Document ofTHE WORLD BANK

FOR OFFICIAL USE ONLY

ReportNo.: P-7335-TH

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED PUBLIC SECTOR REFORM LOAN

IN THE AMOUNT OF US$400 MILLION

TO THE

KINGDOM OF THAILAND

September 23, 1999

Poverty Reduction and Economic Management UnitEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

KINGDOM OF THAILAND - FISCAL YEAROctober 1 - September 30

CURRENCY EQUIVALENTS(as of September 23, 1999)

Currency Unit = Baht (B)US$1.00 = B 41.045B 1.00 = US$0.0246

ABBREVIATIONS

ADB - Asian Development Bank MOC - Ministry of CommerceAFTA - ASEAN Free Trade Agreement MOInd - Ministry of IndustryAPO - Autonomous Public Organization MOPH - Ministry of Public HealthASEM - Asia and Europe Meeting (European Union) MOU - Memorandum of UnderstandingBOB - Bureau of the Budget MTEF - Medium Term Expenditure FrameworkBOT - Bank of Thailand NESDB - National Economic and Social Development BoardCAS - Country Assistance Strategy NESC - National Economic and Social CouncilCESW - Country Economic and Sector Work NDC - National Decentralization CommitteeCGD - Comptroller General's Department NCCC - National Counter Corruption CommissionCVA - Central Valuation Agency NSO - National Statistics OfficeDRG - Diagnosis Related Groups OAG - Office of the Auditor GeneralDOLA - Department of Local Administration OCSC - Office of the Civil Service CommissionEFAL - Economic and Financial Adjustment Loan OECF - Overseas Economic Cooperation Fund (Japan)EFF - Export Financing Facility OIA - Official Information ActEGAT - Electricity Generating Authority of Thailand ONEC - Office of the National Education CommissionERC - Education Reform Committee OOIC - Office of the Official Information CommissionEXIM - Thai Export-Import Bank PHRD - Population & Human Resources Devt. GrantFMRPL - Financial Markets Reform Program Loan PSAL - Programmatic Structural Adjustment LoanFPO - Fiscal Policy Office PSRL - Public Sector Reform LoanGDP - Gross Domestic Product PSRP - Thailand Public Sector Reform ProgramIBRD - Intl. Bank for Reconstruction & Devt. PSRC - Public Sector Reform CommitteeIFC - International Finance Corporation RD - Revenue DepartmentIMF - International Monetary Fund SAC - State Audit CommissionIT - Information Technology SCL - Single Currency LoanLEA - Local Education Authority SSPL - Social Sector Program Loan (ADB)MOE - Ministry of Education TDRI - Thailand Development Research InstituteMOF - Ministry of Finance VAT - Value Added Tax

Vice President: Jean-Michel Severino, EAPVPCountry Director: Jayasankar Shivakurnar, EACTFSector Manager: Homi Kharas, EASPRTask Manager: Stefan Koeberle, EASPR

KINGDOM OF THAILANDPUBLIC SECTOR REFORM LOAN

FOR OF?FICIAL USE ONLYTABLE OF CONTENTS

I. INTRODUCTION ........................................ 1

II. RECENT ECONOMIC DEVELOPMENTS AND THE PUBLIC SECTOR .2

A. THE ECONOMIC CRISIS .2B. PROSPECTS FOR RECOVERY AND FISCAL SUSTAINABILITY .3

C. STRENGTHENING THAILAND'S PUBLIC SECTOR .5

III. THAILAND'S PROGRAM FOR PUBLIC SECTOR REFORM .6

A. TOWARD A COMPREHENSIVE REFORM .6B. OBJECTIVES OF THE PUBLIC SECTOR REFORM PROGRAM .6C. EXPENDITURE MANAGEMENT .9D. HUMAN RESOURCE MANAGEMENT .11E. REVENUE MANAGEMENT .12F. DECENTRALIZATION .13G. STRENGTHENING CROSS-GOVERNMENT ACCOUNTABILITY AND TRANSPARENCY .15H. ARRANGEMENTS FOR IMPLEMENTATION AND MONITORING .16

IV. BANK GROUP STRATEGY .18

A. THE WORLD BANK .18Governance in Thailand's Country Assistance Strategy .................. 18Status of Bank Operations .19

B. IFC ...................................................... 0................................... 20C. COORDINATION WITH IMF ........ 20.............................. ........ 20D. COOPERATION WITH ADB .. 20

V. THE PROPOSED LOAN . 21

A. LOAN ADMINISTRATION .. 21B. ACTIONS TAKEN PRIOR TO BOARD PRESENTATION .22C. BENEFITS AND RISKS .22

SCHEDULE 1: Letter of Development PolicySCHEDULE 2: Government's Policy Objectives and Implementation BenchmarksANNEX 1: Public Sector Reform Program AreasANNEX 2: Performance Improvements in Line MinistriesANNEX 3: Leveraging the Bank's Contribution- Public Sector Reform Partners

The task team includes Stefan Koeberle (EASPR); Chris Chamberlin (EACTF); Hugo Hanisch; Ron Hood (PSD);Maureen Law (EASHD); John Middleton (EACTF); Chris Murray; Alexander Mutebi (EACTF); RichardNewfarmer (EASPR); Hoi-Chan Nguyen (LEGEA); Barbara Nunberg (EASPR); Nicholas Prescott (EASHN); SerifSayin (ECSPE); Agnes Soucat; T.V. Somanathan (EACOS); Lars Sondergaard (EACTF); PamomratTansanguanwong (EACTF); Jaime Vazquez-Caro (PSDBE); Dana Weist (EASUR)

Project advisors include Shanta Devarajan, Cheryl Gray, Graham Scott

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

KINGDOM OF THAILANDPUBLIC SECTOR REFORM PROGRAM

LOAN AND PROGRAM SUMMARY

Borrower: Kingdom of Thailand.

Amount: US$400 million

Terms: Single Currency Loan (SCL) in US Dollars, with a 15-year maturity, including a 3-year grace period, at the Bank's standard fixed US Dollar SCL interest rate.

Description: The proposed loan (Public Sector Reform Loan or PSRL) of US$400 million is aprogrammatic structural adjustment loan (PSAL) that would support Thailand'sPublic Sector Reform Program (the Program). It is envisaged that over the three-yearperiod of Thailand's Program, there could be up to three single-tranche PSALs tosupport its implementation.

Thailand's Program would improve public sector management through:

* Improved performance-based resource management. Creating incentives forbudget and civil service agencies to focus on outcomes-by improvingperformance and effectiveness in the management of financial and humanresources;

* Better service delivery. Restructuring the way central government deliversservices-by improving service delivery in selected line ministries throughoutsourcing, restructuring or decentralizing government activities and enhancingpublic sector responsiveness to communities;

* Greater accountability and transparency. Restoring confidence in governmentby improving transparency in budgeting, refocusing the civil service towardclient service, and establishing effective mechanisms to promote accountabilityand transparency.

Thailand intends to achieve these objectives by implementing specific action plans inthe five areas of (i) expenditure management, (ii) human resources management, (iii)revenue management, (iv) decentralization, and (v) cross-government accountabilityand transparency.

Benefits: To contribute to Thailand's incipient economic recovery and an eventual return to

sustainable high growth, the public sector must improve its efficiency and becomemore effective in delivering results. Better public services are central to medium-term competitiveness and sustained productivity increases of workers; betterexpenditure management is necessary to raise the productivity of public investment;and improving transparency can help citizens hold their leaders and public servantsmore accountable for the quality of services their taxes are buying.

Thailand's Program establishes a framework for Thailand's difficult path towardrestructuring government operations. Over the short term, the consultations andcoordination embedded in the formulation of the details of Thailand's Programprovide an effective platform to harness broad-based support for public sector reformwithin civil society and the Government itself. Over the long term, theimplementation of Thailand's Program will lead to the improvement of public sectorgovernance to enhance the efficiency, effectiveness, equity, and transparency ofpublic resource management and service delivery.

Risks: Thailand's Program is not without risks. First, although civil society demand forpublic sector reform is strong, it is not necessarily well-articulated. However, civilsociety organizations are active in monitoring and advising the public sector. To giveadditional voice to this force, civil society is being actively involved in the reformprogram through public announcements, an awareness campaign, and oversight fromdistinguished citizens, community-based organizations and think tanks.

Second, implementation of Thailand's Program could suffer if coordination amongagencies is insufficient. Nonetheless, the publication of the Cabinet paper, the PublicSector Management Reform Plan, in May of this year and the appointment of asenior team overseeing reforms demonstrate the Government's resolve to actdecisively in formulating a coordinated program.

Third, the political commitment to reform could weaken due to political resistance toinstitutional reform or change from the currently reform-minded government to a lessreform-oriented administration. This risk to Thailand's Program is mitigated by thefact that the Cabinet, high-ranking civil servants in the line agencies, and civil societyshare the key institutional objectives of the Program.

The Bank will help monitor the progress of Thailand's Program against specificbenchmarks.

Poverty Category: NA

Estimated The loan would be disbursed in a single tranche upon effectiveness.Disbursements:

Project ID Number: TH-PE 56522

KINGDOM OF THAILAND

PUBLIC SECTOR REFORM PROGRAM

I. INTRODUCTION about corruption, which erodes the confidence ofThai people in public administration. Unstable

1. Thailand is gradually emerging from its coalition governments and the traditional lack ofdeepest economic crisis in a generation. coordination among public agencies weaken theEconomic activity is picking up, the stock market Government's capacity for policy planning andis showing signs of life again and foreign direct enforcement. Citizens are concerned about theinvestment has returned to Thailand. At the same access to, timeliness, and quality of governmenttime, the prospects for recovery are overshadowed services and their continually rising costs. Publicby the legacy of rising unemployment, significant pressure is mounting for better management of thecorporate debt, and strained public sector Government' s-and thus taxpayers'-financialfinances. resources.

2. The Government has successfully restored 4. Second, this reform agenda receivedinvestor confidence and begun to rebuild the renewed impetus with the passage of the newfinancial sector. Since the beginning of the crisis, Constitution in 1997. The Constitution providesits efforts have focused on addressing corporate for increased citizen participation, enhanceddebt, restoring growth, reviving investment and transparency, and decentralization-tools thatdomestic demand, and shielding the poor. As part enhance voice and improve public sectorof the international response to the East Asian governance.crisis, the World Bank's assistance strategy has 5. Third, Thailand's public finances havebeen supporting this agenda in key areas: Thr,haln'pucfinesav

come under serious pressure as a result of large* Restoring competitiveness has been at the deficits and mounting public sector debt. After a

core of structural reform measures supported decade of surpluses, the combination of recession-under the Economic and Financial Sector induced lower revenues, rising expenditures inAdjustment Loans (EFALI and II) and response to the social needs of the crisis, and thetechnical assistance focusing on corporate public costs of restructuring the financial systemrestructuring, financial sector strengthening have created huge deficits. Public debt as a shareand fiscal stimulus. of GDP has more than doubled since the crisis.'

* Strengthening public sector governance is 6. The Goverment has tesponded to thesethe objective of the Economic Management

pressures by launching an ambitious program toAssistance Project, which supported capacity reform the public sector. Its core componentsbuilding in public expenditure management, include a more performance-oriented budgetadministrative reform and privatization. system, a flexible and effective civil service, and

* Sharing growth is promoted through the greater transparency. The reform efforts involveSocial Investment Project, which provides not only the Government's central agencies, butsupport for the unemployed and vulnerable also line ministries such as education and health,and empowers local communities through which have embarked upon substantial reforms tolocal infrastructure investments and financing deliver better services in their sectors. Takingfor social programs. advantage of its presence in the field, the World

Bank has been strongly supporting these efforts3. The economic crisis highlighted the need through intense policy dialogue, technicalfor broad-based public sector reforms in Thailand assistance, and knowledge sharing. Through thein several respects. First, the sudden end of proposed loan, the Bank will support a coherentThailand's boom has raised questions of the medium-terrn framework for reforming publiccompetence of the Government in managingeconomic affairs and, more broadly, in its ability Ato deliver services. The fragility of public sector A portion of this debt was used to restructure thegovernance is highlighted by frequent complaints financial sector.

-2 -

sector institutions around Thailand's objectives II. RECENT ECONOMICof: DEVELOPMENTS AND THE PUBLIC

* Better management of financial and human SECTORresources; A. THE ECONOMIC CRISIS

* Improved service delivery in all aspects of 9. The collapse in domestic demand andgovernment, from health and education to unfavorable external conditions resulted in a con-commerce; and

traction of GDP by 9.4 percent in 1998. The* Greater accountability and transparency to economy went into deep recession in 1998 as

help restore confidence in Government. private investment contracted sharply (by almost

7. The loan will support a comprehensive 50 percent), and consumption declined by 11program of institutional reforms in five areas: (i) percent. The contraction was further aggravatedexpenditure ofmanshtnagement,rrns human f reasource by the large budgetary cuts made in the first halfexpenditure management, (ie ) human resource of 1998. Government investment andmnementral , and rve management, consumption contracted by 18 percent and 5.5decentralization, and (v) cross-government percent, respectively, when the 1997/98 budgetaccountability. Only by ensuring greater was cut from Bt982 billion to Bt830 billion. Theefficiency and delivering results more effectively level of output was still declining in the first halfcan Thailand convert its incipient recovery intothe rapid and sustained growth it has known in thepast. Better public services in areas from Figure 1: Real GDP (1988 prices)education to infrastructure, are keys to medium-tern competitiveness and the sustained 15%

productivity increases of workers. Betterexpenditure management is essential to raise the 1oo/ productivity of public investment and other -:expenditures. Improved transparency will helpcitizens hold their leaders and public servants Xmore accountable for the quality of services their itaxes are buying. -5% J

x If -Real GDP

8. As part of the Bank's commitment to the -0I -M - . Manufacturing Production

international $17.2 billion financing package forThailand's economic recovery program under -15% -IMF auspices, theproposed loan providesexternal _ ' _ _financing support to help rebuild internationalreserves and to reverse the massive capitaloutflows of 1997-98. The macroeconomic of 1998 but at a much slower pace than in theprogram for 1999 anticipates a fiscal deficit of second half of 1997. By the last quarter of 1998,about 6 percent of GDP, a level necessary to the bottom had been reached. However, stabilitystimulate aggregate demand. Foreign financing was achieved at a high price.will fund the Government's economic stimulus 10. The social dimensions of the crisis areprogram and partially fund the deficit, thereby deepening as incomes are falling. From Augustlessening upward pressure on domestic interest throug Febrar eallwag declinedrates. 1997 through February 1998, real wages declined

between 12 and 24 percent, depending on theregion. Unemployment rose up to 5.4 percent ofthe workforce in February 1999, from 4.8 percentin February 1998 and 2.3 percent in February1997. Unemployment in May 1999 was 5.3percent.

-3-

11. Over-indebted and unable to access credit, 13. Current account surpluses were mainlymany corporations face severe financial stress and achieved through import compression and incomeare unable to meet their debt obligations as losses, not export growth. The current accountbusiness conditions have remained weak. In the surplus achieved in 1998 was partly offset by afinancial system, the closing of 56 finance sharp reversal in private capital outflows,companies in 1997 and the establishment of the especially in the banking sector. In the last half offramework for bank re-capitalization in August 1997, $13.9 billion of net private capital left1998 gradually restored confidence. Despite Thailand and $22.4 billion left in 1998. Theprogress in financial restructuring, the remaining majority of private capital outflows have beenfinancial institutions are still awaiting private-led used to repay short-term debt. At the end of 1997,recapitalization, and their loan portfolio has short-term debt was $34.8 billion, down fromcontinued to deteriorate. $45.1 billion in March 1997. By June 1999, the

econtinued recession in Japan and the amount of short-term debt had been reduced to12. The cond cniton m East a he $17.6 billion. When net reserves exceeded thedepressed demand conditions in East Asia have stc fsottr et od' prddothwarted a strong recovery of exports. The sharp sthro outkfor deto "positive" Madecline of international prices for many Thai their outlook for Thailand to positive m Mexports has more than offset export volume 1999. By end July 1999, net reserves hadgrowth, and the cumulative value of exports in US increased further to 25.3 billion USD.dollars fell by 6.8 percent in 1998 compared to1997. 2 Overall, despite a drop in import prices, B. PROSPECTS FOR RECOVERY AND FISCALThailand suffered a 5.4 percent decline in its SUSTAINABILITYterms of trade throughout 1998. Thailand's . . .drastic adjustment process culminated in a $14.3 14. Economic indcators show the beginningbillilon current account surplus ( 12 percent of of Taln' revey pcs. Th

iDP) (Figure 2). manufacturing production index has been growingGDP) (Figure 2). rapidly, up 11.8 percent in June 1999 and up 13.8

percent in July 1999 on a year-on-year basis.Figure 2: Current account balance Capacity utilization has also risen in recent

(% of GDP) months to 60.7 percent in July, compared with anaverage of 52.1 percent for all of 1998. The value

157 of exports in US dollars increased for the thirdconsecutive month in June 1999 by 5.5 percent on

I 4 a year on year basis. Consumer spending is rising,10 and the fiscal stimulus package announced at end

March 1999 aims to boost incomes. Its keyZ, 51 2 | measures include a VAT cut (from 10 to 7

percent), lower energy prices, and increased0 o _, _ fl _, _, _, _, | | E spending of BtS3 billion on various projects,

including Bt24.8 billion to create 86,000 jobs for-5 I skilled workers and 400,000 jobs for unskilled

workers.

-l0 15. The short-term economic outlook appears92 93 9 95 9 97 %p 9X brighter, and economic data for the second quarter

of 1999 suggest that growth of 3-4% for 1999 iswithin reach. Whether this growth in 1999 isfollowed by faster growth in 2000 and onwardwill depend on the regional outlook for recovery

2 . . .and how quickly domestic and foreign confidenceJapan's share in Thai exports is about 14-17 percent.The average unit value of exports in terms of US is restored.dollars declined by 13.8 percent in 1998 whencompared to 1997.

-4-

16. Modest growth in 1999 will not imply Constitution. First, when the baht was allowed tothat the worst is over. The economy contracted float, the Bank of Thailand depleted itsto a 1994/95-level of income by mid 1999 and international reserves by $20 billion in a futilemuch stronger growth will be needed to rebound attempt to defend the baht. During the secondto the pre-crisis level. While the turnaround is half of 1997 and early 1998, approximately $13positive, the path to recovery is overshadowed by billion was borrowed from the IMF-sponsoredthe legacy of the crisis. First, corporates are still rescue package to build reserves and to settlestruggling with high debt and over-capacity until forwards and swaps. Second, the fiscal cost ofdemand fully recovers. The financial system is restoring a healthy financial system will bestill weak and progress in debt restructuring only substantial. More than Bt800 billion were used inslowly picking up. In July 1999, only 23 percent liquidity support by the FIDF for financialof total non-performing loans had been institutions that were eventually shut down-fundsrestructured. Thai firms are still using only around55 percent of their total capacity, making it Figure3: Publicsectordebtdifficult to earn a profit, and suggesting that 2500-- - - - 50%

corporate difficulties will persist in the coming fExtemal Debt (incl. BOT)

months. 2000 _WDomesticDebt(CGandSOEs) _.__ _4__%

-Tota DebfGDP /

17. Second, the social consequences of the A 3 0%

crisis will remain burdensome as long asunemployment remains high and incomes are D ,000 200%

depressed. Unemployment is likely to rise as thepace of corporate restructuring picks up. Until 50 10%

production recovers to its pre-crisis level, the realincomes of many Thai families will continue to be 0%/6low. In rural areas, the large devaluation initially 1993 1994 1995 1996 1997 1998 Jun-99

translated into higher incomes for many farmersin 1998, cushioning many rural families from theadverse effects of the crisis and allowing the farm which the Government had implicitly guaranteedsector to absorb laid-off workers from urban and are now being fiscalized. Third, almost twoconstruction sites. In the latter half of 1998 and years after the outset of the crisis, the remainingearly 1999, the baht strengthened, and commodity financial institutions are still undercapitalized andprices continued to decline. Concerns are are likely to need additional public funds.mounting that poverty could rise in 1999.

20. The large increase in public debt,18. Third, the crisis has brought new burdens combined with the need for additional fiscalon the public sector and has dramatically changed expenditures, in particular to cushion socialthe fiscal outlook for the Government. Ten years impacts, have heightened the need to improve theof fiscal conservatism had left Thailand's public efficiency of public resource management. If thesector with a debt of only 16 percent of GDP at full financial cost of restructuring the financialend 1996. Public debt soared during the crisis as system were included, and depending on thea result of increases in external debt, the cost of proceeds from privatization and asset disposalsfinancial sector recapitalization and recent deficit through the FRA, public debt could rise to 50-60spending to stimulate aggregate demand. By the percent of GDP. The increased cost of debtend of 1998 overall debt had soared to 40 percent service forces the Government to place moreof GDP. attention on spending every baht wisely. In the

medium term, flexibility must be restored to fiscal19. Public sector debt will rise even further as policy through improvements in the efficiency ofrevenues have dwindled, interest payments have public administration and increased revenueincreased and the Government faces new demands collection.to cushion the social impact of the crisis, and torespond to commitments outlined in the new

Box 1: The New Constitution

Designed to end the inertia that had virtually paralyzed recent govermments, the new Constitution,approved by Parliament in October 1997, introduces broad reforms to combat corruption and electoral fraud,empower civil society, and safeguard individual liberties. In addition, the Constitution mandates broad changesin public expenditure management, including how finances are managed, how and what services are delivered,and how they are reported to the general public. It requires the Auditor General to report his findings to theParliament. The Constitution mandates the establishment of key institutions to provide grievance mechanismsincluding the Office of the Ombudsman and the National Counter Corruption Commission. It calls for universalaccess to education through grade 12 and defnes a strong role for the private sector in delivering educationalservices. The Constitution also envisages the decentralization of government activities by increasing the shareof local government expenditures, assigning more revenue sources to local governments, and revising the systemof intergovernmental transfers to provide grants in a more transparent and predictable way.

21. Financing Needs. The proposed management to do more with less. Second, thefinancing under this adjustment operation is public is increasingly demanding better servicescritical for two reasons. First, as part of the IMF- tahnd less conutittion from thide Govelmdefnt. dtirod,sponsored rescue package, this loan will ensure for deCentizin decis akin toulocalthat Thailand's external liquidity position is for decentralizing decision aking to locaIlstrengthened further and will help ease pressure communTties and promoting public accountability.On the baht arising from possible large capital This constitutional and democratic openingoutflows and debt servicing. The Govetment provides greater voice for citizens, moreintends to continue rebuilding reserves -- by end- respotsive political and administrativeApril 1999, net reserves were insufficient to cover mistatutnons, and increased pressure from thefully the stock of short-term debt. Second, the media and be terest groups for cleaner gove dmentfinancing will provide vital support for the central and better services. Finally, reform is supportedgovernment's budget financing needs, including by the increasing awareness of many Thai civilits economic stimulus program. To boost servants of the global experience in reinventingdomestic demand and cushion the impact of the government and modernizing publiccrisis on the most vulnerable, the Government will administration.continue to run a deficit in fiscal year 2000. Under 24. Precursors to Comprehensive Reform.the IMF macroeconomic program, approximately While Thailand's efforts to modernize its public$5.5 billion will be needed in external financing, sector began a few years ago, they have gathered

C. STRENGTHENING THAILAND'S PUBLIC considerabie momentum with the economic crisisSECTOR and the passage of the new Constitution. Aimed

at overcoming institutional weaknesses and

22. While Thailand has received considerable improving the performance of the public sector,(anddesrve efor . i . several critical reforms have been achieved since

(anddesrve) pais maagig is agreate the beginnig of the crisis. These include thefiscal accounts well over the last decade, theeconomic crisis and public demands for better privatization of a number of state enterprises;

govemance hav put newpressuresonitspublic central bank reforms; legislation to corporatizegovernance have put new pressures on ItS pUblic mn tt nepie n raeatnmusector. Its ability to respond to these pressures many state enterprises and create autonomous

deed crtcal on the qult n aaiiyo public organizations; and various projects aimeddepends critically on the qualty and capability of at strengthening the capability of the civil service,

budgeting, and financial management. Althoughthe ongoing reform activities to date have been

23. Several factors are driving Thailand's taken in relative isolation from each other andquest for a better public sector. First, as noted, the substantial institutional weaknesses remain, theynew debt burden requires better financial provide a robust foundation for progress.

-6 -

III. THAILAND'S PROGRAM FOR tax compliance through improvements in taxPUBLIC SECTOR REFORM administration.

A. TOWARD A COMPREHENSIVE REFORM * Improving service delivery. The Governmentmust raise the quality and timeliness of public

25. In May 1999,the Cabnmet lssued ItS Public services to restore economic growth andSectorManagement Reform Plan. It provided the establish a more equitable distribution ofGovernment's vision for institutional change. services. This involves restructuring the wayFollowing the publication of the Cabinet paper, the central government delivers services bythe Government appointed the high-level Public being more responsive to citizens andSector Reform Committee (PSRC) to carry out the enhancing the access, timeliness, and qualityreforms in the public sector. The Committee, with of services provided by line ministries.the assistance of the Bank and other donors, Improving public services will requiredesigned Thailand's Program on the basis of the developing strategic plans to focus ministerialcomprehensive strategy set forth in the Cabinet responsibilities and re-engineering institutionspaper. and processes to promote efficiency.

Devolving responsibility for service deliveryB. OBJECTIVES OF THE PUBLIC SECTOR closer to citizens and customers, outsourcing,

REFORM PROGRAM and decentralizing responsibilities to local

26. Through the Public Sector Reform Loan goverments may also improve delivery.(PSRL), the Bank would provide support for Strengthening accountability andThailand's medium-term agenda for improving transparency to help boost public andpublic sector goverance. As shown in Table 1, investor confidence in Thailand. The newthe Government's Program constitutes a three- Constitution has deepened democraticyear action agenda to reform Thailand's public psector in the areas of (i) expenditure management, public awareness and demand for(ii) human resources management, (iii) revenue public are.. Nenessrand dema df

managment,(iv) ecentalizaion ad (v) accountability. Newspapers report a steadymanagement, (iv) decentralization, and (v) stream of stories about corruption and theaccountability and transparency. The expected need for greater transparency in public affairs.outcomes of the action program-which are This problem can only be redressed throughspelled out in detail in the Letter of Development institutional changes that enhance citizenPolicy and the Matrix of Policy Benchmarks- participation and provide opportunities forwill provide measurable progress towards three voice, improve information disclosureobjectives: establish accountability for authorities, reduce

* Enhancing performance of resource the scope of discretionary bureaucraticmanagement. Truly reforming the authority, and improve the civil service. Iteffectiveness of Government requires also means revamping fiscal arrangements toreorienting public management toward permit greater discretion at the local level.performance and outcomes. The key to thisreorientation is to restructure incentives and 27. The programmatic structural adjustmentprocesses to improve resource management at loan (PSAL) framework addresses threethe central agency level. Enhancing challenges associated with reforming public sectoreffectiveness will require broad-based institutions. First, reforms take time. Thailand isinstitutional changes to manage expenditure engaged in its multi-year reform program topriorities over the medium-term and within an improve public sector institutions. Second,publicoutcome-oriented framework and to refocus sector institutional reforms require high-levelhuman resource management on performance leadership across several complementary andrather than patronage. Enhanced revenue mutually reinforcing areas. Civil service reformnsperformance is increasingly important as that grant managers flexibility in their humangrowing concerns over fiscal sustainability resource management are more likely to succeedrequire expansions in the tax base and better when accompanied by expenditure reforms that

allow greater autonomy in expenditure Development Board (NESDB). The MOF ismanagement, and when managers are held finalizing a comprehensive restructuring plan thataccountable for performance objectives. Support would include the establishment of a Debtfor Thailand's Program provided by the PSAL Management Office, among other reforms, whileframework would help sustain the momentum for the NESDB has proposed to restructure itselfreforms and provide a platform for structured along functional lines to improve performance.dialogue between the Bank and the country.Finally, institutional reforms that occur over 29. The performance improvement processseveral years are inherently uneven. will initially be piloted in three priority ministriesImplementation requires incremental and will then be rolled out to other agencies.improvements that take advantage of rapidly Building on reform efforts already underway, theopening and closing political and bureaucratic first year of Thailand's Program will focus onwindows of opportunity. This means that, social and economic services delivered by thehowever clear the objectives, it is difficult to Ministries of Education, Health, and Commerce.identify with certainty the timing of measures that The commitments of each of these ministerialwill be taken over the three-year period. Within reform strategies are reflected in detailed Sectoralthe PSAL framework, the PSRL is designed Reform Outlines (see summaries in Annex 2).around concrete objectives with defined but Other ministries are expected to join theflexible benchmarks that can be adjusted as framework of Thailand's Program in the secondnecessary to accommodate the pace of and third year and will design their reformimplementation of Thailand's Program. The programs based on the lessons learned fromchallenge is to create a framework for flexibility earlier ministerial reforms. Subsequent phases ofthat does not lose sight of objectives, as discussed Thailand's Program are likely to focus on otherin sections below on supervision and risks. government service providers with important

economic and social objectives, including, for28. Managing for Performance. Central to example, the Ministry of Industry and thethe thrust of Thailand's Program are the Ministry of Agriculture.performance improvements that are firstimplemented in the core financial and human 30. Program Design. The PSRL supports theresource management agencies and then first steps in each of the five areas of Thailand'simplemented by selected line ministries that Program, which is based on detailed objectives,deliver services. These performnance Prga,wihi.ae ndtie betvsimprovem rents. wliveTheselos rfcoordination together with implementation benchmarks forimprovements will involve the close codaon which the respective lead agencies take theof the Bureau of the Budget (BOB) and the Office responsibility. Thecdis i in secios C toeof the Civil Service Commission (OCSC) to for each of the five program areas summarizes theachieve synergies in performance-based key Issues, reform objectives, program strategy,expenditure and human resource management. In expected program results, and the key stepsaddition to perforrnance improvements, exece prga reuls an h e tpaddnitioant to perganizatiormancresimp entis, undertaken during the first phase of Thailand'ssignificant organizational restructuring is Program assupported by the PSRL. Annex 1envisioned within the Ministry of Finance (MOF) provides detailed descriptions of the reform areas.and the National Economic and Social

- 8 -

TABLE 1: THAILAND'S PUBLIC SECTOR REFORM PROGRAM

Objectives Reform Areas Lead Counterparts PrioritiesImproved Expenditure u Bureau of the * Implement performance-based budgeting for linePerformance- Management Budget ministriesBased Resource * Selected Line * Strengthen the capability of central agencies toManagement Ministries review and evaluate sector policies and

(Education, performanceHealth, a Improve fiscal transparencyCommerce)

* Ministry ofFinance

Better Service Human Resource * Office of the Civil * Develop detailed programs to align organizationalDelivery Management Service structures of line ministries with their new

Commission functional objectives

* Selected Line * Match staffing profiles and numbers to newMinistries functional requirements of civil service and contain(Education, Health cost of government

Greater and Commerce) * Develop modem performance-based humanAccountability and resource management systems for civil serviceTransparency * Develop well-motivated, politically neutral, cross-

governmental senior cadre to lead civil servicerenewal program

a Develop regulatory framework for autonomouspublic organizations (APOs)

Revenue a Revenue * Improve taxpayer complianceManagement Department * Strengthen collection enforcement

a Balance business and Information Technology (IT)priorities

Decentralization * Decentralization * Establish capability to support and monitorCommittee decentralization

* Devolve appropriate expenditure functions

* Enhance local revenues/resources

a Revise intergovernmental grant (subsidy) system

a Enhance local accountability

Cross- * Office of the Prime * Increase institutional accountabilityGovernment Minister * Enhance public access to information

Accountability n OCSC * Promote probity among civil servantsandTransparency * Official * Enhance civil society participation

InformationCommission

9-

C. EXPENDITURE MANAGEMENT and lacks accountability for the quality of servicesprovided. Linkages among planning, budgeting,

31. Issues. The recent economic crisis has and sectoral policy are weak. The fiscal planningplaced Thailand's budget and revenue systems process has an annual focus, is based on cash

under stress and highlighted a number of flows of central government, and lacks a medium-

structural weaknesses in expenditure management term approach. Finally, the budget does not cover

and tax administration. The expenditure non-budgetary fiscal operations like contingent

management component of the loan program will liabilities and quasi-fiscal operations. Fiscal

focus on budget reform to create performance accounts do not reflect the full cost of government

focens on fordt preoritng tocreand .targe and do not meet generally accepted internationalincentives for prioritizing ad targeting standards.government expenditures.

