FROM THE OFFICE OF PUBLIC AFFAIRS

February 5, 2005
JS-2245

The Governance/Investment Nexus: Measuring Results for Better Performance
John B. Taylor
Under Secretary for International Affairs
United States Treasury
Good Governance for Development (GfD) in the Arab Countries:
An Arab Regional Initiative in Partnership with OECD and UNDP
Dead Sea, Jordan
February 6, 2005

I would like to thank His Majesty King Abdullah II for hosting this forum and for his leadership on this important initiative of Good Governance for Development in the Arab Countries. I am honored to lead the United States delegation to this event, attended by Heads of State from Arab countries and distinguished ministers from the region and OECD countries.  President Bush sends a personal message of support for this initiative and for the Arab leaders who are championing the fight against corruption and implementing public governance reforms; these measures form the backbone of economic development. The United States – like international organizations such as the OECD and the UNDP – is committed to facilitating these initiatives with the ultimate goal of improving peoples' lives in the region. 

Governance and Economic Growth – Why Governance Matters.

Governance is an appropriate and essential topic in any discussion on development because of its links to economic growth.  Studies by World Bank show the connection between good governance and higher per capita incomes.  IMF research shows that adoption of key transparency measures reduces sovereign spreads by 7-17%, indicating that investors see good governance as reducing risk. 

At Treasury, we are always hearing the complaints from all kinds of investors about poor governance in countries all over the world.  They are frustrated because they want to invest, but are driven away by what they perceive as rampant corruption or excessive bureaucracy.  "Why don't these governments understand that public governance influences investment decisions, and that investment brings jobs and growth?" they say.   Domestic investment is hampered by poor governance for similar reasons.  Discouraging the local entrepreneurs of the region limits the expansion of the private sector, and thus severely limits the scope for economic growth.

Apart from investment, good governance increases the effectiveness of aid and promotes better use of domestic resources.  A strong policy environment supported by accountable public institutions helps assure that funds are not wasted or misused and so delivers more economic growth for every aid dollar, as transparency will help assure that funds are not wasted or misused. In the same way, good governance assures more efficient use of domestic public resources.  Public productivity supports private productivity, which drives growth.

The commitments all the regional countries have made through this initiative, along with complementary commitments found in the UN Convention Against Corruption, provide a useful path for the region and a model for all nations as they seek to move forward in this area.

Results Measurement to Promote Good Governance

I urge you to integrate measurable indicators of progress into the work of this initiative.  Not only will using measurable indicators and insisting on measurable results make this initiative more effective, it is a way to promote good governance more generally.   An environment where public servants are working toward specific and publicly disseminated targets will lead to better governance.  Quite simply, what gets measured gets done. 

Many have argued that governance does not lend itself to measurement.  We struggled with this too in developing a more effective way to provide aid under the President's Millennium Challenge Account.  However, after much consultation within our government and with international institutions, academics and NGOs, we chose six indicators under the "ruling justly" set of evaluation criteria against which countries' performance are measured.  These indicators are publicly available.  Also, in our role in the multilateral development banks, we have worked to ensure that the weight of governance remains high in the calculation of performance-based allocations.  Developing indicators and setting targets may be difficult, but the benefits of doing so far outweigh any frustrations.

US proud to participate in GfD conference

It is very encouraging to see this initiative get underway, for not only does it address an essential element of development as I mentioned earlier, but it is being driven by the countries of the region themselves.  It is home-grown.  Only when the push to reform comes from within does reform have a chance of succeeding.  The United States is proud to support such efforts.  We are an eager participant in this conference and in its sister initiative, the MENA-OECD investment program.  Indeed, through the G8/BMENA initiative, the United States is working with its G8 and regional partners to develop an investment task force that will complement and support the work already underway.  In this way the G8 will be lending its support to this important work.  Similarly, we hope to increase the scope for synergies and collaboration between the G8/BMENA initiative and the governance dimension of this initiative.

Conclusion

Once again, I would like to thank His Majesty King Abdullah II for hosting this launching conference.  I anticipate that this process will be a productive one, with many positive outcomes.  I urge that the momentum for reform created by this conference be sustained so that it results in meaningful and lasting change.  I look forward to seeing the progress and synergies that can result from the joint efforts of the region with its partners in the OECD, UNDP and G8.