PHILIPPINES Tools for Fighting Corruption in the Public Sector:
An International Perspective on Public Sector Reforms Presented at the Integrity and Human Rights Conference
Manila, January 27-28 2009 Bert Hofman
Country Director, World Bank Philippines Thank you very much for inviting me to speak at today’s conference. The title of my speech suggests that somehow there is a toolkit to fix corruption in the public sector. Unfortunately, this is far from the truth. Today I will largely speak about international experience in fighting corruption in the public sector. However, I will at the end of my speech reflect a bit on NRIMP, a roads project, which has been in the news lately. Corruption is clearly a global issue in developing and developed counties alike. Corruption tends to be more prevalent in developing countries, though, because the institutions and mechanisms to control it are normally weaker than in developed countries. Global trends in governance and corruption indicate that, while some progress may have been made in strengthening state capacity and accountability worldwide, there is little evidence that this has had a significant aggregate impact on reducing corruption overall. Where reforms have been sustained, economic liberalization, increased competition, and improvements in state capacity and accountability have contributed to improved service delivery, more efficient regulation, and lower rates of corruption. When implemented, reforms have been particularly effective in combating certain types of administrative corruption, such as petty bribes to utility officials, tax collectors, licensing officials, and inspectors. In many states, however, forms of corruption with deep political roots—such as state capture and procurement corruption—have been more difficult to address. Governance Systems. In the broadest sense, the extent and nature of corruption relates to the incentives of public office holders. These incentives do not just come from the formal mechanisms of management and control in the public sector. They result from a Figure 1: The Public Sector Governance System 
wide variety of institutions inside and outside the public sector, or in short, the public sector governance system. A public sector governance system can broadly be categorized into five broad categories: (a) the public sector management system, including cross-cutting control agencies responsible for public finance and human resource management, and front-line regulatory and service provision agencies; (b) formal oversight institutions outside the executive, including the judiciary, parliament, supreme audit institutions, anticorruption agencies and other independent oversight institutions; (c) subnational governments and local communities, with their own service provision responsibilities, and often their own local arrangements for control and accountability; (d) civil society in their role as watchdogs (including the independent media) and as the recipients of services and regulations, and hence a potential source of pressure for better performance; (e) the private sector and the economic organization of the country, and (f) political actors and institutions at the apex, setting the broad goals and direction of the system as a whole. Accountability Relationships. In a well-functioning governance system, accountability relationships between these actors help ensure that public policy supports development, that public services are delivered efficiently and effectively, and that corruption is held in check. But with weak governance, policy can be captured, service provision and regulation can be distorted to support favored elites, and corruption can run rampant. Improving governance requires interventions to strengthen capacity (boxes) and accountability (arrows) and to match the role of the state to its ability to effectively provide public goods. Transparency is a system-wide feature that helps to make accountability relationships work. Entry Points. Potential entry points for strengthening incentives and improving governance fall into four broad categories. The first comprises reforms to improve the capacity, transparency, and accountability of state institutions. Government reforms have historically been the strongest area of Bank engagement in countries, although less attention has been paid to institutions outside of the executive branch of government. A second category comprises reforms that help to increase opportunities for participation and oversight by civil society, the media, and communities. The Bank has been engaged in this work during the past decade, but in an uneven way. A third category is reforms in the economic environment to create a competitive and responsible private sector and reduce the opportunity for rent seeking. Finally, a fourth category is reforms to strengthen political accountability, for instance, through political competition, and transparency and regulation of political parties. This category falls largely outside the mandate of the World Bank. Country Experiences with Reform. Across the globe, countries with committed governments have made significant progress in improving governance and reducing corruption in the public sector. In some countries the governance reforms with the most impact on development efforts have improved public policy and management; in other countries the gains have come more from strengthening formal oversight institutions or increasing opportunities for civic participation and oversight. Regulatory reform has been a successful instrument for reducing opportunities for corruption—for example in tax, customs, permits and licensing, and inspections—particularly when combined with reform of administrative practices. In addition to reducing corruption, these reforms have contributed to the development of a class of independent small and medium-sized businesses with a stake in supporting governance reform. Privatization and liberalization have reduced the opportunity for corruption and rent seeking in a number of countries as well, by removing these sources of rents from public sector control. Many countries have tried to address corruption by creating an anticorruption agency. In a few cases such a structure appears to be working reasonably well, such as in Hong Kong or Singapore, and more recently Indonesia, but in other countries, these agencies are captured by political elites and are unable to successfully tackle corruption in a significant manner. Bank-Supported Public Sector Reform Operations. Public sector reform operations have been launched in many countries, historically with a strong focus on core public management reforms—and more recently with growing attention to incorporating transparency, participation, and accountability into a broad range of poverty-reducing operations. Over 20 percent of new Bank-supported operations and almost 20 percent of new financing commitments tackled public sector governance issues broadly defined, and nearly half of the prior actions for development policy operations were related to governance. Compared to all Bank-financed operations, public sector governance operations have about the same quality at entry, perform less well in supervision, and are about average in terms of institutional development impact and likely sustainability. The overall performance of the public management portfolio is very sensitive to the larger governance environment. Weaknesses in public sector institutions, including public expenditure planning and execution, public procurement, civil service incentives have had a considerable impact on sector performance and service delivery. However, in many countries, the Bank has had difficulty in marrying reforms that support the development of these cross-cutting systems with reforms within specific sectors. One of the most important lessons that the Bank has learned is that diagnostic and operational instruments are most effective when there is (i) a