Guatemala’s CGAC Experience

Challenges, Achievements and Opportunities

October 28, 2010

Guatemala Country Office

Latin America and Caribbean Region

The World Bank

2

ABBREVIATIONS AND ACRONYMS

AAA Analytical and Advisory Activities

AECID Spanish Agency for International

Development Cooperation (Agencia

Española de Cooperación Internacional

para el Desarrollo)

ALAC Advocacy and Legal Advice Centre,

Transparency International

BANGUAT Guatemala Central Bank

(Banco de Guatemala)

CAS Country Assistance Strategy

CCT Conditional Cash Transfer

CD Certificate of Deposit

CFAA Country Financial Accountability

Assessment

CGAC Country Governance and Anti-Corruption

CGC Supreme Audit Institution (Contraloria

General de Cuentas)

CICIG International Commission Against

Impunity (Comisión Internacional Contra

la Impunidad en Guatemala)

CIDA Canadian International Development

Agency

COPRE Presidential Commission for Reform,

Modernization and Strengthening of the

State and its Decentralized Entities

(Comisión Presidencial para la Reforma,

Modernización y Fortalecimiento del

Estado y sus entidades Descentralizadas)

CoST Construction Sector Transparency

Initiative

CPAR Country Procurement Assessment

Report

CPS Country Partnership Strategy

DANIDA Danish International Development Agency

DfID UK Department for International

Development

DNCAE Dirección Normativa de

Contrataciones y Adquisiciones del

Estado

DPL Development Policy Loan

EDI Electronic Data Interchange

EU European Union

FM Financial Management

FSAP Financial Sector Assessment Program

GAC Governance and Anti-Corruption

GDP Gross Domestic Product

GNI Gross National Income

GTZ German Technical Cooperation

Guatecompras Contracting and Procurement Information

System

IADB Inter-American Development Bank

LCR Latin America and Caribbean Region

MP Attorney General's Office (Ministerio

Público)

NCB National Competitive Bidding

NEDA Netherlands Development Assistance

NGO Non Governmental Organization

NORAD Norwegian Development Agency

OAS Organization of American States

OECD-DAC The Development Assistance

Committee for the Organization for

Economic Co-operation and Development

ONSEC National Civil Service Office

(Oficina Nacional de Servicio Civil)

PFM Public Financial Management

PEFA Public Expenditure and Financial

Accountability

PIU Project Implementation Unit

PRONACOM National Program for Competitiveness

(Programa Nacional de Competitividad)

SAG Government Audit System

(Sistema de Auditoría Gubernamental)

SAP Systems, Applications and Products in

Data Processing

SAT Superintendency of Tax

Administration (Superintendecia de

Adminitracion Tributaria)

SEPA Procurement Plan Execution System

(Sistema de Ejecución de Planes de

Adquisiciones)

SIAF Integrated Public Finance

Management System

(Sistema Integrado de Administración

Financiera y Control)

SIAFMUNI Public Financial

Management System at the Municipal

Level

SIDA Swedish International Development

Cooperation Agency

SME Small and Medium Enterprise

StAR Stolen Asset Recovery Initiative

TI Transparency International

TSE Supreme Electoral Tribunal (Tribunal

Supremo Electoral)

UN United Nations

UNDP United Nations Development Programme

USAID United States Agency for

International Development

VAT Value Added Tax

WB World Bank

WBI World Bank Institute

TABLE OF CONTENTS

Guatemala’ CGAC Experience

A. GUATEMALA – GENERAL ENVIRONMENT ............................................................................ 1

B. GOVERNANCE IN GUATEMALA ................................................................................................ 2

C. STATUS AND REFORM PROGRESS OF THE INSTITUTIONAL FRAMEWORK .............. 4

D. WORLD BANK GROUP CONTRIBUTIONS TO GOVERNANCE REFORM ...................... 10

E. GAC IN FY09-12: ACHIEVEMENTS AND OPPORTUNITIES ............................................... 16

TABLES AND BOXES

TABLE 1. STATUS OF THE INSTITUTIONAL FRAMEWORK AND PROGRESS SINCE 2004 ACCORDING

TO A RECENT WORLD BANK ASSESSMENT ....................................................................................................... 5

TABLE 2. OVERVIEW OF GOVERNANCE REFORMS INITIATED DURING THE COLOM

ADMINISTRATION ................................................................................................................................................... 10

TABLE 3. DONOR REFORM AGENDA IN SUPPORT OF GOVERNMENT‟S TRANSPARENCY PLAN ........ 11

TABLE 4. WB SUPPORT TO GOVERNANCE REFORM IN GUATEMALA SINCE 2004 ................................. 16

BOX 1. DPL GOVERNANCE REFORM: TRANSPARENCY AND PUBLIC SECTOR MANAGEMENT .......... 12

BOX 2. DPL GOVERNANCE REFORM: FINANCIAL SECTOR ........................................................................... 12

BOX 3. DPL GOVERNANCE REFORM: PUBLIC SPENDING CAPACITY AND TAXATION .......................... 13

BOX 4. GAC IN PROJECTS: TRANSPARENCY IN GUATEMALA‟S COMPETITIVENESS PROJECT .......... 14

BOX 5. 2008 CGAC ACHIEVEMENTS .................................................................................................................... 15

BOX 6. 2009 CGAC-FUNDED ACTIVITIES ........................................................................................................... 18

ANNEXES

ANNEX A. BIBLIOGRAPHY ................................................................................................................................. 21

ANNEX B. 2006 CGAC CONSULTATIONS ......................................................................................................... 24

ANNEX C. DONOR INVOLVEMENT IN GOVERNANCE DIMENSIONS ........................................................ 25

1

A. GUATEMALA – GENERAL ENVIRONMENT

1. The administration of Alvaro Colom took office in January 2008 committing to increase

growth and address high poverty and inequality. The vehicle for the administration‟s program is an

ambitious plan that calls for inclusive broad-based growth through improving productivity and investment

and greater social spending for the poorest. 1

2. With a multiethnic population of about 14 million and a per-capita GNI (Gross National

Income) of US$2,670, Guatemala is the largest economy in Central America. Economic growth has

been relatively stable compared to the rest of Latin America. Much of Guatemala‟s relative stability can

be attributed to prudent macroeconomic policies that have kept inflation and public debt manageable.

3. Guatemala has made considerable development progress since the signing of the Peace

Accords in 1996. Particularly, improvements have been made in consolidating peace and building

democratic institutions: civilian rule has been consolidated and military power sharply curtailed.

4. Despite progress on democratic consolidation, poverty and inequality remain high and

social indicators (health, nutrition, education) are low compared to countries of similar income

levels. Poverty declined from 56 to 51 percent between 2000 and 2006, but extreme poverty remained

roughly unchanged at about 15 percent. With a Gini coefficient of 0.45, Guatemala ranks among the 15

most unequal countries in the world; the richest 10 percent of Guatemalans claim 48.2 times the income

of the poorest 10 percent.2 Inequality is closely related to ethnic exclusion. 56 percent of the poor are

indigenous, in contrast to 44 percent of the non-indigenous population. The gap in health is even more

pronounced: 69.5 percent of indigenous children suffer from malnutrition compared to 35.7 percent for

non-indigenous children.

5. Guatemala continues to be one of the most violent countries in Latin America. Its overall

rate of 48 homicides per 100,000 is well above the regional average of 27.5/100,000 and the global

average of 8.8/100,000. A rise in homicides by over 50 percent since 2004 has brought the number of

homicides to a post civil war record of 6,451 in 2009.3 This rise is closely correlated with an increase in

gang activity and narco-trafficking. 125,000 gang members are estimated to operate in Guatemala today –

compared to a police force of 20,0004; a 47 percent hike in cocaine trafficking since 2006 has brought the

value of cocaine trade through Guatemala up to an estimated $2.4bn. Cartels today dominate up to 40

percent of Guatemalan territory.5 As a result, almost two-thirds of Guatemalans consider insecurity to be

the principal problem in the country.6

6. Besides economic inequality, ethnic exclusion and organized crime, stakeholder

consultations repeatedly point to institutional weakness as key driver for weak governance and

anti-corruption efforts. The remainder of this text will discuss these issues further and give an account

of the achievements until today as well as challenges and opportunities for the future.