32. The performance of a country's 35. Thailand's Reform Objectives. Theinstitutions in formulating and executing fiscal objective of Thailand's expenditure management

policy critically depends on the incentives reform is to delegate the necessary budgetarygoverning the size, allocation, and use of authority to sector ministries and to hold them

budgetary resources. Thailand's institutional accountable for performance. The performance ofarrangements shape the quality of outcomes on sector ministries can be measured across two

four levels: (i) aggregate fiscal discipline, (ii) dimensions their ability to reflect Govemmentresource allocation and use, based on strategic priorities in their strategic plans, and their ability

priorities (allocative efficiency); (iii) efficiency to deliver promised results. The task of the

and effectiveness of programs and service central agencies, particularly of the Bureau of thedelivery (technical or operational efficiency); and Budget, is to define a new "flexibility and(iv) transparency of the system. accountability" framework for sector ministries

(iv) tran arenc ofhesytemand to enable them to implement it.

33. In terms of the first level, the achievementof overall fiscal targets is effectively ensured by 36. The reforms will begin by identifyingthe Thai budget processes, which are strongly strategic priorities across the Government: keycentralized by the standards of well performing minlstrles, departments, and public organizationscountries. However, aggregate fiscal control is will be required to produce strategic plansachieved at a price in terms of allocative and showig their obJectives and desired outcomes,operational efficiency. This is due to the outputs, performance standards, managementinflexibilities and distortions which a highly plans, and resource requirements These planscentralized approach to budget allocations wlll be published and dissemiated widely.imposes on sector ministries. The system lacks Central agencies will review these strategic plansincentives for sector ministries to use the budget as part of the budget formulation process toprcentives for anesetial ministriesmsen tool budgt determine whether they both reflect government-process as an essential management tool for widepirte n r elpeae.Atrticonsidering policy solutions to increase the wde priorities and are well prepared. After thisefficnsiderncy, polictieso and equity of their review, resource agreements will be establishedefficiency, effectiveness,an eqiyothr between central agencies and line ministriesprograms. The budget process is perceived as a whee, fora ageniel of line minisneprocedural requirement imposed by central olere, fora given level of resource allocation andagencies to which they must adhere. In such an flexibility, the expected performdance of a lineenvironment, it is difficult to use the power of the nistry will be clearly defined and agreed uponpublic purse to demand performance from line 37. These agreements provide the foundationministries.37 Thsagemnspoietefudin

for a new budget formulation process that focuses

not on inputs but on outcomes and outputs.34. Regarding the second and third levels of Central agencies would gradually devolve detailedallocative and operational efficiency, Thailand's line-item controls to line ministries, monitor theirexpenditure management is poorly prioritized, performance, and hold them accountable forpays minimal attention to the results of spending, results. Management reforms within line

- 10-

ministries would shift the management culture * Strengthen key government agencies' abilityfrom "compliance" to "managing for results." to monitor and evaluate the effectiveness of

service delivery.38. Poverty alleviation is one of Thailand'sdevelopment priorities that must be reflected in * Establish a medium-term macro-fiscal planthe strategic plans of line ministries. However, that would influence annual budgets.expenditures and subsidies to reduce poverty are * Adopt international standards for fiscaloften ineffective due to poor targeting and limited transparency.evaluation. As a cross-cutting policy objective,central agencies will improve their capabilities to * Prepare complete government financialmonitor and review the distributional incidence of statements (including off-budget fiscal risks)sector programs and of targeted subsidies. and present annual audit reports to Parliament.

39. Thailand's Reform Strategy. To meet 40. Expected Program Results. By the endthe demands of a global economy, expenditure of the Program period, Thailand expects tomanagement must achieve these key objectives achieve the following:over the next few years: (i) link Thailand's . Greater performance focus in sectorplanning, sector policy making, and budgeting rninistries, accompanied by new flexibilityprocesses, (ii) measure outputs and outcomes and accountabilities.instead of controlling inputs; (iii) improve thequality of fiscal adjustment; and (iv) improve * A results-oriented management frameworkfinancial transparency. Thailand's Program will that produces more effective and efficientsupport organizational and policy changes programs.bolstered by technical assistance in the Bureau ofthe Budget and selected line ministries, with the * Improved transparency of fiscal, financial andaim to achieve the following objectives: performance information at all levels of

* Implement performance budgeting by govemment.formulating strategic plans, forming resourceagreements with performance targets in sector 41. PSRL Benchmarks. To reach theseministries, and incorporating budget objectives, Thailand has completed the first stageevaluation and feedback into the budget cycle. of reforms in this area, including (i) signing

Memoranda of Understanding (MoU) between- Improve the planning capability of sector BoB and the MOE, as well as BoB and the MOPH

ministries through functional reviews of for their selected programs; (ii) finalizing theprogram areas, corporate plans, and Government's Expenditure Assessment; and (iii)performance-based budgeting. submitting the Organic Law on State Audit to

* Improve line ministry performance through Parliament (See Schedule 2, Government's Policyresource agreements and monitoring, with Objectives and Implementation Benchmarks).increased flexibility granted by the Bureau ofthe Budget. 42. Complementary Reform Efforts. Under

the distributional incidence the Economic Management Assistance ProjectRoutinely monitor t and its advisory services, the World Bank isOf fiscal policy through multi-purpose..household surveys and surveys of unit costs providig assistance in several aspects ofprices, and subsidies. expenditure management, including government

payment systems, fiscal policy research, and* Improve the targeting of expenditures and monitoring of poverty-targeted programs. The

progressivity of subsidies by routinely using Auditor General is engaged in dialogue withdistributional criteria in making ex ante several donors, including the World Bank.expenditure decisions.

D. HUMAN RESOURCE MANAGEMENT governments or outsourcing activitiesinappropriate for government involvement to the

43. Issues. For several years, weak private sector.performance of Thailand's public administrationhas been recognized as an obstacle to economic 46. Thailand's Reform Strategy. Key areasdevelopment. The lack of a service-oriented, for reforms under Thailand's Program include thecost-effective civil service driven by results rather following:than entitlements has impeded implementation of Guide the process of functional reviews togovernment programs. Public institutions arehighly segmented, with limited cooperation identify opportunities for restructuring, re-among agencies and ministries. Public confidence engineering, outsourcing, and decentralizingin the quality and probity of civil service public-sector functions, processes, and staffmanagement can be improved if public policy is delivery.more effective, policy decisions are transparent,and service delivery standards are acceptable. * Align organizational development andThe recent financial crisis and increased citizen restructuring programs for governmentawareness have brought the shortcomings of the ministries and departments with their serviceThai civil service into even sharper relief, objectives.highlighting the need to strengthen civil service * Devolve non-core functions to localcapacity to resume economic growth. governments; contract to the private sector or

44. Several key problems are linked to the to Autonomous Public Organizations.underperformance of public administration. First, * Improve efficiency of service delivery in corethe role, organization, and processes of areas of ministry activity.government are in need of serious overhaul tostreamline procedures, eliminate duplicative * Strengthen human resources and structurestructures, and shed and/or devolve activities staffing levels to meet the ministries'inappropriate for central government objectives.administration. Second, the civil service is . "Rightsize" the civil service by adjustingoverstaffed and underpaid, resulting in difficulties staffing levels to new public sectorin attracting, retaining, and motivating good staff requirements, involving an expected reductionand, ultimately, in poor performance of basic of 10 percent of staff.government functions. Third, the current civilservice's organizational culture, reinforced by * Introduce performance-based human resourcecumbersome and antiquated regulations, does management systems for the civil servicelittle to reward performance or service to citizens. (e.g., individual job description and

classification systems, greater flexibility in45. Thailand's Reform Objectives. A key employment system, performance appraisalobjective of Thailand's reforms in human resource and remuneration, career development andmanagement is to deliver better services in a cost- advancement, and disciplinary and complainteffective and equitable way. This will require systems).enhancing the access to, timeliness of and quality * Strengthen the caliber of cross-governmentof public services through outsourcing, senior governent staff by developing arestructuring or decentralizing activities, and Senior Executive Service cadre groomed forbeing more responsive to clients. Administrative civil service leadership posts.renewal involves modernizing the role,organization, and processes of key line ministries 47. Expected Program Results. By the endto enhance their performance in delivering of the Progran period, Thailand expects toservices. More efficient use of public resources achieve the following results:requires streamlining procedures, eliminatingduplicative structures, and devolving to local

-12 -

* Complete functional reviews in economic and future fiscal sustainability. In 1997 and 1998, taxsocial ministries. collection as a percentage of GDP declined

Reministries beyond what could be explained by the recession* Reorganize and reengineer selected (by 0.5 percent and 0.9 percent respectively), andin light of the Functional Reviews, tax arrears doubled to Bt 79.1 billion, or more

* Devolve identified services to local than 1.5 percent of GDP. The Government mustgovernments, APOs or the private sector. recover these lost revenues and mobilize

additional revenues to compensate for lower trade* Implement a framework for pemoeance- tariffs under AFTA, pay for losses in the financial

ensures effective resources amonage h system, and meet the budgetary demands forensures effective linkages among planning, increased expenditures for the poor. Moreover,recruitment and selection, remuneration, tax rates should eventually be lowered toperformance management, and human encourage private sector development,resource development. employment growth, and expansion of the formal

* Rightsize public administration through early economy - requiring further improvements in taxretirement, outsourcing, retrenchment, administration to offset these revenue losses.changing the skill mix, or career counselingand retraining. 51. The task of tax administration iS complex,

involving difficult and diverse targets and* Strengthen the position classification system. objectives such as processing declarations and

* Introduce a Senior Executive Service. payments, collecting debts, combating taxevasion, and providing advice and assistance to

* Establish a governance framework for APOs. taxpayers. The complexity of the work, the size(about 18,000 people), and the geographical

48. PSRL Benchmarks. To reach these spread (roughly 1,000 offices) of the organizationobjectives, Thailand has completed the first stage require clear organizational objectives andof reforms in this area, including (i) completing strategies, defined in a multi-year strategic planthe Functional Review of the Ministry of with clear performance indicators.Commerce, and (ii) enacting the Law onAutonomous Public Organizations. 52. The declining tax collections noted above

stem in large part from antiquated approaches to49. Complementary Reform Efforts. Under tax administration. Taxpayer identificationthe Economic Management Assistance Project numbers differ across the Excise, Customs, andand its advisory servi^es, the World Bank is Revenue Departments, impeding cross-checks onproviding assistance in several aspects of human compliance. Audit performance is weak-caseresource management, including assistance in selection methods are hampered by lack of gooddesigning a Senior Executive Service, establishing data, and the productivity of auditors in moneya whole-of-government organizational framework, terms is low. The Revenue Department'spiloting approaches to results-based management, computer system lacks basic functionality torevising the position classification system, and support the operational aspects of taxoutlining options for rightsizing of the civil administration.service. Bilateral donors are actively supportingstudy visits on human resource management for 53. Thailand's Reform Objectives. Thesenior civil servants. objectives of the proposed tax administration

reforms are to: (i) ensure adequate and sustainableE. REVENUE MANAGEMENT revenue; (ii) improve revenue collection, widen

the tax base, and achieve a more equitable50. Issues. Deficiencies in Thailand's tax distribution of the tax burden; and (iii) strengthenadministration that were little noticed during the managerial capacity of the Revenueperiods of rapid economic growth are now Department to perforrn its functions efficientlyobvious and of sufficient magnitude to challenge

- 13 -

and effectively on a sustainable and transparent 57. Complementary Reform Efforts. Thebasis. IMF has placed advisors in the Customs

Department and Revenue Department. The Bank54. Thailand's Reform Strategy. The has been asked to provide supplementaryfollowing reforms would help to achieve these technical assistance that may support reformobjectives: efforts undertaken during subsequent PSALs.

* Strengthen tax collection enforcement to reinin the growth in tax arrears.

F. DECENTRALIZATION* Improve taxpayer compliance by establishing

one unique taxpayer identification number, 58. Issues. Thailand is a highly centralizedcoordinating audits with the collection of country with limited local autonomy in terms ofdelinquent accounts, and developing and functions, area, staffing, funding, and decisionimplementing a comprehensive audit strategy. making.

* Improve overall revenue management by * The central government spends 93 percent ofdeveloping strategic plans, establishing total general expenditures and collects 95information technology priorities, and percent of general tax revenues.developing new applications. * Only 25 percent of municipal revenues are

locally collected and retained.55. Expected Program Results. By the end * The central government appoints chief localof the Program period, Thailand expects to officials, determines local salaries, andachieve the following: approves local budgets.

* Improve revenue collections to achieve or Reducing the role of the central government andsurpass historical tax revenue to GDP ratios. moving toward a decentralized fiscal system will

* Reduce arrears to a manageable level (i.e. require significant changes in existing institutions,about 5 percent of total annual tax revenue processes, and culture.

collections). 59. At the same time, decentralization

* Increase audit revenue to 2.5 percent of total reforms can provide synergies in overall publictax collections. sector reform. Functional reviews of line

ministries will identify opportunities for* Establish a new Large Business Tax privatization and decentralization of service

Administration Office to manage at least 2500 delivery. The Ministries of Public Health andof the largest taxpayers, who pay more than duaion are doncetring servic delivery

50 eren o tta rveuecoletins Education are deconcentrating service delivery50 percent of total revenue collections. responsibilities to local entities (i.e., Local

* Develop and implement a functional and Education Authorities and Provincial Hospitals)integrated IT system, which is networked to that in the future may be transferred to localRevenue Department offices. governments. Changes in the intergovernmental

transfer system that improve the targeting of56. PSRL Benchmarks. To achieve these subsidies for the poor enhance the delivery ofobjectives, Thailand has completed the first stage services. Effective decentralization is impossibleof reforns in this area, including establishment of without broader reforms in financial and humana Large Business Tax Administration Office, resource management.which is expected to handle at least the 500largest taxpayers with technical assistance from 60. Thailand's Reform Objectives.the IMF. The IMF is likely to continue its support Decentralization was identified as a policy prioritythrough at least the first year of Thailand's in Thailand's 8th National Economic and SocialProgram. Technical assistance by the Bank is Development Plan. The new Constitution alsocomplementing these efforts and is projected to emphasizes decentralization, specifying principlesbecome more important in subsequent phases. of local autonomy and elected local

- 14 -

representatives among other aspects of local fiscal decentralization and focuses on thegovernance. The success of fiscal following priorities:decentralization in Thailand will depend on theextent to which political and economic institutions * Establish an independent authority (thepromote local accountability and responsible National Decentralization Committee) tofiscal policies. These institutions are nascent in monitor the status of decentralization reformsThailand; decentralization must therefore and promote cooperation among variousincorporate gradual processes that emphasize ministries and agencies.long-term institution building. Clearly assign expenditure functions among

61. Objectives envisioned in the Constitution, levels of government and devolve functions toand supported by Thailand's Program include local governments.increasing the share of local government * Allocate adequate local revenues (includingexpenditures, assigning more revenue sources to phasing in the new property tax andlocal governments, revising the system of strengthening the Central Valuation Agency)intergovernmental transfers to provide grants in a and enhance local collections.more transparent and predictable way, andpromoting mechanisms for local accountability. * Improve the equalization impact ofBecause most Thai local governments are weak in intergovernmental grants by introducing morefinancial management, planning and service general purpose grants and allocating them bydelivery and generally lack adequate resources to transparent and equalizing formulae.deliver services effectively or to undertake needed . Develop mechanisms for local accountabilitycapital projects, implementation of the proposed and transparency.program of decentralization reforms will requiresignificant strengthening of local capabilities. * MWonitor the status of decentralization and

local public finances by developing local62. At present, the status of decentralization finance benchmarks and publishing regularreforms it is difficult to monitor because reports on local finance.responsibilities are shared among numerousministries and agencies and the Government's 64. Expected Program Results. By the endoverall decentralization policy framework is not of the Program period, Thailand expects toclearly understood. A high priority is to establish promote self-reliant local governments by:the National Decentralization Committee (NDC) . Establishing a legislative framework inand assure that it is adequately staffed and given support of decentralization.sufficient resources to perform its duties. Thecentral government must also develop the * Clarifying the assignment of expenditurecapabilities of the NDC to monitor the status of functions among levels of government anddecentralization-both in terms of its potential successfully devolving responsibility for pilotmacroeconomic impact and its achievement of ministries.decentralization objectives - and disseminate * Assigning more revenue sources (e.g., localinformation on local government finance on a property taxes) to local governments andregular basis. This information is important in developing local capacity to raise revenues.encouraging local accountability, monitoring thestatus of decentralization initiatives, for * Revising the system of intergovernmentalintroducing subsequent reforms in response to the transfers to provide grants in a moredynamic nature of intergovernmental fiscal transparent, predictable, and equalizingrelations. manner.

, ~~~~~~~* Promoting local accountabilit through63. Thailand's Reform Strategy. In regard to g ty gdecentralization, Thailand's Program emphasizes enhanced financial reporting, greater citizen

- 15-

involvement and the regular publication of Transparency International's survey, placing itreports on local public finances. 61 st of the 85 countries surveyed.

65. PSRL Benchmarks. To reach these 68. Thailand's Reform Objectives.objectives, Thailand has completed the first stage Thailand's public sector reform is rationalizingof reforms in this area, including submitting the institutions responsible for ensuring publiclegislation to Parliament to establish the National accountability and demonstrating theDecentralization Committee (NDC) as an Government's commitment to fighting corruption.independent entity to support and monitor Public accountability can be enhanced bydecentralization. encouraging civil society to participate in

government decisionmaking and provide input on66. Complementary Reform Efforts. As part how to improve service delivery. Various articlesof the Social Investment Project, a Regional under the new Constitution grant individuals andUrban Development Fund has been established civil society organizations the right to participatewithin the Government Savings Bank to in policy formulation and implementation tochannelslong-term credit to selected local improve government services. The Governmentgovernment infrastructure projects and develop has sought regular feedback from civil society,local financial capacity. The Bank has also been including through the "Good Governance"asked to provide technical assistance to the working groups of the Thailand DevelopmentNational Decentralization Committee in Research Institute, a prominent thinktank.establishing its institutional framework andanalytical capacity. 69. To the extent that corruption is primarily

G. STRENGTHENING CROSS-GOVERNMENT a symptom of poor public management, reformsACCOUNTABILITY AND TRANSPARENCY of public expenditure and human resource

management under Thailand's Program are

67. Issues. Public accountability is the d expected to lessen corruption. It is difficult toto which the activities of goverment *gtee build citizens' trust in Government, but specificand the civil servants within them, are responsive interventions to increase public accountability andto public needs, efficient in the use of public transparency can serve both to reduce corruptionfunds, and accountable to the public for their and improve service delivery. In particular, the

actions. Desiterulnew Constitution provides a strong basis for thep pervasive . u. creation of formal mechanisms for cross-

procurement and budgeting, the new Constitution goverment accountability and increasing theemphasizes the need to strengthen accountability voice of civil society.in managing the affairs of Thai governmentinstitutions. Improved transparency and 70. Thailand's Reform Strategy. Specificaccountability in government policymaking and objectives that will be supported under Thailand'spublic resource management are seen as a Program include:powerful tools for reducing corruption.Furthermore, civil servants are now paid salaries * Increase institutional accountability bywell below the private sector level and are not strengthening formal institutional structures.sufficiently protected from political pressures and

corptn inluncs. Th neatv effct of * Improve access to and use of publiccorrupting influences. The negative effects Of information by individual citizens and by civilcorruption--distorted government resource s iallocation decisions, reduced economic efficiency, soi encuin provedi responsivenessimpaired legitimacy of public institutions, andskewed income distribution in favor of the rich- * Increase probity among civil servants.are widely reported in the media. Perceived . .corruption also damages Thailand's international * Enhance civil society participation ireputation and prospects for foreign investment. improvingtransparency.In 1998, Thailand ranked near the bottom of

- 16 -

71. Expected Program Results. By the end of review public procurement procedures with thethe Program period, Thailand expects to achieve Government.the following key results:

* Establishing a National Counter-Corruption H. ARRANGEMENTS FOR IMPLEMENTATIONCommission to enforce standards for integrity AND MONITORING

and transparency in Government, investigate 74. Implementation Arrangements. Overallallegations of corruption, and report annually responsibility for the coordination of public sectorto the public. reforms and for monitoring progress lies with the

* Creating Administrative Courts that will Public Sector Reform Committee, chaired by theprovide citizens with a judicial forum to Deputy Prime Minister. The Committeeenforce their rights vis-a-vis the state. comprises the heads of the key agencies supported

under this program, including the Office of the* Establish'ig an Ombudsman to address Civil Service Commission, the Ministry of

citizens grievances and other issues of public Finance, and the Bureau of the Budget. The day-concern. to-day coordination of Thailand's program of

* Strengthening the capacity of the Office of the reforms and the related technical assistance willOfficial Information Commission to facilitate be carried out by a high-level project unit in thepublic access to information under the Prime Minister's Office, to which staff from theOfficial Information Act. implementing agencies are seconded.

* Establishing an Ethics Promotion Center and 75. The Government will monitor progress inprotecting "whistleblowers" to promote participating agencies and ministries throughoutprofessional quality and reduce corruption. the program period. It is also committed to ensure

* Establishing the National Economic and adequate financing for the transition costs ofSocial Council (NESC) to allow civil society reforms in the central agencies and line ministries.to monitor public performance and participate Specific reforms in the line ministries will bein the policy making process. identified, costed, and agreed to in the

Memoranda of Understanding between the line72. PSRL Benchmarks. To reach these ministries and the Bureau of the Budget. Theseobjectives, Thailand has completed the first stage MOUs will be revised annually and will provideof reforms in this area: (i) Members of the the foundation upon which the reform progress ofNational Counter Corruption Commission individual ministries is monitored.(NCCC) have been appointed, and the organic lawon counter-corruption has been submitted to 76. Consultations with Civil Society. RegularParliament; and (ii) Parliament has approved the consultations with civil society are crucial inlaws on Ombudsman and on Administrative monitoring progress in meeting programCourts. objectives and consistency in implementing

73. Complementary Reform Efforts. The reforms. The inertia inherent in maintaining theagenda for transparency supported by the PSRL is status quo can only be overcome throughcomplemented by a number of other governmental persistent demand for public sector reform fromefforts. This includes an extensive campaign to civil society at large-including academia, NGOs,promote the values of transparency among public user associations, community groups, laborofficials. With the assistance of the World Bank, representatives, business managers, financialthe Civil Service Commission is supporting a sector representatives, domestic and foreignreview to determine redundant government investors, think tanks, and concerned citizens.regulations and surveys of businesses and Key seniors officials and politicians-Thailand'shouseholds on the costs of corruption. The Bank champions of reform-have sought regularis also scheduled to conduct a formal Country feedback from these groups to understand theProcurement Assessment Review in late 1999 to needs for better governance and provide voice to

the demands for better performance, services, and

- 17 -

transparency. The Civil Service Commission- 79. Supervision and Subsequent PSRLs.with support from the World Bank-is promoting Thailand's Program set out in the Letter ofgovernance reforms through a formal public Development Policy (Schedule 1) and the Matrixrelations campaign among civil servants and the of Policy Benchmarks (Schedule 2) has set outgeneral public. clear objectives and expected outcomes in five

areas. In extensive discussions with the77. PSAL Framework. Using the framework of a concerned government agencies and the PublicProgrammatic Structural Adjustment Loan Sector Reform Committee, a series of benchmarks(PSAL) recently discussed by the Board3, the have been agreed upon to measure progressproposed Public Sector Reform Loan (PSRL) will toward achieving the objectives. Thesesupport Thailand's Program. The PSAL benchmarks are not conditions of future lending,framework has been chosen as a lending but guideposts to signal when progress is moreinstrument that supports a sustained medium-term advanced or falling behind in any given area. Ifcommitment, and also takes into account the progress is adequate, Thailand's Program wouldinherently uneven pace of complex institutional be supported through subsequent annual Publicreforms. While a traditional multiple-tranche Sector Reform Loans under the PSAL framework,structural adjustment loan may provide a greater subject to the approval of the Board of Executiveformal commitment for future reform actions on Directors. The size and timing of future Publicbehalf of Thailand, it would also be Sector Reform Loans over the next three yearscounterproductive in that it would create the will be decided by Thailand as programperception of externally imposed, and excessively implementation progresses. Depending onrigid conditionalities on political reforms. Nor Thailand's financing needs, subsequent loanswould a series of occasional one-tranche could be timed for disbursement at the beginningoperations highlight sufficiently the coherence of of the budget cycle.Thailand's medium-term reform program.Similarly, an Adaptable Program Loan would not 80. Assessing the performance associatedentail the same broad, multi-sectoral policy with institutional reforms is not easy. Institutionaldialogue established in the preparation of the reforms are the sum total of many smallPSAL. The PSAL framework gives the flexibility incremental steps. Moreover, many steps areto decide the size and timing of future loans as qualitative, the span of activity across the publicprogress is made towards the implementation of sector is unusually large, and implementation inThailand's Program objectives. one area can be fast while in another the pace can

be slower. Success in the implementation of78. Monitoring Arrangements. Through Thailand's Program will be measured by theregular reviews and in the context of the degree of resolute government commitment (aspreparation and supervision of other PSALs, the evidenced in the continuity of the reform team,Bank will monitor the general progress of and/or public reiteration of objectives asThailand's Program and, more particularly, the necessary, plus the active continuation of a well-implementation of the agreed benchmarks spelled staffed implementation team) and a satisfactoryout in Schedule 2. The Public Sector Reform pace of reform measured against the benchmarksCommittee will prepare and provide to the Bank a (as monitored through supervision reports andreport on the progress of Thailand's Program future reports to the Board). As progress is madewithin six months after the closing date of the toward the objectives of comprehensive publicPSRL. The Bank will support the implementation sector reform, the need for and design of futureof Thailand's Program-through quarterly PSRLs would be determined in consultationsmonitoring led by the World Bank Office in between Thailand and the Bank.Bangkok- as well as technical assistance, policyworkshops, and training. 81. The proposed PSRL is consistent with

