"reconstruction must not be at the expense of transformation"

Transparency and Integrity in the Context
of the Reconstruction and Transformation of Central American Countries
Stockholm, Sweden  25-28 May 1999

Introduction

The Inter-American Development Bank has the honor and the responsibility of coordinating the Consultative Group for the Reconstruction and Transformation of Central America. Within this context, representatives from Central America and from the international donor community attend this workshop. The objective of this meeting is to reflect on the transparency and integrity that are required for the development of reconstruction and transformation plans for the Central American countries affected by Hurricane Mitch.

Background

In October of 1998, Hurricane Mitch, one of the most devastating natural disasters in the history of the hemisphere, resulted in 9,000 casualties, left over one million people homeless and caused property damage estimated at approximately six billion dollars.

Hurricane Mitch hit a region that is in the process of consolidating social peace, democracy, and respect for human rights and stabilizing its economies. International assistance to these countries, therefore, should focus not only on their recovery from the physical damage caused by Hurricane Mitch but also on the safeguarding of values, institutions, and social and political behavior, all of which the region has been securing through slow and sometimes painful processes.

Transparency in the relationship between citizens and their governments should be a principle that guides collective action for the transformation of Central America. Both the beneficiary countries and the donor community are well aware that integrity and efficiency will ensure success in the development of a reconstruction strategy.

Many initiatives for improving governance are under way in the countries of Central America. Some actions have emerged from peace agreements, others have been proposed by civil society, and many are already part of public policies related to modernization or consolidation of the State. In the 1980s, concern for efficiency and transparency in governance was secondary to the urgent need for putting national economies back on course. Currently , there is a greater awareness that for the State to better fulfill its role, there is a need for strong public institutions, adequate legal frameworks and a distinction between public and private interests. This concept is reflected in the recent Declaration of Antigua signed by the Presidents of Central America two months ago and is also expressed in the Declaration of the Summit of Presidents and Heads of State held last year in Santiago, Chile.

The reconstruction process will require the governments to highlight their political will for firmly establishing a culture of efficiency, integrity, and professionalism in public administration. Within the context of the Consultative Group meeting, it is as important for the beneficiary countries to indicate their needs as to demonstrate how they will develop the institutional capacity to manage such assistance. For the donor community, in turn, it is important that it can commit resources and that it can ensure an effective use and impact of these resources.

The following is a description of some activities that may contribute to transparency during the reconstruction process and to the consolidation of modern and efficient states and increasingly mature governments.

Areas of Action

Ensuring integrity in the process of transformation in Central America should result from the joint commitment and the collective effort of the public sector, the domestic and foreign private sector, and of civil society.

The Public Sector

The incorporation of certain values in public sector activity and the use of incentives and disincentives on the behavior of government officials results in a culture of integrity in public activity. The sets of variables that determine the conduct of civil servants will vary from country to country and among institutions within countries. Hence, corruption should be addressed on a case-by-case basis and through tailor-made strategies.

Nevertheless, within the context of broad areas of government activity, it is useful to indicate certain guidelines for anti-corruption policies. Such topics can be regarded as components of strategies for good governance, since corruption is basically a restriction to governance.

1. Civil Service

It could be said that a comprehensive reform of public administration is still pending in Central America and throughout the hemisphere. In the last decade, the issue of civil service has been addressed primarily within the context of fiscal adjustment policies, in which the main concerns were usually downsizing and controlling salary increases. At the same time, enclaves of skilled and well-paid staff have been created to deal with such areas as the financial sector and social programs, at the fringes of the State’s institutional structure. It is now necessary to address the issue of a new civil service within the policies of state reform.

A professional civil service should be seen as a medium-term objective in all of Central America. Advances in this area have been uneven: in some cases, there is evidence of a political will, studies and initiatives are under way, and the regulatory framework is in place although its implementation is sometimes weak. In other cases, civil service reform does not appear to be a priority in the context of State modernization policies. In general, there is ample room for increasing the levels of accountability, skills, performance, and integrity in the Central American public sector.

Basic guidelines would involve: hiring, grade classification and promotion systems that are competitive, politically independent and socially nonexclusive, all within clear and simple legal frameworks; training strategies; transparent salary structures and competitive and adequate wages; incentives for good performance and high-quality service delivery; evaluation systems that promote feedback from users and beneficiaries and strict oversight and disciplinary mechanisms that deter illegal practices and opportunism. Appropriate organizational structures would provide the underpinning for the foregoing. In some cases, it may be necessary to set up institutional units or specialized agencies to deal exclusively with civil service matters.