1 World Bank (2008) Country Partnership Strategy for the Republic of Guatemala. 2 UNDP (2008) 2007/2008 Human Development Report. 3 Freedom House (2010) Freedom in The World 2010: Guatemala. 4 USAID (2009) Guatemala – Democracy and Governance. 5 ICG (2009) Guatemala at a Crossroads. 6 LAPOP (2008) Cultura política de la democracia en Guatemala, 2008, El impacto de la gobernabilidad.

2

B. GOVERNANCE IN GUATEMALA

7. The current conditions for Governance and Anti-Corruption (GAC) in Guatemala are

challenging. Of the six World Bank Institute (WBI) Governance Indicators, Guatemala has only

improved in political stability since 1998. However, since a regression in 2003, there have been slight

improvements in voice and accountability as well as regulatory quality. The country ranks below the

regional average in all six indicators. In three of the indicators – political stability, control of corruption

and rule of law – Guatemala attains less than half the average regional percentile rank. Less than a third of

Guatemalans is satisfied with the way democracy works in the country.7

Source: World Bank Institute (2009)

7 Latinobarometro (2009) Informe 2009.

3

Source: World Bank Institute (2009)

8. Institutional weaknesses appear reflected in the low trust that citizens place in their

government. On aggregate, only 28 percent of Guatemalans trust their government – well below the

regional average of 44 percent. Similarly, comparisons with other institutions within Guatemala suggest

that public entities fare particularly poorly in terms of citizens‟ perceptions. Less than 15 percent of

Guatemalans think that institutions such as the Congress, the police force or the political parties are

honest – compared to almost 80 percent for the Catholic Church and over 60 percent for international

development cooperation agencies.

Citizen’s Trust in Government Citizens’ Trust in Institutions

Sources: World Bank Institute (2005) & Latinobarometro (2008)

4

9. A difficult governance and anti-corruption environment has made poverty reduction more

difficult and placed constraints on investment and economic growth. Enterprise Surveys, Doing

Business and Total Factor Productivity Analysis all report red tape, corruption, crime and violence as the

most important constraints on growth and investment.8 The 2008 World Bank Group Investment Climate

Assessment9 finds that Guatemalan firms lose 4 percent of their annual sales in security expenses or theft.

Similarly, paying bribes is common business practice. More than 15 percent of entrepreneurs, for

instance, report frequent payment of bribes to entities such as the national police, courts, customs or ports.

Small and micro-enterprises (SMEs) are the most prejudiced by corruption. According to the WBI Survey

Diagnostic10

, small enterprises spend more than 4 percent of their sales in bribes to access public services

– compared to less than 1 percent in the case of mid-sized or large firms. Red tape and in-transparent

regulation act to the detriment of not only firms but also their employees; they feature among the main

causes for informality – with its concomitant lack of contractual protection and social security for

workers. With over 70 percent of its workforce employed in the informal sector, Guatemala has the least

formalized labor market in all of Central America.

C. STATUS AND REFORM PROGRESS OF THE INSTITUTIONAL FRAMEWORK

10. While the overall governance framework in Guatemala remains in need of improvement,

progress has been made in strengthening key elements of the framework in recent years. Put more

generally, an unfavorable aggregate governance assessment is paralleled by moderate ratings for

Guatemala’s institutional framework, particularly in the Executive branch, along a limited set of

governance dimensions. Following the Latin America and Caribbean Region (LCR) GAC Approach

Paper, GAC can be disaggregated into 12 dimensions. Table 1 summarizes the World Bank assessment of

Guatemala‟s institutional framework against these 12 dimensions – based on both its own work11

and on

studies by the United States Agency for International Development (USAID)12

, Transparency

International (TI)13

and Freedom House14

. Within the 12 dimensions, Guatemala‟s governance

environment is found to be weak regarding checks and balance institutions (oversight bodies, justice

system and parliament) media and citizen oversight, competitive markets as well as civil service and

income declaration of public officials. On the other hand, core aspects of the Executive – financial

management systems, the budget process, tax administration and procurement systems – as well as

banking supervision attain moderate to robust ratings. Related, progress has been most substantial in the

Executive – with improvements in financial management, procurement, tax administration and budgeting

– in addition to banking supervision and freedom of information. The remainder of this section shall

review the current status of each of the governance dimensions as well as recent progress made.

8 Business Anti-Corruption Portal (2009) Guatemala Country Profile. 9 Based on survey data from January to June 2007. 10 World Bank Institute (2005) Diagnostico de Transparencia, Corrupción y Gobernabilidad. 11 See, for instance, World Bank (2007) Guatemala Country Financial Accountability and Procurement Assessment, and World

Bank (2008b) Guatemala Investment Climate Assessment. 12 See, for instance, USAID (2007) Evaluación de Avances y Elaboración de Recomendaciones en Materia de Transparencia,

Medidas Anti-Corrupción y Rendición de Cuentas. 13 As, for instance, by the local Transparency International Chapter: Acción Ciudadana (2006) Estudio Sobre el Sistema Nacional

de Integridad de Guatemala. 14 See, for instance, Freedom House (2006) Countries at the Crossroads: Guatemala.

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Table 1. Status of the Institutional Framework and Progress since 2004 according to a recent

World Bank Assessment

Governance Dimension

Status of

Institutional

Framework

Progress

since

2004

Efficiency and

Effectiveness of

Executive

Clean and efficient tax administration agencies ■■ ■■

Transparent, comprehensive and open budgets ■■ ■■

Integrated financial management systems for central

and sub-national governments

■■■ ■■■

Transparent and competitive procurement systems ■■ ■■

Asset and Income declaration for public officials ■ ■■

Professionalized civil service and efficient and

transparent delivery of services

■ ■

Efficiency and

Effectiveness of

Checks and Balance

Institutions

Independent and effective oversight bodies ■ ■

Independent, efficient, accessible justice systems ■ ■

Transparency in campaign financing and legislative

voting records

■ ■

Effectiveness of

Media and Citizen

Oversight

Adoption and implementation of freedom of

information laws, social monitoring and independent

media

■ ■■

Efficient and Well-

regulated Markets

Competitive markets and effective regulatory

frameworks to regulate public services and monopolies

■ ■

Prudential regulation and supervision of banking

sector

■■ ■■

Ratings: ■ limited / weak ||| ■■ moderate ||| ■■■ significant / robust

11. Guatemala’s Tax Administration Authority (Superintendencia de Administracion Tributaria,

SAT) has undergone comprehensive reform. To reduce business costs, reduce customs processing

times and increase compliance with tax and customs regulations, the Government is simplifying rules and

enhancing information systems. To ease compliance, an information system for electronic filing of Value

Added Tax (VAT), an Integrated Tax Current Account system for the 300 largest taxpayers and an

internet-based portal for SMEs have been established. Related, an Anti-Tax Evasion Law has been passed

in 2006 and the tax base has been gradually widened. These and other reforms have contributed to an

increase in the tax collection rate of around 1 percent of Gross Domestic Product (GDP) from 2005

to 2007. Nonetheless, political opposition and unfavorable constitutional court rulings on taxes have

kept Guatemala’s tax revenue from rising to more than slightly over 12 percent of GDP over the

same period – below the 13.2 percent of GDP stipulated in the 1996 peace accords and far below the 18

percent Latin American average.15

The onset of the global financial crisis in mid-2009 reversed – at least

temporarily – the limited gains made in fiscal revenue, with tax collection rates declining to 10.4 percent

of GDP in 2009.16

At the same time, inefficiencies in part of the tax administration process persist. Every

second entrepreneur reports that the SAT is the institution with the most time-consuming bureaucratic

requirements. Nonetheless, roughly half of all entrepreneurs and households also report that the SAT

delivers good quality service – compared to, for instance, approximately 40 percent for courts and 20

15 World Bank (2008) Country Partnership Strategy for the Republic of Guatemala. 16 Ministerio de Finanzas Publicas Guatemala (2010) Indicadores del Sector Fiscal.

