State Reformsfor Human Development

The capacity to deliver on the MDGs

Dan Dionisie, Policy Specialist, UNDPCEU, July 2010

Warm-upo Discuss the Governance implications of the following images:

How can Governance/PAR help on MDGs?

o Governance not one of the eight MDGso Governance, PAR challenged to “legitimize” themselves under an MDG framework

“The translation of the Millennium Goals related to reducing poverty into country-level policies and strategies as well as the elaboration and implementation of plans and effective and efficient actions require not only the political commitment of leaders at all levels but also the innovations and re-adjustments in governance and public administration institutions to align them with the exigencies of poverty reduction.”

Aide-mémoire, Ad-hoc Expert Group Meeting – “Innovations in Governance and Public Administration for Poverty Reduction” (Feb. 2003)

"Corruption undermines democracy and the rule of law. It leads to violations of human rights. It erodes public trust in government. It can even kill – for example, when corrupt officials allow medicines to be tampered with, or when they accept bribes that enable terrorist acts to take place. […] It has adverse effects on the delivery of basic social services. It has a particularly harmful impact on the poor. And it is a major obstacle to achieving our Millennium Development Goals."

Ban Ki-Moon, United Nations Secretary-General, at the launch of the Stolen Asset Recovery Initiative, 2007

Governance reforms in Eastern Europe – a quick story of the last 20 years: act one

o 1990s: reform momentum, enthusiasm

o national revival, state building

o Western modelo policy and institutional importso Francis Fukuyama: “The End of

History”o “Transition” paradigm

o countries progressing on a path from A to B

o EU/NATO accession roadmaps

o Increasing regional differentiationo starting points were very differento not all post-communist countries

gravitating towards Western modelo ethnic conflicts, nationalismo consolidation of autocracy in Russia,

Central Asiao return to geopoliticso Samuel Huntington: “The Clash of

Civilizations”o “Transition” paradigm questioned

o reform momentum fades; reform fatigue

o “partial reform trap” (J.S. Hellman)o is transition inevitable? does it

converge to destination?

Governance reforms in Eastern Europe – a quick story of the last 20 years: act two

o The “West” became much less coherent / monolithico Iraq waro Rumsfeld’s talk of New Europe vs Old Europeo Chirac’s insult

o By the mid-2000s, Governance reforms in Eastern Europe were:o by and large a success story in Central Europe

o EU accession 2004-2007o however, with persistent Governance challenges (both

due to communist past, as well as to transition features)o by and large not on the agenda in many CIS countries

o “Good Governance” language vs Democracyo “technocratic” reform agenda and stability of power

structure privilegedo alternative development models sought (e.g. China)

o and then… the global economic crisis hit the region

Governance reforms in Eastern Europe – a quick story of the last 20 years: act

three

Crisis impact

o Our region has been the worst hit

8.60%

-5.10%

5.40%

-3.70%

5.70%

-1.50%

6.20%

2.00%

6.30%

2.50%

9.80%

3.30%

-10.00%

-5.00%

0.00%

5.00%

10.00%

CIS SEE/ NMS LatinAmerica

Africa MiddleEast

Asia

2007

2009

…but not all countries were hit equally

Real GDP, annual % change - CEE countries

-25

-20

-15

-10

-5

0

5

10

15

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Albania

Bosnia and Herzegovina

Bulgaria

Croatia

Estonia

Hungary

Latvia

Lithuania

Macedonia, Former Yugoslav Republic of

Montenegro

Poland

Romania

Serbia

Turkey

…not all countries hit equally (II)

Real GDP, annual change - CIS countries

-20

-10

0

10

20

30

40

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyz Republic

Moldova

Mongolia

Russia

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

o The crisis has exposed structural Governance weaknesses across the regiono extremely poor forecast and analysis capacity

o Romanian president and Central Bank governor stated as late as May 2009 that the country would have positive growth that year

o weak policy capacityo policy development and policy adjustment (reactive

policy approach)o broken policy cycleso poor evidence base, no proper impact evaluationo insufficient consultation capacityo legalistic approach to reformso by and large continued policy imports, no input

whatsoever in the current debate on fiscal expansion vs fiscal retrenchment

Economic crisis and Governance implications

o weak implementation capacities constrain policy choices

o “across the board” cuts instead of targeted

o structural imbalance between branches of power (executive dominates, parliaments very weak)

o also valid in EU NMSo …and even more in monocentric Central Asian regimes

(*KGZ parliamentary grand experiment)o generally aggravated in the context of crisis responses

o Romania: in Oct-Dec 2009, government determined by President, not Parliament

o administrative inefficiencies, ineffective public services

o politicisation of public institutions o widespread corruption

Economic crisis and Governance implications (II)

o Political and legal /constitutional frameworks severely tested, social contract at (or close to) breaking pointo political turmoil, collapse of coalitionso crisis response policies challenged legally

o Latvia: Constitutional Court decision on pension cutso Romania: Constitutional Court decision on pension

cuts; likely challenge to VAT increase

o political elites lack credibility and legitimacy for imposing tough measures (political capital is low)

o … Could the crisis be an opportunity for a new wave of Governance reforms?

o look less at basic legal frameworks and institutional “hardware”, more at capacities, resilience, effectiveness… (the “software”)

Economic crisis and Governance implications (III)

o …followed byo deficit / debt criseso fiscal retrenchment, shrinking

stateo Need to find a better / smarter

trade off between a capable state and cost containment

Economic crisis and Governance implications (IV)

o Initial crisis responses:

o stimulus, bailouts

o states “back in business”, expanding role

o David Cameron on “The New Age of Government”

Corruption and Anti-corruption responses in Eastern Europe

Is external pressure helpful?