The issue of administration reform is being addressed throughout the region at a time where the traditional hierarchical model is under evaluation and new paradigms are being implemented, even though their impact has yet to be tested. These models tend to borrow elements from the private sector, particularly with regard to incentives for productivity and performance-driven mechanisms. In addition to efficiency, government activity requires safeguards for the rule of law, the legitimacy of government functions and the integrity of its leaders and civil servants. These values must be preserved regardless of the theory that guides changes to the bureaucracy.

In countries that are still in the process of consolidating their democracies and institutions, the distinctions between public and private interests, state and government, and government and political parties are not always clear. If, in addition, educational levels are low and information systems are deficient, the result may well be a high level of informality in bureaucratic procedures, if not outright illegality. Therefore, administrative reform models should be carefully designed in order to ensure efficiency, openness and integrity in public administration.

Reconstruction and transformation plans provide the opportunity for substantive, long-term and overall reforms in public administration. It is important to go beyond emergency or short-term solutions that might favor bureaucratic opportunism and influence-peddling or informality. The Bank offers its assistance in formulating comprehensive reforms for public administration in Central American governments and, to that end, encourages the evaluation of ongoing reform processes in the region.

2. The Judicial System

The integrity of the judicial system determines a country's degree of public ethics. In the final analysis, timely and just action by the judiciary, based on a country’s legislation, determines the parameters of proper behavior. Thus, it is of crucial importance to strengthen the judiciary system in the context of reconstruction.

All the countries represented in the Consultative Group are planning or executing judicial system modernization programs. These programs are intended to ensure a better allocation of human and financial resources and to improve the technical skills, management and work conditions of the judges and court employees. The guiding principle for the judiciary is, of course, technical and administrative independence within a structure of checks and balances in the public sector. There is little doubt about the need to pursue this line of action, although it is necessary to further evaluate the impact of judicial reform and continue the discussion of its future course.

In this context, it would be appropriate to focus on the following two issues: combating corruption within the judicial system and combating corruption by the judicial system. The first aspect is the basis for the second.

To the extent that internal corruption within the judicial system prevents punishment for corruption, legislation becomes inoperative. Where there is no risk of punishment, the rules do not act as deterrents to the offense. Only if the court system is honest, does legislation dealing with dispute settlement or the application of sanctions become relevant in deterring corruption. It is important to make this point because often countries pass appropriate anti-corruption legislation that will become irrelevant, because the judicial system is not independent, honest or efficient. It is also true that judicial authorities who do live up to standards, can do very little to deter corruption if the appropriate legal instruments are not in place.

Generally speaking, the judicial system may be one of the government sectors most vulnerable to corruption. A number of reasons may account for this fact; the formality of legal procedures; the specialized technical skills required for the judicial profession, the difficulty in imposing efficiency criteria on judicial functions and the zeal for independence can easily and even legally conceal delaying or inhibitory mechanisms when sanctioning corruption, if the courts are corrupt. Dismantling a culture of corruption in some areas of the judicial systems is difficult and requires great creativity and even greater caution. Also, any action along this line should be supplementary to strategies at other levels of the public sector.

A first step in this direction should, perhaps, address the following issues: technical skills, salaries, laws and regulations for merit-based appointment and promotion of judges; job stability, and disciplinary and oversight systems. In addition, overall transparency of the system could be substantially improved. Better information on performance, on access to services and on judicial decisions and their underlying reasoning would indeed enhance visibility and prestige for the judiciary and would also provide incentives for a higher quality and increasingly honest performance. Transparency and openness would determine change in attitudes within a subculture that, in some contexts, tends to close ranks, thereby providing opportunities for corruption. These matters apply to the Offices of the Public Prosecutors as well.

Lastly, the judiciary should engage more actively in the general discussion on the effectiveness of anti-corruption legislation. Most countries have adopted or are in the process of adopting new penal and procedural codes, administrative law rules, conventions, and treaties that either directly or indirectly, totally or in part, address corruption. It is very important that congressmen and citizens be able to assess implementation of the anti-corruption legislation by the judiciary so as to properly evaluate its final impact.