6

percent for the national police (this data is drawn from World Bank Institute (2005); citizens‟ perception

might have improved in response to SAT reforms since then). Parallel, Guatemala has prioritized actions

to ease the customs burden, among others through a Customs Management System in major customs

entry points.

12. Incremental reform has enhanced transparency in the Guatemalan budgeting process. A

specialized office in the Ministry of Finance has been created to facilitate access to fiscal information and

guarantee transparent use of public resources; the Comptroller General‟s Office has been strengthened

institutionally and the processing of citizen claims and allegations on misuse of public funds and fraud

cases facilitated; a Single Treasury Account for Multilateral Credit execution has been established; the

use of the integrated public financial management system (Sistema Integrado de Administración

Financiera y Control, SIAF) for budget and payment processes has been enhanced; lastly, a regulatory

framework and Directorate in the Ministry of Finance to better control and enhance the transparency of

trust funds (fideicomisos) has been created and the Government has issued regulations to include, for the

first time in 2009, expenditures under special public trust funds in the budget. In addition, the Comptroller

General now includes trust funds in its annual audit of public accounts. Related, the Government has

strengthened controls and monitoring capacities to improve transparent and adequate management of

public trust funds. These are important milestones; Guatemala‟s budget is marked by the use of

fideicomisos. They amounted to 9.4 percent of the total government budget in 2009.17

Originally

established to speed up the disbursement of funds for high-priority expenditures, fideicomisos have

complicated transparency in public spending execution – thus contributing to limited public expenditure

efficiency in certain domains.

13. Guatemala’s SIAF is considered good practice in the region. It incorporates automated

processes and systems in the areas of budgeting, treasury, accounting, as well as substantial

improvements in other areas such as human resources management. The system is operational in all

central government agencies and in most of the decentralized entities, and covers approximately 300

executing-level agencies. It is linked to transparency web portals that allow the public to access and

consult budget-related information for most public sector institutions. Furthermore, a citizen-oriented

portal Consulta Ciudadana was recently created with user-friendly applications to facilitate access and

interpretation of complex financial management reports. Moreover, new financial management

procedures and systems were successfully implemented in all municipalities. A new framework for

municipal financial management (SIAFMUNI) has allowed for a more efficient and transparent model.

Lastly, an automatic and fully integrated payroll system is being implemented throughout all central

government agencies, including the health and education sectors. Nearly all central government

employees are now paid through the banking system and an updated database of public sector employees

has been developed and integrated with the SIAF system. Although these are significant achievements,

challenges do remain on the demand side and with regard to the usage of the system; users and

stakeholders continue to complain and express discomfort with the accessibility of fiscal

information.

14. Accounting for 3 percent of GDP, public procurement is a central lever for good governance in

Guatemala. In this context, the country’s e-procurement system Guatecompras has been a key

reform driver by significantly increasing compliance and transparency. It publishes information

about all steps of a procurement process for each acquisition above 30,000 quetzales (approximately

$4,000). Several decrees since the initial legislation in 2004 have enhanced the coverage of

Guatecompras; it is now operating and registering all central government agencies‟ procurement

transactions and is gradually being expanded to decentralized entities and municipalities. Although the

application has yet to support online transactions (such as electronic receipt of bids or electronic

purchasing), the system has successfully promoted higher degrees of transparency in the public

17 Ministerio de Finanzas Públicas Guatemala (2010a) Transparentando los Fideicomisos Públicos.

7

procurement practices as evidenced by improvements in users‟ perceptions and a recent award granted by

the private sector association in Guatemala. The Ministry of Finance has recently expanded the e-

procurement system with a new module, Guatecompras Express, which makes detailed information on

executed government contracts for large-quantity regularly purchased goods publicly available. Yet,

parallel systems, wide-ranging exceptions and opacity in the tender process continue to exist in some

areas – there is thus still further scope to strengthen and extend the coverage of Guatecompras along with

the offline processes.

15. A 2005 law to regulate the ‘integrity of the responsibility of public officials’ has

strengthened transparency in the use of funds by public officials. Judicial declarations by public

officials can now be analyzed and challenged in cases of illicit enrichment, for instance. In 2009, a

postulation law followed which, among others, requires banks to analyze and report financial activities of

public officials and their family members. Similarly, most forms of favoritism, for instance the public

recruitment of family members of public officials, have now been made illegal. Yet, other areas of

possible misconduct remain unregulated. Certain conflicts of interest, for example, do not fall under

any regulatory framework.

16. Civil service reform in Guatemala is primarily the responsibility of the Presidential Commission

for Reform, Modernization and Strengthening of the State and its Decentralized Entities (Comisión

Presidencial para la Reforma, Modernización y Fortalecimiento del Estado y sus entidades

Decentralizadas, COPRE), established in 2004 to promote the modernization of the Guatemalan State.

Yet, Congress rejected a subsequent civil service reform law in 2006. According to a 2007 USAID

study18

, the Guatemalan civil service, under the auspices of the National Civil Service Office

(Oficina Nacional de Servicio Civil, ONSEC), remains plagued by a lack of meritocracy and

politicized recruitment, promotion and continuation of employment.

17. Horizontal checks on the Executive – most of all parliamentary control – are still in need of

strengthening. The Legislative and other enforcement institutions are not accompanying the executive

governance reform efforts at the same pace. A study by the local TI chapter19

, for instance, suggests that

the Congress does not yet make adequate use of its powers to summon the executive and create

investigative commissions. Insufficient technical capacity of parliamentarians and their staff as well as

internal party divisions all contribute to limited effectiveness of legislative oversight. On a positive note,

an automated workflow system to support the Comptroller General’s Office audit processes has

been developed and is under implementation. Although not completely operational and subject to

further evaluations, the Government Audit System (Sistema de Auditoria Gubernamental, SAG) is

supporting the core business processes of the Comptroller‟s Office.

18. Guatemala has seen a variety of initiatives to enhance the efficiency and independence of its

justice system. In 2004, for instance, the Commission to Investigate Illegal Groups and Clandestine

Security Apparatuses was established by the UN and the Guatemalan government. In 2007, the

International Commission Against Impunity in Guatemala (Comisión Internacional Contra la Impunidad

en Guatemala, CICIG) followed. It is tasked with investigating complicated, high-profile crime cases as

well as corruption and crime within public institutions, political parties and civil society. Parallel, there

have been progressive reform attempts of the security forces. In 2008, the Colom administration removed

1700 police officials for corruption, including the deputy director of the national police. In 2009, drug-

related removals of the general director, deputy director and director of operations of the national police

followed. Despite these reform efforts, however, Guatemala’s justice system still reportedly suffers

from cases of corruption, impunity, intimidation and inefficiency. Most conspicuously, the country is

plagued by exceptionally high levels of impunity; in 2009, only 4 percent of all homicide cases resulted in

18 USAID (2007) Evaluación de Avances y Elaboración de Recomendaciones en Materia de Transparencia, Medidas Anti-

Corrupción y Rendición de Cuentas. 19 Acción Ciudadana (2006) Estudio Sobre el Sistema Nacional de Integridad de Guatemala.