Dan Dionisie, Policy Specialist, UNDPCEU, July 2010

Warm-upo Discuss the Governance implications of the following images:

Fighting public corruption

o Communist legacy: largely non-monetized corruption

o Early post-communist transition: pervasive corruption, criminalization of state structures, predatory privatization of public assets

o Petty / administrative corruption disproportionately affects the poor (has the effect of a regressive tax); grand corruption fundamentally affects state authority, social fabric / public morale and diverts scarce resources

From UNDP’s Primer on Corruption and Development (2008)

Fighting public corruption (2)

o Corruption and crisis:- fraud, corruption at the root of the to crisis- public corruption severely undermines crisis response (state

unable to manage and channel scarce resources where needed)

o Controlling corruption in public sector (prevention, repression):- anti-corruption legislation- anti-corruption institutions- international commitments (UNCAC, CoE, OECD), peer

reviews / self-assessments / reporting & monitoring mechanisms

- integrity standards in civil service (CoI, code of ethics, asset disclosure)

- public awareness, education- PA reforms (e.g. public procurement, civil service,

transparency, admin simplification), de-regulation and privatization to reduce scope for corruption, broader public sector reforms (judiciary)

o ECIS countries score high on paper (laws&institutions), but their AC efforts are seldom effective

o EU accession a boost to anti-corruption?

EU Progress Reportso Corruption dealt with under Political criteria

– Democracy & Rule of Law (Anti-corruption Policy section), occasionally also under Human Rights and protection of minorities (e.g. corruption among prison staff)

o Also referred to under Economic criteria (functioning market economy; capacity to cope with competitive pressure within the EU) and other sections:o for candidates: under Ability to Assume the

Obligations of Membership (e.g. public procurement, taxation, Judiciary and fundamental rights, customs union, financial control, financial and budgetary provisions)

o for potential candidates: under EU standards on Internal Market (e.g. customs&taxation, public procurement), Sectoral Policies (e.g. financial control), Justice, Freedom and Security (e.g. money laundering, fighting organized crime and terrorism

Summing up from country progress reports

o There is always progress (some, good, limited)

o Positive: political will; laws adopted/amended; institutions established/strengthened; reports issued; meetings held (input-type); investigations initiated (but usually not finalized with court convictions)

o Negative: lack of political will; legal and institutional frameworks still deficient, not aligned to int’l standards; lack of convictions; insufficient monitoring of politicians (e.g. asset declarations, MPs exemptions); reference to specific corruption cases (!)

…but how come?o the famous “implementation gap”

explains something…

o …but still doesn’t explain all

EU accession conditionalities?

Conventional story: CEE countries did the right thing on anti-corruption while they were under pressure from the EU before accession… and slid back as soon as the pressure decreased after getting “into the club”

The “political will” narrative

o In the pre-accession period candidate countries were under external pressure

o …thus, had “political will” to act on corruption…o …and did the right thing (and promised to do more)o but after joining the EU there was no more pressure and “political

will” vanished…o they backtracked on promises and even reversed some AC measures

o Slovenia - lawmakers have been trying to close down the commission for the prevention of corruption, run by Drago Kos, arguing that it is expensive and unnecessary; at all public watchdogs staff salaries were cut by a third

o Latvia – politically motivated attempt by the PM to replace the head of KNAB in 2007 (later replaced in 2008 by Parliament with stronger justification)

o Slovakia – the justice minister called the special AC court, which has highly paid, security-vetted judges, a "fascist institution". His party, a junior member of the ruling coalition, eventually succeeded in having it deemed unconstitutional. But the most spectacular cases are still in the Balkans

o Romania – replacement of Monica Macovei as Justice minister three months after joining EU; National Integrity Agency law ruled unconstitutional in 2010

o Bulgaria – no high-level corruption conviction, none of the 120 mafia killings solved, large scale fraud with EU funds

…but wait…CPI in selected New EU Member States

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bulgaria

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Poland

Romania

Slovakia

Slovenia

AVERAGE

New EU MS - CPI time series adjujsted by EU accession timeAY = Accession Year

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

AY-8AY-7

AY-6AY-5

AY-4AY-3

AY-2AY-1 AY

AY+1AY+2

AY+3AY+4

AY+5

Bulgaria

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Poland

Romania

Slovakia

Slovenia

AVERAGE

Lessons learned in New Member States

o Corruption was high on their accession agenda as well, AC efforts monitored through Progress Reports

o Romania (4 benchmarks on judicial reform, fight against corruption) and Bulgaria (6 benchmarks on judicial reform, fight against corruption and organized crime) still monitored through the Cooperation and Verification Mechanismo reports issued every 6 months (until mid