The Bank will continue to support justice reform programs in the region, many of which include or will include improvement of legal framework or further institution building of specialized public agencies such as the Offices of Public Prosecutors and Attorneys General. Within this context, it is important to focus the implementation of measures, mechanisms, and regulations on improving integrity in the judicial systems. This would enable the judiciary to play a more prominent role in the battle against corruption.

3. Management of Public Resources

Efficient and transparent management of the financial aid for the reconstruction of the countries affected by Hurricane Mitch is probably one of the greatest challenges facing the governments and one of the donor community’s major concerns. Under the circumstances, it is important to prevent that a crisis approach to the reconstruction process leads to a scenario where substantive reforms are set aside to make way for short-term solutions and where new ad-hoc institutions postpone broader reforms of the public sector and affect its unity and cohesion.

There is an ongoing effort throughout the region, with varying levels of progress, to increase efficiency and transparency in the management of public resources, thus building credibility and enhancing professionalism in national institutions. If an overall culture of transparency and integrity is to develop beyond the reconstruction process and in support of future reform beyond foreign assistance, internal capacity for financial management will need further strengthening.

Good financial management practices are a powerful instrument for combating corruption. Financial management has developed mechanisms that favor transparency, discipline and control, and that allow corruption to be detected and vulnerability in certain activities to be minimized. Such good practices include: transparent planning and budgeting; accounting systems that provide beneficiaries and auditing institutions with reliable information and that also favor accountability, and single accounts of revenues and expenditures that eliminate the possibility of "shadow" accounting. Adequate systems of public contracting are also necessary.

Public procurement of goods, services, and supplies and the issuing of licenses, permits, or concessions are highly susceptible to large scale corruption. Thus, case-by-case analysis of public contracting systems and the implementation of policies and mechanisms for corruption and fraud prevention should be urgently undertaken. Technological advances are redefining the concepts of efficiency and effectiveness, which will require significant changes in national procurement systems and in implementing effective controls for both procurement and contract execution. The amounts involved and the importance of this subject will make it necessary to discuss this item as an integral part of the reform of the state discussion.

Internal audit and ex-post external controls by Supreme Audit Institutions, should be especially effective in detecting fraud and corruption under circumstances of exceptional spending, and at the decentralized level, concurrent monitoring on behalf of users and beneficiaries should also be encouraged.

Lastly, since the objective of fiscal policy is to respond efficiently to the needs of society for goods and services, evaluation on the basis of adequate indicators and reliable information on the impact of public sector spending should be carefully carried out.

The Bank has actively supported financial management reform in Central America. Recent missions to the countries have allowed for better assessment of the financial management situation in the region. Also, requests for assistance in modernizing procurement systems and in further strengthening supreme audit institutions are currently being processed. Programs which have helped set up integrated financial management systems represent one of the cornerstones for a forthcoming culture of integrity in the handling of public finances.

The Private Sector

The perception of corruption in the region is that it is strongly linked to the behavior of public servants and less so to the conduct of those who induce public servants to perform illegal acts. During the reconstruction process it is therefore essential that the issue of corruption be addressed by all sectors of society and in a special way by the business community.

The participation of private individuals in acts of corruption is always relevant, whether it be "large scale" or "small scale" corruption because the resulting social damage cannot be measured by the scale of the illegal benefits at stake. In the context of the reconstruction plans, however, there seems to be greater concern for minimizing opportunities for "big" corruption. Public contracting is particularly vulnerable to big corruption, and over the next few years, the countries in Central America will be contracting out large volumes of works and services for substantial sums of money, with a high degree of visibility. Under these circumstances it is timely to request the business community (both domestic and foreign) that will be doing business with the governments in connection with the reconstruction process, that it fulfill expectations in terms of compliance with accountability standards and solidarity. It is important that the private sector be actively and visibly part of the collective effort directed to increasing transparency and integrity in transactions with the governments.

It is possible to identify four sources of incentives on integrity in business transactions between the private sector and the government: first, there is self-regulation, which implies codes of conduct at the corporate level that prescribe policies of transparency and integrity when dealing with the public sector; secondly, there are rules and regulations set by financial aid agencies for contracting in connection with projects financed with their resources; thirdly, there is domestic legislation dealing with public contracting; and lastly, there is international law, when it incorporates or provides rules, principles, standards or model laws that govern practices in national or international business transactions. All these norms of different rank and scope, and above all, the enforcement of such rules, should enhance transparency in business transactions during the reconstruction process.