8

convictions.20

Related, and according to a 2008 study, the majority of victims have ceased reporting

crimes.21

Judges and prosecutors are vulnerable to intimidation, particularly when investigating

individuals with ties to drug trafficking and organized crime. The U.S. State Department listed 129 cases

of threats against judicial sector workers in 2008. In addition, the justice system is overburdened, facing a

backlog of cases. The lack of courtrooms and personnel is exacerbated by judicial complexity as well as

non-transparent hiring practices. As a result of these shortcomings, 68 percent of Guatemalans consider

that no trust at all can be placed in the judiciary while over 80 percent believe that the judicial system is

manipulated by economic and parallel power structures.22

19. A 2004 „electoral and political party‟ law regulates private funding of political parties. Yet, as a

2007 USAID study notes23

, the Supreme Electoral Tribunal (Tribunal Supremo Electoral, TSE) lacks the

capacity to analyze and verify the accounts published by Guatemala‟s political parties. As a result, 53.5

percent of surveyed Guatemalans as well as a variety of independent observers agree that campaign

financing for political parties is directly related to corruption and narco-trafficking.24

20. As a major achievement of the Colom Administration, the Congress passed the law for Free

Access to Public Information in September 2008. It grants citizens access to public information,

including information about budgets and salaries, and promotes government transparency. The law

matches international best practice and fulfills standards in terms of both scope of information to be

disclosed and monitoring capacities for the law to be enforced. In line with the passage of this law, the

Government has taken steps towards creating an institutional framework for transparency, including the

creation of a Vice Ministry of Fiscal Transparency and Evaluation in the Ministry of Finance, the

establishment of a participatory commission including specialized NGOs and donors to provide support to

the governance reform agenda, and a Public Information Unit responsible for handling requests for public

records. Despite access to information, media and civil society have only limited leeway to assume

their watchdog function. Newspaper and television ownership is concentrated, curtailing media

freedom. In addition, journalists continue to face intimidation, assaults and harassment, particularly when

covering stories related to corruption, drug trafficking and organized crime.25

21. Despite progress, competitive markets and effective regulation are still in need of

substantial improvement. As of 2006, Guatemala removed all price controls and is gradually

eliminating subsidies on various economic activities and products; there are no public monopolies in

goods markets and no major legal or institutional barriers to land ownership. As part of the group of more

dynamic reform countries, Guatemala‟s Doing Business rank improved from 118 in 2007 to 110 in 2010.

The most notable improvement has been the establishment of the Ventanilla Agil system, an electronic

registry launched in 2006 that coordinates all business registration processes and drastically reduced the

number of days needed to register property. Further reform steps include the establishment of an

Electronic Data Interchange (EDI) system for customs declarations, the introduction of electronic

signatures for registrars and the simplification of procedures to obtain licenses and inspections. However,

Guatemala‟s overall Doing Business rank is still significantly worse than the regional average – not the

least because contract enforcement is still deficient in the country; congested court systems and extended

appeals processes contribute to average enforcement durations of four years.

22. Guatemala has made important progress towards prudential regulation and supervision of

the banking sector. Supervision of financial groups was improved, among others through the supervision

20 CICIG (2010) Tribunal de Conciencia contra la Violencia Sexual hacia las Mujeres. 21 ICG (2010) Guatemala: Squeezed between Crime and Impunity. 22 World Bank Institute (2005) Diagnostico de Transparencia, Corrupción y Gobernabilidad. 23 USAID (2007) Evaluación de Avances y Elaboración de Recomendaciones en Materia de Transparencia, Medidas Anti-

Corrupción y Rendición de Cuentas. 24 In July 2009, the TSE presented a funding request to strengthen its audit capacity which received favorable responses by

donors. Reform progress in campaign financing might thus be forthcoming in the near term. 25 Freedom House (2009) Freedom in The World 2009: Guatemala.

9

of risk profiles under a new manual and functional area at the Superintendency of Banks, and through the

mandatory reporting of financial terms of trading operations related to CDs and Government bonds to the

Central Bank (Banco de Guatemala, BANGUAT). The payment system was strengthened, for instance

through the implementation of a fully operational electronic clearing system for banks. Banguat‟s debt

instruments and regular issuances were standardized to help develop an interest rate yield curve. Several

laws, including the Movable Property Guarantees Law, were passed to unlock access to credit, especially

for SMEs). The investigation of illegal activities was intensified: the country was taken off the list of

Non-Cooperative Countries of the Financial Action Task Force and a Special Investigation Unit in the

Superintendency of Banks was established. Financial sector reform has helped increase domestic credit to

the private sector from 20 percent of GDP in 2000 to 27.2 percent in 2008.26

While these figures represent

important progress, they remain low compared to the Central American average of 47 percent. Moreover

and as the 2006-2007 failures of Banco del Café and Banco de Comercio illustrate – triggered in part by

offshore operations and connected lending which had escaped effective supervision – there are still areas

for improvement in banking supervision.

23. In sum, substantial governance reform progress has until recently been limited primarily to

aspects of core public sector management in the executive, most of all procurement and financial

management systems and, to a lesser extent, budgeting, tax administration and illicit enrichment by public

officials.

24. Since 2008, the Colom administration has been committed to broadening the governance

agenda. Governance and Anti-Corruption are part of the Government‟s main priorities, led by the Vice

President along with the Minister of Finance, who is leading efforts on fiscal transparency. Milestones

include the extension of the CICIG (which was established in September 2007), the creation of a Vice

Ministry for Transparency, the enactment of stricter regulations to monitor fideicomisos, the strengthening

of the Comptroller General‟s Office, the expansion of the coverage of SIAF and Guatecompras, the

modernization of financial sector regulation and payment systems, and the passage of key high-profile

legislation such as the Access to Information Law. Table 2 summarizes the multitude of governance

reforms initiated by the Colom administration. The commitment of the current administration to

expand the governance agenda offers a solid window of opportunity to strengthen the World Bank

engagement on governance reform in the country. Prior to discussing potential entry points for such

enhanced engagement in section E., the next section shall review recent Bank contributions to GAC

progress in Guatemala.

26

World Bank (2010) Data - Domestic credit to private sector (% of GDP).

10

Table 2. Overview of Governance Reforms Initiated During the Colom Administration

Governance

Dimension Governance Reform

Approval

Efficiency and

Effectiveness of

Executive

Law For Solidarity Tax (Ley del Impuesto de Solidaridad)

Other Fiscal Reform Initiatives

Dec. 2008

Still pending

Creation of a Vice-Ministry of Fiscal Transparency and Evaluation within the

Ministry of Finance

August 2008

Framework Law on Security (Ley Marco de Seguridad) March 2008

Law against Gender Violence and Femicide

(Ley Contra El Femicidio Y Otras Formas De Violencia Contra La Mujer)

Law Against Sexual Violence, Exploitation and Human Trafficking

(Ley Contra la Violencia Sexual, Explotación y Trata de Personas)

Law for Arms and Ammunition (Ley de Armas y Municiones)

May 2008

Feb. 2009

March 2009

Efficiency and

Effectiveness of

Checks and

Balances

Establishment of CICIG

Extension of CICIG mandate until September 2011.

Sep. 2007

April 2009

Law To Strengthen Criminal Prosecution

(Ley del Fortalecimiento de la Persecución Penal)

April 2009

Law for Nomination Commissions

(Ley de Comisiones de Postulación)

May 2009

Effectiveness of

Media and Citizen

Oversight

Law for Free Access to Public Information

(Ley de Libre Acceso a la Información Pública)

Sep. 2008

Efficient and Well-

regulated Markets

Financial Sector FIRST initiative: Guatemala is the first country in Central

America demonstrating political commitment to participate

June 2009

D. WORLD BANK GROUP CONTRIBUTIONS TO GOVERNANCE REFORM

25. The World Bank’s GAC engagement in Guatemala is based on four strategic

considerations: i) the country’s political and institutional reality, ii) country demands, iii) GAC

activities of other donors and iv) the Bank’s own comparative advantage. This approach closely

mirrors the LCR GAC strategy in that it focuses on pragmatism and responsiveness to clients‟ concerns

on governance. In this context, the Bank organizes continuous consultations with different stakeholders to

discuss priorities, for one example see annex B.

26. To harmonize its governance and transparency initiatives, the World Bank takes part in a

Transparency Coordination Table, together with 11 other bi- and multilateral donors (see Annex C).

The World Bank recognizes the leadership of other partners in supporting key elements of the governance

reform agenda. The Bank will, for instance, refrain from engaging in issues related to security where

bilateral partners and the UN System are active and where the Bank lacks comparative advantage.

Building on this division of labor, the Transparency Coordination Table has developed a common agenda

that is part of the dialogue with the Government. It has for example coordinated – sometimes jointly with

civil society institutions such as Acción Ciudadana and Coalición por la Transparencia – support to the

Presidential Transparency Plan during the Berger administration, to Guatemala‟s SAG and Contraloria

General de Cuentas, CGC (Comptroller General) and to the 12th TI Anti Corruption Conference in

Guatemala, and it has assessed the governance environment prior to the 2007 elections. With the

incoming Colom administration, it has also developed a governance agenda in support of the Government

11

Transparency Plan (Table 3). The Bank works with and coordinates its GAC contributions within this

broader governance agenda.

