Political Economy in Project Design Presentation for Political

Political Economy in Project Design Presentation for “Political Economy of Governance Reform” MC 2 -800 on April 18, 2007 @ 11. 30 AM Amit Mukherjee (ECSPE)

Presentation Outline Country Coverage: Armenia, Bulgaria, Indonesia, Philippines, Russia Themes: Public Sector Institutional Reform, Public Financial Management, Civil Service Reform, Decentralization, Judicial Reform n Why: Need for & utility of such analysis n How: content, timing n What happened? n Lessons

Why…Country Circumstances n n n Armenia – Conflict & Challenge of Transition (capture by the state, uneven policy capacity, external shock, renewing growth & service delivery) Bulgaria – The Challenge of EU Accession Indonesia: Weak Governance Environment (weak institutions of accountability; corruption, collusion, nepotism; INT reviews of Second Sulawesi Urban Development Project) Philippines – institutional reform in a weak/soft state Russia – Entry points for reform in a resource-rich recentralizing & increasingly opaque state => Country Context is Everything!!

Armenia n Armenia – Conflict & the Challenge of Transition – capture by the state – uneven policy capacity – external shock – renewing growth & service delivery => Address Institutions of Accountability

Bulgaria n Driver – The Challenge of EU Accession – Justice & Home Affairs red flags – Entry point – request to Bank from Govt & EU – Step by step approach built support from all branches of the state, EU and development partners • • Shared Vision thru Interim Performance Framework Resourcing the Judiciary – JEIR to build consensus Backtrack into institutional & constitutional issues Request for Operational Intervention – Solid support from CMU and Country Team – Bank work underpinned by political economy considerations and upcoming explicit political economy analysis as part of JEIR

Russia n Seeking entry points for institutional reform in a resource-rich re-centralizing increasingly opaque and unaccountable state – Need for champions at federal and regional levels – How to engage with civil society? With whom to engage? – Risks: for the Bank, for government and civil society counterparts – Themes? Instruments? – Lessons for CIS and FSU countries? => Approach: Transparency the most feasible and appropriate window to accountability

Indonesia - How it was done n Preparation stage: – Quick assessment of environment, vulnerabilities, risks – Consultations on strategy (including CMU, country lawyer, procurement, FM) – Clear agreement on governance issues and approach – Early actions to test commitment n Appraisal/negotiations stage: – Upfront risk assessment & disclosure requirements – Governance and accountability arrangements – Extraordinary procurement arrangements for vulnerable activities

What Actually Happened Indonesia n Preparation stage: first large procurement – – Issues & concerns Special background check of vendors Sharing results with government Project Governance Assessment for Bank due diligence – covered executive and legislature, discussed with government Amendments to all bid documents: conflict of interest, enhanced disclosure n Enhanced scrutiny during Bank prior review n

What Actually Happened - 2 n Appraisal/negotiations – Governance and Accountability Action Plan – Clear definition of procurement arrangements and responsibilities – Independent Verification and Validation (IV&V) arrangements – Safeguards for project governance: • • Due diligence for procurement Disclosure of procurement and project progress Institutionalized civil society oversight and feedback Monitoring and evaluation framework explicitly addresses project governance issues

Lessons Country context & Bank authorizing environment! Peer-to-peer learning and knowledge-sharing approach works better!! n Resources within the Bank: n n – Legal, RPA, RFM, PS/FS, INT, CMU, CT n n Specialist consultants for due diligence if needed Identify vulnerabilities, candid risk assessment, agree with govt on risk-mitigating actions: – Procurement plan, bid documents, IV&V approach – Supervision intensity n n n Share assessment & findings with CD, CMU, CT BB implications – pros and cons Creative use of Bank AAA and lending instruments and donor partnerships