As for the role of multilateral financial agencies in this respect, the Bank believes it is important to jointly convey a very clear message in the sense that all oversight and audit mechanisms set forth in internal regulations will be strictly implemented in order to ensure the integrity of all contractors participating in projects financed with their resources during reconstruction.

In addition, these institutions can facilitate integrity and transparency pacts between the parties involved in the execution of specific projects.

The business community has played a leading role in crisis situations and also in consensus-building processes in various Central American countries. Currently, in some cases, the private sector is willing to participate and to get increasingly involved in matters of general interest and in the discussion on development in the region. The Bank can assist private sector participation in Central America and can facilitate discussion and the establishment of a regional agenda for action.

1. Civil Society

Civil society participation in matters of public interest is particularly high in Central America. Peace agreements and democracy in the aftermath of dramatic internal conflicts and long-standing dictatorships could not have been possible, in many cases, had it not been for the active support and commitment of broad and varied sectors of the population. Communities and interest groups have had a higher rate of success in expressing their views and in participating in public affairs, than their peers in countries where traditionally strong centralized governments or well-structured political parties have absorbed most civic participation. Under these circumstances, civil society has a very important role to fulfill in monitoring integrity in government activities.

Nevertheless, it is still essential that the State maintain full responsibility for the functions assigned to it under the constitution. To this effect, efficient public institutions, skilled public servants, and good legal frameworks are critical. However, citizens can always find means to improve quality in public service delivery, especially when acting as direct beneficiaries. Civil society can also develop social audit mechanisms to prevent corruption from restricting its access to services.

In this respect, greater transparency means more and better information on the rights of citizens to public services; better opportunities for people to exercise their legal rights to articulate their expectations and request fulfillment of their demands. Transparency also implies, on behalf of the government, increasing capacity for receiving, studying and processing demands from civil society and further opening-up the institutions to public scrutiny and self-assessment.

Due to the social vulnerability of the countries hardest hit by Hurricane Mitch, recovering basic social services  -health, education, and housing- will be a high priority during the reconstruction process. Therefore, involving civil society in this process should also be critical. It is important that users and beneficiaries of public social services, either in the form of local committees, school boards, cooperatives or consumer associations, actively engage in complementing quality control in social services and help improve them.

The Bank and other financial institutions are emphasizing grass-roots participation in the design and delivery of basic services and users are being constantly encouraged to express "voice" and "exit" on public products. Nevertheless, the institutions are fully aware that there still are serious restrictions on full participation of civil society due to such factors as low levels of education, poor communications and transportation systems, linguistic and cultural differences and gender inequality. Governments could develop a more proactive relationship with civil society. This would require creating more developed information systems, building on a culture of performance-driven public service, and a willingness to open up government functions to the people and getting them involved.

The Bank may help citizen participation in activities that can foster integrity and high quality in the delivery of social services. This approach would result in safeguarding the benefits of the socially vulnerable sectors of the population.

Final Considerations

Integrity and transparency in public activity are critical for good governance, and represent values that should be pursued well beyond emergency and crisis situations. In times where countries are committed to in-depth reforms, which moreover involve substantial financial support, efficiency and integrity become essential for the achievement of the designed goals and are the joint responsibility of all countries and entities participating in the Consultative Group.

This document stresses the need for both governments and citizens to participate in spelling out this context of integrity. In addition it describes some scenarios where integrity could be enhanced in the reconstruction and transformation of Central America. This list of topics is clearly not exhaustive; many opportunities are available and in many cases, the countries have utilized them in the context of social development or State reform programs. However, the implementation of the reconstruction and transformation plans will renew the demand for political will in terms of promoting reforms and effectively fueling change in these and other fields of public endeavor.

Hopefully this workshop will contribute to improve identification of actions and better coordination of efforts directed to consolidating good governance practices in the countries of Central America.

For more information on the workshop, contact
Mr. Jorge Claro de la Maza (jorgecm@iadb.org)
Chief of Procurement and Coordination Office
Inter-American Development Bank
tel: (202) 623-2612  fax: (202) 623-1579

Nicaragua, May 2000   -   Honduras, February 2000   -   Stockholm, May 1999