Thailand's medium-term financing needs. The3See Programmatic and Emergency Adjustment Lending: economy is emerging slowly from recession,

World Bank Guidelines (R98-249), October 2, 1999. largely because of the shift in investor perceptions

- 18-

and the resulting deprivation of liquidity to the IV. BANK GROUP STRATEGYeconomy. With net capital outflows, Thailand hashad to compress real wages, reduce consumption, A. THE WORLD BANKand adjust under the harshest of circumstances.Providing additional external financing to the 84. A full Country Assistance Strategy forpublic sector allows the Goverment to finance its Thailand was presented to the Board on July 9,stimulus program and partially finance its deficit 1998 (Report No. 18002-TH). The next CAS iswithout adversely affecting the cash-starved due in FY2000. The following paragraphsprivate sector. provide a brief update on the progress of

82. Leveraging the Bank's Role. As a implementation of the strategy and its goals forpolicy-based loan, the PSRL reflects the different public sector reformroles the Bank will continue to play across the Governance in Thailand's Country Assistancespectrum of public sector reform in Thailand.Thailand is responsible for implementing its Strategyprogram of reforms and will call on the Bank and 85. Governance is a central theme of theother donors for assistance as needed. The World Bank's Country Assistance Strategy for Thailand.Bank's role as a lead partner in public sector The Bank's assistance strategy focuses on threereform may range from providing technical critical elements to revive economic growth: (i)assistance, sharing global experience, acting as a renewed competitiveness of Thailand's productivereform catalyst assisting with monitoring reform capacity, financial sector, and labor force; (ii)progress to coordinating the participation of other better governance of private and publicpartners. The Bank has been performing these institutions; and (iii) more equitable distributionroles since the early stages of the economic crisis. of the benefits of growth across social lines.It has supported Thailand through flexibleinstruments such as the Economic Management * Renewing Competitiveness. Thailand mustTechnical Assistance Loan (EMAL), access to foster renewed competitiveness in the privatetrust fund financing (e.g., PHRD funds, ASEM sector, which is key to restoring growth. Thefunds, etc.), policy seminars, ongoing dialogue World Bank supports a sound financial sector andwith senior officials, and donor forums. Its effective government capacity to set the rules forsupport will be led by the World Bank Office in the market when it furthers the country'sBangkok, Washington-based experts, and economic interests. The Bank further supportsinternational advisors. improving the quality of Thailand's workforce to

enable the country to produce more83. The Bank is engaged in continuous technologically sophisticated and higher-valuedialogue with civil society as part of the Country exports; removing export infrastructureAssistance Strategy (CAS) and has been bottlenecks, and providing an effective frameworkconducting a series of public sector reform for corporate restructuring.workshops attended by both civil servants and Improving Public Sector Governance.civil society representatives. As part of its anti- Thailand must ensure that its public sectorcorruption initiatives, the Bank is involving supports development. Creating an efficientNGOs and respected academics in the analysis public sector to support growth involvesand formulation of policy recommendations for management functions that were neglected duringbetter transparency. The Bank is assisting in the economic boom. The Bank supportsperformance improvements in the line ministries improving macroeconomic management tothrough the development of client/user surveys in achieve economic stability and strengthening

close consultation with user associations. public administration for more efficient

management of public resources. The Bank alsosupports strengthening the legal framework tofacilitate business revival. Limited public

- 19 -

resources must be leveraged more efficiently Status of Bank Operationsthrough private sector participation, which calls 87. The Country Assistance Strategy forfor a strong regulatory framework to ensure 1998-2000 is on track, and its emphasis oncompetition. competitiveness, governance and equity has* Sharing Growth and Ensuring Quality of served the Bank's program well. The EconomicLife. Thailand's boom has been accompanied by and Sector Work and the non-lending program arewide income disparities and a deteriorating being delivered successfully, and the lendingenvironment which threaten the implicit social program for the first two years of the CAScontract that sustains growth-oriented economic conforms to the base case of the three-yearpolicies. As a result of the economic crisis, lending program of about US$3.4 billion,households are struggling with rising including US$300 million of guarantees. Inunemployment, economic uncertainty, loss of FY99, the Board approved the Social Investmentincome, reduced public services, and higher Project ($300 million), EFAL I Loan ($400prices. Thailand must ensure that the benefits of million), EFAL II ($600 million), and a guaranteedevelopment are both sustainable and shared operation in support of a bond issue by theamong all segments of society, especially the poor Electricity Generation Authority of Thailandand vulnerable. Ensuring higher quality of life for (EGAT).everyone means improving the impact on povertyof public expenditures and redressing regionalimbalances-notably between rural and urban 88. A shift to the enhanced base case may beareas-by empowering local communities. possible within the next year, triggered by thearears-by thempoweingalprocalectiommite are progress in key structural reforms such asReforms in the social protection systemar financial sector restructuring. However, thisnecessary to reduce poverty among the elderly higher financing may not be required as economicand contain potential fiscal liabilities. Sustainable recoer tancing as the focus as away

recovry rquirs prservng te naural recovery takes hold. As the focus shifts awayrecovery requires preserving the natural from crisis management toward medium-termenvironment through better resource and development issues, a fine-tuning of the assistancewatershed management, regulations, and taxation. p

strategy with some changes in the blend and86. Key instruments of the World Bank's timing of operations is required. The next CAS forlending program support these three CAS 2000-2002 will build on the same themes as theobjectives. Competitiveness is supported through present CAS, and will also emphasize the need forthe Economic and Financial Adjustment Loans greater concern for the environment and civil(EFAL), development of skills in the education society participation. Positioning the Bank as asector, and guarantees for EGAT. Different provider of knowledge and a facilitator ofaspects of Thailand's broader efforts to improve capacity building will take increasing importancegovernance are supported through (i) EFAL in over the provision of large adjustment funds. Thecorporate governance, (ii) a legal development next education operation is being rescheduled toproject under preparation, which focuses on take into account reallocation of investment fundsstrengthening the legal and judicial capacity for under ongoing education projects and funding foreconomic reforms; and (iii) the Social Investment education provided under the public sector reformProject, which addresses the governance activity. Emphasis will also be placed on buildingframework for NGOs. Equity objectives are the Government's capacity to establish andsupported through the expenditure management implement a comprehensive framework forcomponent of the PSRL, a Learning and national development.Innovation Loan to build capacity and implementthe recently completed Thailand Environment 89 The base lending case envisaged up toStrategy Paper, and various knowledge US$500 million of guarantee operations. Anmanagement activities including poverty studies operation supporting a US$300 million EGATand creation of databases. Bond has already been completed successfully.

Expansion of the program of guarantees will

- 20 -

depend on Bank-wide decisions on the enhanced loaded to ensure that the external financinguse of guarantees. essential for restoring confidence is available as

early as possible. In September 1999, the IMF is90. The Bank continues to work closely with completing the eighth review of the program andthe IMF, ADB, and the Japanese authorities in to date has extended SDR 2.5 billion (US$ 3.4coordinating Thailand's recovery efforts, billion) of the total committed funds under theespecially in the context of the Miyazawa SBA.initiative. PHRD grants and ASEM funding haveproved to be invaluable in supporting the 94. The Bank has been working closely withpreparation of reform operations, particularly in the IMF in Thailand. Since the onset of thethe financial, corporate, and social sectors. financial crisis, the Bank and the Fund have

jointly assisted the Government in designing the91. As detailed in Annex 3, the World Bank's comprehensive financial sector restructuringsupport for better public sector governance is program that is currently being implemented. Incomplemented by significant programs of support the area of financial management, the IMF isby bilateral donors, ADB, and NGOs who take the providing technical advisors on fiscal andleadership in areas such as public accountability. monetary policy, tax administration, and customs

reform. The IMF has paid special attention toB. IFC issues related to the financial sector, particularly

commercial banks, while the Bank has focused on92. The International Finance Corporation resolving finance companies, increasing social(IFC) seeks to work closely with the Bank to investment, and furthering public sector reform.contribute to the Bank's program for financial As Thailand's reform program widens,sector reforms and the restructuring of Thai cooperation between the two institutionsindustries for long-term competitiveness. In recent continues and includes corporate restructuring,years, IFC's investment activities have focused fiscal policy, reform of the legal framework andmainly on infrastructure, petrochemicals, and corporate governance, social protection, and fiscalcapital markets. In social infrastructure, IFC stimulus.approved a pioneering project in financing aprivate hospital in Bangkok in FY93 and is D. COOPERATION WITH ADBpursuing additional opportunities in this area.IFC's current priority is to play a role in the 95. The Asian Development Bank (ADB)financial restructuring process. Its current pledged US$1.2 billion to support Thailand'spipeline of activities includes seven potential stabilization and structural adjustment program,projects with total expected IFC net exposure of focused on the financial and social sectors.US$130 million (gross exposure for these projectswould be US$274 million) in the areas of 96. A Financial Markets Reform Programagribusiness, education, chemicals, general Loan (FMRPL) was approved for US$300 millionmanufacturing, and infrastructure. in December 1997. An Export Financing Facility

(EFF) was approved in March 1998. The ADB isC. COORDINATION WITH IMF processing an Agriculture Sector Program Loan

(US$300 million) and a Higher Education Project93. On August 20, 1997, the IMF's Executive (US$60 million) for consideration during FY-Board approved a 34-month Stand-By 1999.Arrangement (SBA) for Thailand for an amountequivalent to SDR 2,900 million (505 percent of 97. A US$500 million Social Sector Programquota). SDR 1,200 million (209.1 percent of Loan (SSPL) was approved in March 1998. Thequota) was initially disbursed upon Board objectives of the SSPL are to: (i) mitigate theapproval. Funding under the SBA exceeds normal short-term impact of the crisis on society, inlimits considering Thailand's exceptionally large particular the most vulnerable groups and thebalance of payments needs, and it is heavily front- unemployed, (ii) initiate structural reforms to

- 21 -

enhance the competitiveness of the Thai economy 102. Disbursement and Procurement. Thethrough the development of human resources, and proposed loan would support Thailand's Program(iii) reduce inefficiencies in the provision of social as described in the Letter of Development Policy.services. The PSRL is closely coordinated with Thailand will open and maintain a deposit accountthe SSPL, which supports sweeping policy with the Bank of Thailand. Upon effectiveness,reforms in the education sector. Thailand will submit a simplified withdrawal

application against which the Bank will disburseV. THE PROPOSED LOAN the I1an proceeds in one tranche into the Deposit

Account. Disbursements will not be linked tospecific purchases, and supporting evidence for

98. The proposed loan is a core operation to disbursements is therefore not required. If afterimplement the objective of better governance deposit is made in the Deposit Account theoutlined in the Bank's Country Assistance proceeds of the loan and any part thereof is usedStrategy. The CAS benchmarks are directly for ineligible purposes as defined in the loanrelated to the matrix of policy objectives agreement, the Bank will require Thailand to(Schedule 2) of the operation, which is an either (a) return the amount to the Depositimportant component in the overall package of Account to be used for eligible purposes, or (b)external assistance provided by the IMF, the refund the amount directly to the Bank, in whichWorld Bank, the ADB, and bilateral donors. case the Bank will cancel an equivalent

undisbursed amount of the loan.99. Thailand has achieved, prior topresentation to the Board, several key program 103. Accounts and Audit. The Bank ofbenchmarks in the areas of expenditure Thailand, on behalf of Thailand, will maintain themanagement, revenue management, human accounts for this loan in accordance with soundresource management, decentralization, accounting practices. The accounts andperformance improvements in line ministries, and disbursements under the Loan will be auditedaccountability. The specific actions are listed in within four months after the close of the fiscalSection B. year. The loan will support Thailand's efforts to

reform public institutions while providing balanceA. LOAN ADMINISTRATION of payments support. The Bureau of the Budget is

determining expenditure outlays that would cover100. Borrower and Loan Amount. The the incremental costs of reforms under Thailand'sBorrower is the Kingdom of Thailand. A single- Program. A monitoring mechanism fortranche loan of US$400 million would be made expenditure allocations under Thailand's Programavailable upon loan effectiveness, anticipated for will be put in place in the Bureau of the Budget.October 1999. The Closing Date of the Loan In accordance with the loan agreement, Thailand,would be January 31, 2000. at the Bank's request, will have the accounts

audited and furnish a report of such audit to the101. Terms and Conditions. At the request of Bank.Thailand, and consistent with the country'sexternal debt management policy, the proposed 104. Environmental Assessmentloan, in the amount of US$400 million would be a Requirements. In accordance with the Bank'sSingle Currency Loan (SCL) in US Dollars with a Operational Directive on Environmental15-year maturity, including a 3-year grace period, Assessment (OD 4.00, Annex A), the proposedat the Bank's standard fixed US Dollar SCL operation has been placed in Category "C" andinterest rate. In accordance with Bank guidelines, will not require an environmental assessment.the local currency funds made available by theloan proceeds can be used by the Government tofinance priority government developmentexpenditures consistent with the objectives of theProgram.

- 22 -

B. ACTIONS TAKEN PRIOR TO BOARD decentralization has been submitted toPRESENTATION Parliament;

> Members of the National Counter Corruption105. As part of its Public Sector Reform Commission have been appointed, and a draftProgram, Thailand has implemented the Organic Law on Counter Corruption has beenfollowing: submitted to Parliament;

* The Cabinet has formulated and publicly > Parliament has enacted the Law onannounced a comprehensive Public Sector Ombudsmen;Management Reform Plan over the medium-term. > Parliament has enacted the Law on

Administrative Courts.* A Public Sector Reform Committee,

supported by a secretariat to manage the C. BENEFITS AND RISKSPublic Sector Reform Program, has beenappointed; five interagency subcommittees 106. Benefits. A more efficient and effectivehave been established with representatives Government will contribute to Thailand'sfrom reform units in the Bureau of the Budget economic recovery and return to sustainable high(BoB), Civil Service Commission (OCSC), growth. A more equitable distribution and betterCouncil of State, the Ministries of Finance delivery of public services will promote(MOF), Public Health (MOPH), Education efficiency, greater responsiveness to citizens, and(MOE) and Commerce (MOC). greater accountability of public sector. In the

* As part of the first phase of its Program, short term, the preparation and implementation ofThailand has undertaken the following Thailand's Program provide an effective platformmeasures: for consultations and coordination to harness the

broad-based support for public sector reform> The Bureau of Budget has signed Memoranda within civil society and the Government. The loan

of Understanding on performance agreements is part of Thailand's borrowing strategy and willwith the Ministries of Health and Education; help sustain aggregate demand through the

> The Bureau of Budget has completed the first stimulus of a temporary budget deficit. Over thePublic Expenditure Assessment of major longer term, Thailand's Program provides aexpenditure programs (including health and highly visible framework to sustain theeducation); momentum for improving public sector

governance. It engages the Government in> A draft Organic Law on State Audit has been monitoring progress in meeting the broad reform

submitted to Parliament; objectives through detailed action programs with

> A Functional Review of the Ministry of annual benchmarks. Similar to the Bank'sCommerce (MOC) has been completed; Royal Comprehensive Development Framework,Decrees approving the restructuring of MOC Thailand's Program is embedded in a broadhave taken effect, and the restructuring has governance campaign which leverages thebeen initiated; available resources of international donors,

multilateral agencies, academia, and non-> Parliament has enacted the Law on governmental organizations to provide technical

Autonomous Public Organizations; assistance, policy dialogue, training, and

> A Large Business Tax Administration Office knowledge sharing.has been established in the RevenueDepartment; 107. Risks. Several risks attend this operation.

First, although civil society demand for public> Draft legislation to establish the National sector reform is strong, it is not necessarily well

Decentralization Committee (NDC) as an articulated. Civil society organizations provideindependent entity to support and monitor monitoring and policy advice to the Government.

- 23 -

Giving additional voice to this force is crucial for VI. RECOMMENDATIONpromoting accountability. Civil society has beenactively involved in the reform program through 110. I am satisfied that the proposed loanpublic announcements, an awareness campaign, complies with the Articles of Agreement of theand oversight from distinguished citizens, Bank and I recommend that the Executivecommunity based organizations, and think tanks. Directors approve it.In addition, key institutions mandated by the newConstitution are in the process of beingestablished for the purpose of providing better James D. Wolfensohnaccess to information and promoting greater Presidenttransparency, accountability, and civil society by Sven Sandstromparticipation in monitoring public sector Washington, D.C.performance. October 1999

108. Second, project implementation could Attachmentsuffer if coordination among agencies is blockedby turf fights or a lengthy consensus-orienteddecisionmaking process. However, the recentapproval by the Cabinet of the Public SectorManagement Reform Plan, and publicannouncement of reform objectives demonstrateThailand's resolve to act decisively in promotingreform. To sustain momentum and providecontinued coherence, the Government hasappointed a senior team in the Prime Minister'sOffice to support the Public Sector ReformCommittee in overseeing and assumingresponsibility for reforming the public sector.

109. Third, the political commitment to reformcould weaken due to political resistance toinstitutional reform or change from the currentlyreform-minded government to a less reform-oriented administration. There is a risk that thefull benefits of the medium-term reform programare diminished if there are slippages and the entireagenda is not completed. This risk to Thailand'sProgram is mitigated by embedding the reformagenda in the medium-term commitment of thePSAL framework, and broad ownership of keyinstitutional objectives among Government, high-ranking officials and civil society.

LETTER OFDEVELOPMENTPOLICY

September 24, 1999

Mr. James D. WolfensohnPresidentInternational Bank for Reconstruction and Development1818 H St. NWWashington, D.C.

Dear Mr. Wolfensohn:

Subject: Proposed Public Sector Reform LoanLetter of Development Policy

Thailand is gradually emerging from the economic crisis that began two years ago. The crisishighlighted underlying structural problems and has left a difficult legacy ofsignificant corporate non-performing loans, unemployment and rising public debt. Our Government has successfully restoredinvestor confidence and begun to rebuild the financial sector. Since the beginning of the crisis, ourefforts have focused on addressing corporate debt, restoring growth, reviving investment anddomestic demand, and shielding the poor. As economic recovery is beginning to take hold, we arenow aiming to sustain this growth by turning towards medium-term structural reform. Building amore efficient public sector is a key pillar of Thailand's strategy to modernize and strengthen Thaiinstitutions to meet both the mandates of our new Constitution and the development challenges ofglobalization.

THE NEED FOR REFORM AND PAST REFORM EFFORTS

The economic crisis highlighted the need for broad-based public sector reforms in Thailand inseveral respects. First, Thailand's public finances have come under serious pressure as a result oflarge deficits and growing public-sector debt. After a decade of surpluses, the combination ofrecession-induced lower revenues, and rising expenditures to meet the social needs of the crisis andthe public costs of restructuring the financial system have resulted in large deficits and substantiallyincreased public debt.

Second, Thailand's reform agenda has received renewed impetus with the passage of the newConstitution in 1997. The Constitution provides for increased citizen participation, enhancedtransparency and decentralization - tools that enhance voice and improve public sector governance.The Constitution's main themes are to: promote and protect citizens' rights and human integrity,promote participatory democracy, improve political structures, decentralize authority to local bodies,redesign the work process of government agencies to be responsive to citizens' need, and abolishcumbersome regulations that are a burden to efficient markets.

Third, the Thai people are demanding more accessible, timely and higher quality governmentservices. Taxpayer pressure for more efficient management of the Government's financial resourcesis accompanied by public demand for a leaner and more effective civil service. Improvements intransparency and accountability are necessary to strengthen the confidence of Thai people in publicadministration.

The Cabinet has issued several resolutions to improve the performance of the public sector.These include:

* The Master Plan of Public Sector Reform B.E. 2540 - 2544.

* Civil Service Adjustment Measure during the Crisis (30 December 1997) including actions toadjust work processes, improve public personnel quality, reduce corruption, promote localdecentralization, define the mission of government agencies, among others.

* Measures on Personnel Expenditure Control (3 February 1998).

* Measures on Manpower Adjustment (28 April 1998).

* Measures on Manpower Adjustment of Permanent Employees (26 May 1998), to abolishvacant positions of permanent employees.

* Measures on Personnel Expenditure Control (30 June 1998) to decrease budgeted salaryincrease from 6 to 5 percent.

* Public Sector Mission Regrouping (28 July1998) to define missions that should be carried outby government agencies, state-owned enterprises, the private sector, public organizations,local bodies, and community organizations.

Thailand's public sector reform is already well underway. The efforts so far include (i)restructuring plans for the Ministry of Commerce; (ii) re-engineered processes in 5 pilot departmentsthat emphasize results-based management; (iii) implementation of the Master Plan for State-OwnedEnterprise Reforn; and (iv) passage of important legislation, including the Official Information Act.

Because the crisis presented an opportunity to accelerate the reforms underway, in May 1999,the Government issued a more proactive and comprehensive Public Sector Management Reform Plan.This Plan recognizes that fundamental public sector reform must address the public sector'sorganization, structure, processes, and management culture in order to:

* Provide high-quality services to citizens* Develop effective processes and personnel comparable to international standards* Use resources effectively* Create a public sector that is visionary, and responsive both to citizen needs and the changing

international and domestic environments* Build a public administration that is trusted by the people.

The ultimate goal of public sector reform is to enhance the quality of life of Thai people, topromote a stable and peaceful society, and to integrate the country into the global community.

VISION OF THE PUBLIC SECTOR

Our Government has responded to these pressures by launching an ambitious program toreform the public sector. Its main components include a more performance-oriented budget system, aflexible and effective civil service, and greater transparency. The reform efforts involve centralgovernment agencies and line ministries such as education and health which have embarked uponsubstantial reforms to deliver better services in their sectors.

The proposed loan builds on this work and provides a coherent, medium-term framework forreforming the public sector institutions around three objectives:

* Better management of financial and human resources. Truly reforming the effectiveness ofGovernment requires reorienting public management toward performance and outcomes. The keyis to restructure incentives and processes to improve resource management at the central-agencylevel. Enhancing effectiveness will require broad-based institutional changes to manageexpenditure priorities over the medium-term and within an outcome-oriented framework, and torefocus human resource management on performance rather than patronage. Enhanced revenueperformance is increasingly important as growing concerns over fiscal sustainability requireexpansions in the tax base and improved tax compliance through improvements in taxadministration.

- Improved service delivery. The Government must improve public services to contribute torestoring economic growth and establishing a more equitable distribution of services. Thisinvolves restructuring the way central government delivers services by being more responsive tocommunities and enhancing the access, timeliness and quality of services provided by lineministries. Improving public services will require developing strategic plans to focus ministerialresponsibilities, re-engineering institutions and processes to promote efficiency, devolvingresponsibility for service delivery closer to customers, outsourcing and decentralizingresponsibilities to local administrations.

- Greater accountability and transparency to help improve confidence in public administrationrequires institutional changes that enhance citizen participation and provide opportunities forvoice, improve information disclosure, establish accountability for authorities, reduce the scope ofdiscretionary bureaucratic authority, and improve the civil service.

PUBLIC SECTOR REFORM MEASURES

Based on Thailand's Public Sector Management Reform Plan of May 24, 1999, theConstitution of 1997 and our priorities for economic management, we are implementing acomprehensive program of institutional reforms. These include the areas of (i) expendituremanagement, (ii) human resource management, (iii) revenue management, (iv) decentralization, and(v) cross-government accountability. We believe that only by ensuring greater efficiency andprogram effectiveness can Thailand convert its recent recovery into the rapid and sustained growth ithas known in the past. Better public services, from education to infrastructure, are keys to medium-term competitiveness, sustained productivity, and increased income. Better management of financialand human resources is essential to raise the productivity of public investment and other expendituresand to improve medium-term planning and management. Improving transparency will help citizenshold their leaders and public servants more accountable for the quality of services their taxes arebuying.

The Public Sector Reform Committee (PSRC), supported by a secretariat has been givenresponsibility for managing the reform program and has established interagency subcommittees withrepresentatives from counterpart reform units in the key central agencies and participating lineministries. Internal working groups have been formed to prepare strategic plans for the Bureau of theBudget, the Ministry of Finance, the NESDB, and the Office of the Civil Service Commissionredefining their respective roles in a modernized public sector.

EXPENDITURE MANAGEMENT

The recent economic crisis has placed Thailand's budget system under stress and highlighted anumber of structural weaknesses in expenditure management. The Government will focus on budgetreform to create performnance incentives for prioritizing and targeting government expenditures.

Thai budget processes are strongly centralized by the standards of well performing countries.This centralization ensures effective achievement of overall fiscal targets. However, the achievementof aggregate fiscal control has been accompanied by inflexibilities and distortions which a highlycentralized approach to budget allocations imposes on sector ministries. We want to provide moreincentives for sector ministries to use the budget process as an essential management tool whereinpolicy solutions to increase the efficiency, effectiveness and equity of their programs are activelyconsidered.

The objective of expenditure management reforn for Thailand is to delegate the necessarybudgetary authority to sector ministries and to hold them accountable for performance. Theperformance of sector ministries will be measured by their ability to reflect Cabinet priorities in theirstrategic plans and to deliver promised results. The task of the central agencies -- particularly of theBureau of the Budget -- is to define a new framework of flexibility and accountability for sectorministries and then to enable sector ministries to implement the framework.

This framework provides the foundation for a new budget formulation process that focusesnot on inputs but on outcomes and outputs. The reforms will begin by identifying strategic prioritiesacross the Government; key ministries, departments and public organizations will be required toproduce strategic plans showing their objectives and desired outcomes, outputs, performancestandards, management plans and resource requirements. These plans will be published anddisseminated widely to the public. Central agencies will review these strategic plans as part of thebudget formulation process with an emphasis on whether they both reflect government-wide prioritiesand are well prepared. After this review, resource agreements will be formed between the centralagencies and line ministries where, for a given level of resource allocation and flexibility, theexpected performance of a line ministry will be clearly defined and agreed.

Poverty alleviation is one of Thailand's strategic goals that will be reflected in the strategicplans of line ministries. However, expenditures and subsidies to reduce poverty are often ineffectivedue to poor targeting and limited evaluation. As a cross-cutting policy objective, the central agencieswill improve their capabilities to monitor and review the distributional incidence of sector programsand of targeting subsides.

To meet the demands of a globalized economy, our expenditure management reforms aim toachieve the following objectives:

* Implementing performance budgeting by formulating strategic plans, forming resourceagreements with performance targets in sector ministries, and incorporating budget evaluation-feedback into the budget cycle.

* Improving the planning capability of sector ministries through functional reviews of programareas, corporate plans and performance-based budgeting.

* Enhancing line ministry performance through resource agreements and monitoring with increasedflexibility granted by the Bureau of the Budget.

* Routinely monitoring the distributional incidence of fiscal policy through multi-purposehousehold surveys, and surveys of unit costs, prices and subsidies.

* Improving the targeting of expenditures and progressivity of subsidies by routinely usingdistributional criteria in making ex ante expenditure decisions.

* Strengthening key government agencies in monitoring and evaluating the effectiveness of servicedelivery.

* Establishing a medium-term macro-fiscal plan that would influence annual budgets.

* Adopting international standards for fiscal transparency.

* Preparing complete government financial statements (including contingent liabilities).

Over the next three years, we expect to achieve:

* Greater performance focus in sector ministries accompanied by new flexibility andaccountabilities.

* A results-oriented management framework that produces more effective and efficient programs.

. Improved transparency of fiscal, financial and performance information at all levels ofgovernment.

To reach these objectives, Thailand has completed the first stage of reforms in this area,including: (i) signing Memoranda of Understanding (MoU) between BoB and selected pilotdepartments in the health and education sectors; (ii) completing the Government's review ofexpenditure effectiveness; and (iii) submitting the Organic Law on State Audit to Parliament.

HIUMAN RESOURCE MANAGEMENT

The performance of the public administration is a key ingredient of Thailand's economicdevelopment. The economic crisis has highlighted the need to strengthen civil service capacity toresume economic growth. To improve the implementation of government programs, we are strivingto create a service-oriented, cost-effective civil service driven by results rather than entitlements. Thiswill require greater cooperation among agencies and ministries and greater confidence in the qualityand probity of civil service management.

Delivering better services in a cost effective and equitable way is a key objective of ourreform program. This will require enhancing the access, timeliness and quality of public servicesthrough outsourcing, restructuring or decentralizing activities and being more responsive to clients.Administrative renewal involves modernizing the role, organization, and processes of key lineministries to enhance their performance in delivering services. More efficient use of public resourcesrequires streamlining procedures, eliminating duplicative structures, devolving to localadministrations or outsourcing activities inappropriate for government involvement to the privatesector.

Key areas for our human resource management reforms include:

* Guiding the process of functional reviews to identify opportunities for restructuring, re-engineering, outsourcing and decentralizing public-sector functions, processes and staff foreffective policy making and service delivery.

* Aligning organizational development and restructuring programs for government ministries anddepartments with their service objectives.

* Devolving non-core functions to local administrations, contracting to the private sector or toAutonomous Public Organizations.

* Improving efficiency of service delivery in core areas of ministry activity.

* Strengthening human resources and structure staffing levels to meet the ministry's objectives.

* "Rightsizing" the civil service by adjusting staffing levels to new public sector requirements,involving an expected reduction of 10 percent of the total number of government officials by2002.