Table 3. Donor Reform Agenda in Support of Government’s Transparency Plan

Governance Dimension Government Plan Donor Agenda

General transparency policies

Public Integrity and

Ethics

National Anti-Corruption and

Institutional Strengthening

Policy

Efficiency

and

Effectiveness

of Executive

Integrated FM systems for

central and sub-national

governments

Strengthen SIAF,

proposes social

investment model

Coincide with Government

plan

Transparent and competitive

procurement systems

Strengthen Guatecompras Coincides with Government

plan

Professionalized civil

service and efficient and

transparent delivery of

services

Ethics Code, Civil Service

Reform and Capacity

Building Law; services

included in activities to

ensure monitoring

Civil Service Reform and

other measures; services

included in general

transparency policy

Efficiency

and

Effectiveness

of Checks and

Balances

Independent and effective

oversight bodies

Strengthen CGC,

extension to MP

Coincides with Government

plan

Transparency in campaign

financing and legislative

voting records

Strengthen TSE Coincides with Government

plan

Effectiveness

of Media and

Citizen

Oversight

Freedom of information

laws, social monitoring and

independent media

Access to Information

Law

Coincides with Government

plan

27. The Bank has maintained a substantive policy dialogue with successive administrations over

the past decade, recognizing political constraints, building on past successes and progressively engaging

in new areas to support the Government‟s governance priorities. The Berger administration 2004-2007

sharpened its focus on governance, particularly related to transparency of public expenditure and the

identification and punishment of corrupt practices, as evidenced by the weight given to governance issues

in the Development Policy Loan (DPL) series (see Boxes 1 - 3).

12

Box 1. DPL Governance Reform: Transparency and Public Sector Management

First Development Policy Loan:

o SIAF operational in 34 central government entities (including Congress) 20 decentralized agencies and

46 municipalities; fiscal transparency portal launched to enhance access to budget data.

o Transparent, web-based procurement system (Guatecompras) in use in 76 public sector agencies and

185 municipalities.

Second Development Policy Loan:

o Increased operational coverage of SIAF (to 7 additional agencies and about 64 additional

municipalities) and Guatecompras (80 additional municipalities).

o Use of Guatecompras made legally mandatory for all public purchases over 30,000 quetzal and

interface with SAP implemented.

Third Development Policy Loan:

o Increased operational coverage of SIAF (to 8 additional central government and decentralized agencies

and 70 additional municipalities)

o Change in focus towards strengthening of the bidding documents as well as creation/strengthening of

the regulatory body (DNCAE) by developing appropriate tools for procurement management (i.e.,

procedural manual, standard institutional procurement units in government entities) and training in the

implementation of these tools.

o Guatecompras in use in at least 370 public agencies in 280 municipalities.

Box 2. DPL Governance Reform: Financial Sector

First Development Policy Loan:

o Guatemala taken off the list of Non-cooperative Countries of the Financial Action Task Force (July

2004)

Second Development Policy Loan:

o Further strengthening of the financial system through improved supervision of financial groups as

evidenced by: (i) organizational restructuring of Superintendency of Banks to enhance implementation

of risk-based supervision; and, (ii) satisfactory progress in mapping of financial conglomerates in line

with Financial Sector Assessment Program (FSAP) recommendations.

o Implemented strengthened Payment System, including making fully operational the electronic clearing

system for banks and new settlement in real time.

Third Development Policy Loan:

o Further improvements in supervision of financial groups as evidenced by (i) application of risk-based

consolidated supervision procedures on a pilot basis to selected financial institutions; (ii) mapping of

interrelationships between all financial groups and their subsidiaries and related parties; (iii)

classification of information derived from such mapping as the basis for designing new analytical

tools, as required for the assessments of the impacts that the incorporation or withdrawal of related

entities may have on the solvency of financial groups; (iv) quantitative and qualitative improvement of

the data on large corporate debtors reported by institutions to the Superintendency of Banks, as

required for the assessment of corporate portfolio of said debtors, based on their capacity to pay.

o Suspended the operations and initiated irrevocable resolution of two failed banks (Bancafe and Banco

de Comercio.)

o Establishment and operation of Special Investigation unit in the Superintendency of Banks,

responsible for the investigation of illegal activities.

13

Box 3. DPL Governance Reform: Public Spending Capacity and Taxation

First Development Policy Loan:

o Recovered revenues lost as a result of Constitutional Court rulings through: (i) passage of 2004 fiscal

package by Congress; (ii) passage in 2005 of law on petroleum and petroleum derivative taxes, and

(iii) better tax enforcement as evidenced by improved collections of at least 0.5 percent of GDP

Second Development Policy Loan:

o Reduction in customs processing times and costs through (i) implementation of electronic customs

manifest in all ports and airports; (ii) establishment of a 24/7 air express office in Aurora Airport and

one-stop offices for documentation analysis at Puerto Quetzal; (iii) implementation of a single customs

declaration (harmonized with other Central American countries) in place of two; and (iv) reduction in

discretion and number of customs inspections (red light) by implementation of risk assessment and

selectivity system based on SAT database and information.

o Passage of the Legal Provisions for the Strengthening of the Tax Administration.

o Satisfactory progress in the implementation of the Government‟s strategic (106 point) plan for

strengthening tax administration, as evidenced by: (i) required electronic filing of VAT tax reports by

300 large taxpayers; (ii) implementation of a control program for the 3,000 largest tax payers based on

systematic cross-checks; and (iii) establishment of an up-dated, unified tax register for the 3,000

largest taxpayers.

o Improvements in property tax collections by municipalities through revisions to the Municipal Tax

Code and/or approval of new municipal appraisal accounting system manual

Third Development Policy Loan:

o Implementation of the Legal Provisions for the Strengthening of Tax Administration and further

progress in implementation of the strategic plan, including i) required electronic filing by 3,000 largest

taxpayers; (ii) extending control program of cross-checks to these 3,000 taxpayers; and (iii) further

expansion of the unified tax register.

28. The use of DPLs for governance reform has been complemented by Analytical and

Advisory Activities (AAA) services to support the reform processes. Through the AAA provided

under SIAF, for instance, the World Bank has assisted the development of Guatecompras. The

national procurement was strengthened, among others, by the preparation of a Country Financial

Accountability Assessment (CFAA)/Country Procurement Assessment Report (CPAR) in 2005 and

subsequent revision and publication in 2007. The study assessed the country‟s procurement systems

and provided a set of recommendations, most of which have either already been implemented or are

currently under implementation. The Government‟s control framework is further reinforced by Bank

supervision in the Bank‟s portfolio. Each project establishes specific measures (such as standardization of

processes, contracting of skilled personnel, implementation of systems such as Execution System for

Procurement Plans (Sistema de Ejecución de Planes de Adquisiciones, SEPA)) and action plans to help

prevent corruption and misuse of funds. Moreover, specific supervision plans, pre- and post-reviews and

financial audits are carried out systematically in order to address the country‟s systemic weaknesses and

complement the national control framework. In 2009, the Government initiated an evaluation of its

procurement systems with Bank and Inter-American Development Bank (IADB) support, following the

OECD-DAC methodology. The evaluation is scheduled to be completed by mid-2010, making available a

new set of recommendations. Concurrently and jointly with the IADB, the Bank supports a government

initiative to develop standardized documents for its public procurement. Since 2009, the Bank also

supports a Public Expenditure and Financial Accountability (PEFA) review in the country and the results

are expected to be presented in mid-2010.

29. Within the overall Bank portfolio, significant achievements include: (i) the establishment of a

Single Treasury Account to execute Multilateral Loans; (ii) the implementation of a SIAF module to

monitor Infrastructure contracts (through the SIAF project); (iii) the implementation of SEPA which

increases transparency; (iv) the improvement and increased use of Guatecompras in projects; and (v) the

14

implementation of a procurement training scheme for all Project Implementation Units (PIU). Beyond

these fiduciary improvements, other Bank-funded projects featured innovative transparency components

to strengthen GAC (see Box 4 for an example).

