the perceived similarity in reform agendas across countries, he argued that they are not the same and that they each have very different trajectories in many different types of actions that are country driven. In closing, he asked, why would CSOs oppose using conditionalities to curb corruption in procurement or ensure that money intended for schools is not diverted. At least you ensure that money that should be going to the poor is not being stolen. He also urged CSOs not to lose sight of the fact that the Bank is not a monolithic institution. The multidisciplinary governance group, for example, is pursuing a very difficult agenda and is looking to do it in partnership with others who want to make the state more accountable to the poor.

Mr. Zulu had only two final remarks: He noted that African states are moving toward partnerships based on mutual accountability and transparency.  Referring to the CPIA, he asked Mr. Pradam to look at other indexing instruments and how they can be compatible with each other.

Ms. De Barra, in summary, reflected on some of the things that had been said about conditionality.  She closed the session by noting that it is the role of local CSOs and actors within their own countries to bring about change. External actors can first, do no harm; second, provide support where support is asked of them; and third critique themselves and other external actors like the World Bank.

More Information:
2006 Spring Meetings Civil Society Dialogues Program - main page
2006 Spring Meetings - general information for CSOs