committed leadership at the agency and government-wide level, (ii) a coalition of reform, and (iii) basic bureaucratic capacity in a country. Improving Public Financial Management (PFM). Better public financial management remains central to getting results on the ground and assuring donors that aid resources are being used prudently. Key dimensions include: policy-based budgeting; comprehensiveness of budget coverage; transparency of fiscal and budget information; budget credibility—that the budget is realistic and implemented as planned; predictability, control, and stewardship in the use of public funds (for example, internal audit, payroll and procurement systems); accounting, recordkeeping and reporting to provide information for proper management and accountability; and external audit and other mechanisms to ensure external scrutiny of the operations of the executive branch (for example, by the legislature). Improvements to these facets of PFM need to be carried out in a feasible sequence, matching the reform to current country performance and capacity—in a way which assures country ownership and leadership for PFM reforms, a coordinated program of support by development partners, and integrated harmonized approaches to measuring country PFM performance over time. The multi-donor Public Expenditure and Financial Accountability (PEFA) performance measurement program provides a useful, harmonized system for assessing and monitoring the quality of PFM systems, and is being implemented in about 70 countries worldwide. Improving Administrative Capability. Experience has shown that an effective public administration involves well-functioning mechanisms for policy coordination; well-designed administrative structures for individual line ministries and semiautonomous executive agencies, with little duplication of responsibility, clear lines of authority, streamlined business processes, and a focus on results; meritocratic human resource management; adequate pay and benefits; and sufficient controls to ensure that the public sector wage bill is sustainable under the country’s fiscal constraints. In countries where public administration reform is confronting heavily patronage-based systems, the experience of reform has been mixed. Public Salaries. Low pay can contribute to corruption within a public administration, particularly when total remuneration fails to pay a living wage, as is often the case in many African countries. In many countries, however, careful analysis suggests that public sector salary structures are the real problem, rather than average levels of public sector remuneration. First, public administrations typically pay progressively less competitive total remuneration the higher are the skill requirements and levels of responsibility. Second, when the extent of bribe-taking or other measures of bureaucrat-level administrative corruption has been subjected to careful, multivariate statistical analysis, average salaries are often not statistically significant determinants of such corruption. When similar analysis is undertaken, but is able to include position-specific measures of the competitiveness of remuneration, low competitiveness does bear a significant relationship with such bribe-taking. This research strongly suggests that key human resource management determinants of lower bureaucratic corruption are meritocratic human resource management practices and the competitiveness of remuneration ensured by the structure of remuneration. In short, simple linkage between pay and corruption can be misleading, and changes in compensation levels can only work if they are part of a package to reform public servants’ behavior. At the Sector Level. The sector level provides a potentially important entry point for governance reform. Because reforms of bureaucracies generally take a long time to help improve governments’ front-line performance, it is natural to complement them with approaches that work more directly at the interface between governments and citizens and firms: the provision of such services as education, health, utilities, and transport infrastructure, and credible regulation of markets to protect public welfare without unduly raising the costs of doing business. A central priority is to combat corruption in these sectors where it poses major challenges. During the past decade, the focus on governance in key sectors has primarily been on experimenting with more efficient means of delivering services, including through restructuring, contracting out to private sector firms, and privatization—and with rising attention to the new ways of incorporating social accountability into operational design. More recently, attention has also been given to addressing vulnerabilities of sectors to illegal practices, including corruption and fraud, with some evidence of success. In numerous countries, some sectors, such as forestry, roads, extractive industries, fisheries, water, and agriculture, have begun to develop risk assessment tools, specialized databases, and monitoring systems. In many sectors, transnational corruption and fraud have become especially problematic, with multinational corporations and networks playing a critical role. Strengthening Governance at the Local Level. Even when opportunities for governance reform at the national reform are limited, there may be entry points at the local level. Local politics vary considerably, so that there are sometimes very striking differences in local governments’ interest and willingness to engage in governance reform. In some settings, top-down reforms can recognize, support, and reward progress at the local level. In other settings, the entry point might be bottom-up participatory reform, such as community-driven development (CDD), especially when it also supports the development of local government capacity and State Oversight Institutions. Formal oversight institutions can provide important pressures for improving government performance. Where judiciaries are independent, competent, and accountable and where public accounts committees, supreme audit institutions, and ombudsmen have sufficient capacity, they often can hold the executive to account. Equally important is attention to the legal framework by which the judiciary operates and which it applies. Poorly conceived and drafted laws can contribute to creating an environment in which corruption flourishes. While the Bank has a fairly active engagement in judicial reform in Latin America and Europe and Central Asia, it has taken a more limited role elsewhere. The Bank has also been increasingly engaging with and supporting supreme audit institutions and the work of public accounts committees, state audit institutions, and ombudsmen through policy dialogue, capacity building, and operations; however, these areas have not historically been a strong central focus of the World Bank Group. Strengthening Transparency in Government. Assuring that the executive operates in a transparent way by making information broadly available to citizens on the operation of the public sector can help strengthen accountability, and so improve public sector performance. Citizens and media that have broad access to information on the operation of state institutions are crucial for holding the state to account. Such access may include publication of information on budget and procurement data, access to state records and reports, and the state’s active dissemination of information on its operations and performance including through e-government. Moreover, greater transparency can help to establish the credibility of decision-makers through the public disclosure of their income and assets. Working with partners, the Bank is working for a significantly greater focus on assuring greater access by citizens to information on how government operates, including expanded production of information that can allow citizens to assess the services they are getting from government.