* Introducing performance-based human resource management systems for the civil service (e.g.,individual job description and classification systems, greater flexibility in employment system,performance appraisal and remuneration, career development and advancement, and disciplinaryand complaint systems).

* Strengthening the caliber of cross-government senior government staff (through development of aSenior Executive Service cadre groomed for civil service leadership posts).

Over the next three years, we expect to achieve:

3 Completed functional reviews in the social and economic ministries.

• Restructured and reengineered (selected) ministries in light of the functional reviews.

* Devolution of identified services to local administrations or the private sector.

* Implementation of a framework for performance-based human resource management that ensureseffective linkages among planning, recruitment and selection, remuneration, performancemanagement and human resource development.

* Rightsized public administration through outsourcing, retrenchment, changing the skill mix, orcareer counseling and retraining.

* A strengthened position classification system.

* A functioning Senior Executive Service.

* An effective governance framework for Autonomous Public Organizations.

To reach these objectives, Thailand has completed the first stage of reforms in this area,including (i) completing the Functional Review of the Ministry of Commerce; and (ii) adopting theLaw on Autonomous Public Organizations.

REVENUE MANAGEMENT

Deficiencies in Thailand's tax administration that were little noticed during periods of rapideconomic growth are now obvious and of sufficient magnitude to challenge future fiscalsustainability. In 1997 and 1998, tax collections as a percentage of GDP declined beyond what couldbe explained by the recession (by 0.5 percent and 0.9 percent respectively), and tax arrears doubled(to Bt 79.1 billion, or more than 1.5 percent of GDP.) Thailand plans to recover these lost revenues,and mobilize additional revenues to compensate for lower trade tariffs as part of the Government'sprogram for trade liberalization, pay for losses in the financial system, and meet the budgetarydemands for increased expenditures for the poor.

The task of tax administration is complex, involving meeting difficult and diverse targets andobjectives, such as processing declarations and payments, collecting debts, combating tax evasion andproviding advice and assistance to taxpayers. The complexity of the work, and the size (about 18,000people) and geographical spread (roughly 1,000 offices) of the organization require clearorganizational objectives and strategies, defined in a multi-year strategic plan with clearly definedperformance indicators.

Improved tax collections require more modem approaches to tax administration. Auditperformance must be improved and the Revenue Department's computer system must support theoperational aspects of tax administration.

The objectives of our proposed tax administration reforms are to: (i) ensure adequate andsustainable revenue; (ii) improve revenue collection, widen the tax base, and achieve a more equitabledistribution of the tax burden; and, (iii) strengthen the managerial capacity of the RevenueDepartment to perform its functions efficiently and effectively on a sustainable and transparent basis..We are planning to undertake the following reforms to achieve these objectives:

* Strengthening tax collection enforcement to rein in the growth in tax arrears.

* Improving taxpayer compliance by coordinating audit with the collection of delinquent accountsand developing and implementing a comprehensive audit strategy.

- Improving overall revenue management by developing strategic plans, establishing informationtechnology priorities and developing new applications.

Over the next three years, the expected results of our reform efforts include:

* Improved revenue collections that achieve or surpass historical tax revenue to GDP ratios.

* Reduced collectible debt to a manageable level (i.e., about 5 percent of total annual taxcollections).

* Increased audit revenue to 2.5 percent of total tax collections.

* Establishing a new Large Business Tax Administration Office to manage at least 50 percent oftotal revenue collections.

* Developing and implementing a fully functional and integrated IT system, which is networked toRevenue Department offices.

To reach these objectives, Thailand has completed the first stage of reforms in this area,including establishing a Large Business Tax Administration Office expected to handle at least the 500largest taxpayers.

DECENTRALIZATION

Thailand is a highly centralized country with limited local autonomy in terms of functions,area, staffing, funding and decision making. The central government spends 93 percent of totalgeneral expenditures and collects 95 percent of general tax revenues; only 25 percent of municipalrevenues are locally collected and retained, and the central government appoints chief local officials,deternines local salaries and approves local budgets.

Reducing the role of the central government and moving toward a decentralized fiscal systemwill require significant changes in existing institutions, processes and culture. At the same time,decentralization reforms can provide synergies in overall public sector reform. Functional reviews ofline ministries will identify opportunities for privatization and decentralization of service delivery.

The Ministries of Public Health and Education are deconcentrating service delivery to localentitities (i.e., Local Education Authorities and Provincial Hospitals), that in the future may betransferred to local administrations. Changes in the intergovernmental transfer system that improvethe targeting of subsidies to the poor enhance the delivery of services. And effective decentralizationis impossible without broader reforms in financial and human resource management.

Thailand has identified decentralization as a policy priority in Thailand's 8th NationalEconomic and Social Development Plan. The Constitution features decentralization prominently,specifying principles of local autonomy and elected local representatives, among other aspects of localgovernance. Objectives envisioned in the Constitution include increasing the share of localadministrations expenditures, assigning more revenue sources to local administrations, revising thesystem of intergovernmental transfers to provide grants in a more transparent and predictable way,and promoting mechanisms for local accountability.

Our fiscal decentralization reforms will focus on the following priorities:

* Establishing an independent authority (the Nati6nal Decentralization Committee) to monitor thestatus of decentralization reforms and promote cooperation among various ministries andagencies.

* Clearly assigning expenditure functions among levels of government and devolving functions tolocal administrations.

* Allocating adequate local revenues (which includes increasing revenue from property tax in aphased manner and strengthening the Central Valuation Authority) and enhancing local taxcollections.

* Improving the equalization impact of intergovernmental grants by achieving a better balancebetween specific grants and general-purpose grants and improving the targeting and equalization.

* Developing mechanisms for local accountability.

* Monitoring the status of decentralization and local public finances by developing local financebenchmarks and publishing regular reports on local finance.

Over the next three years, we expect to promote self reliant local administrations by:

* Establishing the legislative framework in support of decentralization.

* Clarifying the assignment of expenditure functions among levels of government and successfullydevolving responsibility for the three pilot ministries.

* Assigning more revenue sources (e.g., local property taxes) to local administrations.

* Revising the system of intergovernmental transfers to provide grants in a more transparent andpredictable way.

* Promoting local accountability.

* Publishing regular reports on local public finances.

To reach these objectives, we have completed the first stage of reforms in this area, includingsubmitting legislation to Parliament to establish the National Decentralization Committee (NDC) asan independent entity to support and monitor decentralization.

STRENGTHENING CROSS-GOVERNMENT ACCOUNTABILITY AND TRANSPARENCY

Public accountability and transparency are key elements of our reform strategy to ensure thatgovernment institutions, and the civil servants within them, are responsive to public needs, efficient inthe use of public funds, and accountable to the public for their actions. Greater transparency andaccountability in managing the affairs of government and public resources are crucial to strengthencitizens' trust in public administration. Supported by the Constitution, our public sector reform willcreate the institutions responsible for ensuring public accountability and demonstrate theGovernment's commitment to fighting corruption.

To increase accountability and transparency across government, key objectives include:

* Increasing institutional accountability by strengthening formal institutional structures.

* Improving access to, and use of, public informnation by individual citizens and by civil society,including improved responsiveness by the Government in providing this access.

* Increasing probity among civil servants.

* Involving civil society in improving transparency.

Over the next three years, key results that we expect to achieve include:

* Establishing a National Counter Corruption Commission to create and enforce standards forintegrity and transparency in Government, investigate allegations of corruption, and reportannually to the public.

* Establishing an Ombudsman to address citizens' grievances and other issues of public concern.

* Creating Administrative Courts that will provide citizens a judicial forum to enforce their rightsvis-a-vis the state.

* Strengthening the Official Infornation Commission to facilitate public access to informationunder the Official Information Act.

* Adopting measures to protect civil servants who provide evidence and creating an ethicspromotion center.

* Developing a better enabling environment for civil society to monitor public performance andparticipate in policy-making.

To reach these objectives, Thailand has completed the first stage of refonns in this area,including enactment of the Organic Law on Ombudsmen and the Law on Administrative Courts,appointing members of the National Counter Corruption Commission and submission of the draftorganic Law on Counter Corruption to Parliament.

[Signed]Minister of Finance

- 34 -

SCHEDULE 2

SCHEDULE 2: GOVERNMENT'S POLICY OBJECTIVES AND IMPLEMENTATION BENCHMARKS'

:: BFlVEli' SU '}bS¢tFhentbe -> : : F_r^ I : OUT<COM

Objective: Develop and Cabinet has approved and Effective implementation ofimplement comprehensive publicly announced a 3-year Public Sector Reformpublic sector reform Public Sector Management Program.program. Reform Program.

Issue: Thailand's public Public Sector Reform Public Sector Reform Public Sector Reform Establish and monitorsector reform agenda must be Committee (PSRC) has Secretariat reports regularly Secretariat reports regularly implementation benchmarks,well coordinated at the been given responsibility for on reform progress against on reform progress against with regular reports tohighest level and integrated managing the reform benchmarks. benchmarks. Cabinet.with line ministries. program, supported by a

Secretariat, and hasestablished five interagencysubcommittees with Carry out public relationsrepresentatives from plan to engage civil society incounterpart reform units in reform process.BoB, OCSC, MOF, Councilof State, MOPH, MOE,MOC, NESDB and other Under PSRC guidance,relevant agencies. complete and coordinate

central agency strategic plans.

Internal working groups havebeen formed to preparestrategic plans for BoB,MOF, NESDB and OCSC,redefining their respectiveroles in a modernized publicsector.

Benchmarks in bold are benchmarks that have been achieved prior to presentation of the PSRL to the Board by September 1999; benchmarks for September 2000 andSeptember 2001 are indicative.

-35 -SCHEDULE 2

PE ° 'Objective: Implement Pilot departments have been Benchmark pilot entity Pilot departments and Improved performance,performance-based identified in the areas of performance against local ministries review their accountability andbudgeting for line education (MOE, MOUA), best practice and set annual achievements relative to transparency in keyministries. health (MOPH), commerce quantitative performance benchmarks and set improved ministries.

(MOC), civil service (OCSC) targets (e.g., re-infection targets.and foreign affairs (MOFA) rates, drop-out rates, etc.).and have begun developing Pilot departments publishperformance indicators. Pilot departments improve annual reports including Policy objectives are linked

Issue: Increased flexibility of their financial management corporate plans, performance with organizational objectivesresource use at the service BoB has signed at least two systems following guidelines statements and financial at the ministry and agencylevel combined with Memoranda of developed by BoB and CGD. statements. level.improved financial and Understanding (MoU) withperformance management at pilot departments in the BoB concludes first Resource BoB concludes Resourceservice delivery. education and health Agreements with pilot Agreements with additional Budget formulation process is

sectors that identify steps departments granting pilot ministries. directed towards achievingfor increasing resource resource flexibility for the results.flexibility in exchange for 2001 budget.improved financial controland performance reporting BoB drafts at least four BoB establishes a program toin pilot departments. additional MoUs for scale up performance Public resources are allocated

economic and social management reforms to to strategic priorities ofBoB and CGD are developing ministries. remaining ministries. ministries.a financial managementframework for autonomous Pilot departments undertakepublic organizations (APOs); customer satisfaction surveysBoB is developing APO to evaluate service delivery Managers have more

performance reporting and publish service charters. flexibility in using resourcesframework in consultation and BoB holds themwith CGD and interagency accountable for performance.working group on APOgovernance.

BoB and CGD have begun BoB and CGD jointly CGD, BoB and pilotpreparing principles, announce reporting standards departments implementstandards and guidelines for for ministries and agencies integrated financialimplementing sound financial and set principles, standards management system.management systems. and guidelines for sound

financial managementI systems. I

-36 -

SCHEDULE 2

OBJECTiVESSUE By SI;;=;ber 1999 y September By Stemlber OUTCOME

Objective: Strengthen the BoB has completed BoB publishes the edited and BoB publishes a Public Greater transparency of

capability of central Government's first Public refined version of the Public Expenditure Assessment with effectiveness of governmentagencies to review and Expenditure Assessment of Expenditure Assessment of enhanced scope and content, programs in key sectors.

evaluate sector policies and major expenditure major expenditure programs including poverty alleviationperformance. programs (including health (including health and programs. Improved policy analysis and

and education). education). Prioritization.

NSO carries out a NESDB and BoB developIssue: Result oriented public BoB initiates the multipurpose household recommendations for better Improved poverty alleviation

management requires central development of key survey on utilization of public targeting of services and focus to resource allocationagencies to review and objectives, success factors services in health and subsidies in health and process.evaluate results. and performance indicators education. education sectors.

for inter-ministerial programsin poverty alleviation. NESDB utilizes multipurpose NESDB and BoB review

household survey data to results of poverty alleviationanalyze the impact/ programs.effectiveness of publicservices in health andeducation on the poor anddisadvantaged groups.

BoB, along with MoPH andMoE, implement a samplesurvey of unit costs, pricesand subsidies of publicservices in pilot departments.

OAG and BoB have NESDB and BoB develop a BoB includes evaluation plan Effective evaluation thatcoordinated evaluation joint evaluation work in resource agreements. provides feedback to

processes across sector program with MoE and decision-making.ministries and central MoPH.agencies.

-37 -

SCHEDULE 2

Objective: Improve fiscal OAG has conducted a Improved fiscal transparencytransparency. diagnostic review of fiscal through better financial

transparency based on reporting.international experience.

Issue: Low levels of fiscaltransparency distortprioritization and allocation CGD has begun reviewing CGD identifies government CGD publishes new Enhanced credibility andof public resources, diminish IFAC guidelines on financial reporting standards Government-wide reporting integrity of publishedpublic accountability, lessen government financial at the whole of government, and accounting standards. financial figures.investors' confidence and reporting requirements. ministry and departmentdiminish public trust in level.government.

CGD, BoB and FPO have CGD and BoB identify CGD and BoB include off- Extended coverage of budgetbegun compiling information standards for reporting off- budget fiscal operations in and public accounts.on off-budget fiscal budget fiscal operations in budget and financialoperations (i.e., foreign budget and financial statements.financed activities, contingent statements.liabilities, quasi-fiscaloperations, extra-budgetaryfunds, revolving funds andgovernment guarantees).

BoB, FPO and NESDB have BoB, FPO and NESDB Cabinet issues a Medium Fiscal Strategy has abegun reviewing international develop the form and content Term Fiscal Strategy. medium-term outlook and isgood practices for reporting for government's reports based on comprehensivegovernment's fiscal plans and fiscal plans and strategies. government financialstrategies. position.

Organic Law on State Audit Independent Supreme Audithas been submitted to Institution is established.Parliament.

-38 -

SCHEDULE 2

'' ' 'Sw ,j, , ',-,''', ' ' '.g""' .......I . .MMG : i ... .... .......................

QTWEI~S~JZ Wy Septeber ~ Wy cmb4~ Z001OUTCOMEObjective: Develop detailed Through process of Economic and social Complete restructuring in Rationalized and re-

programs to align Functional Review and other ministries (MOInd, MOF and economic and social engineered functions and

organizational structures of policy initiatives (e.g., review MoPH) complete Functional ministries, based on processes to improve

line ministries with their of outsourcing), OCSC and Review and initiate Functional Review. efficiency of service delivery

new functional objectives. pilot ministries have restructuring. in major ministries.identified areas where

Issue: Line ministries need to functions can be devolved to Prepare and submit More competitive economic

be restructured to provide local administrations, contracting out, devolution, sector.

better services. contracted to private sector, rightsizing and otherabolished or transferred to reorganization plans toAPOs. Cabinet based on Functional

Reviews (MOPH, MOC,Functional Review of MOC MOF and MOInd).has been completed; RoyalDecrees on restructuringtake effect andrestructuring has beeninitiated.

Objective: Match staffing Cabinet has approved Establish Transition Center Continue rightsizing, Smaller, affordable and better

profiles and numbers to Government-wide guidelines and Outplacement Center to including through transfers of organized public service.

new functional for rightsizing program support manpower transition. staff from central to localrequirements of civil service (including approved early administration.and contain cost of retirement scheme for civil Commence rightsizing; Total number of government

government. service, identification and 30,000 government officials officials reduced by 10

payment of departing civil elect early retirement. percent by 2002 throughservants, and retraining and rightsizing schemes.outplacement rules). Cabinet approves policy and

mechanisms for transferringstaff from central to localadministration.

Issue: Skills and staffinglevels must be adjusted tofuture demands.

- 39 -

SCHEDULE 2

AK m

Objective: Develop modern Conceptual framework and Approve necessary regulatory Introduce new human New performance-basedperformance-based human action blueprints for revisions and draft laws to resource management human resource managementresource management performance-based human support performance-based systems in economic and systems are in place.systems for civil service. resource management management system social ministries.

systems have been drafted, implementation.Issue: Current organizational (i.e., individual job Introduce broad banding ofculture deters professional description and classification OCSC devolves HR salary and widen differentialperformance. systems, greater flexibility in responsibility to pilot agencies among public sector pay

employment system, to complement performance- grades.performance appraisal and based budgeting.remuneration, career Implement performance-development and based pay and promotion.advancement, and Deliver training in newdisciplinary and complaint systems to ministry personnel.systems).

Objective: Develop well- Senior Executive Service Create database of SES Implement SES SES system functioning.motivated, politically (SES) system has been candidates. compensation system.neutral, cross-governmental designed.senior cadre to lead civil Cabinet has approved the Implement first selections (orservice renewal program. creation of a merit-based SES merit-based recruitment

cadre. mechanisms) for SES cadre.Issue: Inter-agencycoordination across Induct and assign first seniorgovernment is weak. executive group.

Objective: Develop Law on Autonomous Public Identify performance With the assistance of central Effective governanceregulatory framework for Organizations has been measures and targets, agencies, operationalize framework for APOsautonomous public promulgated. reporting requirements, best selected APOs based on a established.organizations (APOs). practice financial and human detailed APO work-plan that

Under PSRC, a technical resource management is consistent with theIssue: The Law on working group consisting of standards, salary and established APO governance Quantified improvements inAutonomous Public representatives from BoB, incentive structure for APOs. framework. efficiency and service quality.Organizations must be OCSC, CGD, OAG andcomplemented by governance parent ministries of APOs has Assess financial andarrangements for APOs. been formed to develop performance management

governance framework. capability as precondition toestablish initial APOs.

-40 -

SCHEDULE 2

:::_________._ RE~ENUE E MA_A_

OBClvivlssUE Sy So r" 2 ( B tember Ml'.

Objective: Improve taxpayer A new Large Business Tax Increase the VAT Increase the VAT registrations VAT registrations (at the end

compliance. Administration Office has registrations (at the end of (at the end of 1998) by 6% of 1998) are increased by

been established to manage at 1998) by 3% 10%.

Issue: Low taxpayer least 500 of the largestcompliance decreases taxpayers.government revenues and Increase audit revenue Audit revenue collected willincreases tax collection costs. A 3-year strategic plan for audit Increase audit revenue collected to 1.8% of total be 2.5% of total collections in

activities has been prepared. collected to 1.5% of total collections in the previous the previous year.collections in the previous year.

A working group to prepare year (1998: 0.7%).proposals to reduce taxpayers' Design an automated audit Large Business Taxcompliance costs has been set Conduct feasibility study to case selection system. Administration Officeup. develop an automated audit manages 50% of total tax

case selection system. collections.Implement procedures to

Design new procedures to collect tax payments through Automated audit casecollect tax payments through the banking system selection system is developed.the banking system.

Objective: Strengthen A 3-year strategic plan to reduce Reduce the percentage of Reduce the percentage of Percentage of collectible debt

collection enforcement. the level of tax arrears has been collectible debt to 8% of total collectible debt to 7% of total does not exceed 5% of total

prepared. tax collections for the same tax collections for the same tax collections for the sameIssue: Fiscal policies and year (1998: 9%). year yearrevenue collection areweakened by ineffectiveenforcement.

Objective: Balance business A new 3-year IT Strategic Plan Develop data entry, Develop audit case selection A functional integrated IT

and Information Technology for the RD has been coordinated processing and reporting modules, system is developed and(IT) priorities. with the 3-year Strategic Plan modules for Corporate operational.

for audit activities. Income Tax. Debt management modulesIssue: Existing IT system A new IT Masterplan has been Transfer VAT and Specific are developed.does not support the business Business Tax data to newprocesses. p dsystem.

Taxpayer registration data havebeen transferred to new system. Develop data entry and reports

Procedures for testing the modules for personal incomeexisting IT system for Year 2000 tax.problems have been prepared.

-41 -

SCHEDULE 2

M a ink"C'M ffi'M~~~~gs " a'<a '~' t~

Objective: Establish Draft Legislation has been NDC is fully staffed, with Develop benchmarks of local Stronger institutional capacitycapability to support and submitted to Parliament to adequate resources. finance. to support and monitormonitor decentralization. establish National decentralization regularly.

Decentralization Committee Promulgate administrative Establish standards for local(NDC) as an independent regulations for local financial reporting.

Issue: It is difficult to entity to support and administrative organizations.monitor status of monitor decentralization. Analyze structure of localdecentralization reforms Strengthen analytical capacity administrations in Thailandbecause responsibilities are of NDC. and recommend options forshared among numerous reducing fragmentation.ministries and agencies.

Develop and implement localfiscal performance measures;disseminate results.

Objective: Devolve Determine processes for "Reengineer" central role to Clearly defined localappropriate expenditure devolving selected functions policy and regulation. responsibility for "civil"functions. (e.g., transferring central functions: small scale water

government personnel) in a Devolve civil functions management, roads, bridges,mandatory manner. nationwide. etc.

Issue: Clarity in expenditureassignment and roles is Estimate costs of devolution Pilot experiments in inter-required to eliminate of functions. local cooperation. Local share of totalduplication and enhance government expenditureseffectiveness. Four functions jointly Develop and implement local increases from 6% to 15%.

identified by the NDC and performance indicators forselected local administration devolved functions.councils, are devolved on anexperimental basis.

Provide training in localbudgeting.

-42 -

SCHEDULE 2

L~IWtk4L1Z0N _______

BRNC ff l, tE . _ _ _ _ _ _ _ _ _ _ _ _ _ _:

Objective: Enhance local Strengthen Central Valuation Grant more local discretion in Substantially increase local

revenues/resources. Agency (CVA). setting rates for locally revenue collections.collected and retained

Issue: Local revenue Expand locally administered revenues.mobilization must be tax bases in phased manner.enhanced to fund new Establish regulations for local

responsibilities and assure Pilot revenue collection borrowing, debt management,accountability. improvements in selected and municipal bankruptcy.

local administrations.

Provide training in localfinancial management.

Objective: Revise Revise grant formulae toward Develop local revenue effort Better balance betweenintergovernmental grant more general purpose grants. measures and incorporate in specific grants and general-

(subsidy) system. grant formulae, purpose grants; improveDevelop local income targeting and equalization.measures. Publish annual reports on the

Issue: Current system distributional impact ofallocates subsidies in ad hoc Improve targeting central subsidies to localand politicized manner. /equalization of grants. administrations.

Objective: Enhance local Distribute copies of local Local administrators are Provide information andaccountability. administrative organization elected. voice to local citizens.

acts (outlining localIssue: Local accountability is responsibilities) to all localnecessary for high-quality administration officials. Publish reports on local fiscallocal decisions and successful condition.decentralization. Enhance local accounting and

financial reporting.

Promote civic fora as a meansto provide community inputinto budget and investmentdecisions.

-43 -

SCHEDULE 2

Objective: Increase Members of the National Government provides support Government provides support Reduce public sector fraudinstitutional accountability. Counter Corruption for NCCC to train at least 450 for NCCC to complete and corruption and establish

Commission (NCCC) have staff to carry out its investigation and submits adequate disincentives.Issue: Formal mechanisms been appointed and a draft examination and investigative reports on 80% of casesmust be created to allow organic law on counter- functions. referred to it by the Senatecitizens to voice grievances corruption has been and petitions received.and hold public sector submitted to Parliament. Public officials become moreofficials accountable. Government provides support accountable to the public.

for NCCC to carry out aprogram of anti-corruptioneducation for localadministrations, reaching tothe tambon level.

Government provides support Government provides supportfor NCCC to carry out a for NCCC to carry out areview of all declarations of review of all declarations ofassets and liabilities which assets and liabilities whichare required to be submitted are required to be submittedin accordance with the law. in accordance with the law.

Parliament has approved Ombudsman is appointed. Office of Ombudsman isthe laws on Ombudsman established inand on Administrative Office of Ombudsman in 4 regional centers.Courts. Bangkok is established with

adequate budget and well- Office of Ombudsmantrained staff. recommends administrative

improvements.

Supreme Administrative Establish at least 16 regionalCourt and the central Administrative Courts.Administrative Court areestablished in Bangkok.

Judicial Commission ofAdministrative Court isestablished.

-44 -

SCHEDULE 2

_____________ ROSS6~OERNMKT4W)VT4RBLITYAND TRNSPA)EWNY________________ 8~~E LCHMARt~ _ _ __ _ _ _ _

OERflYE/ISM tY BytSeptember~ 1~9 By Septen%ttr 200 By Septemb O , , , Ay

Objective: Enhance public Responsible government Government agencies and theaccess to information. Office of the Official agencies have issued or OOIC are effective in

Information Commission revised rules, regulations and responding to demand for

Issue: Transparency requires (OOIC) has carried out an procedures relevant to the access to public informationfree and public access to education campaign for the OIA and OIC's guideline at both local and nationalinformation. public and government levels.

agencies regarding Official Government agencies haveInformation Act (OIA). trained their staff on the

Official Information Act.

Objective: Promote probity Cabinet has adopted measures OCSC has established an Ethics Code respected byamong civil servants. to protect civil servants who ethics promotion center. Civil Service.

provide evidenceIssue: Civil servants are not ("whistleblowers"). Encourage cooperation ofheld accountable for ethical civil servants in investigating

behavior nor are they corruption.

protected from politicalpressures and corruptinginfluences.

Objective: Enhance Civil A task force has been The Task force completes a Better enabling environmentSociety Participation. established within the comprehensive review of the for civil society to monitor

National Social Policy enabling environment for public performance andIssue: Institutionalized Committee attached to the civil society participation. participate in policy making

mechanisms must be created Office of the Prime Minister process.

to support public participation (NSPC) to develop ain policy formulation and comprehensive plan for themonitoring of public sector strengthening of civil society.performance.

- 45 -

ANNEX 1

ANNEX 1: PUBLIC SECTOR REFORM PROGRAM AREAS

I. EXPENDITURE MANAGEMENT

Institutional Arrangements for Expenditure Management

The performance of a country's institutions for formulating and executing fiscal policy criticallydepend on the incentives governing the size, allocation and use of budgetary resources. Institutionalarrangements shape the quality of outcomes on four levels: (i) aggregate fiscal discipline, (ii) resourceallocation and use based on strategic priorities (allocative efficiency); (iii) efficiency and effectiveness ofprograms and service delivery (technical or operational efficiency), and (iv) transparency of the system.What are the strengths and weaknesses of Thailand's budgetary institutional arrangements and whatreform strategies can be suggested to improve budgetary outcomes at all four levels?

Thai budget processes are strongly centralized by the standards of well-performing countries.This ensures effective achievement of overall fiscal targets. However, aggregate fiscal control is achievedat a price in terms of allocative and operational efficiency. This is due to the inflexibilities and distortionswhich a highly centralized approach to budget allocations imposes on public organizations. Publicorganizations face no incentives to use the budget process as an essential management tool wherein policysolutions to increase the efficiency, effectiveness and equity of their programs are discussed. Thai publicorganizations perceive the budgetary process as a procedural requirement imposed on them by centralagencies to which they must adhere. Such an environment precludes using the power of the public purseto demand performance from line ministries.

Expenditure management in Thailand is poorly prioritized, pays minimal attention to the resultsof spending, and lacks accountability for the quality of services provided. Linkages among planning,budgeting and sectoral policy are weak. The fiscal planning process has an annual focus and lacks amedium-term approach. It is based on cash flows of central government and does not cover non-budgetary fiscal operations like contingent liabilities and quasi-fiscal operations. Fiscal accounts are notfully transparent and do not meet the minimum standards of generally accepted international practices.Expenditures and subsidies to reduce poverty are often ineffective due to poor targeting and limitedevaluation.

Moreover, the lack of transparency in using revolving funds, extra-budgetary funds, quasi-fiscaloperations and foreign financing dilute the financial accountability of ministries and public organizationsto the central agencies. These non-transparent, off-budget accounts are accompanied by centralguarantees. These accounts grant discretionary use over substantial public resources to the Governmentwithout Parliamentary scrutiny and authority. This situation distorts the prioritization and allocation ofpublic resources, and diminishes public accountability and public trust in the Government.

Strategies for Reforming Expenditure Management

As described above, Thai public organizations exhibit very low levels of financial andperformance accountability. Budget formulation processes must be reformed to provide performanceincentives by granting greater budgetary flexibility to public organizations in return for improving theirperformance and financial management systems. Public reporting frameworks must be reformed toimprove the fiscal and financial transparency at all levels of govemment. To meet the demands of aglobalized economy, expenditure management must achieve the key objectives outlined in theGovernment's Cabinet resolution on Public Sector Reform over the next few years: (i) introducing

- 46 -

ANNEX 1

performance-based budgeting for line ministries, (ii) strengthening the capability of central agencies toreview and evaluate sector policies and performance, (iii) improving fiscal transparency. Provided thereis sufficient political will, several critical reforms can be realistically implemented to achieve theseobjectives. The following sections describe the rationale and the reform actions which are underway ineach of the three reform areas. The matrix links these reform areas and actions with the Public SectorReform Loan.

