Reinforcement of good governance in the international financial institutions.

Author:Ahmed, Naveed
 
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  1. Introduction

    Good governance is responsible for the paradigmatic shift in the policies of IFIs towards major conditionalities for borrower countries. In this article, the term good governance as a policy objective and key conditionality of the IFIs for borrowing countries will be examined. Moreover, the relevance of good governance with anti-corruption strategies introduced by the IFIs to ensure sustainable economic development will be the prime focus of the article. In order to understand these diverse conceptions, the article has been structured in four parts. Part II examines the notion of good governance and recent trends in the IFIs' developmental perspective. Part III considers impediments in the way of global good governance agenda. Part IV considers the Millennium Development Goals and its relevance to good governance. Part V concludes the article and summarises key arguments.

  2. Defining 'Good Governance'

    The expression 'governance' originated from the Greek word kubernan, which means, to steer. The term governance has been elaborated by the American Heritage Dictionary as "the act, process, or power of governing; government;" whereas the Oxford Advanced Learner's Dictionary defines it as "the activity of governing a country or controlling a company or an organization; the way in which a country is governed or a company or institution is controlled". The concept of good governance is relatively new. Although there is no comprehensive and uniform definition of good governance, there have been attempts by scholars, the United Nations and IFIs to expound the notion (Chowdhury and Skarstedt, 2005: 13).

    According to the World Bank, good governance means "the manner in which power is exercised in the management of a country's economic and social resources for development" (World Bank, 1992: 3). The Bank further explains that good governance facilitates open and progressive policy-making. It ensures that countries are able to attain financial progress, social progress and strong institutions. Achieving it however depends on the capability of countries and how they plan, prepare and execute strategies as well as assume responsibilities (World Bank, 1994: 10). The World Bank's interest can be traced back from its finances to the countries for sustainable growth as poor governance can risk its lendings if not properly utilised.

    The United Nations Development Programme (1997:4) suggests that governance means an application of monetary, executive and political power to administer all problems of the state at all stages. It embodies means, procedures and organizations, through which people individually as well as collectively express their concerns, use their lawful rights, fulfil their duties and resolve their disputes.

    For the last two decades, the issue of good governance attributed significant attention to the achievement of sustainable economic development in international financial governance (Rittich, 2005: 200). In the 1990s, issues such as the collapse of communism in the former Soviet Union, the growing geopolitical interests, the 'neo-liberal' economic hegemony and the increase of multinational corporations draws the attention of the World Bank towards the role of law in development. The contemporary conception of the Law and Development Movement (LDM), which initially started in America, was premised on the belief that law might expedite the social, political and economic association of third world countries with the western world (Barron, 2005: 5; Rose, 1998: 94).

    The primary focus of the Bank's policies was to consider the legal system simply as a practical instrument free from any political influence and impartial in connection with ethical and philosophical matters. This concept was suitable for floating the market-fundamentalist approach at the international level authorised by the Washington Consensus (1) (Williamson, 1999: 2). The Washington Consensus was considered as a powerful and only potential choice or replacement for the communist led market-based strategies for better development objectives to the global world. The World Bank and IMF put pressure on the states by way of strict conditionalities attached with their lendings who were not willing to welcome the Washington Consensus. One significant feature which convinced the developing states to acknowledge the novel economic concept was the changing nature of global legal institutions. The creation of WTO in 1995 and numerous business pacts and trade conventions gave strength to the new economic shift and provided a favourable atmosphere for supplementary descriptions of the Washington Consensus (Williamson, 1999: 5).

    Sen's perception of development is different to the other writers. He is of the opinion that development is not only concerned with economic growth but also in a broader sense, indispensable in the realisation of the individual's capabilities. Sen has provided a new approach to the developmental thinking of a contemporary society and said that the development actors and intellectuals must include all spheres of social life such as legal, social, economic and political as they contribute to the growth procedure. These factors of social life worked collectively but each one equally bears a significant responsibility to increase individual's capabilities. He suggests that it is useless to provide rights to socially and economically disadvantaged people without securing them from other key obstacles in their way of practicing these rights. Sen is of the opinion that the World Bank can formulate an efficient policy for legal and judicial development provided it has been able to draft some relationship between law and other parts of social life. Moreover, he points out that focus on law and market is significant but without establishing a relationship between the legal and the social spheres, it is counterproductive (Sen, 2006: 38, 47-48). However, the Bank's legal branch or legal officers did not take into consideration Sen's recommendations to establish this relationship (Faundez, 2009: 4, 9).

    In 1999, the Poverty Reduction Strategy Papers (PRSPs) were introduced in order to quash the rigorous outcomes of Structural Adjustment Programmes (SAPs). The Poverty Reduction Growth Facility (PRGF) of the PRSPs was declared as a pre-condition for applying further lendings which includes conditionalities in the shape of privatization and liberalisation. Of course, these generally come at the expense of the poor having access to basic facilities of life such as health and education. The borrower countries were however, unable to implement them completely (Wood, 2006: 7; Chidaushe, 2008: 2). The PRSPs approach adopted four dimensions to poverty reduction. The four core elements were "'pro-poor' growth, focusing on 'empowerment creating growth'... investment in human capital typically the health and education sectors... 'good governance' which has grown from anti-corruption and public accountability measures. 'social safety nets'" (Craig and Porter, 2001: 1). However, the results of various studies commissioned by the United Nations Commission on Human Rights, Independent Researchers and NGOs illustrate that PRSP-PRGF are the replacement of the same SAPs programme and both the World Bank and IMF have not been successful in demonstrating the effectiveness of their strategies to decrease poverty (Joy, 2003: 21; Focus on the Global South, 2003: 17). The lacklustre results of the Structural Adjustment Programmes especially in African countries considered as the major reasons for change in the policies of IFIs (Jauch, 1999: 4). The World Bank in its 1989 report on Sub-Saharan Africa: from Crisis to Sustainable Growth identified the element of lack of governance as a considerable cause for the African Development Crisis (Curtin and Wessel, 2005: 81; Singh, 2003: 6).

    Michel Camdessus (2) concedes that:

    The widening gaps between rich and poor within nations, and the gulf between the most affluent and most impoverished nations, are morally outrageous, economically wasteful, and potentially socially explosive. Now we know that it is not enough to increase the size of the cake; the way it is shared is deeply relevant to the dynamism of development. If the poor are left hopeless, poverty will undermine the fabric of our societies through confrontation, violence, and civil disorder. We cannot afford to ignore poverty, wherever it exists, whether in the advanced countries, emerging economies, or the least developed nations. But it is in the poorest countries that extreme poverty can no longer be tolerated; it is our duty to work together to relieve suffering (IMF, 2000:51).

    In practice, the international agencies including the IFIs introduced a major shift in their policies. In reference with the issues referred to above that although the strategic interests of big powers are still active, they have provided an opportunity to third world countries through the IFIs to develop better conditions of good governance which has not been previously considered. The IFIs incorporated good governance as an essential element in their policies for borrower countries seeking for new lendings. The former United Nations Secretary General Kofi Annan perceived good governance as key to development noting that "good governance is perhaps the single most important factor in eradicating poverty and promoting development" (Abdellatif...

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