World Bank anti-corruption strategy needs improvement

30 January 2007

Concerns include the draft's failure to adequately address the Bank's internal governance and the role of the private sector.

BIC submitted the following comments on the World Bank's Governance and Anti-Corruption Strategy on January 26, 2006.

Addressing corruption in Bank projects, borrowing countries and operations is an important and ongoing task in broader efforts to foster good governance. Corruption and poor governance can significantly undermine the Bank’s poverty reduction mission, undermine the legitimacy of the institution and its programs, divert resources from priority sectors and increase the debt of developing and transition countries. The strategy provides an important opportunity to evaluate, refine and expand the institution’s efforts to address this broadly recognized “development cancer”.

We are pleased to see that the Governance and Anti-Corruption (GAC) Strategy has evolved in past months, incorporating some of the concerns and feedback that have been offered thus far. However many points remain insufficiently or entirely unaddressed in the current document. The following comments outline some of the Bank Information Center’s (BIC’s) most pressing concerns and recommendations for the strategy moving forward.

Meaningful stakeholder participation is a core element for efforts related to improving governance and fighting corruption…

Civil society organizations, the private sector, the media and the general public are arguably the most important resources that can be deployed in the fight against corruption. These actors often have the most nuanced understanding of the forms of and pathways for corruption and can provide invaluable information on where corruption may be occurring and how to prevent it. Involving press and the public in overseeing projects and programs can also deter corruption by increasing the likelihood of exposure. Meaningful participation in the design and implementation of the governance framework itself furthermore sets the stage for critical public acceptance of the strategy.   Although the strategy acknowledges the importance of participation, this principal has not been consistently reflected either in the priorities specific in the framework or in the formulation of the framework itself.  Therefore, the GAC framework should include:

• Explicit strategy for consultations during GAC implementation.  Regular and meaningful consultations with affected peoples, local governments and civil society organizations are critical in both the design and implementation of the GAC framework.  The framework should explicitly lay out consultation principles and strategy for engagement with key external stakeholders (in particular in-country civil society) for the implementation phase of the framework.  Proper notification, document translation and incorporation of feedback should feature as essential principles.
• Scale-up participatory activities that promote good governance in development policy lending operations – for example, participatory budgeting and monitoring of public expenditures at the country level.  In the context of budget support operations, the World Bank should ensure a minimum level of transparency and public participation.  Greater scrutiny of budgets and public expenditures would represent a major step forward in improving governance.  By the way, we see this as the Bank adhering to certain internationally-acceptable norms and standards as opposed to imposing controversial policy conditionality. 
• Scale-up participatory initiatives that promote good governance in investment operations – for example, increased transparency of project costs/expenditures.   The World Bank should identify activities that encourage public scrutiny in its project operations to help mitigate corruption risks.  An excellent example is the use of village boards to display project expenditures and key civil works contracts.  Such innovative activities should be identified and proactively scaled up across all Bank operations (as appropriate).

…as is, timely and adequate disclosure of information

• People have a right to information from public institutions and a right to participate in the development policies and projects that affect their lives. Transparency in World Bank operations will help reduce corruption, not in the least by helping foster a “demand side” of governance.  Key concerns and recommendations related to transparency and corruption:
• The World Bank’s Disclosure Policy provides an important framework for the timely release of information about the institution’s policies and operations. We are pleased that the Bank is reviewing this important policy in 2007, and urge Bank management to require in-depth public consultations on the policy document in the coming months.
• The Bank should subscribe to the Global Transparency Initiative’s “Transparency Charter for International Financial Institutions” to show its clear commitment to better governance and accountability.
• Contract and revenue transparency is critical to creating an environment conducive for civil society and media to monitor revenue-generating projects throughout implementation. This is particularly important in high risk sectors like extractive industries.  The GAC framework should explicitly mention the importance of promoting contract transparency as a critical step forward to reducing corruption in high-risk sectors and projects.  Moreover, the World Bank should adopt the principles put forward by the Publish What You Pay Coalition which are copied below for reference.
• Greater openness and information disclosure throughout the project cycle is critical – from project preparation through Board approval to project completion and evaluation. In particular, the release of project supervision and evaluation documents facilitates meaningful civil society monitoring of Bank operations.  The Bank should release more information during project implementation to the public and this should be a major area of focus in the forthcoming review of the WB Disclosure Policy.
• Indicators for measuring and monitoring governance and corruption within member countries should be developed in a more participatory manner and made transparent / disclosed to external stakeholders.  Governance assessments should build upon local input to the maximum extend possible. 