Implement Performance-Based Budgeting for Line Ministries

While the concept of performance measurement is not unfamiliar in Thailand and the budgetcoding structure would support program budgeting, program and performance budgeting has not beenimplemented extensively. In each step in the budget cycle -- planning, preparation, execution, monitoringand evaluation, and audit -- it is possible to identify weaknesses, and some fundamental deficiencies, that'inhibit the operation of a system designed to deliver outputs, with agencies accountable for the quality ofdelivery. The core objective of expenditure management reforms in Thailand is to delegate the necessaryflexibilities in resource use to managers at the service delivery level combined with improvements in theirfinancial and performance management. Sector ministry performnance can be measured across twodimensions: (i) their ability to reflect Cabinet priorities in their strategic plans and (ii) their ability todeliver promised results.

The reforms begin by identifying strategic priorities across the Government: key ministries,departments and public organizations will be required to produce strategic plans showing their objectivesand desired outcomes, outputs, performance standards, management plans and resource requirements.These plans will be published and disseminated widely. Central agencies will review these strategic plansas part of the budget formulation process with an emphasis on whether they reflect the govemment-widepriorities and whether they are well prepared. After this review, resource agreements will be formedbetween the central agencies and line ministries where, for a given level of resource allocation andflexibility, the expected performance of a line ministry will be clearly defined and agreed. This providesthe foundation for a new budget formulation process that focuses not on inputs but on outcomes andoutputs. Central agencies would gradually devolve detailed line item controls to line ministries,monitortheir performance and hold them accountable for results. Management reforms within the line ministrieswould shift the management culture from "compliance" to "managing for results."

Improving the management of outputs and outcomes rather than input controls relies primarily on ashift toward performance. The task of the central agencies -- particularly the Bureau of the Budget -- is todefine the new "flexibility and accountability" framework for sector ministries and then to enable thesector ministries to implement the framework.. The Bureau of the Budget has been developing theframework for this delegation in the context of perfornance-based budgeting. This involves threechanges to current budgeting arrangements:

* The Bureau of the Budget (BoB) will 'broad band' existing, highly detailed line items in the budget(workplans and objects of expenditure) to grant line ministries greater freedom in spending the fundsthey are allocated.

* In this more devolved environment, line ministries will develop greater responsibility for pro-activelyimproving their program outcomes. This responsibility will stem from developing their capability forreview and re-prioritization rather than simply perpetuating past spending patterns. However, broad-banding line items in the budget does not itself ensure that line ministries will actually re-prioritizetheir actions. To the contrary, it is likely that a performance focus within line ministries will develop

- 47 -

ANNEX 1

only slowly after financial decontrol, increasing rather than reducing the possibility of waste andmisuse of budget funds in the de-controlled environment.

* Financial decontrol for individual spending agencies will therefore take place only when 'threshold'financial control and performance reporting systems are in place in the agency (i.e. a 'hurdle'approach to financial decontrol). The hurdle approach provides both an incentive to line agencies toimprove their management (in order to win the benefits of financial decontrol by BoB) and asafeguard against misuse of the new freedoms.

The performance-based budgeting framework includes:

* clear rules for sector ministries to allocate resources to service delivery organizations* principles, standards and guidelines issued by central agencies to implement sound financial

management systems at the service delivery level* performance reporting requirements for service delivery units covering objectives, success factors,

performance indicators and service standards* capacity building activities in BoB to improve its capability to monitor, review and evaluate

performance and analyze policy.

The BoB has already identified pilot departments in the Ministries of Public Health, Education,University Affairs, Commerce and Foreign Affairs where this framework will be implemented. Withinthis framework, the BoB will sign a Memorandum of Understanding (MoU) with the responsible Ministryindicating the steps for increasing flexibility by broad-banding budget line items in pilot departments.These MoUs specify what the future requirements will be and identify the terms of reference for gapanalysis and gap filling in the following core areas:

* Budget planning and forward estimates* Activity costing* Procurement management* Budget/funds control* Asset management* Financial reporting and enquiry* Internal audit* Performance measurement

MOUs also specify the dates and actions for reaching a "Resource Agreement" (RA) between theBoB and Ministry. During the formulation of the year 2001 budget, these ministries and service deliveryunits will set performance targets and a block grant will be agreed to that allows flexibility among lineitems. The RA will a!so include forward estimates that will provide the basis for medium-termpredictability of budgetary resources. The RA will also require the ministries to benchmark theperformance of their service delivery units against best practices, to set annual quantitative performancetargets, to undertake customer satisfaction surveys and to publish clear service charters and standards.

At the same time, the Comptroller General's Department (CGD) is identifying the financialreporting requirements for ministries and departments, improving the Government's accounting policies,and developing an integrated financial management system that will define government-wide standardsfor the "financial management" issues listed above. Ministries and departments will also be required toreport their off-budget fiscal operations (e.g., revolving funds, extra-budgetary funds, foreign financeprojects and quasi-fiscal operations) as part of their financial statements.

-48 -

ANNEX 1

With continuous review and refinement by the BoB and CGD, this performance-based budgetingframework will be extended progressively to other ministries and departments during the next three years.At the end of the PSRL program, the framework will be extended to all budget-funded entities. Theexpected outcomes of these reforms are:

* improved performance accountability and transparency in key ministries* policy objectives are linked with organizational objectives at the ministry and agency level* budget formulation process is directed towards achieving results* public resources are allocated to strategic priorities of ministries* managers have more flexible resource use and BoB holds them accountable for probity and

performance.

Strengthen the Capability of CentralAgencies to Review and Evaluate Sector Policiesand Performance

In the new performance frarnework, as central agencies relinquish line-item control they focusmore on reviewing and evaluating the performance of ministries and departments and on analyzingwhether their polices are consistent with the Government's strategic priorities. Hence, another element ofthe "performance based budgeting framework" is improving the capability of the BoB and NESDB toreview and evaluate performance and policy.

The BoB's assessment of the geographical distribution of major government programs in thehealth and education sectors documented that the current distribution does not reflect the Government's"equity" and "poverty alleviation" policies. The BoB will publish this expenditure assessment reportwithin the next months. Given Thailand's extreme regional disparities, the Government can play animportant role in reducing regional inequalities by geographically targeting its spending progressivelytowards poorer regions, since overall public spending is not pro-poor.

A general symptom is the pro-rich geographic targeting of public expenditures at the sectorallevel. Incomplete estimates based on outlays incurred at the regional government level indicate that theNortheastern region receives the lowest per capita outlays in agriculture, education, health and socialservices. Overall, the regional expenditure elasticity with respect to provincial GDP increased to + 0.45in 1997. In other words, a 10 percent higher income level is associated with 4.5 percent higher publicspending. Thus the pattern of regional government expenditures is not pro-poor but instead reinforces theunderlying income disparities. These distributional patterns must be transparently accounted forincluding the spatial allocation of outlays by central ministries -- and the trends monitored over time.

The Development Evaluation Division of NESDB is financing a project on Establishment of KeyIndicators System for the 8th Plan Monitoring and Evaluation, financed by the ADB' The project isapplying new methods of poverty measurement that incorporate detailed data on spatial price differencesamong provinces -- a major improvement over the aggregated poverty lines originally introduced by theWorld Bank. It is also developing a comprehensive monitoring system for evaluating changes in welfareat the provincial level, including selected data on public expenditures. The results of this work werepresented to the Cabinet, which adopted a resolution that the new poverty estimates should be used toguide the distribution of public expenditure programs by sectoral agencies. Thailand's Public SectorReform Program (PSRP) will aim to support practical implementation of this important resolution.

See Nanak Kakwani and Medhi Krongkaew Final Report: Establishment of Key Indicators System for the 8thPlan Monitoring and Evaluation, Development Evaluation Division, National Economic and SocialDevelopment Board.

- 49 -

ANNEX 1

The two main objectives for change are to strengthen the information base for regular monitoringof distributional incidence of government expenditures, and to institutionalize the routine use ofdistributional criteria in making ex ante expenditure decisions for improving progressivity of subsidies.Key policy actions to implement these objectives focus on monitoring distributional incidence. The BoBand NESDB will undertake the following activities to develop recommendations for better targeting ofpublic services and subsidies to low-income groups in the health and education sectors:

* NESDB will undertake a multipurpose household survey on the utilization of public services in healthand education.

* BoB will undertake a sample survey of unit costs, prices and subsidies of pilot public services inhealth and education NESDB and BoB will develop key objectives, success factors and performanceindicators for inter-ministerial programs in poverty alleviation.

* BoB prepares resource agreements with program managers based on outputs they produce for povertyalleviation programs.

* NESDB and BoB review the results of poverty alleviation programs.

Coordinated evaluation and policy analysis between BoB and NESDB is uncommon in Thailand.Their combined effort will have greater synergy and policy impact. The BoB and NESDB have agreed toprepare a joint evaluation work-program with the Ministries of Health and Education and to submit themto the Cabinet. This work program will serve as a vehicle to coordinate their actions with the sectorministries at the Cabinet level. At the end of the PSRL program, coordinated efforts between NESDBand BoB in reviewing and evaluating performance and analyze policy will result in:

* transparent and effective government programs in key sectors such as health and education* improved policy analysis and prioritization in these key sectors* improved poverty alleviation focus to resource allocation process* effective evaluation that provides feedback to decision-making

Improve Fiscal Transparency

Another component of expenditure management reforms in Thailand relate to the need to enhance"fiscal transparency". The Office of the Auditor General (OAG) reviewed the international goodpractices in fiscal transparency, which, unfortunately do not apply in Thailand at present. TheGovernment does not have a clear medium-term fiscal strategy, fiscal planning is based on cash flows of anarrowly defined central government, the existence of off-budget operations dilutes fiscal responsibilityand accountability, fiscal risks arising from government's contingent liabilities are not consideredproperly, lack of ministry and department level financial reporting hides the true cost of their policies andservices.

Improve fiscal transparency. While there is no single government policy to improve fiscaltransparency, the BoB and CGD are working to develop a policy to improve "financial transparency."The CGD has begun reviewing the guidelines published by the International Federation of Accountants(IFAC) and the International Organization of Supreme Audit Institutions (INTOSAI) on governmentfinancial reporting requirements in order to improve government financial reporting, accounting, policiesand standards along these guidelines. IFAC guidelines show the desirable form and contents of financialstatements at the "whole of government" and "department" level and address accounting policies toproduce these statements. INTOSAI provides implementation guidelines. The new GovernmentFinancial Statistics (GFS) framework developed by the IMF shows how to link these financial statements

- 50-

ANNEX 1

with government's fiscal statements. The CGD has hired consultants to develop the "system architectureand functional requirements" for the new "financial reporting" framework.

The BoB and CGD have also agreed to develop standards for reporting off-budget fiscaloperations at the department, ministry and whole of government level as part of budget documents andfinancial statements. BoB has begun compiling information on off-budget fiscal operations like revolvingfunds, extra-budgetary funds, foreign financed activities, quasi-fiscal operations and contingent liabilities.As a very credible step in this direction, the BoB required the pilot departments in performance basedbudgeting initiative to produce financial statements which include all off-budget operations.

During the PSRL program, the following actions will be taken to develop a government wide"fiscal transparency" policy:

* CGD and BoB identify standards for reporting foreign-financed activities, contingent liabilities,quasi-fiscal operations, extra-budgetary funds and government guarantees at the whole ofgovernment, ministry and agency level as part of budget documents and financial statements.

* CGD identifies government financial reporting standards at the whole of government, ministry andagency level.

* BoB develops the form and content of Government statements of fiscal plans and strategies

Another key issue in fiscal transparency is that Thailand does not yet have an independentSupreme Audit Institution (SAI) that audits the executive branch and reports to the Parliament. TheAuditor General currently reports to the Prime Minister. The Constitution requires the establishment of aSAI. A law has been prepared that establishes a collegiate Supreme Audit Institution named the StateAudit Commission (SAC) that will audit the Government and report to the Parliament. Once the SAC isestablished it is expected to promote fiscal transparency, to adapt the Generally Accepted Audit Principlesdeclared by International Organization of Supreme Audit Institutions (INTOSAI) to the Thai government,and to develop a codes of conduct for Thai public auditors.

Establish a medium-term fiscal strategy. The lack of a medium-term framework in Thailand'sexisting budget planning system may reduce operational efficiency in at least two respects. First, theabsence of a medium-term fiscal strategy and the current annual focus of the budget process means thatprovision for operation and maintenance of completed projects is not treated on a systematic basis inbudget planning. Given high levels of investment before the economic crisis (and implied high levels ofsubsequent recurrent expenditure) this could be cause for concern. Second, the absence of a medium-term fiscal strategy lessens the certainty of funding for ministries and departments over the medium term,which restricts their ability to plan spending on work plans and projects over a multi-year horizon.

A key means to provide flexibility in fiscal adjustment is to prepare a medium-term fiscal strategywithin which the Government estimates its resources and calculates the costs of its current policies andcontingent liabilities. Since the aggregate cost of policies is expected to be higher than incomingresources, policies must be adjusted to fit available resources. This information will enable theGovernment to make strategic choices on how to cut expenditures while protecting its priority programs -thereby improving the quality of fiscal adjustment. Furthermore, this framework encourages morepredictable resource flows to sector ministries and program managers, and eliminates resource constraintsbeing used as a justification for low performance. Conservatively defining the medium-term aggregateresource base will also help to change the psychology of budgeting from a "needs" to an "availability"mentality.

The introduction of a medium-term fiscal strategy will facilitate the link between policy, planningand budgeting (see Figure 1.1 below). Under this strategy, the financial decontrol offered to the pilot

- 51 -

ANNEX 1

agency is reinforced by a set of firm estimates of budget funding which BoB will make available to theagency over the subsequent three years. Medium-term forward estimates are the future budget allocationsimplied by existing policy settings. Any new policy is excluded from these forward estimates, andrequires an explicit cabinet decision during preparation for future budgets.

The medium-term fiscal strategy provides the agency with a surer medium-term environmentwithin which to plan its future program allocations in the decontrolled environment. It also enables newspending decisions to be made by the Thai Government with full knowledge of their medium-termimplications for the budget deficit, and cuts in particular activities that are difficult to achieve in a singlebudget can be programmed over a period of three years subsequent to the budget.

Figure I.1: The Medium-Term Fiscal Strategy Design Process

TOP-DOWN.N

Medium Medium Term Policy Hearings Review andTerm Macro Preliminary and Final Approval ofFramework Ceilings Ceilings Estimates

Costing and Preparation ofUpdates from RevcPriorization of Detailed Forward

Activities Estimates

BOTTOM-UP

At the end of the PSRL program, a government-wide "fiscal transparency" policy will provide:

* A Fiscal Strategy which extends over the "general government financial position" and has a medium-term outlook.

* Extended coverage of government operations in budget documents and financial statements.* Improved financial reporting across the government.* Creation of an independent and competent Supreme Audit Institution.

- 52 -

ANNEX 1

II. HUMAN RESOURCE MANAGEMENT

Weaknesses of Tlhailand's Public Administration

Weak civil service performance has been recognized as a key obstacle to Thailand's economicdevelopment objectives for several years. The lack of a service-oriented, cost-effective civil servicedriven by results rather than entitlements has impeded the implementation of government programs.Public confidence in the quality and probity of civil service management has eroded. The recent financialcrisis has brought the shortcomings of the Thai civil service into even sharper relief, underscoring citizendissatisfaction with government deficiencies and highlighting the need to strengthen civil service capacityto carry out those public activities needed to spur the resumption of economic growth.

Several key problems are linked to civil service under-performance. First, the role, organization,and processes of government are in need of serious overhaul. Central government administrationconducts various activities that in other countries are privatized, localized, or spun off to a non-core, moreflexible govemment sphere. And initial investigation suggests that duplication of functions is widespreadthroughout government, even for those tasks which might be consensually acknowledged as appropriatefor central government to perform. Business processes in most government offices are antiquated,cumbersome, and control-oriented. Governed by the Administrative Procedures Act, administrativepractices are inefficient and often without access to leading-edge technologies and approaches that couldstreamline implementation. Such practices emphasize adherence to internal controls, often at the expenseof better service to citizens. Moreover, government structures operate as independent entities withminimal capacity for cross-sectoral or agency coordination and little inter-departmental, much less inter-ministerial, staff mobility. Paradoxically, the lack of coordination among central agencies belies anextremely centralized model of administration and decision making, affording little managerial flexibilityor discretion - over financial or human resource choices - to line agencies.

Second, per unit of output, the civil service is costly. Manpower levels are considerably higherthan those for neighboring country civil services in relation to population and total employment.Personnel expenditures constitute a relatively large proportion of total expenditures (over 42 percent). Theprovision of complementary inputs (e.g. chalk for teachers or fuel for agricultural extension agents'transport) through spending on goods and services has been crowded out over the last several years bypersonnel costs, hampering the ability of civil servants to deliver results. Despite high levels of aggregateexpenditures on wages, individual compensation for civil servants- especially at higher skill levels - islow relative to private sector labor markets. Thus, recruitment and retention of quality staff isincreasingly difficult. In addition, moonlighting inside economic activities and corrupt practices amongcivil servants with particular access to rents is anecdotally reported. Efforts to restore civil serviceremuneration levels have been incremental and indirect, resulting in a complex web of opaqueallowances and benefits, mainly driven by status and seniority rather than job qualifications orperformance. Consequently, policy makers and managers have only a hazy picture of real remunerationacross government, making rationalization of financial incentives and, indeed, aggregate wage bill policymanagement, exceedingly difficult within the present system.

Third, the current organizational culture deters professional performance, accountability andcitizen-responsiveness among civil servants. Systems for performance evaluation are under-designed andun-enforced, and remuneration and career advancement have only minimal links to job-relatedqualifications or results. Political criteria reportedly figure prominently in civil service appointments anddecision making, from the higher levels down to unusually low levels of the bureaucracy. Civil serviceprobity has been undermined by the absence of a clearly articulated or enforceable ethical code forgovernment service and by low salaries. Although increasingly open debate within the press and otherinstitutions in civil society has shone a powerful spotlight on these problems, political opening has also

- 53 -

ANNEX 1

accelerated pressures on the bureaucracy to distribute spoils and patronage in exchange for politicalsupport. And, although public demand for quality service is now better organized and articulated, theGovernment is only beginning to develop the standards and behaviors to respond to that demand.

Current Reform Efforts

An improved public administration will be a key ingredient in reviving sustainable growth inThailand. For instance, a key factor that foreign investors look for before making substantial investmentsis a strong, impartial Civil Service. Another aspect that will demand the attention of politicians incontaining budgetary expenses over the medium term is the current, high budget allocations for publicsector employment - far higher than most other countries, and indicative of under-performance and over-staffing. Most important will be the capacity for policy making and implementation, which will requireeffective performance-oriented coordination among central agencies and service delivery units.

Efforts to restructure and reorient the civil service to improve its performance have been initiatedon several fronts. In the main, however, these efforts have been undertaken on a piecemeal, pilot basisrather than as part of a coordinated civil service reform strategy. For example, the Office of the CivilService has, with UNDP funding, piloted process re-engineering and structural reforms in fivegovernment departments through its Public Service Performance Improvement Project. Using some ofthe approaches and staff trained through this exercise, OCSC has begun a series of ministerial reviews.OCSC staff have also been working as "consultants" in a limited number of central agency departments(for example, in the Motor Vehicle Department of the Ministry of Land and Transportation) to press forperformance improvements. In addition, service improvement has been sought through a program toinstall government-wide service standards. The need to raise the importance of public administrationreform on the political agenda has been recognized by OCSC -- its choice of ministries for re-engineeringshow an intent to improve effectiveness and efficiency in areas that would directly benefit the economy:Ministry of Commerce (focus on commercial development), Ministry of Finance (focus on country'sfinancial management) and Ministry of Labor & Social Welfare (focus on the workforce).

Although the implementation of this program is still in its infancy, service standards werecatalogued as early as a decade ago in a government publication that may be likened to the UK Citizens'Charter. In addition, manuals detailing the service levels citizens may rightfully demand, and an outlineof procedures and behaviors government employees should follow in order to respond to these demandshave also been published. A Cabinet resolution to codify, service standards and procedures has beenpassed. In addition, OCSC has solicited ministerial inputs and has developed early proposals for"rightsizing" government by reducing civil service cadres through early retirement, outsourcing, andorganizational restructuring. A significant element in restructuring may involve the creation ofautonomous public organizations, quasi-independent agencies that are to be spun off from coregovernment.

The focus of further work on administrative renewal includes pilot ministerial reviews andexecutive agency development, design of pay- and promotion-for-performance mechanisms, seniorexecutive service, position classification systems, and transitional post-redundancy mechanism design.The organizational home for this work so far has been the OCSC, as the management body for the CivilService, and the secretariat for the Civil Service Commission itself and for the Public Service ReformCommittee. The latter, in principle, provides a policy umbrella for government-wide institutionalchanges.

- 54 -

ANNEX 1

Strategies for Public Administration Reform

Effective civil service reform must focus on three important objectives: (i) enhancing the qualityof service through more effective perforrnance; (ii) increasing the efficiency of government operations byreducing its cost; and, (iii) reducing the scope for corruption and political interference in civil serviceactivities.

Several inter-related measures are proposed to achieve these reform goals. The first strategyinvolves developing detailedprograms to align organizational structures of line ministries with their newfunctional objectives to achieve the optimal mix of government functions and most efficient processes andstaffing allocations for effective policymaking and service. As a second strategy, this will likely includematching staffing profiles and numbers to the new functional requirements of the civil service andcontaining the cost of government through various mechanisms. The third type of measure entailsdeveloping modern, performance-based human resource management systems for civil service. This mayinclude an updating of out-of-date procedures, or the introduction of performance management throughresults-based human resource approaches that couple greater managerial discretion with performanceincentives. A fourth strategy entails developing a well-motivated, politically neutral, cross-governmentalsenior cadre to lead civil service renewal program, which would build a professional class of higher civilservants. The final measure requires developing a regulatory framework for autonomous publicorganizations (APOs).

To work effectively toward realistic reform goals, all of the measures require early decisionsabout the nature of the public management system the RTG envisions for the next century. For example,performance can be improved incrementally within a relatively centralized model simply by modernizingantiquated personnel systems. Or it can be enhanced by moving more radically toward devolvingmanagement autonomy to executive government agencies subject only to running cost restrictions.Alternatives between these two options may also be considered. In any case, a minimal roadmap ofreform is a pre-requisite for a sensible and robust change program.

Develop Detailed Programs to Align Organizational Structures of Line Ministries with their NewFunctional Objectives

To improve the efficiency of the civil service and ultimately the performance of public sector, theGovernment must re-evaluate the role of the state and provide an overarching vision of the direction forreform. Such a vision would include functional, organizational, and procedural elements: what would thepublic sector do; how would these functions be structured and organized within government; and whatwould the processes and accountabilities look like throughout the government sector? Such decisionsnaturally lead to further choices about allocation of financial and human resources to perform thoseactivities within the state's purview. This type of functional review of the state's role, functions andprocesses must occur at the macro- as well as micro-organizational level. A cross-governmental viewwill allow policymakers to assess appropriateness or redundancy of organization and function for the stateas a whole. It would also be a first step towards redefining the roles of the central agencies (OCSC,Ministry of Finance) to take on roles as regulators of government services, ensuring adequate servicedelivery by the agencies.

This functional review must necessarily incorporate findings from and contribute a broader visionto a series of strategic reviews to be undertaken at the level of policy and line ministries and departments,where the general principles of state reform can be worked out on a detailed, concrete basis. Reviews willanalyze organizational mission, strategy, functions, processes and incentives, and staffing, again, drivenby the overall government strategy and performance management framework built on the introduction ofnew flexibility and accountabilities. In addition, reviews must capitalize upon and, to the extent possibleand appropriate, unify the disparate approaches currently being used by the OCSC in its management

- 55 -

ANNEX 1

improvement work. Once a prototype for this unified approach has been established, it will be importantfor the Government to move energetically beyond the pilot phase to complete a critical mass of reviews inorder to ensure adequate momentum for the reform program. It will also be important to carry out thiswork through a joint effort by OCSC with the other key actors of the reform program, since revisedfunctions will cut across human resource and financial management.

Match Staffing Profiles and Numbers to New Functional Requirements of Civil Service and ContainCost of Government

One significant product of the ministerial review process will be proposals for "rightsizing" thecivil service according to the newly defined tasks and staffing requirements. Depending upon the modelchosen by government, outsourcing, Autonomous Public Organizations, and ministerial abolition orconsolidation may all result in staffing shifts or reductions. Engineering of new, mechanized businessprocesses may also change the nature of demand for staff. These individual organizational analyses willbe essential to fine-tuning staffing allocations. Should the Government select a devolved managerialmodel, many of the personnel changes may well be undertaken at the initiative of individual managers towhom human resource decisions on hiring and rewards would be assigned.

Pending such a decision, however, it may make sense to undertake more global analysis ofrightsizing options. Such analysis would involve constructing a basic model of the future civil service.For example, assuming wage bill neutrality, five years hence, the civil service will require which types ofcadres with what skill and age profiles, and, in light of civil service reservation wages in the overall labormarket context, at what cost? Present redundancy plans, including the numbers and types of staff to beseparated, as well as the appropriate mechanisms (i.e. early or voluntary retirement, natural attrition, orretrenchment) and their short and long-term costs will be carefully evaluated in light of the reformobjectives. For example, OCSC's early retirement plan will be assessed as one out of various options inlight of the overall rightsizing targets. Again, although these decisions may ultimately be best taken at amore micro-level, a general view of the future goals of civil service rightsizing is necessary to soundredundancy program design. A critical element in success of a right sizing strategy will be theappropriate design of separation packages. As the single most important employment transitionmechanism, they must be developed both to capture the reservation price for separated employees and toavoid the adverse selection problems so prevalent in voluntary departure programs.

On the other hand, support for those types of transition mechanisms intended to provide a "softlanding" for redundant civil servants should be undertaken only with considerable caution since theirvalue is mainly of a political nature. While social safety nets applied to the impoverished populationmore broadly affected by the financial crisis may be an appropriate object of extemal support, targeted re-training and credit schemes for civil servants per se have a poor success record worldwide, given thedifficulties in pinpointing guidance and training to fast-evolving private sector needs.

Develop Modern Performance-Based Human Resource Management Systems for the Civil Service

Organizational incentive structures. Reorienting the Thai civil service toward performance willrequire a shift in both organizational as well as individual incentives. On an organizational basis, workthat has already begun toward the development of performance measurement will be refined and adaptedto individual departmental conditions but also integrated into a more coherent cross-governmentapproach. So far, OCSC has experimented with at least three different techniques. A decision will betaken as to the course the Govemment wishes to follow to integrate performance measurement into alarger approach to performance management more broadly - without which performance measuresmainly become unused data - will be developed. Here, again, the Government's approach to performance

- 56 -

ANNEX I

management can usefully focus on improvements in core government departments without proceedingdown an unheeded path to devolved agency management.

Individual incentive structures. Appropriate individual incentives are an integral component of awell-performing civil service. Line ministries will find it difficult to meet performance objectives if theirpersonnel are not adequately motivated. A number of changes will be effected. Key reforms includerevised administrative guidelines and a restructured pay and grading system with increased simplicity,flexibility and transparency. Based on an accurate private-public pay comparator survey, the new systemwill be referenced (though not equated with) to targeted benchmark jobs in the private sector to ensurecadre retention; introduction of an enforceable performance evaluation system linked to careeradvancement, training and, if appropriate, remuneration. Clear job descriptions linked to a correspondingtraining scheme for acquiring the necessary skills will be an important part of a modernized humanresource management to build capacity in the Thai Government.

Devolution of authority. Changes in incentive structures will be introduced in the context ofgreater managerial flexibility and discretion. This involves greater devolution of decision makingauthority to line managers, including personnel decisions and control over resources. The degree ofchange in incentive structures must be considered from a system-wide basis in order to structureincentives properly. However radical the changes, the degree to which individual (or team) performanceis to be emphasized through these personnel management system reforms must be linked directly to thoseperformance management shifts that take place at the organizational level. In turn, both micro- andmacro-organizational changes will be reinforced by reforms of the financial management system.

Develop Well-Motivated, Politically Neutral, Cross-Governmental Senior Cadre to Lead Civil ServiceRenewal Program

The thrust of the above reforms would be to substitute performance for automaticity in civilservice management. Personnel management reforms will also seek to insulate civil servants from unduepolitical pressure and corrupting influence. One potentially important reform to achieve these is theintroduction of a Senior Executive Service (SES) to ensure that candidates for top civil service positionsare appropriately screened for professional merit and are selected on a transparent, competitive basis. Thedesign of such a system must be carefully considered, as SES applications in many countries have facedsevere implementation difficulties. Nonetheless, in theory, the SES provides the opportunity to shieldhigher-level appointments from the most blatant political interference, to establish a new channel forexternal, lateral recruitment into the civil service, and to build a cross-government corps of motivated,well-remunerated civil servants. This might contribute as well to enhanced inter-ministerial cooperation,by breaking down barriers among segregated, compartmentalized departments and agencies.