Box 4. GAC in Projects: Transparency in Guatemala’s Competitiveness Project

The $20.3mn Guatemala Competitiveness Project was designed to improve the ability of micro, small and

medium sized enterprises to compete in international markets. The implementing agency, the National

Program for Competitiveness (PRONACOM) – an autonomous agency linked to the Ministry of Economy –

leveraged project resources by forming alliances with more than 40 ministries, private sector chambers and

associations, think tanks, academic institutions, NGOs and civil society groups.

To disseminate project results and engage project partners and donors, PRONACOM formed the Comité

Ejecutivo Ampliado. This committee of 60 representatives received a monthly progress report, followed by

an opportunity to inquire about project activities, the use of funds, the impact of the work, and proposed

strategic and operational changes. In marked contrast to the previous, more secretive practice in the country,

this open and inclusive approach to competitiveness improved efficiency by eliminating duplication,

increased the participation and investment of private sector partners, and created space for all actors to share

concerns, ideas and opportunities for synergies.

30. AAA on the supply side of transparency was accompanied by capacity building on the

demand side. Journalists and civil society were trained in the use of the Government Financial

Management (FM) system Guatetransparente (financed by the WB) and in investigative journalism in

public finances (financed by USAID). As part of this initiative, citizens and journalists were granted easy

access to the Government FM system SIAF. Other initiatives included, for instance, support to the

implementation of an anti-corruption hot line at the CGC to collect allegations of fraud in the use of

public resources (Centro de Incorformidades). This initiative created important synergies with the

Advocacy and Legal Advice Center (ALAC), a TI initiative to provide legal assistance to citizens

denouncing acts of corruption where Guatemala is the first country in LCR to participate.

31. Since 2008, CGAC seed funds have enabled the Bank to expand the scope of its GAC

engagement in response to specific government transparency priorities. Initial CGAC activities were

focused on enhancing sector-specific and budget transparency as well as on the coordination and

monitoring of transparency and public management policies (see Box 5).

15

Box 5. 2008 CGAC Achievements

Assessment of the use of extra-budgetary accounts o Trust funds were created to expedite processes for priority expenditures and investment but due to

the lack of controls and transparency, its use has become a major source of corruption. The

assessment has provided the Ministry of Finance with the basis to prepare and begin implementation

of a new regulatory framework for Trust Funds.

Assessment of the executive branch internal audit function o The current governance structures for the internal audit function are subject to conflict of interests

which may undermine actions to address corruption and enhance transparency on the use of public

funds. The assessment was delivered to the Vice Presidency and provided the Executive with

international best practices as well as recommendations for GT. It was then used to initiate an open

discussion on the opportunity to strengthen the internal audit function within the Executive through

the creation of a superior coordinating entity within the Government.

Implementation of SEPA o With the implementation of SEPA, the Bank is reinforcing the efforts of the Ministry of Finance to

enhance transparency and efficiency on public expenditure related to Bank-financed expenditures.

SEPA was modified to be implemented in several countries within Latin America and this

implementation, as Guatemala's, is currently underway. Hands-on-training on how the system

operates was delivered to all Project Implementation Units in Guatemala and it is expected that at

least seven of them will be using SEPA for the approval of 2009 procurement plans. The IADB will

implement it next.

Development and implementation of a complaints mechanism for the Conditional Cash Transfer

(CCT) program

o The final report was delivered and its findings are contributing to the design of the full complaint

mechanism. Basic complaints are already being collected, and a full system to manage the flow of

complaints and advance social auditing is being developed.

Support for the design and implementation of the CCT management information system

o The final report was delivered and used by the program to increase transparency in the

determination of the eligibility criteria and minimize corruption risk in the selection of beneficiaries.

Risk mapping of CCT program o The final report was delivered and served as basis for improving the program, as well as the design

of the supporting Bank project as a whole. It will also help improve the design of Monitoring and

Evaluation for transparency and corruption .

32. In sum, the World Bank has made contributions to most GAC dimensions in Guatemala

where substantial reform progress has been achieved. Table 4 summarizes the World Bank assessment

of the importance of Bank support to governance reform along 12 different dimensions. Bank support has

been strongest and most successful in the Executive, with significant support in the realms of financial

management systems and procurement and moderate support to tax administration and budgeting reform.

Outside the executive, the Bank has provided moderate to significant support in the areas of banking

supervision and freedom of information. Bank support was limited in most of the governance dimensions

in which overall progress made by the Government has also been minor.

16

Table 4. WB Support to Governance Reform in Guatemala since 2004

Governance Dimension

Progress

since

2004

Bank

Support

Efficiency and

Effectiveness of

Executive

Clean and efficient tax administration agencies ■■ ■■

Transparent comprehensive and open budgets ■■ ■■

Integrated financial management systems for central and

sub-national governments ■■■ ■■■

Transparent and competitive procurement systems ■■ ■■■

Asset and Income declaration for public officials ■ ■

Professionalized civil service and efficient and transparent

delivery of services ■ ■

Efficiency and

Effectiveness of

Checks and Balance

Institutions

Independent and effective oversight bodies ■ ■■

Independent, efficient, accessible justice systems ■ ■

Transparency in campaign financing and legislative voting

records ■ ■

Effectiveness of

Media and Citizen

Oversight

Adoption and implementation of freedom of information

laws, social monitoring and independent media ■■ ■■

Efficient and Well-

regulated Markets

Competitive markets and effective regulatory frameworks

to regulate public services and monopolies ■ ■

Prudential regulation and supervision of banking sector ■■ ■■■

Ratings: ■ limited / weak ||| ■■ moderate ||| ■■■ significant / robust

E. GAC IN FY09-12: ACHIEVEMENTS AND OPPORTUNITIES

33. In FY09-12, the World Bank has intensified its GAC engagement, with Governance and

Transparency emerging as principal themes of the new Country Partnership Strategy (CPS). The

CPS builds on the results achieved under the previous Country Assistance Strategy (CAS) and

incorporates support to strengthen procurement and integrated public financial management (PFM)

systems, promote results based budgeting, enhance efficiency and capacity of public control institutions,

implement fiscal reform, improve supervision of financial conglomerates, establish a clear regulatory

framework for microfinance, establish one-stop shops for construction licenses, expand coverage of the

customs information system, improve access to information and strengthen decentralized monitoring and

evaluation systems as well as municipal governments‟ financial management systems. At the project

level, the governance focus has been significantly sharpened. Sector-specific governance elements within

project design have been strengthened and the control and use of electronic systems to reduce fiduciary

risks have been enhanced.

34. Going forward, the GAC engagement of the WB in Guatemala will thus continue to build

on its comparative advantages and past successes in the realms of PFM, procurement and

transparency. At the same time, the WB will strive to expand the scope of its governance activities,

utilizing the windows of opportunity offered by the reform commitment of the Colom administration. To

17

maximize its reform impact, the Bank will strive to transplant its existing GAC strengths towards i)

mainstreaming governance reform in those sectors most critically affected by GAC shortcomings and ii)

strengthening Guatemala‟s critical and fragile checks and balance institutions. In short, the Bank‟s

strategic goals in GAC in Guatemala are to i) consolidate GAC progress made to-date and ii) exploit its

comparative advantage and windows of opportunity to help overcome GAC obstacles critical to

development. To ensure sustainability, supply side interventions in the aforementioned institutions

and sectors shall be accompanied by efforts to improve demand-side enabling frameworks and

capacity. Parallel to this country-level and sector engagement, GAC at the project level shall be

strengthened. Figure 1 summarizes the basic strategy for prioritization of Bank GAC interventions in the

country.

Figure 1. Simplified Illustration of GAC Priority Engagement

35. A drawback of this opportunistic approach is the risk that certain GAC weaknesses which

could act as binding constraints in the long-run might be left untackled by the Bank if no clear

reform window opens. Continuous strengthening of the executive branch through procurement, financial

management and budget reform, for instance, might run into decreasing marginal benefits if, at the same

time, Guatemala‟s politicized civil service is not modernized or the Government loses effective control

over significant parts of its territory due to weak security forces. The Bank will strive to feed these long-

run risks into its short- and medium-term GAC prioritization, taking into account the leadership and

expertise of other donors in overcoming these and other constraints. The two aforementioned constraints,

civil service reform and security, for example, were designated as priority areas for donor cooperation

during Antigua II, the most recent high-level meeting between major donors and the Government. In this

vein, AECID (Spanish Agency for International Development Cooperation), for instance, is engaged in

civil service reform while the UN system and bilateral donors such as the Canadian and American

agencies are active in fighting crime and violence, for example through financing a two-year extension of

the CICIG.

