The Challenges facing Developing Countries in their International Relations

3. The good governance agenda and developing countries

Christina Biebesheimer, Inter-American Development Bank

Abstract: This presentation presents an account of how Multilateral Development Banks (MDBs) became engaged in the good governance agenda. It describes the various inputs which go into the making of such an agenda, and the difficulties encountered in the process. It examines closely the implications of the recent expansion of a mainly economic agenda into the political realm, and links the expansion with the issue of conditionality. The analysis is conducted chiefly in the light of the experience of the Inter-American Development Bank (IDB), though comparative insights are also drawn through reference to other MDBs.

The current preoccupation of MDBs with issues of governance, civil society, modernisation of the state and rule of law reform, is unprecedented. It is true that institutional strengthening of government agencies involved in IDB-funded projects goes back to the time of the inception of the bank, as was also the case with other MDBs. However, projects geared specifically to the process of governing, or with the sole end of developing the organisation of civil society, are qualitatively new.

The new direction adopted by MDBs may be explained in terms of three factors. First, the increased focus on state institutions and civil society is partly a product of experience. MDBs have had to recognise, for instance, that they can build roads, but the road will not have much impact on the country’s transportation system if the government is unable to regulate traffic safety. In fact, money spent on such a project is worse than money wasted, as it comes in the form of loans that increase the recipient country’s debt burden. Similarly, it has been recognised that stakeholder participation is critical to sustainable development. Second, the IDB’s involvement in state reform and civil society is a response to the needs of its region. Recent democratisation in Latin America has given governments a high stake in creating public institutions, which can deliver growth and services to their citizens (even if sometimes only for the sake of survival and re-election of the government). Democratisation has also given a new voice to NGOs, thereby furthering the civil society agenda. The trend towards democratisation affects regions differentially, but its general impact is evident in several other MDBs. Third, there is a self-interest on the part of the MDBs, which need to show that development assistance works. The governance agenda allows MDBs the hope of correcting past failures of public institutions that contributed to the ineffective implementation of aid.

The construction of a good governance agenda, in response to the demand for more participatory projects, is not an easy task. The problem derives from the existence of many voices in the agenda-forming process. They include, for instance, the IDB’s Board of Governors and the Board of Directors i.e. appointed representatives of democratically elected governments, as well as NGOs i.e. some groups that are very critical of their governments. Individual citizens directly affected by a project, must also be heard, particularly in the context of increasing stakeholder participation.

Agenda formation is also rendered difficult in the absence of any precedent. In the case of the IDB, as long as there is no policy forbidding an area of work, projects are often developed to drive policy and set precedent. Note that this practice differs somewhat from the approach of the Asian Development Bank, where policies are stated upfront. A possible explanation for this difference could be the more cautious approach to democratisation in East Asia, which necessitates the development of a consensus to prevent inadvertent encroachments into matters of government. With a few exceptions such as the ADB and EBRD, however, the governance agenda of most MDBs are general and vague. This is in recognition of the fact, emphasized by past errors particularly under the Washington Consensus, that there are no standard recipes that may be universally applied.

In the absence of any recipes, the formulation and implementation of the governance agenda runs several risks. The first problem is that programs in state reform are particularly ‘soft’. In other words, they have slow gestation periods and their expected benefits are dispersed over a large number of institutions. This makes them a problem to carry out - for both governments and MDBs which need to see concrete results. Second, the governance agenda has necessarily involved spillovers into the political realm. It has been recognised that reforms fail without political support, and reform in turn, involves political costs. It is also increasingly clear that democracies in Latin America and the Caribbean are delicate - the strengthening of democratic institutions involves MDBs in political processes. Traditional injunctions of MDBs against political interference were not without reason. Expansion into the political realm should be undertaken only with great caution, with the permission of the government at the very least, and ideally with its enthusiastic participation.

The issue of inseparability of reform and politics, also ties up with problems associated with conditionalities. The World Bank Group Policy Research Report, ‘Assessing Aid: What Works, What Doesn’t, and Why’ (OUP, 1998) indicates that aid is effective after good governance has been established. For all the criticism of the report, it raises some critical questions. Chief among these is - should aid be conditioned on good governance at all, if only political will (and not MDB assistance) can lead to good governance?

To reach its fruition, the expansive agenda of the MDBs must not only address the issues addressed above, but also develop indicators whereby institutional performance may be judged. A well-developed methodology of evaluating implementation and redesigning reform is needed. While MDBs have responded to the wave of democratisation and other factors to focus on improving the effectiveness of public institutions, they still face the challenge of demonstrating the development impact of such projects.

(See www.idb.org for more details about the IDB’s work in this area)

The rest of the seminar series:
Introduction
The Politics of Aid and Conditionality by Stephen Jones
International Investment Treaties, Valpy Fitzgerald
Good governance and the MDBs, Christina Biebesheimer
Global Governance and the Post Washington Consensus, Richard Higgott
Intrusive Regionalism, Amitav Acharya
Regionalism in the Middle East, Louise Fawcett
Aiding Democracy Abroad: Lessons from the late 1980s-90s, Thomas Carothers
Developing Countries and the International Financial Architecture, Ngaire Woods
Humanitarian Intervention, Thomas Weiss