Develop Governance Frameworkfor Autonomous Public Organizations

An important option for alternative service delivery mechanisms consists in the possible spinningoff of functions and staff to so-called Autonomous Public Organizations. Building on the experience withExecutive Agencies in New Zealand and the UK, the objective is to devolve functions to agencies whichmay enjoy greater autonomy but also greater accountabilities than core government departments. Thelegal framework for such organizations is embodied in the Public Organization bill which was passed byParliament in early 1999. Key features of APOs are to allow the use of performance contracts for theCEO, term contracts for staff, and payment of salaries that are independent of the civil service scale.Since APOs are still part of the government sphere, they can be funded through the budget, making APOfinancing secure. The law specifies various arrangements to insulate APOs from political and ministerialinterference through direct reporting requirement to Parliament or the Prime Minister's Office. Similarly,CEOs could be appointed by cabinet, or nominated by the Minister with approval of Cabinet.

- 57 -

ANNEX 1

In fact, many public sector organizations are already operating along these lines but on an ad hocbasis without benefit of a common framework. Moreover, while there has been considerable rhetoric andsome pilot experimentation on performance management - presumably the conceptual underpinning ofthe proposed public organizations - a systematic strategy for developing and disseminatingperformance-based practice even in existing core governmental agencies has yet to be developed.Attention to implementing such a strategy for government before launching an unguided spin-off ofpublic organizations constitutes a more appropriate reform sequence for several reasons. The difficultiesof implementing such agency reforms in advanced countries suggests that careful orchestration isnecessary to their success. (Precedents for agency reform operationalization do not yet exist indeveloping countries, although cases of public sector fragmentation through the creation of paralleladministrative structures with only limited accountabilities and capacities can be documented). A moreconsidered approach would emphasize incremental devolution and introduction of performancemanagement precepts into existing (or perhaps modified) public sector structures.

Most importantly, a governance framework will be developed as an implementing regulation onthe Law on Autonomous Public Organizations. This framework will identify the scope of business;performance objectives; relationship with parent ministry; relationship with budget; reportingrequirements; delegations for personnel, finance, procurement etc.; setting up initial balance sheets,accounting policies, borrowing rights, pricing polices, residual government guarantees, dividends andtaxation, efficiency targets, evaluation; accountabilities to legislature and civil society; and the AuditorGeneral's responsibilities.

- 58 -

ANNEX 1

III. REVENUE MANAGEMENT

Weaknesses in Revenue Management

The economic crisis in Thailand has highlighted the difficulties in collecting tax revenues. Taxcollections relative to GDP decreased 0.5 percent in 1997 and 0.9 percent in 1998 - declining at ratesbeyond what could be explained by the recession; in real terms, collections fell by 9.4 percent in 1997,and by another 8.3 percent in 1998. Tax arrears have doubled in two years, rising from Bt.35.4 billion inFY96 to Bt.71.9 billion in FY98 - by January 1, 1999, arrears had increased to Bt.79.1 billion.

Figure 1.2: Tax Collection and Arrears

Tax Collection/ GDP ratios Thailand - Tax ArrearsThailand 1993 - 98

0.12 0,12 ~~~~~~~~~~80000 0.10

0. 08 60000 --

0.06 . ~~~~~~~~~400000.04 ~~~~~~~~~~20000 *

0.02 i

0.00 I 0

1993 1995 1997 1993 1995 1997

Several key problems underscore weaknesses in revenue management. Tax expenditures,although costly, are not quantified in the budget nor evaluated for effectiveness. Three governmentdepartments - Excise, Customs and Revenue - have overlapping responsibilities and are poorlycoordinated in capturing potential synergies in administration. Three different taxpayer identificationnumbers are used by these revenue agencies (and the Social Security Administration), impeding cross-checks on compliance. While revenue management encompasses all these areas, the larger and morepressing problems appear to be improving the tax administration capacity of the Revenue Department (anoverview on the modernization of the Customs Department is in Box 1. 1).

The Revenue Department (RD) is a very large organization of about 18,000 people, spread acrossthe Kingdom in almost 1000 offices. The task of tax administration is complex, involving meetingdifficult and diverse targets and objectives, such as processing declarations and payments, collectingdebts, combating tax evasion and providing advice and assistance to taxpayers. The complexity of thework, and the size and geographical spread of the organization require clear organizational objectives andstrategies, defined in a multi-year strategic plan with clearly defined performance indicators - which, atpresent, does not exist in Thailand.

Audit performance is weak. Although there are about 3000 audit staff, audit coverage and auditrevenue are both quite low. In FY98, auditors assessed additional tax revenues of Bt 22.3 billion (4.2percent of total tax revenue collected), though only Bt 3.6 billion of this additional tax was collected (lessthan I percent of total tax revenue collected). Many other countries collect 2 to 3 percent of their total tax

- 59 -

ANNEX 1

Box I.1: Modernization of the Customs Department Of Thailand

Since mid-1997, the Customs Department of Thailand has accelerated its efforts to streamline procedures,contribute to export promotion, enhance revenue collection and increase border protection. It has developed acomprehensive modernization plan, which is in the early implementation stage. Key features of this plan includeelectronic data interchange (EDI), a Gold Card Program, Customs Broker licensing, post-release and post-auditverification of Customs declarations, adopting the GATT valuation agreement, improved origin and tariffenforcement, and increased use of high technology to aid border enforcement.

EDI will allow traders to transmit declarations on-line to Customs and use electronic funds transfer to settleaccounts resulting in considerable savings in time and money. It will enable Customs to use electronic profiles toselect high risk shipments for inspection and high risk declarations for verification. The use of these riskmanagement tools will expedite the release of low-risk shipments, speed up the settlement of accounts and enhancedetection of non-compliance.

The Gold Card Program will provide qualifying low-risk traders with faster release of their goods fromCustoms control and relief from post-release review of their declarations. In return, these traders will maintainaccurate books and records accessible for Customs review as needed.

Customs Broker licensing will give traders access to professional assistance in self-declaring theirCustoms obligations. Submission of accurate Customs documents by the trading community will free up valuableCustoms resources to focus on high-risk transactions.

Post-release and Post-audit verification of declarations will assist Customs in focusing in-depth on thehighest-risk transactions without impeding the flow of trade. In the experience of many Customs administrations,the use of these techniques also leads to increased revenue collection.

In accordance with their WTO commitment, Customs will implement the GATT Valuation Agreement onJanuary 1, 2000. As Thailand enters into various trade agreements (e.g. AFTA), high-risk areas for origin andtariff enforcement will change and will require a more flexible and dynamic verification response.

In order to make best use of scarce human resources, one strategy is increased use of high technology toaid in border enforcement: For example, the use of global satellite tracking technology may enhance control ofshipments moving in transit through Thailand. These operational initiatives are being supported by administrativeinitiatives such as a comprehensive human resource plan, improved access to critical operational managementinformation and an information technology plan.

revenue through additional tax assessed and collected by audit activities. Audit cases take too long tocomplete, and audit skills are low. The audit effort receives little IT support. Available data from the ITsystem are neither fully reliable nor complete, which restricts the audit division's ability to conductmarket segment studies and develop taxpayer risk profiles.

The RD computer system lacks basic functionality to maintain taxpayers accounts, identifyarrears, select quality audit cases, and provide timely management information. Only some of theBangkok offices are networked, and the system is basically unable to provide on-line input or data access.The need for a working, networked computer system for such a large organization trying to managecomplex tasks with 12 million taxpayer registrations and 5 million active taxpayers, is paramount.

- 60 -

ANNEX 1

Reforms Underway

The RD is in the process of selecting a management consultant to help in preparing a new three-year strategic plan. A consultant will soon be engaged to provide technical assistance in preparing a newIT systems and architecture master plan, consistent with the objectives and strategies set out in thestrategic plan.

With the assistance of the IMF, the RD is setting up a Large Business Tax Administration Officein RD headquarters. Initially, this office will manage 500 of the largest taxpayers, but it is planned toexpand the number to 2500 taxpayers as soon as practical. It is estimated that the largest 2500 taxpayersaccount for 50 - 55 percent of total tax revenue collected.

The Large Business Tax Administration Office will manage all tax-related activities associatedwith their large taxpayers, including excise tax payments (but not customs activities). This includesprocessing tax returns, auditing, collecting arrears, and providing taxpayer service and technical advice.The IMF has provided a resident tax administration adviser for 12 months to help establish this office.The IMF has also been providing technical assistance to the Customs Department, although thisassistance is nearing completion.

The RD participated in a Civil Service Commission-sponsored reengineering study assisted byconsultants. The RD provided a large project team to work with the consultants for a one-year period topilot new work processes, and the project team is still functioning. However, the new work processeshave not been rolled out beyond the pilot offices.

To improve debt collection procedures, the RD established new delinquency units in three pilotoffices, piloted revised collection procedures, and developed a prototype application to managedelinquency cases. The pilot project to analyze debts and issue initial demand letters appears to havebeen quite successful.

Strategies for Reform

The objectives of the proposed tax administration reforms are to ensure adequate andsustainable revenue flows in the face of rising fiscal obligations; improve revenue collection,widen the tax base, and achieve a more equitable distribution of the tax burden; and strengthenthe institutional capacity for efficient and transparent tax collection. These objectives can beachieved through:

* improve taxpayer compliance

* strengthen collection enforcement, and

* balance business and operational priorities.

Improve Taxpayer Compliance

Numerous measures can be taken to improve taxpayer compliance, including (i) developing andimplementing a more comprehensive audit strategy; (ii) unifying taxpayer identification numbers for alltaxes to enable easier detection of non-filers; (iii) establishing a more streamlined and focused VATrefund control system; (iv) reducing the frequency of refund claims from monthly to quarterly; (v)

- 61 -

ANNEX 1

implementing a national roll out of the canvassing pilot; (vi) coordinating audit and delinquencycollection; and (vii) improving the quality and availability of data for audit purposes.

Audit plans must incorporate realistic target times for completion of cases, and audit managersmust plan and manage cases better so that the target times can be met. Full-scale auditing will bereplaced by issue-based audits, where only certain aspects of each taxpayer's business are examinedbased on the likelihood of finding significant tax underpayments. Audit case selection methods will beimproved to prioritize cases, focus on industries with high compliance risks, and produce more revenueper case.

Specific actions to be undertaken as part of the Government's program over the next three yearsinclude:

* Preparing an audit strategy plan that includes an analysis of the known compliance problems withdifferent types of taxpayers, and documents their intended strategies for improving compliance inthese sectors of the economy

* Establishing a Large Business Tax Administration Office to manage at least 500 of the largesttaxpayers

* Establishing a working group to prepare proposals to reduce taxpayers' compliance costs

* Identifying legal changes required to allow auditors to conduct partial audits and target high-risktaxpayers, and to remove the requirement for taxpayers to file NIL Personal Income Tax returns

a Preparing user specifications for the taxpayer risk profile and audit case selection applications

* Designing simplified forms for Excise Tax and VAT

3 Conducting a promotion campaign to encourage payment of taxes through banks

* Developing and implementing an automated VAT refund system

* Designing and implementing an automated audit case selection system

At the end of the program period, the reforms to improve taxpayer compliance are expected toincrease the tax base of registered VAT taxpayers by 10 percent, and to increase the additional revenuethat is collected through audit activities to 2.5 percent of total tax collections. The Large Business TaxAdministration Office will also be expanded to manage the largest 2500 taxpayers, who pay more than 50percent of total revenue collections.

Strengthen Collection Enforcement

There is a pressing need for increased resources (people, equipment, and money) for debtcollection activities in response to the downturn in the economy. The size, importance, and degree ofdifficulty of the problem justifies forming a new debt collection management division in RDheadquarters, which would be responsible for determining appropriate debt collection strategies andpolicies. This division, which has now been established, will prepare a 3-year debt reduction plan, setcollection targets for each office, develop new enforcement procedures, and monitor debt collectionperformance.

- 62 -

ANNEX 1

The first priority will be to contain the growth in total debt by collecting current debts. Quickaction must be taken against enterprises that are still in business and not paying current taxes. An in-depth analysis must be conducted on the older debt, to sort the taxpayers and their debts into differentcategories, and then appropriate strategies developed to deal with each category.

The debt collection management division must also determine what changes in strategies andprocedures are needed to adapt to amendments in the Bankruptcy Law and Civil Process code. Inconsultation with other departments and the major financial institutions, the RD will develop acoordinated approach to managing the older tax debts and non-performing loans owing to the banks.

The pilot project to analyze debts and issue initial demand letters will be rolled out in all otheroffices. The taxpayer accounting function in the computer system must be quickly developed to provideaccurate and timely information about tax arrears. A debt case management application will be developedto improve controls over casework.

A major problem that has been identified is that auditors are raising large debts where taxpayershave no capacity to pay. Audit case selection methods will focus on productive cases in terms ofadditional tax and penalties assessed, and potential collectible revenue. Auditors will be maderesponsible for providing initial assistance in the debt collection process (e.g., asking the taxpayer to paythe debt or to make an offer of payment, completing a standard form appraising a taxpayer's assetposition and ability to pay).

Installment arrangements will be revised to periods no longer than 6 months, and subject topayment of current taxes on time. Where taxpayers cannot repay the tax debts within this timeframe, theymust either be subject to a formal restructuring process, or the business must be liquidated.

A moderate effort will be directed toward clearing up old debts by writing them off, or at leastformally classifying them as bad debts. Schedules of bad debts to be written off will be prepared and sentto the Minister of Finance for approval on a regular basis, so that the value of the collectible debt is moreapparent.

The RD currently spends considerable resources on receiving tax payments at cashiers officeslocated in every local tax office. This is essentially a banking function. The RD will develop newprocedures to collect these payments through the banking system, thereby removing the need for RI)officials to handle money and freeing up resources that can be redeployed to more productive activities,such as debt collection.

At the end of the program period, debt collection performance will improve such that collectibledebt is reduced to a manageable level of no more than 5 percent of total annual tax collections.

Balance Business and Information Technology Priorities

Multi-year strategic plans. The starting point for communicating the organization's objectivesand strategies is the preparation of a multi-year strategic plan, followed by functional or program plans(such as an audit strategy plan). These plans form the basis for annual business plans that should bedeveloped by each office or functional unit (including regional, area and district offices). At each level,performance indicators must be set to measure verifiable outputs in terms of objectives, and theseperformance indicators must be monitored on a regular basis. Positive feedback must be provided tooperational units where performance targets are being met, and remedial action must be taken whereperformance falls below the agreed targets.

- 63 -

ANNEX 1

IT system improvements. The RD has had significant and on-going implementation problemswith its IT system development. While much hardware, including mainframes and network equipmenthas been supplied, the delivery of software applications was plagued with problems and the contract is inthe process of being terminated. A VAT system is in place with limited capabilities. Ability to extractdata from the system in terms of inquiries and reports is very limited. The taxpayer accounting functionis incomplete, and it is impossible at present to determine a taxpayer's total tax liability across all taxes.On-line inquiry facilities to the taxpayer registration database exist in Bangkok and peripheral areas, butotherwise inquiry and report facilities are very limited. Generally the system is not Year 2000 compliant.A valid national numbering system, which is used by all revenue agencies and by the social securitysystem, must be established for proper control and successful computerization.

An inter-departmental project team will be established with representatives from the Revenue,Customs, Excise and Social Security Departments to resolve issues concerning a common taxpayeridentification number for use by all revenue agencies, for both business and individuals. Rules aboutbusiness registration will be strengthened -- all businesses, particularly small retailers, must have ataxpayer registration certificate, and must display their business name and taxpayer identification number.Formal mechanisms for data exchange between Departments must be agreed upon, and incorporated intoIT development plans for each Department. The design of the government information network must beprepared and approved with some urgency, as it is inefficient for each Department to develop their ownnetwork.

Other issues which will be considered in developing a new IT master-plan include: (i) the need tointegrate or match VAT data with Customs import/export data to help control VAT refund and creditclaims; (ii) the possibility of including Social Security contributions and Excise Tax collection as part ofthe Revenue Department's mandate; and (iii) moving towards a full self-assessment system for personalincome tax and company tax.

Specific tasks to be undertaken as part of the Government's public sector reform program overthe next three years include:

* Prepare a new three year strategic plan and an IT master plan

* Prepare user requirements and software specifications for each of the main modules for the IT systemin consultation with users

* Integrate taxpayer registration data, which is presently running as scattered databases, and migrate tothe new system platform

* Implement an on-line taxpayer registration system for Bangkok offices, and test existing IT systemfor Year 2000 problems

* Migrate existing VAT and Small Business Tax (SBT) data, which is on scattered databases, to newplatform

* Develop data entry, processing and reporting modules for company income tax and personal incometax

* Develop and implement unique taxpayer accounting module

* Develop data entry, processing and reporting modules for all other tax types

* Develop debt management and audit case selection modules

At the end of the program period, a functional and integrated computer system will be developedand operational. Operational requirements are that taxpayer data from tax returns will be input in a timely

- 64 -

ANNEX 1

manner, system data will be available in the main RD offices when required on a need-to-know basis,taxpayers accounts will be fully maintained by the system, the majority of audit cases will be selected bythe system based on preset criteria, and timely and useful management reports will be available formanagement on all aspects of operations.

- 65 -

ANNEX 1

IV. DECENTRALIZATION

Fiscal decentralization is a key means to improve governance. By clearly defining what level ofgovernment is responsible for providing and financing various services and delegating appropriateauthority, responsibility and resources, local services may be provided more effectively and localaccountability may be enhanced. To achieve these potential benefits, however, decentralization must bedone correctly and within the right institutional environment. For example, unless a good system of localaccountability is established, giving more resources to local governments can lead to misused or wastedfunds. Similarly, without an appropriate balance between expenditures and revenues, public servicelevels may deteriorate in a decentralized context. And finally, unless local governments pursueresponsible fiscal policies, macroeconomic instability may arise in the form of higher overall fiscaldeficits or central government "bailouts" of weak local governments.

The success of fiscal decentralization will depend on the extent to which political and economicinstitutions promote local accountability and responsible fiscal policies. Because these institutions areoften weak or non-existent, successful decentralization programs incorporate gradual processes thatemphasize long-term institution building. Such reforms are based on the identification of priority areasfor greater decentralization, the allocation of adequate local resources, incentives for developingtransparency, opportunities for local governments to gain experience and build capacity, growth inconstituent demand for good local governance, and the ultimate establishment of greater accountability.The development of these political and economic institutions and local accountability structures arecritical tasks in Thailand.

Decentralization, identified as a policy priority in Thailand's 8th National Economic and SocialDevelopment Plan, was featured prominently in the new Constitution: Chapter 9 specifies principles oflocal autonomy and elected local representatives, among other aspects of local governance. Thailand is ahighly centralized country with limited local autonomy in terms of functions, area, staffing, funding anddecision making.

* The central government spends 93 percent of total general expenditures and collects 95 percent ofgeneral tax revenues.

* Only 25 percent of municipal revenues are locally collected and retained.* The central government appoints chief local officials, determines local salaries and approves local

budgets.

Reducing the role of the central government and moving toward a decentralized fiscal system willrequire significant changes in existing institutions, processes and culture. At the same time,decentralization reforms can provide synergies in overall public sector reform. Functional reviews of lineministries (performed as part of fiscal management reforms) will identify opportunities for privatizationand decentralization of service delivery. Changes in the intergovernmental transfer system that improvethe targeting of subsidies to the poor enhance the delivery of services. And effective decentralization isimpossible without broader reforms in fiscal management and human resource management.

Ongoing Decentralization Efforts

In January 1997, a Local Fiscal Master Plan was approved by the Cabinet. This master plan wasdrafted by the Fiscal Policy Office of the Ministry of Finance and it identified numerous measures (17) toenhance local revenues, clarify expenditure responsibility, reform the intergovernmental transfer(subsidy) system, establish systems for monitoring and evaluating local fiscal systems, promote newmethods of mobilizing capital for local investment, and develop local capacity. The Master Plan sets the

- 66 -

ANNEX I

framework for many of the proposed reforms in decentralization, and is expected to be operational withinfive years.

Key decentralization reforms envisioned in the Constitution include increasing the share of localgovernment expenditures, assigning more revenue sources to local governments, and revising the systemof intergovernmental transfers to provide grants in a more transparent and predictable way. Because mostlocal governments in Thailand are weak in financial management, planning and service delivery, andgenerally lack adequate resources to deliver services effectively or to undertake needed capital projects,implementing the proposed program of decentralization reforms will require significant strengthening oflocal capabilities.

A National Commission on Public Sector Reform was established as an outgrowth of theConstitution, and it includes a Decentralization Subcommittee. This Subcommittee is composed of threeworking groups: (i) Local Administrative Organizations, (ii) Improving the Fiscal Status of LocalGovernments, and (iii) Local Civil Service Administration. A working principle of the DecentralizationSubcommittee is that no level of local government should be made absolutely worse off as a result ofreforms brought about by the decentralization process.

The Constitution also requires that a National Decentralization Committee (NDC) be establishedby October 1999. This Committee would be composed of 30 members - distributed evenly amongcentral government agencies, local government officials and academics/representatives of civil society -and would be responsible for clearly defining the Government's decentralization policy, and forpromoting and monitoring the status of decentralization initiatives. The Head of the NDC would beselected by the Cabinet and subject to the approval of the Parliament

Draft legislation has been prepared by each of the working groups to define central-versus-localresponsibilities, reform local budgeting and expenditure management, assign adequate local revenues,reform the intergovernmental grant system, and design a local civil service. This legislation, which mustbe enacted by October 1999, is necessary to establish the framework for decentralization and newintergovernmental fiscal relations. As noted below in Box 1.2, eight laws are in various stages ofreview/passage.

Box 1.2: Decentralization Legal Framework

1. Provincial Administrative Organization Act (effective)2. Tambon Administrative Organization Act (effective)3. Municipalities Act (effective)4. Upgrade Status of Sub-Municipalities to Full Municipalities (effective)5. Change the Status of BMA (approved by Cabinet)6. Change the Status of Pattaya City (approved by Cabinet)7. Master Plans and Procedures of Administrative Power (approved by Cabinet)8. Establish a Centralized Personnel Body of Permanent Officials of Local Administrative

Organizations (approved by Cabinet)

The last two bills -- which would substantially reform the structure and responsibilities of localgovernments -- have been submitted to the Cabinet and presented to the State Council for technicalreview. During the review process, many elements of these laws have been changed by the State Council.It has been suggested that the State Council has proposed these changes because it is unwilling to draft the

- 67 -

ANNEX 1

level of detailed legislation specified in the Constitution and would prefer to have the NDC determinethose details. Given the extraordinary quantity of legislation that is expected to be passed between nowand October, it is very likely that the versions of the laws passed will be fairly general in nature and thatone of the first tasks of the NDC will be to determine the remaining administrative regulations required.

A draft bill to reform the house and buildings tax and land tax into a broad-based property tax hasbeen reviewed by the state council and is being deliberated in a series of public hearings. Itsimplementation is likely to be delayed until after the economic crisis has abated.

Directions for Reform

Establish capability to support and monitor decentralization. At present, it is quite difficult to monitorthe status of decentralization reforms because responsibilities are shared among numerous ministries andagencies, and the Government's overall decentralization policy framework is not clearly understood. Ahigh priority is to establish the NDC and assure that it is adequately staffed and given sufficient resourcesto perform its duties. The central government must also develop the capabilities of the NDC to monitorthe status of decentralization -- both in terms of its potential macroeconomic impact and its achievementof decentralization objectives -- and disseminate information on local government finance on a regularbasis. This information is important in encouraging local accountability, for monitoring the siatus ofdecentralization initiatives, and for introducing subsequent reforms in response to the dynamic nature ofintergovernmental fiscal relations.

Devolve appropriate e-xpenditure functions. The NDC must clearly define central-local expenditurefunctions, i.e., identifying specific expenditure assignments which are compulsory rather than voluntary.Only with clarity in expenditure assignment can the overlapping functions performed by the central andlocal governments be eliminated, and expenditure effectiveness improved. For those local services mostappropriately provided by local governments (e.g., local roads, solid waste collection, etc.) the centralgovernment's role should be limited to establishing policies, regulating outcomes, and facilitating localprovision (especially through building local capacity through training and other means.) A phasedapproach to the devolution of selective functions is recommended so that both the central government andthe local governments are prepared to assume their new roles. Current proposals envision that after twoyears, 15 percent of government expenditures would occur at the local level; within five years, 25 percentwould be local; and within 7 years, 35 percent would be local. The cost implications of this devolution offunctions have not been estimated.

The Ministries of Public Health and Education are deconcentrating service delivery to localentitities (i.e., Local Education Authorities and Provincial Hospitals), that, after many years, may betransferred to local governments. As initially envisioned, these local entities would be formally distinctfrom local governments, although local governments would be represented on local committees foreducation and health. In the interim period, the central government will continue to play an importantrole in establishing policies, financing service delivery and infrastructure, and regulating service delivery.

The organizational structure, staffing levels and staff appointments of local governments arecurrently controlled by central agencies (e.g., the Municipal Personnel Commission and DOLA), therebylimiting the flexibility of local governments to manage their own personnel. A separate LocalGovernment Civil Service Commission, as proposed by the Working Group on Local Civil ServiceAdministration, should be established and local personnel management authority delegated to localgovernments gradually over time.

- 68 -

ANNEX 1

Enhance local revenues/resources. As additional responsibilities are devolved to local governments, theymust also improve their revenue collection, both by reforming existing taxes (e.g. introducing a local.,broad-based property tax) and by enhancing the collections of their existing charges and fees. Passageand full implementation of the draft Property Tax Act, which amalgamates the Land and Building Taxand Land Development Tax will potentially provide municipalities with a significant stream of localrevenues. Concurrent reforms in the Central Valuation Agency (CVA) within the Department of Landwill be undertaken to strengthen the base of the new property tax. Local administrative capacity will beimproved over time to take full advantage of the property tax and other existing revenue sources.

Sharing arrangements for national taxes are being deliberated, both as part of the Local FiscalMaster Plan, and in light of the increase in the number of municipalities (from 149 to 980 with upgradedsanitary districts) eligible for allocations from shared taxes. It is estimated that it would require Bt. 2,000million to hold municipalities "harmless" in allocating shared taxes for the motor vehicle tax to the full980 municipalities.

Revise intergovernmental grant (subsidy) system. Over 70 percent of the intergovernmental transfers (or"subsidies") in Thailand are allocated for specific investment projects. The Ministry of Interior allocatesthese grants in an ad hoc and highly politicized manner. The amounts allocated vary greatly from year-to-year, and actual allocations are not known until well after the fiscal year begins. Hence the basicrequirement of a decentralized system having transparent and stable intergovemmental transfers isviolated. Nor do the grants reflect the broader intergovernmental framework and the vertical fiscalimbalance between the central and local governments.

The NDC will reform the intergovernmental transfer system by reducing the reliance on specificproject grants (due to the highly politicized means of allocation) and increasing the reliance on general-purpose grants that are allocated according to a transparent formula(e) that addresses vertical imbalanceand equalization objectives. These grants could also promote accountability by being based onperformance auditing. Matching grants would still be offered for specific investments (though muchsmaller in overall magnitude), but a transparent and predictable allocation formula will be used and thematching share will be increased to promote better projects.

Enhance local accountability. Local accountability must be enhanced if decentralization is to succeed.Local residents and organizations -- local govemment, business, labor and neighborhoods -- best knowand understand local problems and their feedback -- through civic fora and payment of local taxes andcharges -- is integral to assure high-quality, local decisions. Local governments must not only incorporatethis collective wisdom into their decision making, but must also help neighborhoods, businesses, andlabor participate more effectively in public affairs by increasing their access to and understanding ofpublic information (including local budgets and development plans).

At present, local officials are not fully aware of their responsibilities and functions, especially inlight of changes legislated in local administrative organization acts. The Government will disseminatethese revised acts to all local officials. Another prospect for enhancing local accountability is to requirethe direct election of all local officials. At present, the Governor of BMA is the only directly electedlocal official (the Mayor of Pattaya City will eventually be directly elected.) Unless the local citizenshave a direct voice in choosing their leaders, local accountability will not be fully achieved andmismanagement and corruption may arise.

- 69 -

ANNEX 1

V. CROSS -GOVERNMENT ACCOUNTABILITY AND TRANSPARENCY

Governance in a Nascent Democracy

Accountability of government agencies in Thailand has traditionally been weak and thefunctioning of the public sector is characterized by both poor service delivery and perceptions ofwidespread corruption. As characterized in the 8th National Social and Economic Development Plan, theThai public sector's problems include "centralized power structure, administrative inefficiency, lax lawenforcement, lack of popular participation, unethical and unfair use of administrative power, lack ofadministrative accountability and lack of continuity in policy and implementation to meet the demands ofnational development plans." These problems are rooted in how Thailand's polity evolved over the years.

Unlike its East Asian neighbors, Thailand was never colonized. Prior to the 1 880s, a feudal eliteran Thailand's government under the traditional "Sakdina" system. Administrators were tax farmers whoretained a portion of the revenues they collected before passing it on to their superiors and thereby to theCrown or obtained their remuneration from fees they collected for their services. In the 1880s, KingChulalongkorn introduced a centralized salaried bureaucracy which gradually took over the functionspreviously carried out by tributary chieftains, noblemen etc. However, salaries were "well below levelsrequired to maintain a high official in a condition befitting the dignity of his position" and members ofroyal and noble families dominated the new bureaucracy. The practice of paying officials for services,and of their retaining portions of what they collected, continued.