Multi-stakeholder Engagement with Civil Society, Media, and Communities
Engaged local communities, a vibrant civil society, and a transparent flow of information (including well-functioning, capable and open media) support poverty reduction by helping to hold governments accountable for delivering better services, creating jobs, and improving living standards. Over the past decade the Bank has engaged increasingly with civil society groups, and Bank capacity and sophistication in this work have expanded dramatically. Civil society groups vary in their mandates, transparency, and commitment to integrity. Experience has underlined the importance of working with groups that are competent and accountable, and consistent with the Bank’s legal mandate. Drawing on and informed by this experience, while working with the government as its principal counterpart, the Bank will thus systematically scale up multi-stakeholder engagement in our operational work, in close collaboration with other development partners, depending on which initiatives offer the best prospects at the country level. Participation and Oversight. While government transparency can help to facilitate participation and oversight, more proactive engagement of society is also vital. Where governments are supportive, opportunities for participation and oversight can be increased, for example, through participatory development of policies and public spending priorities (where the poverty reduction strategy process has provided a major impetus in International Development Association-eligible countries), social accountability in the delivery of services, community-driven development, civil society and media oversight over public procurement, monitoring of income and asset declarations, and other arrangements empowering legitimate social groups. In many settings, capacity in civil society organizations (CSOs) will need to be strengthened to effectively take advantage of these opportunities. Also helpful is the development of independent and competitive media that can report on government performance, including corruption. The Bank increasingly has recognized this reality over the past decade—and has made engagement with stakeholders increasingly integral to operational design and implementation. While working with the government as its principal counterpart, the Bank will more systematically use a range of instruments—policy dialogue, analytic work, capacity-building, policy-based lending, and community driven development—to scale up existing good practice to increase opportunities for participation and oversight. Finally, let me say a few words about NRIMP. As we speak, the House is holding hearings on the suspensions that the World Bank sanctions Board has handed down, which followed a long and careful process of investigation and evaluation of evidence concerning possible collusion in the first phase of the project. This process, including the investigation by the appropriate Philippine authorities and institutions is important, and needs to have its due course. However, for today’s topic, the more interesting part is what happened after we detected signs of collusion and corruption in the first phase of the project. The Department of Public Works and Highways, under the leadership of Secretary Hermogenes Ebdane, and other oversight agencies worked with the World Bank to strengthen anti-corruption controls in the second phase of the program. The second phase of NRIMP was approved by the World Bank’s Board in May 2008. In designing this phase, the World Bank and DPWH took into account the lessons learned in the first phase. A battery of stringent anti-corruption measures was incorporated:
• Independent procurement evaluation to improve the transparency and integrity of procurement processes.
• Enhanced procurement controls in the Department of Public Works and Highways to ensure the reliability of contract cost estimates, detect over-pricing, enhance supervision control over contract variations and give people a means for making confidential complaints.
• Stronger internal controls and internal audit capacity in the Department of Public Works and Highways.
• Independent Oversight by Civil Society—A coalition of citizen and road user groups, formed in 2007 and named “RoadWatch” (“Bantay Lansangan”), will give a stronger voice and more influence to citizens in ensuring transparency and proper use of public funds for roads. So NRIMP2, the second phase, is not just about building roads, but about building stronger governance and fighting corruption, and in that sense it is a true tool against corruption in the public sector. This may not mean the end to all corruption in the roads sector, but I am confident that it is a major step forward, and I hope implementation of the program will vindicate that judgment. No country is absolutely free from the problem of corruption. That is why the World Bank supports governments that want to improve their governance standards and fight corruption. These partnerships are in part about ensuring that national and World Bank money is used properly. But it is also about putting in place standards that will apply to other projects and sectors so that the funds the World Bank makes available for development to improve the lives of poor people are used for that purpose. Salamat Po. |
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