Fostering functioning and effective states

The effective functioning of a state's institutions is central to development. Governments provide the enabling environment for private sector development and hence growth and employment generation. Effective states develop laws and maintain order and stability, protect and advance human rights, and oversee the sustainable use of resources. They generate revenue to fund delivery of education and health services, infrastructure development, and maintenance of law and justice.

Weak capacity and corruption have seen some of the region's governments perform poorly, with negative impacts on poverty and stability. At the other end of the spectrum, otherwise well-performing countries are grappling with new challenges faced by modern nation-states: HIV and other pandemics, international trade regimes, transnational crime, microeconomic reform, economic integration, and environmental protection.

The White Paper's strategic framework outlines approaches to fostering functioning and effective states in the region through initiatives to improve leadership and governance, and establish incentives for better government performance.

Better governance and leadership

Context

The ability of citizens to hold government accountable and the way in which leadership is exercised are key issues for governance. Poor governance has a direct negative impact on peoples' lives. Accountable leadership focused on broadly shared wealth creation helps establish social stability, creates an environment conducive to economic growth, and facilitates sustained poverty reduction.

Response

Key aspects of Australia's response to this challenge will be addressed through a new initiative, Better Governance and Leadership, as outlined in Box 4.

Box 4: Better Governance and Leadership $41.0 million

A Better Governance and Leadership initiative will invest $41.0 million over two years, with $16.6 million in 2007-08, to focus on the region's next generation of leaders and build community demand for improved government performance. This initial two year program will form the basis of a long-term approach to promoting better governance and leadership.

A Pacific Leadership Program will work with a wide variety of current and emerging leaders in the region to develop their leadership potential and engage them in improving standards of leadership and governance. The program will support and foster good leadership by individuals across society. It will encourage young people to develop leadership skills, promote good leadership in business, the media and churches, and foster increased representation of women in leadership roles.

New investments in civic education will help communities to access information on the role of government in providing services. This will be complemented by increased support for electoral monitoring and education. Support for the media will help spread news on government performance and policy debate into communities.

New investments in government accountability will strengthen community access to information on government performance, working with leading mainstream community organisations. Support for research institutions will also facilitate independent analysis of government policy.

The initiative's new Pacific Leadership Program will engage a wide range of implementation partners and stakeholders — from national chambers of commerce to the Pacific Council of Churches — in raising leadership skills and standards in the Pacific and East Timor. This will include expanding existing work by the UN Development Fund for Women (UNIFEM) to encourage greater numbers of women to contest national elections and take up leadership roles.

New support for civic education will focus particularly on Indonesia, Cambodia, East Timor and Melanesia. This will include assistance for electoral administration, voter registration and election monitoring to support the conduct of free and fair democratic elections. Expanded investments in radio in Papua New Guinea and Cambodia will support current affairs broadcasting and use targeted infrastructure investments to increase community access to news. In East Timor, Australia will partner with other donors to support independent media. Regional support for media will build linkages and institutional partnerships that support media practitioners and organisations.

To promote increased government accountability, partnerships between local Pacific and Australian church agencies will be developed in Solomon Islands and Vanuatu, building on a successful model established in PNG. In addition, support for women's organisations and other influential community groups in the Philippines, Indonesia and Cambodia will raise awareness about governance issues and help rural communities to monitor local administration performance.

Complementing this work through the new initiative is AusAID's continued support for the Centre for Democratic Institutions, focusing on strengthening political parties and parliamentary governance through intensive training courses and workshops, underpinned by research, advocacy and regional networking, with a main focus on Melanesia, Indonesia and East Timor.

Australia is also continuing engagement in long-term efforts to improve the quality of economic governance, for example in Vanuatu, where a Governance for Growth program established in 2006 is directly targeting obstacles to growth and service delivery through a package of activities helping to strengthen government economic policy making and planning.

Performance incentives

Context

The growth prospects of many of Australia's development partners depend on them improving institutions and implementing better policies. These include more transparent budgeting, better planning and linking of expenditure to national development priorities, microeconomic reform, and global and regional economic integration. However, the pace of reform in these areas is often slow or stalled. This can constrain the effectiveness of Australian assistance, since aid has a greater impact when partner governments set and implement good policy.

Conventional aid approaches usually focus on building partner government capacity to develop and implement reforms. While this can be a critical element to achieving progress, there is scope for a new and different approach to help boost the prospects for reform. Such help would focus on providing reform advocates with meaningful incentives that can elevate the profile of debate about reform, and influence the adoption, consolidation and spread of reform.

Response

Australia is expanding the use of incentives in aid relationships to help partner governments lift their performance and progress key reforms. Australia already has trialled performance incentive arrangements with the national governments of Papua New Guinea and Vietnam, through which incentive payments are provided against agreed performance milestones. These arrangements will be expanded, and arrangements with additional countries developed, through a new Performance Incentives initiative. Details of the initiative are provided in Box 5.

Box 5: Performance Incentives $115.6 million

Australia will invest $115.6 million over two years, with $41.3 million in 2007-08, in a Performance Incentives initiative that will support the implementation of essential economic and governance reforms in selected countries.

To encourage faster, better and more sustainable reforms, Australia will provide additional resources to partner governments when they achieve pre-agreed milestones. Milestones will be agreed for priority reforms in areas such as education management, improved budget management, utility regulation, private sector development and sub-national government administration. Additional Australian support that partner countries achieve by meeting agreed milestones will be directed towards priority areas such as roads, health and education.

Performance arrangements are expected to be developed with the Philippines, Indonesia and Vanuatu. Existing arrangements with Papua New Guinea and Vietnam are also expected to expand under this initiative. Other countries may also be included under the initiative. The additional resources will be directed through established aid mechanisms to manage fiduciary risk, such as trust funds overseen by multilateral development bank partners.

International experience has demonstrated the importance of incentives targeting reforms that have local ownership, of working closely with partner countries and using common performance frameworks, and making any incentive payments in the context of an ongoing and comprehensive dialogue on performance. Performance arrangements instituted or expanded under this new initiative will reflect these key lessons learnt.

Diagram 3: Estimated ODA by DAC governance sector sub-group 2007-08

Note: Diagram shows the proportion of estimated Australian ODA according to OECD Development Assistance Committee (DAC) defined sub–groups within the overall governance sector classification. See note to Diagram 2 on page 63 for further details on sector classifications.