In 1932, a new Constitution came into being separating the Crown from the state, and introducinga concept of public service (as opposed to service to the King). The role of the royal and noble families inthe bureaucracy diminished. Since then, the formal rules of the bureaucracy have prohibited civilservants from accepting gifts, charging for services, or using public assets for private purposes. Despitethe change, public acceptance of practices that are legally prohibited has continued - e.g. paying officialsfor timely performance of functions that form part of their duties. However, recent signs show that theemerging middle class is beginning to oppose these practices strongly.

Since 1932, the military came to play a major role in government. Army officers have oftenoccupied positions of importance in the political executive. Over the years, the military and the civilservice became closely intertwined. Several military rulers amassed huge wealth while in office. Thegradual democratization of the Thai polity from the early 1970s saw the rise of a political class. Thepolitical class in Thailand has had a large degree of overlap with business interests. The businessman-politician group can be sub-divided into the provincial businessmen and the Bangkok businessmen,whose interests have not always coincided.

The highly centralized, formal administrative set-up facilitated the rise of the provincial businesselite. Although elected local councils existed, key provincial and district officials were appointed fromthe center, and were not locally accountable. The local business elite are alleged to have been able to'capture' the provincial administration through the use of money (e.g. bribery) and through their ability toinfluence postings and transfers of officials using their influence over the central political executive. Inthe absence of locally accountable provincial officials, they became the channels through which the ruralpopulace could gain access to officialdom - thereby reinforcing patron-client relationships andstrengthening their hold over the rural electorate. Compliance of the electorate was secured throughstrong patron-client relationships and/or outright vote buying.

State power in Thailand has, in the past, been contested and shared between (primarily) thesethree groups - the bureaucracy, the military and business-dominated politicians. It is widely believed thatall three of these groups have presided over, and benefited from, various kinds of corruption. The

- 70 -

ANNEX 1

electorate was generally seen as a collection of vote banks that could be counted upon to vote inaccordance with the preferences of the elite. Accountability to the citizenry was very limited.

The gradual rise of the middle class, especially in Bangkok, has in recent years somewhat alteredthis situation. The urban electorate can no longer be treated as a vote bank. Recent years have witnessedthe emergence of an active civil society in the urban areas. This change has been one of the drivingforces behind the 8th National Economic and Social Development Plan and the constitutional reform.

The 8 h Plan

The 8th National Economic and Social Development Plan (1997-2001) recognizes that the publicsector lacks accountability and mechanisms for public voice in government affairs. The Plan stronglyemphasizes accountability. Section 7 of the Plan focuses on the development of Popular Governance to:(i) enhance public participation in policy formulation and implementation of government services, (ii)strengthen the application of the rule of law in public administration, and (iii) improve the public sector'sefficiency and effectiveness in public administration. Two key strategies are to strengthen lawenforcement and to create an enabling environment to support the participation of all sectors in thedevelopment process.

New Constitution

Thailand's new Constitution, adopted in October 1997, marked a clear break with the past.Making the wielders of state power accountable to the people is its strong central focus. Among the mainthemes of the Constitution there are:

* An explicit right to information.

* A requirement to decentralize power to accountable local bodies.

* State support for some kinds of election campaign expenses.

= Independent watchdog institutions, with real 'teeth'.

- An independent judiciary, including a system of Administrative Courts to enforce Governmentaccountability.

* A requirement for persons holding high office to disclose assets and liabilities, and for thisinformation to be available for public scrutiny.

* Special and expeditious procedures for prosecution of high personages for corruption, through aspecial 'Supreme Court Division for Persons Holding Political Office'.

* Enabling environment for public participation in policy formulation and inspecting the exercise ofState power at all levels.

Strategiesfor Reform

The overall strategies of Thailand's public sector reforn program are to strengthen and invigoratethe process of change to a more transparent and accountable system of governance. The specificobjectives are: (i) increased institutional accountability, through the strengthening of formal institutionalstructures; (ii) improved access to, and use of, public information by individual citizens and civil society,including improved responsiveness of the Government in providing this access; (iii)increasing probity inthe Civil Service; and (iv) enhanced civil society participation. Complementary activities involveimproved government procurement procedures to enhance both efficiency and transparency, andinvolving civil society in promoting transparency.

-71 -

ANNEX 1

Increase Institutional Accountability

The main thrust of the reform in this area is to build a strong institutional framework foraccountability by establishing and operationalizing effective accountability institutions in accordance withthe mandate of the new Constitution. Among these new or strengthened institutions are the nationalcounter-corruption commission, the ombudsmen, and the administrative courts.

The National Counter Corruption Commission. A Counter-Corruption Commission had existed sincethe mid-1970's, as part of the executive branch of government. Its mandate and power, however, werelimited as the Commission could only undertake preliminary investigation when presented withallegations of wrongdoing by civil servants. All further investigation was to be carried by the police; andthe disciplining of civil servants found at fault was handled by the relevant line agencies. TheCommission had no power to investigate members of Parliament or ministers or high officials who hadbeen out of office for more than a year.

The Constitution of 1997 mandated the establishment of a new National Counter-CorruptionCommission (NCCC) by October 1999, and spelled out the mechanisms and criteria for the selection ofthe commissioners to ensure the autonomy of the NCCC (see Articles 297-302). The NCCC is chargedwith the review of the reports on assets and liabilities which persons holding certain political positions arerequired to submit within thirty days of taking office, within thirty days of leaving office and again withinthirty days of a one-year period following departure from office. The prime minister, ministers, membersof Parliament, other political officials and certain local administrators and elected officials, and theirspouses and children, are all subject to this disclosure requirement. The NCCC has the power and dutiesto review these reports for accuracy and to inspect the actual existence and changes of assets andliabilities of these individuals (Articles 291-296, 301). Moreover, upon an allegation of unusualwealthiness indicative of corruption, or of malfeasance in office, brought by a quorum of the House ofRepresentatives or of the Senate, or by no fewer than fifty thousand voters, the Senate can refer the matterto the NCCC to investigate and report back. In the event the NCCC decides that there is a prima faciecase of wrongdoing, in addition to making its report to the Senate and recommendation for removal of theindividual from office, the NCCC also provides the report to the Prosecutor General for institutingprosecution in the Supreme Court of Justice's Criminal Division for Persons Holding Political Positions.If the Prosecutor General fails to bring proceedings as recommended, the NCCC has the power to instituteprosecution itself or to appoint a lawyer to do so in its stead (Articles 303-305).

The nine commissioners of the NCCC have already been selected. A draft organic law oncounter-corruption, which would provide definition of acts of corruption and procedures for accusationand investigation of corruption, has been submitted to Parliament.

While waiting for the enactment of the law on counter-corruption and the formal establishment ofthe NCCC, the provisional office of the NCCC has already begun to assess the challenges it will face andto formulate a plan of action. In order to accomplish its mandate of review and investigation, the NCCCwill need staff in sufficient number and with appropriate training and experience. Sufficient resourceswill be necessary to enable the NCCC to maintain such staffing levels and to ensure their adequateremuneration. While the NCCC is working toward building the level and capacity of its staff, it will beseeking the support of the Police Department and the Office of the Attorney General to carry out itsinvestigative and prosecutorial responsibilities. The provisional office of the NCCC is also focusing onmeasures of prevention. It is formulating a campaign of education reaching down to the tambon level ofgovernment and, with the help of the Department of General Education, developing a curriculum on

- 72 -

ANNEX 1

public ethics. The research and planning division of the NCCC will assess and recommend to Cabinetother initiatives to enhance the prevention of corruption, such as improvement of regulations.

Ombudsman. The Constitution of 1997 mandates the enactment by October 1999 of an organic law onOmbudsmen which will establish a novel mechanism for grievance and accountability for Thailand. TheOmbudsmen, who are to be no more than three in number, will be selected by the Senate andrecommended for appointment by the King. They have no power of sanction or punishment. Theirmandate is to investigate, on petition from the public, complaints of the failure of individual officials orgovernment agencies to perform in compliance with the law, or of actions beyond their powers and dutiesas provided by law, or of actions or omissions, whether lawful or not, which unjustly cause injuries to anindividual or to the public. In carrying out their fact-finding duties, the Ombudsmen will have the powerto require the cooperation of the relevant agencies. The Ombudsmen will submit their reports, includingrecommendations, to the National Assembly.

As of September 1999, the organic law on Ombudsmen has already been approved by Parliamentand is awaiting the signature of the King. The challenges facing this new institution lie in theidentification and selection of qualified individuals to serve as ombudsmen, and in the allocation ofsufficient resources, both human and material, to support the performance of their responsibilities. Ofequal importance is the need to ensure that the population knows of the functions and availability of thisinstitution, and can obtain access with relative ease. To facilitate access, it is anticipated that offices ofthe Ombudsmen will need to be set up not only in the capital area but also in a number of regionalcenters.

Administrative Courts. Since the mid-nineteenth century, Thailand has experimented, without greateffect, with various mechanisms to handle disputes between agencies of the State, and between agenciesof the State and private persons. The Constitution of 1997 mandates the establishment within two years ofa system of independent specialized Administrative Courts. The Administrative Courts will have theduties and powers to try and adjudicate disputes among state agencies or between state agencies andprivate persons arising out of actions or omission of such state agencies. To ensure the independence ofthe Administrative Courts, the Constitution provides that appointment and removal, promotion andsanction of administrative judges are not controlled by the Government, but entrusted to the judicialcommission of the Administrative Courts which consists of the President of the Supreme AdministrativeCourt, nine administrative judges elected by their peers, and three other members two of whom areelected by the Senate and one by the Council of Ministers. Similarly the Administrative Courts will haveautonomy in the administration of their personnel, budget and other ancillary activities. The currentadjudicatory functions of the Petition Commission of the Council of State will be abolished.

The law on Administrative Courts has been approved by Parliament. Much remains to be done,however, to make the system of Administrative Courts a fully operational and effective institution.Judges and court personnel need to be selected and trained; court procedures need to be furtherdeveloped; and gradually an entire jurisprudence will need to be formulated. To facilitate access to theAdministrative Courts, the law provides that at least sixteen regional administrative courts will beestablished in provincial cities.

Enhance Public Access to Information

Office of the Official Information Commission. The new Constitution establishes the right of anindividual to obtain access to public information prominently among the fundamental rights and libertiesof the Thai people (see Articles 58-59). The Official Information Act was enacted in early October 1997to define broadly the framework for disclosure and confidentiality of information in the possession orcontrol of a state agency. To give effect to the Act, an Official Information Commission (OIC) presided

- 73 -

ANNEX 1

over by the Permanent Secretary of the Office of the Prime Minister and consisting of high levelrepresentatives of line agencies, and Information Disclosure Tribunals with specialized expertise in thefields of national security, economy and finance, science, public health among others, were established.An Office of the Official Information Commission (OOIC) was organized to support the Commission andcarry out its work. Under the Act, a private person who considers that his or her request for publicinformation has not been met by the relevant state agency, has the right to bring a complaint to the OICwhich is required to review the complaint and give a decision within thirty days of receipt. The OIC mayrefer any appeal against an agency's response to a request under the Act to an Information DisclosureTribunal selected for its particular specialization.

Awareness of citizens' right to public information has been on the rise, especially in urban areas.In recent months, the citizens and media in Bangkok have won highly publicized cases of request fordisclosure of information, including the cases of medical supplies involving the Ministry of PublicHealth, of the national budget, of the results of entrance examination in prestigious public pilot schools,etc. Nevertheless, there are major difficulties in the implementation of the Act: misunderstanding of thepublic and the state agencies regarding the law; instances of lack of cooperation from the state agencies;insufficient staff and resources for the OOIC and limited capacity of the Tribunals to handle theincreasing number of appeals. There is a perceived need for sustained efforts to educate both the stateagencies and the public on the meaning of the law and the procedures it entails. Cabinet has issued anorder to line agencies to organize training programs for their personnel regarding the provisions of theOfficial Information Act. The OOIC has prepared clear guidelines in the form of a handbook. It isexpected that within the coming year, agencies will revise their administrative rules and procedures orissue new ones to enable them to comply more effectively with the Act and the guidelines of the OIC.

Promote Probity Among Civil Servants. Civil servants -- together with politicians -- have been repeatedlyembroiled in corruption scandals that are regularly reported in the media. Whether these are highlypublicized cases (such as those involving the award of a contract for a large infrastructure project) orsimply incidences of petty corruption (for instance, bribing a police officer to avoid a speeding ticket or acustoms official to speed customs clearance), citizens' perception of the transparency and probity of thecivil service affects its performance and potential. A key ingredient of an effective anti-corruptionstrategy is to reduce the differential in pay scales between the public and the private sector. Particularlyin the years preceding the crisis, incentives and salaries in the public sector increasingly lagged behindthose offered in private firms -- thus making civil servants susceptible to temptation. A second element ofincreased transparency will be the promotion of the code of ethics for civil servants and programs tofamiliarize civil servants with its principles. While such a code or associated training is unlikely to serve,on its own, as a deterrent to corrupt behavior, it can at least define and establish a new accepted practice,which, so far has remained purposefully undefined and vague in Thai bureaucratic culture. An in-depthunderstanding of the informal incentives and opportunities for corruption will be necessary in order todesign a code that can hope to address the real sources of abuse. This reform will be carefully linked tothe redesign of the financial management system and must be buttressed by support from key interestsamong the political class and within civil society in order to take root firmly in the Thai environment.

The Office of the Civil Service Commission is establishing an Ethics Promotion Center to ensurethe implementation of the Code of Ethical Standards among government officials, and other employees ofthe State. In February 1999, the Council of Minister approved OCSC regulations to protect civil servantswho provide evidence or information regarding corruption., the "Whistle Blower" regulations. Thetransition Office of the National Counter Corruption Commission is currently working with the OCSC onestablishing the Witness Protection Plan.

- 74 -

ANNEX 1

Box 1.3: Non-Governmental Organizations Promoting Transparency

The Good Governance Task Force, The Foundationfor Thailand Development Research Institute.

The Good Governance Task Force is headed by former Prime Minister Khun Anand Panyarachun. This TaskForce believes that the most effective way to reform the public sector and mobilize civil society on governanceissues is to work through an independent body outside of the Government. The Task Force has established a GoodGovernance Project at the well-known local think-tank, the Thailand Development Research Institute (TDRI). TheIndependent Body on Good Govemance would be comprised of representatives from govermment agencies, privatesector and civil society. Under the Independent Body would be a National Committee of leading figures, as well asworking groups that would support the Committee in five major areas of governance: (i) legal reform, including thenew Constitution and all organic laws; (2) public sector reforn, including key government agencies; (3)transparency and anti-corruption; (4) corporate governance; and (5) increasing public awareness.

The Political Economy Center, Chulalongkorn University.

The Political Economy Center is the leading institution conducting research on corruption and anti-corruptionefforts in Thailand. Renowned academics conduct investigations and surveys, publish monographs, and analyzeissues spanning the Thai bureaucratic system. The Counter Corruption Commission has commissioned several ofthese works.

Transparency International- Thailand-Chapter

The Thailand Chapter of Transparency International (TI) has been newly established in conjunction with theGovernment's Transparency Working Group. The Group's activities include: (i) awareness-raising and publiceducation on professional ethics through newsletters and seminars on conflict of interest issues, (ii) consciousness-raising on anti-corruption issues through newspaper columns, essay contests, citations for best practices, media-TVfeatures and programs, workshops on transparency and accountability for young people and others, (iii) studies andresearch, monitoring of issues and public opinion, an attitude survey on best practices, and ways and means tocounter corruption, (iv) support systems, networking and affiliations to support "whistle blowers," regional,provincial and local TI affiliates.

Other Non-Governmental Organizations' Activities

Several bilateral donors provide support on anti-corruption and transparency issues in Thailand. For example,CIDA and the Asia Foundation have been working on "Government Accountability" and transparency programs forseveral years. Several Thai NGOs also work as watchdog organizations on particular issues such as the RuralDoctors Network, the Consumer Protection Network, and the Campaign for Popular Democracy.

Enhance Civil Society Participation

8h National Economic and Social Development Plar.. One of the Government's initiatives to strengthenaccountability and transparency in the public sector is to enhance citizen participation and provide moreopportunities and mechanisms for public voice. The Government has been improving and encouragingcivil society participation in policy-making processes since the drafting process of the 8 th NationalEconomic and Social Development Plan. For the first time in the Thai history, public hearing andforums were organized throughout the country to gather public inputs for the drafting of the Plan. As aresult, the 8th Plan has a fundamentally different focus from previous Plans. It has called for "holisticpeople-centered development", good governance, and civil society participation in national policyformulation and implementation.

In order to address the perceived weaknesses of the public sector, the 8ih Plan called for thedevelopment of "Popular Governance" by enhancing public participation in policy formulation andimplementation of the government services, strengthening the application of the rule of law in publicadministration, and improving efficiency and effectiveness in public administration.

- 75 -

ANNEX 1

The NESDB has established a Sub Committee on "Civil Society" to provide inputs and monitorthe implementation of the 8'h Plan. Representatives of civil society have participated regularly in sub-committee meetings. In addition, the Development Evaluation Division of the NESDB is developingindicators to monitor and evaluate public performances.

The National Social Policy Committee. In July 1998, the Government established the National SocialPolicy Committee in response to increasing public demand to coordinate social policy, alleviate thenegative social effects of recession, solve poverty problems in both rural and urban areas throughout thecountry, and generally integrate the economic, social, cultural, and environment priorities outlined in the8th Plan. The Committee is headed by the Prime Minister and consists of representatives from keygovernment agencies, academia, and civil society organizations. The NESDB acts as the Committee'ssecretariat. One of the main features of the Social Policy Committee is that it has endorsed the policy tostrengthen human resources for development by minimizing the role of the state and maximizing theparticipation of interest groups in civil society. Recently, the Committee has set up a Task Force on"Strengthening Civil Society" headed by the Minister Attached to the Prime Minister's Office. TaskForce representatives come from government agencies, academia, and civil society organizations. TheTask Force is currently working on improving the enabling environment for civil society to better engagein policy formulation and implementation at both national and local levels.

Civil society in the new Constitution. One of the notable features of the new Constitution is its explicitemphasis on the role of civil society in policy making processes. In particular, two articles under theConstitution establishes policy guidelines for public participation and civil society mechanisms to bringthe government to be accountable to the public:

* Article 76: The State shall promote and encourage public participation in laying down policies, makingdecisions on political issues, preparing economic, social, and political development plans, and inspecting theexercise of State Power at all levels.

e Article 89: To implement this Chapter (Directive Principles of Fundamental State Policies), the State shallestablish the National Economic and Social Council to be charged with the duty of giving advice andrecommendations to the Council of Ministers on economic and social problems. A national economic andsocial development plan and other plans as provided by law shall obtain the opinions of the National Economicand Social Council before they can be adopted and published. The composition, source, powers and duties, andthe operation of the National Economic and Social Council shall be in accordance with the provision of law.

Civil Society in the National Economic and Social Council (NESC). To give effect to Article 89 of theConstitution quoted above, the NESDB was given the responsibility to prepare the draft law on theNESC. As of July 1999, a preliminary draft has been prepared to define the composition of the NESCand the selection criteria for its members, and the details of its functions, duties and operation. Under thisdraft, the NESDB was striving for the broadest and most faithful representation of Thai civil societyproposing selection criteria based on geography, gender, occupation, etc. Public opinions on this draftwill be sought through public hearings before its finalization and submission to Parliament.

Complementary Reforms

Improving Government Procurement Procedures. Thailand's national procurement process has evolvedover many years and is currently governed by the 1992 Government Procurement Regulations asamended through 1998. The Bank has been able to promote some inputs in the crafting of thesedocuments and the regulations per se are sound, and except for a few differences, broadly match theBank's own Procurement Guidelines. While instilling a measure of discipline in the mechanics oftheprocurement process, the regulations have not improved its transparency, and corruption in procurementamong Government agencies is alleged to be rampant and routine at many levels. Powerful external

- 76 -

ANNEX 1

vested interests, which influence the highest levels of Government, tend to exercise disproportionateinfluence on procurement, especially when the sums involved are large, and the media have reportedfrequent occurrences of collusion among bidders for lucrative contracts. Political influence onprocurement from within the Government affects both government departments and state-ownedenterprises, through their Boards. Several reputable individuals, who draw support from the populationand the press, have begun to exercise their voice and discontent with established practices. The Bank hasrecently become more involved in transparency and governance issues on individual cases; it expects tomake more concerted efforts in this direction through the Country Procurement Assessment Review(CPAR) exercise which is scheduled to be conducted in late 1999 to complement the Government'spublic sector reforn program. In addition, the Law Reform Commission of the Council of State hascommissioned an academic research team to conduct an in depth study on procurement procedures.

Transparency Surveys. An effective campaign against corruption can only succeed with the activeinvolvement of civil society. The plethora of non-governmental organizations in Thailand and thecountry's free press are powerful moderating forces for monitoring and demanding transparency in thepublic sector. The Government's public sector reform program will cooperate with key civil societyorganizations (including those listed below) that are working on good governance and public sectorreform by engaging them in survey activities, workshops and dialogue. This effort will be supported bytwo studies: i) a 'zero-base' regulatory review of two agencies and ii) a comprehensive survey of theprevalence of corruption.

Zero-base review of regulations. Experience worldwide shows that the potential for corruption in a givenrelationship between citizens and the government varies directly with the extent of discretion exercised ina transaction and possible delays in that transaction. The degree of discretion and delay depend largely onGovernment departments' rules processes and procedures which in tum usually stem from a combinationof legislation, ministerial or departmental rules or regulations, precedent and informal practices.

Government rules have a tendency to accumulate as new regulations are issued to meetdeveloping situations without (in most cases) discarding the old. Vested interests develop within thebureaucracy and outside in maintaining old regulations. Since departments often operate in a "fire-fighting mode," fundamental reassessments of rules and procedures are rarely done. The study aims toconduct a fundamental assessment of rules and procedures as an effort to reduce corruption and improveservice delivery in selected government departments or agencies. It will be conducted by the KingPrajadhipok's Institute - an autonomous public organization attached to Parliament - and will aim to:

* assess the continued relevance of departmental rules, procedures and processes;* identify those that are no longer considered necessary or desirable in public interest and advise on

their abolition or modification* suggest -where appropriate-new rules or procedures to replace the old.

The study will take a 'zero-base' approach-i.e. the starting assumption will be that the existing ruleis unnecessary and then each rule or regulation will have to be justified on merits. In carrying out thestudy, public aspirations for speed and simplicity in regulation will be balanced with legitimate stateregulatory roles.

Survey on the prevalence of corruption. The Office of the Civil Service Commission, incollaboration with the World Bank Institute, will carry out a comprehensive survey on perceptions aboutcorruption. The OCSC will work with the University of the Chamber of Commerce, the ThailandDevelopment Research Institute, the King Prajadhipok Institute and the Political Economy Center,Chulalongkorn University to carry out these attitude surveys. The survey will cover households,businesses and civil servants using a methodology refined by the WBI and already used in several othercountries. It will aim to pinpoint specific problem areas as well as prioritize areas for action. The survey

-77-ANNEX 1

will compare the perceptions of the three groups and provide the government and civil society with astrong information base from which to proceed in strengthening the campaign against corruption.

The State Auditor. Under the new Constitution, the State audit shall be carried out by the State AuditCommission and the Auditor-General. The State Audit Commission consists of the Chairman and nineother members. As of July 1999, the draft organic law on State Audit has been submitted to Parliament.

-78 -

ANNEX 2

ANNEX 2: PERFORMANCE IMPROVEMENTS IN LINE MINISTRIES

Delivering better services in a cost effective way is a key objective of the Government's PublicSector Reform Program (PSRP). This will require enhancing the access, timeliness and quality of publicservices through outsourcing, restructuring or decentralizing activities and being more responsive toclients. Administrative renewal involves modernizing the role, organization, and processes of key lineministries to enhance their performance in delivering services. More efficient use of public resourcesrequires streamlining procedures, eliminating duplicative structures, devolving to local governments oroutsourcing activities inappropriate for government involvement to the private sector.

These objectives will be achieved through a step-by-step process of improving the performanceof selected line ministries. This performance improvement process will involve the close coordination ofthe Bureau of the Budget, the Office of the Civil Service Commission, and the line ministries themselvesto achieve synergies in translating public expenditures and human resources into performance. Theperformance improvement process will initially be piloted in three priority ministries and will then berolled out to other ministries. Building on reform efforts already under way, the first year of theGovernment's PSRP will focus on social and economic services delivered by the Ministries of Education,Health, and Commerce. Other ministries are expected to join the PSRP framework in the second andthird years and will design their reform programs based on the lessons learned from earlier ministerialreforms. Subsequent phases of the PSRP are likely to focus on other government services with importanteconomic and social objectives, including the Ministry of Science, Technology and the Environment, theMinistry of Agriculture, the Ministry of Industry, and the Ministry of Labor and Social Welfare.

While they share the objective of improving performance, the nature, scope and pace of reformsacross these agencies will have different characteristics. The education and health sectors - whichtogether account for 40 percent of public expenditures -- are at the core of an ambitious sectoral reformprogram. One focus of their efforts is the gradual devolution of budgetary control by the Bureau of theBudget in return for performance agreements. Other key reforms involve decentralization, organizationalrestructuring, service standards and civil society involvement. The much smaller Ministry of Commerceis the first of the agencies to complete a functional review under the auspices of the OCSC. Over the nextthree years, it will focus on organizational restructuring, legal changes and devolution of functions.

The Government's PSRP will support organizational and policy changes bolstered by technicalassistance in pilot ministries, with the aim to achieve the following objectives:

* Improve the planning capability of sector ministries through functional reviews of program areas andcorporate plans;

* Improve line ministry performance through performance budgeting, resource agreements andmonitoring with increased flexibility granted by the Bureau of the Budget;

* Align organizational development and restructuring programs for government ministries anddepartments with their service objectives;

* Devolve non-core functions to local governments, contract to the private sector or to AutonomousPublic Organizations;

* Improve the efficiency of service delivery in core areas of ministry activity; and* Strengthen human resources and structure staffing levels to meet the ministry's objectives.

By the end of the program period, support through the Government's PSRP should achieve thefollowing results:

- 79 -

ANNEX 2

* Completion of functional reviews in social and economic ministries;* Creation of corporate plans to reorganize and reengineer social and economic ministries in light of the

functional reviews;* Devolution of identified services to local governments or the private sector;* Begin rationalizing and reengineering of Ministries through organizational restructuring.

Improving Strategic Planning of Sector Ministries

A key to promoting better allocation of resources is the establishment of strategic results areasand key results areas for each ministry. A ministry must have a clear vision of its role and this depends inpart on the Government's overall vision for the public sector. Strategic results areas are medium-termobjectives for the public sector that contribute significantly to the Government's longer-term policy goalsand objectives. Key results areas define the critical areas that each ministry focuses on in the mediumterm in contributing to the Government's strategic results areas. Establishing a corporate plan whichincludes the vision and mission statements along with key results areas and performance indicators willenable ministries to specify clear strategies for moving towards a results-oriented public service.

Functional Reviews and Corporate Plans

Organizational renewal in the selected line ministries will begin with Functional Reviewsthat willfirst examine the mission objectives of each ministry. Second, the functions and organizational structuresof the ministry will be assessed to see if they meet these objectives. Third, the Functional Reviews willevaluate the roles and responsibilities of the state in this sector and the scope for devolution to localgovernments or outsourcing to the private sector. Finally, the Reviews will determine whether theadministrative structure of the ministry matches its objectives and functions. TheFunctional Reviewswill assess the organizational structure in the context of these functions, and the degree of duplication oftasks and responsibilities at departments within and among the ministries. They will identifyopportunities for restructuring and for privatization and decentralization of service delivery.

After completing the Functional Reviews, the ministries will draft corporate plans for reorganizingeach ministry to improve its efficiency, transparency, responsiveness to citizens, and quality of services.These plans will examine opportunities for "rightsizing' the civil service (through adjusting staffing levelsto new public sector requirements), reorganizing the administrative structure to best meet objectives,eliminating redundant departments or functions, improving coordination among ministries, andoutsourcing services to the private sector.

After examining opportunities for private sector participation, client surveys will be conducted toincrease awareness and improve responsiveness of government ministries to the citizens they serve.Finally, performance contracts stating goals for efficiency and service quality will be drafted andbenchmarks for performance defined. A summary of mechanisms for enhancing the citizen orientation ofservice delivery are summarized below.