2009), next due in summer 2010

Lessons learned in New Member States (II)

o “The approach, recommendations and requirements of the EC in the arena of anti-corruption policy in candidate States have been focused on elites, top-down anti-corruption strategies pursued with adequate “political will”, enforcement of criminal law and establishment of functioning control mechanisms mainly to control the use of EU funds”o general orientation towards control paradigm (strong

emphasis on criminal enforcement)o expectations of immediate resultso the Commission lacks a clear sense of what it means by

corruption, and therefore what would constitute successful anti-corruption policy

o EU lacks benchmarks for assessing corruption in member States… absence of clearly binding acquis in the area of corruption

o …does not appear to employ a consistent approach across candidate countries when citing survey data… some ambiguity in the Commission’s interpretation of statistics… unspecified evidence

o The Commission’s assessments of the prevalence of corruption, in which the seriousness of corruption in candidate countries is classified according to statements ranging from “relatively limited problem” through “area of concern” to “widespread and systemic” are clearly intuitive.

Monitoring the EU Accession Process: Corruption and Anti-corruption Policy, OSI-EUMAP, 2002

Some issues with the Commission’s approach

o assessments are highly political, rather than technical / objective

o emphasis on law enforcement (vs. prevention)o overall legalistic approach o emphasis on showing quick results (vs. systemic

improvements)o “Some fundamental improvements are needed,

although the first priority should be to deliver results irrespective of structural deficiencies” – CVM report for Bulgaria, July 2008

o “political will” over-emphasized o shortcuts vs. normal procedures (e.g. fast-track

adoption of laws, govt decrees) => institutions are weakened, not strengthened

o Romania example (“Opriti codurile!”, 2009)o issue of sustainability

o politicization of anti-corruption (EC takes sides!)o emphasis on government’s driving role, may

undermine separation of powers

Sustainability of AC reforms - Slovakia

Controversy and sustainability of anticorruption reforms in Slovakia

 Reforminitial controversy sustainability subsequent changes influencing anticorruption impact

1. Fees for accelerated service in the land registry medium high None

2. Freedom-of-information law high high none (but periodically reappearing)

3. Bank privatization high high None

4. Limiting discretion in active labour market policy low medium limited - extending scope for discretionary activities

5. Company register reform low high None

6. Increasing public involvement in the policy consultation process low high None

7. Increasing internal and external audit in local and regional self-governments low high None

8. Special prosecutor and special court for corruption offences high medium

limited, with potential to be significant - decreasing pay for Special Court judges, Constitutional Court challenges

9. Introduction of case management techniques in the judiciary medium high None

10. Change in the political party financing high high None

11. Increasing capacity of education system low high

limited - steps to limit capacity growth, but given demographic developments, not likely to have much impact

12. Tax reform high medium limited - introduction of some changes

13. Health care reform high lowsignificant - reversal of introduced changes and also the reform was not completed

Source: Miroslav Beblavý (2008)

What determines sustainability?o 13 case studies researched in Slovakia in 2007 and 2008, each focused

on a policy reform that was postulated to have impact on corruption. o Corruption can be decreased; substantial sector-based decrease in

corruption is possible even in a country where the corruption is extensive.

o In Slovakia, anticorruption reforms focused on decreasing benefits of corruption rather than increasing costs of corruption and effective reforms have usually done more than increase transparency and availability of information – they also used one of the following three approaches: liberalisation/privatisation, limiting discretion and increasing supply/decreasing demand. The Slovak experience of 1998-2006 shows that sustained effort can bring about significant improvements in corruption if it is linked with overall reform of the economy and governance structures.

o In Slovakia, despite the importance of the process of EU accession, the role of external actors was much more important in policy transfer and technical assistance than in forcing the reform through conditionality. Even the strongest of conditionalities was present only in a minority of reforms and the political will to enact the reforms was mostly home-grown. On the other hand, the role of external actors in inspiring and/or designing reforms was crucial and was present in ALL the reforms that were graded as having high or medium effect on corruption.

o The level of controversy is not a good guide to sustainability of the reforms. Surprisingly, the ideologically charged changes have high levels of sustainability even when they were initially controversial and the steps that have proven to be less sustainable are those where specific interest groups remain opposed and where the reform has not managed to create a powerful constituency in favour of the new status quo.

Conclusionso The focus on corruption should not divert from the

broader PA and Governance reforms. AC should not be allowed to hijack the governance agenda!

o AC efforts that shortcut existing institutions and governance systems may be counterproductive (fragility of institutions may be bigger/deeper problem than corruption)

o Quick fixes may not be sustainableo Institutionalize reforms, secure constituencyo Risk of politicization of AC (AC instrumentalized for

political purposes) o Progress Report-oriented AC efforts are NOT the

answer!

o Have the EC + other donors learned some lessons?o Yes, to some extent

Thank you!

Comments?Questions?