36. The 2009 CGAC funds have been a first step towards a more comprehensive GAC

prioritization approach. The funds are being used to expand ongoing efforts in three key areas: (i)

sector-specific transparency; (ii) demand-side capacity and (iii) institutional transparency and oversight

(Box 6).

Windows of

opportunity

Critical GAC

Impediments

To Growth and

Poverty Reduction

Bank’s

Comparative

Advantage

GAC

ENGAGEMENT

18

Box 6. 2009 CGAC-funded Activities

Enhancing sector-specific transparency: CCT program

o The Government has emphasized the need to improve efficiency in service delivery and has

moved to consolidate social programs under the Consejo de Cohesión Social, responsible for

coordinating government action in the social sectors to increase impact of social investments.

The priority given to social programs is particularly evident in the implementation of its

flagship CCT program, which is expanding at a fast pace and is key in helping rural poor cope

with the impact of the financial crisis. This program has the potential to significantly address

extreme poverty at a relatively low cost, but it is not risk-free. The main challenge is to manage

the program‟s intrinsically complex functions within a very weak public sector environment.

The objective of this activity is to support demand-side mechanisms that can provide useful

information to strengthen program design so that it is more resistant to corruption within the

transfers, while signaling to other service providers that community surveillance can be a

powerful tool to ensure satisfactory service delivery. To this end, a representative survey of

CCT beneficiaries has been undertaken, parallel to interviews with key stakeholders in CCT

focus municipalities. An innovative feature of this activity was the use of cell phones to collect

survey data and transmit it in real time to a central database. A first for the World Bank in Latin

America, this type of data collection has reduced time, cost and errors in data collection while

allowing for progress monitoring by the minute. The survey and interview results help to

strengthen the information basis of the CCT program, thus contributing to improved access to

essential health and education services for Guatemala‟s deprived population.

Strengthening demand-side capacity: SIAF Mirror

o Despite the implementation of SIAF, Guatecompras and Consulta Ciudadana (cf. section C),

users and stakeholders continue to express discomfort with the quality and accessibility of fiscal

information. To mitigate this shortcoming, the “SIAF Mirror” initiative trained over 100

members of specialized civil society organizations in these systems in three pilot municipalities.

Subsequently, it provided support to the civil society organizations in the undertaking of social

audits at the local level, followed by presentations of findings to local authorities and the public.

Parallel, government portals were scrutinized in detail to determine levels of transparency,

accessibility, accuracy and consistency. Based on this analysis, reports were produced that

acknowledge fulfillment of minimum transparency standards and, as the social audits, raise

issues on inaccuracies and inaccessibility that might affect quality of public information. As a

result of the activity, public institutions face an added incentive to effectively feed their

transparency systems while receiving feedback for improvement, with concomitant benefits for

government transparency and trust of users.

Strengthening Institutional Transparency and Oversight: Congress o Not a focal point of traditional Bank assistance, key stakeholders outside the executive were

creatively engaged with through the 2009 CGAC funds. First, video and audio equipment was

provided to the Congress‟ Finance Commission to transmit its sessions online. This was to

complement a Modernization Plan which the Commission had developed together with the

Dutch Cooperation. Subsequently, a website for the Congress‟ Transparency Commission –

which had shown interest in following the transparency model of the Finance Commission –

was financed. Lastly and based on these advances, the Congress as a whole was successfully

engaged; a new website and database for the institution are currently under construction – a

major jump in legislative transparency and access for citizens to information about the work of

their elected officials.

37. With regard to its sector activities, the Bank aims to follow the aforementioned GAC

prioritization approach in that it seeks to expand its GAC activities in Guatemala to the two sectors

19

beyond the CCT, which stakeholders identify as those most vulnerable to corruption – public

construction projects and pharmaceuticals.

38. Both sectors are of critical importance for development progress. The construction sector

accounts for almost 2 percent of Guatemalan GDP. According to TI, no other sector is globally as

affected by corruption as construction. Responding to private sector and civil society demands to curb

corruption in the sector, the Guatemalan Government, with support from the World Bank, has

officially launched the Construction Sector Transparency Initiative (CoST) in the country in late

2009. Guatemala is the first Latin American country to participate in CoST – a global pilot initiative

set up by DfID and the World Bank in 2008 to increase transparency and accountability in the public

construction sector. With strong government commitment and close Bank support, the CoST initiative has

made rapid implementation progress in the country – including the formation of a multi-stakeholder group

in charge of directing the initiative – with public, private and civil society participation – and the selection

of pilot projects in public construction for information disclosure. The coincidence of an economically

vital sector with prevalent GAC shortcomings and government commitment to reform represents

an exceptional window of opportunity for GAC reform.

39. Similarly, governance and transparency challenges in Guatemala’s, with end-user prices

exceeding those in any other Central American country. Already suffering from particularly weak

health indicators, the poor in Guatemala are particularly affected; they spend a disproportionate share of

their health expenditures on pharmaceuticals. In response to a government request, a policy dialogue

about vulnerabilities in the pharmaceutical value chain was initiated with the Ministry of Finance. This

included the presentation of regional best practice interventions to improve transparency and efficiency in

public procurement of medicines and a rapid assessment of the current national procurement mechanisms

for medicines. Most recently, a report laying out medium-term policy options and short-term

interventions to improve accountability and efficiency was presented for discussion with the Government.

The report was based on data collected from various ministries, interviews with key stakeholders and

comparative analysis with OECD countries. As in the case of CoST, the coincidence of a socially vital

sector with prevalent GAC shortcomings and government commitment to reform represents an

exceptional window of opportunity for GAC reform.

40. At the country-level, GAC sector activities are to be strengthened and complemented by

assistance through the Stolen Asset Recovery Initiative (StAR). In a Bank identification mission in

July 2009, the Government of Guatemala requested follow-up assistance with regard to i) mobilizing

support for the National Competitive Bidding (NCB) draft law, currently before Congress, through a

high-profile StAR event in the country, and following up on implementation, ii) reviewing the methods

and tools used for investigating international dimensions of corruption cases and tracking the flow of

funds as well as advising on whether further investments would be needed in this area, iii) training judges

and prosecutors, possibly by a train-the-trainers program with existing institutions, in order to counter the

limited capacity to follow financial crime cases due to the lack of training and the frequent rotation of

staff in these posts and iv) reviewing Guatemala's experience in international cooperation and, if

warranted, providing additional training in this area in collaboration with financial centers.

41. To foster sustainability, the Bank will further complement these activities at the country-

level with aggregate supply and demand analysis and demand side interventions. The Bank seeks to

strengthen the oversight capacity for implementation of the comprehensive Law for Free Access to Public

Information, aiming to reveal remaining bottlenecks in the acquisition of information by civil society and

journalists. On the supply side, the quality, availability and accessibility of information shall be analyzed

and compared to legal provisions. On the demand side, the awareness of journalists and civil society of

available information as well as their capacity to make use of this information shall be examined. Parallel,

capacity building for journalists in the analysis of public information is to be conducted. Furthermore, the

“SIAF Mirror” initiative, currently tested with CGAC funds in 2009, may be expanded to reach all levels

20

in government and thus create a permanent practice of cross-accountability with active participation of

civil society organizations.

42. At the project-level, GAC will be reinforced by strengthening existing initiatives and

introducing new fiduciary measures. Efforts will be devoted to further strengthen SEPA, the regional

best practice system for following and monitoring procurement in Bank projects. Parallel, the Bank aims

to introduce specialized procurement audits for its projects. On the recipient side, capacity building

workshops for procurement agencies will reinforce the Government‟s fiduciary capacity. Project fiduciary

assessments thereby benefit from findings from the ongoing or completed CFAAs, PEFA Reviews,

CPAR reviews and OECD/DAC procurement indicators benchmarking exercise in Guatemala.

