Flagship Course PREM WEEK 2003

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• Flagship Course PREM WEEK 2003
• Governance and Politics

Anti-Corruption and The World Bank- the case
of Indonesia -Sarwar Lateef
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Politics and Governance

• Bank anti-corruption strategies must be grounded
  in understanding of domestic political context
• Path dependence- the historical context
• Political economy of corruption winners and
  losers
• Transition poses particular challenges

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The Bank and politics

• World Bank cannot assume its seen as a neutral
  objective actor
• Bank relations with former governments can affect
  its credibility as a player.
• Banks record in reducing corruption in its own
  projects essential for credibility
• Bank may become lightning rod for civil society
  efforts to force establishment to address the
  past e.g., odious debt

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The Case of Indonesia

• Indonesia at near bottom of the corruption league
  Indonesians think so too 75 see corruption in
  public sector as very common.
• Two challenges
• 1. Developing an effective strategy without a
  client and with a compromised reputation.
• 2. Political transition operating in an
  environment with high fiduciary risks.

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Inheritance The Suharto Franchise

• A stationary bandit (Mancur Olssen)
• A four legged throne the army, the civil
  service, state enterprises, and the conglomerates
• The nature of the franchise policy corruption
  plus bureaucratic corruption
• The first family and the transition from
  stationary to roving bandits

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Corruption and Transition

• Simultaneity of economic recovery, political
  reform and decentralization
• Franchisees liberated
• Inexperienced and hungry political leadership, a
  compromised elite
• Sharing the spoils of office Corruption as a
  weapon in political competition
• Media increasingly powerful

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Trends in corruption

• Perception that corruption is getting worse-
  political openness media focused heavily on
  corruption
• Absent a stationary bandit, many roving bandits
• Large increase in state-owned assets,
  particularly under IBRA following financial
  crisis their disposal increases opportunities
  for rent seeking.
• Decentralization is seen in Jakarta as leading to
  more corruption
• Upcoming elections driving party fund raising.

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Trends in corruption.

• But.
• Big ticket corruption stymied by political
  competition
• Declining public expenditures and investments
• Bottom line More actors but a smaller pie

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Stakeholders tally

• President apparently an ally, but gap between
  rhetoric and practice
• Parliament initially strong on corruption but
  money politics gaining strength
• Bureaucracy resisting change
• Decentralized leadership greedy for power
• Civil society, public angry, but costs of
  collective action high and effective demand for
  reforms weak
• Bottom line weak demand for reforms slow
  progress on anti corruption measures.

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Public Attitudes towards CorruptionPartnership
for Governance Reform in Indonesia Survey 2001
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Which Cases Should Be PursuedPartnership for
Governance Reform in Indonesia Survey 2001
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Desired Outcome for Convicted CorruptorsPartnersh
ip for Governance Reform in Indonesia Survey 2001
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Context for Bank Strategy

• Government not a credible client for
  anti-corruption work
• Bank seen as part of the problem odious debt
  issue
• Civil society weak, disorganized, and suspicious
• Bank operations fraught with fiduciary risk
• Bank culture changing, but slowly.

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The World Bank Anti Corruption Strategy

• Anti Corruption in Country Strategy
• Strengthen demand for reforms
• Raise the costs of corruption justice sector
  reforms
• Reduce Opportunities for corruption
• Strengthening Controls for supervision
• Strengthen enforcement

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Country Assistance Strategy for Indonesia

• Reduce lending drastically.
• Link future increase in lending to improvements
  in fiduciary controls based on CPAR and CFAA
  assessments
• Work with Partners
• Empower communities and beneficiaries
• Work with reformers in government
• Close coordination with ADB and JBIC
• Civil society key partner
• New CAS beginning July 2003 will focus more
  systematically on anti-corruption

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Strengthen demand for reforms

• Support to The Partnership for Governance
  Reforms
• Diagnostic work surveys, papers, analytical work
• Corruption and the Poor
• Donor coordination and active CGI involvement on
  governance issues
• More open, public stance on corruption, including
  in Bank published documents

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Raising the costs of corruption the justice
sector

• Facilitating dialogue through Partnership
• Direct policy dialogue with government,
  particularly in support of governance audits of
  key institutions, and in support of a national
  strategy for reform
• Analytical work to understand better how to
  improve access to justice for the poor.
• Supporting private sector dialogue with GOI
• Strengthening external demand for reforms through
  aid coordination
• Supporting through Partnership and directly key
  institutions including the National Law
  Commissions work, the office of the Ombudsman
• Bottom line progress painfully slow.

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Reduce Opportunities for Corruption

• Policy advice
• IBRA asset sales establishing principles
• Bank Bali
• Private provision of infrastructure support to
  regulatory framework
• Privatization stress on transparency
• Trade policy open and competitive markets

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Reduce Opportunities for Corruption

• Through better project design
• Corruption mapping its incentives, stupid!
• Involving project beneficiaries in the design and
  implementation of projects
• Kecamatan Development Project
• Water Resource Management Project
• Education projects
• Reducing opportunities for collusion in
  procurement
• Strengthening the Banks safeguards

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Reduce Opportunities for Corruption

• Enhance disclosure
• Assist government enhance its own disclosure
• More systematic disclosure in Bank projects
• Enhance access to Bank documents (translation
  important)
• Training for civil society to monitor Bank
  projects (arms length)

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Strengthening Controls and Supervision

• Risk assessment of portfolio
• Strengthening fiduciary controls staffing,
  monitoring of key indicators.
• Fiduciary risk assessments with INTIU- a new
  instrument the case of Sulawesi urban despite
  missing documentation, poor fiduciary management,
  evidence of extensive collusion
• Corruption in Annual Portfolio Performance Review
• Moving towards a risk management strategy

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Strengthen enforcement

• Enhance remedies/sanctions
• Discourage impunity
• Use INTIU more strategically
• Publishing all findings
• Require anti corruption plans when corruption
  endemic in sector/ministry

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Lessons from Indonesia for high risk environments

• Move from a zero tolerance approach to a risk
  management approach
• Upstream assessment of corruption in sector work
• Know your customer before you lend or procure
• Better project design
• Systematic safeguards in all projects
• Reduce impunity through consistent firm action
• Focus supervision resources on high risk
  interventions

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Lessons from Indonesia contd.

• Partnerships key, dont go it alone.
• Community/ beneficiary empowerment key
• Other key lenders must share goals
• Civil society/media important allies
• Information and disclosure policy crucial
• Push limits of disclosure policy
• Be totally transparent
• Dont try to pretend that there is no problem