Greater attention is required to address corruption/poor governance at the project level

The framework needs to strike the right balance between efforts at the country, project, and global levels.  Clearly the Bank should be involved at all levels but our view is that greater attention needs to be placed at the application of the GAC framework to the Bank’s own project lending operations.  The Bank should more concretely identify steps it can take in its own projects to improve governance and reduce corruption.  One (of many) reason for greater attention to project operations is that the Bank can provide a positive demonstration effect on what may work and thereby generate wider ownership with client governments (and the public) for more systemic reforms.  Other recommendations include:

• We believe that the Bank should avoid financing certain operations where the risks in the project or in the sector are too high.  The World Bank should exercise due caution in certain controversial sectors particularly vulnerable to corruption, such as extractive industries or large-scale infrastructure. Despite the commitments made in its response to the Extractive Industries Review, the World Bank Group has still done little to factor governance considerations effectively and transparently into its support for extractive industries projects and strategies. The Bank should not lend in these sectors unless and until public and corporate governance is strong enough to appropriately manage the inherent risks. If the World Bank is to be involved, it should ensure that the host country meets a minimum standard of governance, carry out sector and project-level due diligence to identify and navigate corruption risks, and foster an environment conducive for civil society and media to monitor the project throughout implementation.
• Upstream options assessments should also be made more routine – especially for large, high-risk project investment operations.  Options assessment, correctly done, can be an excellent tool to help identify the most cost-effective and sustainable manner to solve a particular problem (i.e. access to energy for the off-grid rural poor) and can also be useful to minimize corruption risks inherent in major operations – by ensure that the project selection and design responds to the problem itself and not too any vested interests by influential policymakers. 

Start at home: Improving governance and reducing corruption at the World Bank

The World Bank has an important opportunity to walk the talk.  As a public institution, it has not only an interest but an obligation to make its operations transparent and accountable to the people on whose behalf it ostensibly operates. The strategy continues to prioritize fighting corruption at the country and project levels. Deepening efforts at those levels is admirable, but insufficient. Due attention must be paid to addressing problems within the institution itself. While leakage of development aid may occur during project procurement, for example, its facilitation due to faulty upstream project selection is equally egregious. Improper weighting of anticorruption efforts on any one of these levels is as effective as cutting off one arm of an octopus. Several important steps related to governance of the Bank itself must be better reflected in the strategy and its implementation:

• The institution should carefully evaluate representation on the Board of Executive Directors, and amend voting structures to more adequately represent the institution’s membership. The selection of the World Bank President must also be made transparent and democratic.  We realize that these are significant ‘asks’ but feel that at a minimum, the framework needs to make explicit mention that the success of the GAC strategy is in part dependent on the Bank taking steps to improve its own governance.  In the absence of reforms to the governance structure of the Bank itself, its efforts to champion governance elsewhere will be hampered.
• The Bank needs to also put in place a credible evaluation framework to assess implementation on the GAC framework.  In so doing, the Bank needs to identify clearly indicators (at different levels) that correspond to how the GAC framework will be evaluated.  These indicators and the evaluations themselves should be publicly disclosed and should involve meaningful participation from external stakeholders.
• The Department of Institutional Integrity (INT) plays an important role in ensuring responsible operations within the institution. We applaud efforts to launch an independent review of INT.
• Independent audits of the Bank’s operational effectiveness and internal control mechanisms must be publicly disclosed. 

Private sector

The role of the private sector as a source of corruption (the negative side of the coin) is underrepresented in the document. The World Bank lends billions of dollars to support private sector operations in developing and transition countries each year. The following issues deserve special attention:

• The Bank needs to develop a more rigorous process to screen and choose private sector clients, especially with respect to corporate governance and social responsibility.  The Bank needs to place greater attention on the corporate governance screen in selecting private sponsors to support.  A true screen that precluded support to clients without minimum standards of corporate governance in place would be an important signal to send that the Bank was serious about this agenda.
• Private firms that borrow from the Bank often refuse to divulge most project information on the grounds that the information is commercially sensitive. All too often, business confidentiality is overextended to give cover to the private sector.  The Bank needs to unpack the concept of business conditionality further and push for greater transparency in its operations with the private sector.  With increased transparency comes increased public scrutiny and fewer opportunities for corrupt activities. 
• Finally, we are concerned that the GAC framework not be used to push privatization or certain types of reforms that are considered quite controversial in the eyes of the public.  Decisions on whether to privatize or not must be made in a transparent and deliberative manner by key stakeholders in the country (and not imposed by donors).  The GAC strategy should indicate that it will refrain from imposing economic policy conditionality and should indeed support mutually-agreed reforms generated with meaningful public input in the country.  We would support CIDSE and Oxfam International in their recommendations on the role of the Bank on policy conditionality. 

Human Rights

• A noticeable absence in the GAC framework is any explicit recognition of human rights in assessing governance.  This is a remarkable omission.  We would strongly support the recommendations provided by Human Rights Watch (in the earlier round as well as what they have been advocating for since) in ensuring that human rights are appropriate addressed in the GAC framework.