43. Internally, sustainability and consolidation of GAC engagement is to be ensured through

the formalization of a CGAC team for Guatemala. The WB CGAC team is committed to periodically

review the GAC progress in Guatemala and adapt its strategic approach if necessary. In view of the

potential to scale up GAC activities in Guatemala, the size of the CGAC team might be adjusted upwards

to account for the larger number of activities.

21

ANNEX A. BIBLIOGRAPHY

Acción Ciudadana (2006) Estudio Sobre el Sistema Nacional de Integridad de Guatemala.

Retrieved August 5, 2009 from http://www.accionciudadana.org.gt/Documentos/sni.pdf

Business Anti-Corruption Portal (2009) Guatemala Country Profile. Retrieved June 20, 2010

from http://www.business-anti-corruption.com/country-profiles/latin-america-the-

caribbean/guatemala/

CICIG (2010) Tribunal de Conciencia contra la Violencia Sexual hacia las Mujeres. Retrieved June 20,

2010 from http://cicig.org/index.php?page=tribunal-de-conciencia-contra-la-violencia-sexual-

hacia-las-mujeres

Freedom House (2006) Countries at the Crossroads: Guatemala. Retrieved July 29, 2009 from

http://www.freedomhouse.org/template.cfm?page=140&edition=7&ccrpage=31&ccrcoun

try=115

Freedom House (2009) Freedom in The World 2009: Guatemala. Retrieved August 2, 2009

from http://www.freedomhouse.org/template.cfm?page=22&year=2009&country=7617

Freedom House (2010) Freedom in The World 2010: Guatemala. Retrieved February 22, 2010

from http://www.freedomhouse.org/template.cfm?page=363&year=2010&country=7832

International Crisis Group (ICG) (2009) Guatemala at a Crossroads. Retrieved July 29, 2009

from http://www.crisisgroup.org/home/index.cfm?id=6175

International Crisis Group (ICG) (2010) Guatemala: Squeezed between Crime and Impunity. Retrieved

June 27, 2010

from http://www.crisisgroup.org/~/media/Files/latin-america/33%20Guatemala%20-

%20Squeezed%20Between%20Crime%20and%20Impunity.ashx

LAPOP (2008) Cultura política de la democracia en Guatemala, 2008, El impacto de la

gobernabilidad - VIII Estudio De Cultura Democratica De Los Guatemaltecos. Retrieved June

24, 2010, from

http://sitemason.vanderbilt.edu/files/d8QI4U/Format_V1_RESUMEN_EJECUTIVO_Guatemala

_08_edV1%5B1%5D.pdf

Latinobarometro (2008) Informe 2008. Retrieved June 24, 2010 from

http://www.latinobarometro.org/

Latinobarometro (2009) Informe 2009. Retrieved June 24, 2010 from

http://www.latinobarometro.org/

22

Ministerio de Finanzas Publicas Guatemala (2010) Indicadores de Sector Fiscal. Retrieved June

24, 2010 from http://www.minfin.gob.gt/archivos/indicadores/sector_fiscal.pdf

Ministerio de Finanzas Públicas Guatemala (2010a) Transparentando los Fideicomisos Públicos.

Presentación a la Mesa de Donantes, 27 de mayo de 2010

UNDP (2008) 2007/2008 Human Development Report. Retrieved August 2, 2009 from

http://hdr.undp.org/en/media/HDR_20072008_EN_Complete.pdf

USAID (2007) Evaluacion de Avances y Elaboracion de Recomendaciones en Materia de

Transparencia, Medidas Anti-Corrupcion y Rendicion de Cuentas.

USAID (2009) Guatemala – Democracy and Governance. Retrieved August 2, 2009 from

http://www.usaid.gov/gt/democracy_governance.htm

World Bank Institute (2005) Diagnostico de Transparencia, Corrupción y Gobernabilidad en

Guatemala. Retrieved September 24, 2009 from

http://info.worldbank.org/etools/docs/library/206652/GTtallerjune6_2k5_Final.pdf

World Bank Institute (2009) Governance Matters 2009. Retrieved September 24, 2009 from

http://info.worldbank.org/governance/wgi/index.asp

World Bank (2007) Guatemala Country Financial Accountability and Procurement Assessment

Report (CFAA/CPAR). Retrieved September 24, 2009 from

http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2007/10/03/000310607_20

071003101323/Rendered/PDF/350400GToptmzd.pdf

World Bank (2008) Country Partnership Strategy for the Republic of Guatemala. Washington

DC: The World Bank Group

World Bank (2009a) Governance and Anti-Corruption – LCR’s Approach and Implementation. July

2010.

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http://www-

wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2009/02/25/000334955_2009

0225071728/Rendered/PDF/471930ESW0v10G10Box338854B01PUBLIC1.pdf

23

World Bank (2009) Doing Business 2009 – Country Profile for Guatemala. Retrieved September

24, 2009 from http://www-

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1005235438/Rendered/PDF/458020WP0Box331LIC10Sept29102008GTM.pdf

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2010 from http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS

24

ANNEX B. 2006 CGAC CONSULTATIONS

Summary Table

Sector Input

Government

Need broader understanding of governance‟s linkages to economic and social

inequalities, ethnic exclusion, institutional weaknesses, organized crime and the

supply and demand aspects of corruption.

Need a transparency and freedom of information framework.

Strengthen stipulations on illegal wealth accumulation into penal code.

Strengthen the civil service.

Strengthen preventive instruments in internal and ex-ante control mechanisms

and independence of external control institution

Further coordination is needed between the Executive and the other branches of

Government. The Legislature and other enforcement institutions are not

accompanying the Executive efforts at the same pace.

There are good practices to be replicated in the promoting of integrity pacts

among public and private stakeholders in the tax collection sector

Participation and support to stakeholders should be exercised through the

Executive and according to national strategies.

The Bank needs to have a better understanding of the political context and

patronage relationships that operates in most developing countries affected by

corruption.

More emphasis could be made regarding the use of technology and information

systems to control and fight corruption (i.e. e-government)

Civil Society,

Private

sector and

academia.

Inadequate access to information.

Develop transparent, comprehensive and open budgets linked to M&E systems.

Increase access to public services in poorest areas, including judicial services;

Develop transparency mechanism for political parties,

Social monitoring at the central and local levels;

Strengthen institutional capacity of local governments

The Bank should remain engaged even in countries with weak governance:

develop programmatic assistance programs; assess risks and identify/implement

mitigating actions; identify effective and flexible entry points at all levels of

government, not only the executive branch

Develop sounder methodologies to measure corruption in a more objective way.

Realize the impact that its assessments and monitoring indicators have both

internally and externally in countries.

Engage relevant non-government stakeholders, including civil society, in the

design, implementation and supervision of projects, in particular in decentralized

operations.

Create programs aimed at strengthening the capacity of civil society to monitor

the public service.

Engage the media and private sector in promoting social values, and overseeing

government‟s performance.

Strengthen dissemination of best practices and lessons learned at regional and

worldwide levels. GAC has a limited scope to develop regional strategies

25

ANNEX C. DONOR INVOLVEMENT IN GOVERNANCE DIMENSIONS

Governance Dimension W

B

I

A

D

B

U

N

D

P

O

A

S

E

U

U

S

A

A

E

C

I

D

G

T

Z

S

I

D

A

N

E

D

A

C

I

D

A

D

A

N

I

D

A

N

O

R

A

D

I

T

A

L

Y

Clean and efficient tax administration agencies ■ ■ ■

Transparent, comprehensive and open budgets ■ ■ ■

Integrated financial management systems for

central and sub-national governments

■ ■ ■ ■

Transparent and competitive procurement

systems

■

Asset and Income declaration for public

officials

Professionalized civil service and efficient and

transparent delivery of services, including

decentralization

■ ■ ■ ■ ■ ■ ■

Independent and effective oversight bodies ■ ■ ■ ■ ■ ■ ■

Independent and efficient justice systems &

security

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Transparency in campaign financing and

legislative voting records

■

Adoption and implementation of freedom of

information laws, social monitoring and

independent media

■ ■ ■ ■ ■

Competitive markets and effective regulatory

frameworks to regulate public services and

monopolies

■ ■ ■

Prudential regulation and supervision of

banking sector

■ ■ ■