- 80 -

ANNEX 2

Box 11.1: Mechanisms for Enhancing the Citizen Orientation of Service Delivery

* Setting service standards (as part of performance agreements), based on consultation with users regarding whataspects of service quality they most value

* Re-engineering service delivery, including administrative simplification* Publicizing service standards (charters etc) so citizens are aware of their reasonable entitlements. Ensuring that staff understand and accept these standards, and work towards them as part of the general

performance management system. Measuring performance against standards, and taking corrective action as necessary. Developing accessible complaint and redress mechanisms as part of achieving these standards

I. Improving Line Ministry Performance

Performance Budgeting

To provide the underpinning for a successful introduction of performance budgeting, theGovernment's reform program will implement a hurdle approach on a pilot basis using separate ResourceAgreements between the Bureau of the Budget (BOB) and each pilot agency. The strategy of piloting themodernization of Thai budgeting processes in a small number of relatively progressive agencies is acompromise between pragmatic evolution of budget reforms over an extended period (such as theAustralian model) and revolutionary change across the whole of the public sector (such as the NewZealand model). The former offers an unacceptably slow path of change in the Thai circumstances whilethe latter involves major implementation problems in the Thai cultural context. The Ministries ofEducation and Health have been chosen by BOB as pilot agencies.

Role of a Resource Agreement

The Resource Agreement will take the form of a Memorandum of Understanding (MOU) signed byBOB and the pilot agency. The MOU will stipulate that the pilot agency will receive the benefits of(specified) financial decontrol by BOB when (and only when) specified changes in its financial andperformance information systems have been introduced (the 'gap filling' concept). These includefinancial control procedures acceptable to BOB and minimum standards of performance informationrelating to the agency's programs.

Sequencing

MOUs have been signed following an assessment of the extent of gap filling required in the pilotagency in regard to its management and performance systems. The actual timing of decontrol itself,however, will depend on the time taken to complete the gap filling effort. This depends on the scale ofthe changes required and the intensity of the effort. It is desirable for the line agencies chosen for thepilot to have already developed their financial control and performance information systems and have apositive attitude to change. This will maximize the chance of the pilots succeeding within a short timeframe, and Resource Agreements being quickly extended to a second round of line agencies.

Implementation Arrangements

A separate Implementation Team has been established for each pilot agency, to manage the gapfilling effort. Each Team is based in the BOB Analyst's Office responsible for the agency. A higherlevel Coordinating Team located in the policy area of BOB assists and steers the Implementation Teams.

- 81 -

ANNEX 2

This arrangement is intended to maximize skill transfer to the operational areas in BOB, together withtheir 'ownership' of the changes. This is essential given the role of BOB sector experts in the monitoringof performance information following financial decontrol.

Devolve Non-Core Functions

Various means exist for a Ministry to commercialize or devolve services that lie outside of its keyfunctions. Options include transferring services to the private sector, through privatization or serviceagreements, contracting out services through new partnership arrangements, devolving services to sub-national governments, or transferring them to another organization (including APOs) or Ministry.

II. Ministry of Education Restructuring Plans

Issues in Education Reform

Support for education reform has been building for four years, culminating in legislation (theEducation Act) and action plans that if carried through will transform Thai education over the nextdecade. Much has been achieved in developing education in Thailand. But to improve thecompetitiveness of the economy, ensure equity in access and benefits, and to improve efficiency in theuse of public resources, much more remains to be done.

- The need to expand secondary and tertiary education in ways that build economic competitivenessand also equity of opportunity to benefit from growth is a central challenge to the reform ofeducation.

* Quantitative expansion brings quality issues to the fore. Maintaining quality during rapid expansionhas been a challenge

* While great strides have been taken toward ensuring equitable access to education across Thailand'sregions, educational resources - the most experienced teachers, computers, supplementary learningresources -- are inequitably distributed.

- Although public education has been well financed at 20-25 percent of national budgets for the pastdecade, a highly centralized education system has contributed to both quality and equity gaps.

Implementation of Public Sector Reforms in Education

Driven by a new Education Act and two years of consultation and preparation, public educationreforms will be launched to improve management, service quality and transparency. New (decentralized)local education authorities will be created and granted power over curriculum, personnel and finance.The central ministry will be restructured and downsized to reflect a shift from control to leadership andsupport for a decentralized system. New performance, licensing and employment conditions will beestablished for teachers. Independent quality assurance mechanisms will be established, and a strategicprogram of stakeholder consultations and public communications will be established.

The education financing system would be radically changed to provide block grants to LEAs and toschools, with amounts based on a standard per capita grant plus additional per capita grants based onpoverty and other equity issues, including provision for disadvantaged and handicapped students.Schools within the LEA would be funded on the same basis. LEAs and schools would be empowered toraise additional funds and to determine their use. Private schools would receive subsidies determined inrelation to the unit cost of education at different levels.

- 82 -

ANNEX 2

The reform process will be managed by an Education Reform Committee (ERC) which, under theEducation Act passed in August, 1999, will be established as an autonomous public organization with athree year mandate to carry out the reforms required by the Act. The ERC will report to the Office of thePrime Minister and be supported by an Education Reform Office whose staff will be drawn primarilyfrom the present Office of the National Education Commission. A counterpart Education Reform Officeis being established in the Ministry of Education.

Key reform objectives include: (i) improvement in management effectiveness and efficiency, (ii)improvement in the quality of education services, and (iii) increased transparency and civic participation:

Improve management effectiveness and efficiency

* Restructure and downsize the Ministry of Education

* Decentralize authority to Local Education Agencies (LEAS) and schools

* Reform conditions of teacher certification and employment

Improve the quality of education services

- Establish independent quality assurance function

* Develop and implement improved models of classroom instruction

* Reform secondary education based on a new Vocational Education Law

* Expand and improve the use of education technology

Increase transparency and civic participation

* Public communication

- 83 -

ANNEX 2

Restructure MOERC National Education Act Strategic review MOERC restructuring Bill MOE restructuring completed. MOE,promulgated and enacted completed and legal approved by MUA and ONEC merged.

Establish new governance and Royal Decree Cabinetmanagement structures required Key studies completed establishing theby the Education Act Education Reform Vocational Education Act

Strategic Review launched Committee APO approved by CabinetEducation Reform approved by CabinetCommittee APO submittedfor Cabinet approval ERC Board appointed

under the Education ActDecentralization Final Report on Guidelines Local Education Areas Pilot LEAs launched in 12 Expand to LEAs in an additional 35

for MOERC (LEA) defined provinces and first year provincesAuthority to newly established Administrative Reform: evaluations completedLocal Education Areas (LEAS) Decentralizationand schools for curriculum,personnel and financial Memorandum ofmanagement Understanding with Bureau

of the Budget signedTeacher Employment Reform Freeze on teacher hiring at Plan for teacher Teacher evaluation and Teacher evaluation and certification:

elementary level retraining and certification: Phase I Phase 1 15,000 additional teachersIncrease student:teacher ratio in redeployment to 10,000 teachers certified certifiedelementary schools to average of Cabinet approves early secondary approved. New law on teacher salaries and benefits25: 1; Establish teacher retirement scheme for civil Law on teacher salaries and applied to newly appointed teachers.evaluation and certification service Regulations for teacher benefits approved bysystem conditions of teacher evaluation and Cabinetemployment improved certification approvedQuality Assurance Committee established to Royal Decree 2000 school administrators 2,000 internal evaluations completed

prepare for Quality establishing Quality trained to conduct internalEstablish an independent quality Assurance Agency APO Assurance APO evaluation;l0,000 school 2,500 external evaluations completedassurance agency. approved by Cabinet staff trained to prepare for

external evaluation

Public Communication Communication Strategy Mass communication Impact evaluation onapproved by ONEC and program expanded awareness and activism

Build active stakeholder MOE completedparticipation in reforms Monitoring of impact

Education Reform begunNetwork launched

- 84 -

ANNEX 2

III. Ministry of Public Health Restructuring Plans

Key Issues for Health Sector Reform

Over the last 30 years, Thailand has achieved remarkable progress in health improvements duelargely to the efforts of the public sector. Most health indicators have improved dramatically. Publichealth care services reach virtually all communities through an extensive primary health care andsecondary health care system. The public sector runs 790 hospitals and 9,222 health centers. Seventyfive percent of hospital beds are in the public sector. The public sector finances about 52 percent of thetotal health expenditures in Thailand, representing about 2.5 percent of GNP'. Sixty percent of thesepublic expenditures go directly to public facilities through the provision of line budgets for salaries,equipment, other investments and specific funds for public health programs. The remaining 40 percent ischanneled to health care facilities through various health insurance schemes that together cover about 74percent of the population for curative services. Two health insurance schemes are fully governmentfunded: (i) the Civil Servant Medical Benefit Scheme (CSMBS) (6.6 million people, 11 percent of thetotal population), and (ii) the Public Assistance Scheme (27 million people, 45 percent of the totalpopulation). Three other schemes receive public funding (Social Security, Workmen CompensationScheme and Health Card). Public health programs (family planning, EPI etc ) are generally provided freeto all.

The present health system faces several challenges. The epidemiological transition creates newneeds. Inequities in health outcomes still prevail. Political changes exemplified by the newConstitution support the decentralization of health services, greater accountability and transparency ofgovemment services as well as greater civil society involvement. Improvements in the educationalstatus and urbanization of the population lead to expectations for equitable access and high-qualityservices. Finally, the economic crisis reduced available financing for the health sector, and increasedthe need for improved allocative efficiency.

Key problems in the present provision and financing of health services include the following:

* Allocation of funding to provinces is not related to any assessment of needs or economicvulnerability. The average subsidy of the MOPH is about Bt600 per capita. Few provinces have aGross Provincial Product (GPP) above Bt50,000. Yet, these provinces receive roughly the same levelof subsidy as other provinces with lower GPP. Rather than allocating funding to provinces based onhealth needs, funds are often allocated based on the number and level of activities of public facilities.

* Provinces lack autonomyfor local needs-based budgeting. Provinces receive their funding for healthas input-based subsidies from the line budgets of various departments of the MOPH and otherministries. Provinces lack flexibility to reallocate these budgets according to their own needs andobjectives.

* Payments to providers are not standardized and provide few incentives for better services. Eachinsurance scheme has its own mode of payment and level of subsidy. Most are insufficiently linkedto performance. Payments are mainly linked to the level of activity of health facilities and costestimate of inputs consumed. The present schemes offer different levels of benefits and use differentmechanisms to pay providers. The poor (LIHC) and the near-poor (VHC) receive the lowest subsidy.

Songkla M.N et al "Equity in health and health care in Thailand", Nonthaburi, HSRI, pp.44

2 Between 1997 and 1998 the budget of the MOPH was cut by 9.4 billion bahts -or 14% .The investment expenses dropped from 39.4% in 1997.To 26.9% in 1998 and about 16% in 1999.

- 85 -

ANNEX 2

On a per capita basis, private-sector employees receive three times more than the poor in governmentsubsidies.

* Payments to health facilities are fragmented and hospitals have insufficient management autonomy toreallocate between line budgets. Hospitals must manage several budgets, each with different sets ofregulations. The Ministry of Public Health provides ex-ante control but there is no regularmonitoring of performance in terms of quality, efficiency and equity.

* Insufficient social accountability weakens incentives for better performance by public providers.Civil society involvement in health is still very limited, and the knowledge in-balance between healthproviders and users remain high. As a consequence, the health sector remains highly supply driven.

* Quality assurance mechanisms are not harmonized and vary between facilities and according toinsurance schemes. No standards of quality are used as a basis for payments to public healthfacilities.

* Health facilities lack integrated performance assessment and accounting frameworkl systems thatwould allow more efficient and transparent use of resources. All facilities have accounting systemsto follow up on the expenses conducted on their line budgets and internal revenue. Yet theaccounting is conducted on a cash basis. They lack accounting capacity to measure unit costs ofservices, and relate performance to cost and financing.

Ongoing Reforms

Since 1997, health care reform efforts have promoted the adaptation of the health system to crisisconditions. A "Good Health at Low Cost" plan has been designed. For several years now, efforts toreform the health sector have been undertaken with the goals of: (i) improving the quality of care withincreased emphasis on primary care and health promotion and the development of a minimum carepackage guaranteed to all; (ii) increasing the efficiency of services with revision of provider paymentmechanisms and harmonization of the various insurance schemes; and (iii) improving the equity of healthservices, by equalizing subsidies on the basis of needs and income.

Health care reforms are presently undertaken by the MOPH through a three-pronged approach:(i) support for analysis and operations research by the Health Services Research Institute which has beenconducting studies on various aspects of providing and financing health services; (ii) technicaldevelopment and field testing of key strategies in 6 provinces covered by the Health Care Reform Projectsupported by the EU, and (iii) policy development and field testing of strategies in 7 provincial hospitalsthrough the Health Financing and Management Study Project supported by the ADB.

Health care reform strategies have been developed and field-tested to address these issues.

Block grants to provinces, equalized on the basis of objective criteria related to standardizedhealth needs will be used in the future. These block grants will be managed through provincialpurchasing agencies and Provincial Health Boards. The Provincial Health Office will become a purchaserof health care, with sufficient autonomy to use its budget according to locally identified priorities andprogram objectives negotiated with the MOPH. The low-income cards are already allocated on the basisof provincial poverty assessment. And some provinces are currently experimenting with the merger ofCMBS, LIC and HC funds.

Performance-based budgeting for provider payment aims to change the present system ofpayment to providers from activity-based and infrastructure-centered budgeting towards performance-based budgeting. Pricing of government subsidies and co-payments will be harmonized on the basis of

- 86 -

ANNEX 2

analysis of actual costs. Methods such as Diagnosis Related Groups (DRGs) and capitation paymentshave been developed and are being tested in about 10 provinces.

Quality assurance is a key reform element promoted within the Thai Health Care System.Different types of quality assurance mechanisms have been put in place in many facilities. A hospitalaccreditation program has developed quality standards for public facilities.

Civil society involvement in management boards of facilities aims to increase client control byusing and managing health resources at the facility level. Hospital governing boards involving clientswill be established.as part of the existing autonomous hospital project. Boards already exist in the privatesector and can provide examples. In some projects, management committees have been functioning forsome years with client involvement.

Information and financial management systems to facilitate the transparent and decentralizedmonitoring of performance, expenditures, costs and financing flows will be standardized. This impliesdeveloping accounting standards, auditing procedures and tools to identify management gaps and priorityneeds. The development of such tools is presently seen as part of the autonomous hospital project.

Implementation of Public Sector Reform in the MOPH

The PSRP will support fundamental structural changes that will facilitate and accelerate theimplementation of health reforms. In the MOPH the process of change will focus on:

* Preparing provinces for the system of block-granting and deconcentration of budgetary authority bydeveloping provincial planning and managerial capacity by (i) developing frameworks forconsolidated analysis of the provincial health budgets that detail comprehensive sources and use offunds in pilot provinces, (ii) testing the framework in pilot provinces and consequently reviewing themethodology, (iii) expanding the -process of provincial budget assessment to all provinces, (iv)establishing provincial health boards to allocate sector-wide provincial health budgets, and (v)developing new allocation methodologies to provide block funding from the MOPH to the provinceson the basis of need assessment. (Thai Resource Allocation Working Party)

* Developing the standards for performance-based provider payments by (i) adopting a policy ofperformance-oriented provider payment based on standard unit costs (using specific unit categoriesfor case-mix e.g. DRGs,) in all public sector facilities, (ii) establishing a National Health CareFinancing Committee responsible for developing harmonized benefit packages, standardized unitcosts and payment mechanisms across different schemes iii) adopting a first draft a National HealthInsurance Act iii) developing guidelines for performance based payment based on standardized unitcosts (iii) implementing these provider payment norms across all government subsidized insuranceschemes.

* Implementing civil society participation in the management of health facilities by (i) adopting apolicy supporting the participation of civil society representatives in hospital management boards, (ii)establishing civil society representation in the boards of all provincial and regional hospitals, (iii) andestablishing civil society representation in all Provincial Health Boards.

* Reinforcing quality assurance efforts by institutionalizing hospital accreditation by (i) adopting apolicy committing to the universal adoption of (public and private) hospital accreditation, (ii)establishing the National Hospital Accreditation Institute under the 1999 Public Organization Act(iii)using those accreditation criteria as one of the conditions for public sector payments in all (public andprivate) hospitals of the country.

- 87 -

ANNEX 2

* Developing the capacity of health facilities to assess and monitor performance costs and conductproper financial accounting by (i) developing a standard framework for facility-based assessment ofperformance, cost accounting and financial accounting, (ii) developing independent auditingprocedures and standards, and (iii) testing the framework and standards in pilot hospitals.

* Developing management autonomy of health facilities by (i) developing a process of autonomousbudget planning in provincial and regional hospitals, (ii) broad-banding line items budgets in onesingle block grant to provincial and regional hospitals, and (iii) developing a framework forperformance assessment and monitoring

The MOPH has established a coordinating technical committee to guide the process of healthreform. The Bureau of Health Policy and Planning will act as secretariat of this committee. AMemorandum of Understanding (MOU) has been signed by the MOPH and BOB. The MOU stipulatesthat the MOPH will receive the benefits of block-granting the budget for provincial and regional hospitalsby BOB when specific "gaps" in the financial and performance information systems have beenintroduced in the public health system.

The MOPH has identified five domains, which represent implementation "gaps" towards effectivepublic sector reform and need to be addressed for successful broad-banding. For each of these domainsthe MOPH has developed an implementation plan , including specific studies, constitution of task teamsand requests for specific technical assistance. The "gap" domains are:

- Development of the Thai Resource Allocation Working Party: the MOPH requires the assistance ofexperts with practical experience in developing a Resource Allocation Working Party to develop anapproach adapted to the Thai context.

* Performance Assessment: The Thai MOPH needs expertise in monitoring and evaluation to reviewthe performance indicators developed for provinces (needs and outcomes mainly) and for healthfacilities (outputs including case-mix, utilization, continuity, quality, equity, efficiency).

* Performance Based Payment: case-mix is one of the key performance measure to be used forcalculating the global prospective budget to be given to hospitals, using Diagnosis Related Groups(DRGs). Yet the reliability and validity of case-mix measures in the present management systemneeds to be improved. Experts in DRGs are needed to help refine the existing information system,particularly regarding the coding of diseases.

* Financial Accounting. financial accounting expertise is needed to help the MOPH devise a newaccounting system for regional and provincial hospitals based on the analysis of the weaknesses of thepresent system. (e.g.: moving from cash to accrual accounting).

* Cost Accounting: expertise in costing of health services needs to be reinforced to develop a system ofcost accounting integrated with the newly established financial accounting system, allowing tomeasure the unit cost of services provided by the health facilities.

- 88 -

ANNEX 2

PERFORMANCE IMPROVEMENTS IN MINISTRY OF PUBLIC HEALTHOutline of Reform Beunchmarks

Oct.198 to Sept 1999 Oet. 1999 to Sept 200 Oct. 2000 to Sept 2q01

1. ENHANCED POLICYPERFORMANCE

..... .. ... ,,.,,,, ........... ......... ..... ... . . .. e...... ...... ... ... ............ .. . . ................ ... . ....... . ... . ...... ..... .. ....... . ... -..-..... --..--... .

Objective: Publish basic information Publish basic information on Establish PHBs in all Improved efficiency and equity inImprove public financial on provincial health . provincial health provinces. allocation of central government

management expenditures by all sources expenditures by all sources resources between and within(public MOPH and all non- (public and private) and use Initiate financial provinces.

Issue: MOPH and private) and of funds in all provinces. devolution of MOPHFragmentation of budgetary use of funds in budget to selected PHBsand extra-budgetary financing representative and feasible Recommend budget based on TRAWPsources causes inequitable pilot provinces. allocation formula (based on formula.allocation among provinces Thai Resource Allocationand inefficient allocation of Establish a MOPH Working Party (TRAWP)).health resources between committee to design thepreventive and curative constitution and function Establish PHBs in selectedservices within provinces. of the Provincial Health provinces.

Board (PHB).

Initiate financialdevolution to all MOPHregional and generalhospitals based on a MOUsigned between MOPH andBOB.

- 89 -

ANNEX 2

2. BETTER SERVICESObjective: Cabinet Resolution Cabinet Resolution Formal sector employee, i.e. Improve incentives for efficient andImprove performance of public establishing a National adopting a first draft of CSMBS, SSS and other equitable provision of health services byproviders through standardized Health Care Financing National Insurance Act. social welfare schemes have public sector providers.performance-based provider Committee (NHCFC) similar basic benefitpayment mechanisms, supported responsible for technical Publish standardized unit package, standardized unitby appropriate government support to the cost guidelines for cost and provider paymentsubsidies. harmonization of the implementation of mechanism.

benefit package, performance-basedIssue: standardized unit costs provider payment inFragmentation of input-based and payment mechanisms public sector facilities.budget subsidies and nonstandard across various schemes.health insurance reimbursementsdistorts provider incentives for Cabinet Resolutionefficiency and equity. adopting a national policy

of performance-basedprovider paymentmechanism. This requires

*adjustments ofsubsidy/pricing policies. i

3.1 INCREASED - --- - -- iACCOUNTABILITY

.......... .................-. ...... . ............. .. , ......................... . ... ...... ........ .. .... .... ... .. .. .. ...... ... . . . ... ....... .... ... .. . . .. . . .... . ......... .-. ... .. .. .. ..... ....... .

Objective I Cabinet Resolution Establish the National Hospital accreditation is Better social accountability of public andImprove accountability of public adopting civil society Hospital Accreditation used as one of the private providersand private providers. participation in all MOPH Institute under the 1999 conditions of eligibility for

provincial hospital Public Organization Act public sector payments in allIssue: management committees (public and private)Lack of social accountability and Provincial Health Establish public hospital hospitals.weakens incentives for better Boards. management boards with Iperformance by public providers. j civil society Establish civil society

Cabinet Resolution representation in all representations in all PHBs.committing to universal i MOPH regional andadoption of hospital general hospitals.

- accreditation._ . .._ ..... ...... ...... ..... .. ..... .... ... ..... ..... ..._ ._ ..__...- - -- . ......... .. ..... ............. ..... . .. ..... ............ ........... . . .. .. . ..... ._ . .... ............. .. .

- 90 -ANNEX 2

PERFORMANCE IMPROVEMENNTS IN MIANISTRY OF PUBLiC HEAL1Ti Outline of Reform Bnelhmariks

Phase I Phase 11 1 -Se 1i-Objective 2 Cabinet Resolution Publish standards on (a) Implement (a) financial Improved social governance of publicImprove transparency in adopting standards on (a) financial accounting, (b) accounting, (b) independent providers.governance of public providers. financial accounting, (b) independent auditing and auditing and (c) public

independent auditing and (c) public disclosure, for disclosure in all publicIssue: (c) public disclosure, for the regulation of all health facilities withinLack of transparency weakens the regulation of public MOPH hospitals selected provinces.incentives for better performance hospitals.by public providers Implement financial

regulations (a) financialaccounting, (b)independent auditing and(c) public disclosure in allMOPH regional andgeneral hospitals.

- 91 -

ANNEX 2

IV. Ministry of Commerce Restructuring Plans

The OCSC is responsible for planning the restructuring of 14 ministries. It will focus on the"economic ministries" (including the Ministry of Commerce (MOC), Ministry of Finance, Ministry ofAgriculture, and Ministry of Industry) first. These ministries will undertake restructuring in three phasesof roughly one year's duration each. The first phase of restructuring will focus on reviewing internalfunctions (within each ministry) and defining core and non-core areas. The second phase will reassignfunctions within the government sphere, by transferring some responsibilities between ministries andgovernment agencies. The third phase will reassign functions among all potential executing bodiesincluding ministries, Autonomous Public Organizations (APOs), SOEs, local governments, NGOs andprivate (and privatized) entities. In addition to reassigning functions, the reorganization plans encompassimplications for budget, personnel, legal and ministry culture and values. This restructuring program iselaborated in a paper prepared by the Administrative Renewal Project at OCSC and approved by cabinetin April 1999.

The MOC plays several important roles that affect the business environment. They areresponsible for international trade policy and trade agreements, export promotion, competition policy(mergers, abuse of dominance, price fixing, consumer protection etc.), import regulation, registration ofcommercial businesses, collection of corporate records (financial statements, board decisions, etc.),intellectual property and registration of patents, and supervision of certain businesses including insurance,public warehouses, and oil reserves. The Ministry is much smaller in terms of staff and budget thanministries that provide services such as health and education. However its impact on business isimportant. For instance it allocates export quotas, sets rice quality standards, launches unfair tradingpractices suits, it negotiates international trade agreements, organizes trade fairs, administers pricecontrols, and collects extensive firm data.

These functions are similar to those conducted by similar organizations such as the Department ofCommerce in the U.S. However, there are some important differences from standard internationalpractice both in terms of the scope of MOC activities and particularly in the operational manner in whichthey are conducted. In recognition of this and in an effort to respond to changes in the globalenvironment the MOC has been preparing a restructuring program.

Key Issues for MOC Restructuring

Develop analytical capacity for formulation of trade policy and negotiation of tradeagreements. Thailand has long maintained a development strategy based on export growth and agenerally open trade regime. However, the last 20 years have seen the emergence of global markets, andThailand has made steady progress in moving from primary and agricultural exports towardsmanufactured and higher value added products, many of which are incorporated in final goods assembledin other countries. Adding to the complexity of trade relations is the fact that important trading blocks arebeing formed as a result of regional agreements. These developments make it critically important that theMOC deepen its analytical capacity so that it is able to fornulate appropriate trade policy and negotiateeffectively with its trading partners.

Enhance ability to provide basic information to support domestic producers and exporters anddevolve specialized promotionalfunctions to independent and private bodies. It is firms, not countries

Songkla M.N et al. "Equity in health and health care in Thailand", Nonthaburi, HSRI, 44 pp.

4 Between 1997 and 1998 the budgetofthe MOPH was cut by 9.4 billion baht -or 14%. The investmentexpenses dropped from 39.4% in 1997.To 26.9% in 1998 and about 16% in 1999.

- 92 -

ANNEX 2

that compete. But as in other countries, Thai firms depend on certain support facilities that are operatedthrough international networks of MOC offices, and they rely on information collected through theseoffices. The effectiveness of these operations must be improved. However, beyond the provision of basicinformation to buyers and suppliers, the MOC needs to cede the marketing and promotion functions toindependent and private bodies.

Strengthen institutional capacity for administration of competition policy. The responsibilityfor competition policy resides with in the MOC. A new act has been passed which is in broad conformitywith international standards. The existing authority has been passive in administration of the oldcompetition law and has largely confined itself to issues of price regulation. It will need significanttraining and institutional development work to be able to effectively administer the new act.

Rationalize regulatory functions. The MOC currently oversees a wide range of regulatoryfunctions, ranging from regulation of the insurance industry to price regulation in the rice trade. Some ofthe functions should be devolved to private self-regulatory bodies, some should be covered by otherministries and some may no longer be necessary. A rationalization and repositioning of these operationsis needed.

Improve IT and business services. The MOC intends to utilize its regional offices moreeffectively in delivering business services. This will require upgrading of service standards in the regionsand will mean improving the IT facilities in the regional offices. In addition the MOC collects a largeamount of data from the private sector. It collects registration data from firms in the service sector and itcollects financial data and corporate records from all firms. These data are important for a broad range ofpurposes from construction of the national accounts and creditworthiness checks. The information isimportant to government policy makers as well as private businesses and steps must be taken to ensurethat this information is available and effectively used for decision-making and analysis by both businessand other branches of government.

Current Restructuring Plans

Organizational restructuring. The MOC is further advanced in formulating its reorganizationplans than other Ministries, and therefore provides opportunities for sharing experience with otherministries as they move forward with the restructuring exercise. The Ministry has completed aFunctionalReview which was approved by Cabinet. This Functional Review was formulated with a view topositioning Thailand as one of the five major intemational traders of Asia through free and faircompetition and effective cooperation with the business community. It outlines the core functions thatshould remain within the MOC and those which are to be devolved to other bodies. There is to be a three-stage process in which the functions are first reorganized within MOC. The second stage will see thereassignment of some functions to other ministries. The final stage will involve shifting responsibilitiesbetween the MOC and other private and quasi-public groups. Eight decrees needed to undertake theinternal restructuring will be effective from 1 October 1999 to coincide with the start of the fiscal year,although a number of the changes have already been made de facto. Reforms in the second and thirdstages will use the provisions of the recently passed Law onAutonomous Public Organizations (APOs).In particular, the regulatory and business promotional functions will be devolved to APOs, while theanalytical, policy formulation and IT capacities within the MOC are enhanced. The activities of theDepartment of Export Promotion (DEP) are furthest advanced. DEP will become an APO, and it isexpected that TDRI will do the legal and transition design work for MOC for implementation of the DEPportion of the restructuring program. Significant training and program design activities will beundertaken to launch this APO. Operational guidelines, staffing, work programs, budget and othermatters will settled before launching this APO in 2000. This is likely to be one of the first APOslaunched under the PSRL and will be an important pilot.

- 93 -

ANNEX 2

Revision of laws that define ministerial responsibilities and authorities. The realignment ofresponsibilities as and in particular the revamping of regulatory functions will require revision of over 43existing laws.

Manpower development. The restructuring plans envisage substantial investment in manpowerdevelopment. This affects all MOC operations but will be particularly important in the IT area and forimproving analytical skills in trade and competition policy.

IT development. The IT development plans will incorporate improve electronic systems andsupport for better processing and dissemination of data. The IT improvements will underpin an effort tostandardize the provision of services through the network of regional business service centers and willhelp to shorten the time for such functions as business registration and copyright and corporate namesearches.

V. Restructuring in Other Ministries

Three other ministries (MOF, MOA and MOI) will produce functional reviews with theassistance of OCSC over the next few months. These will follow much the same pattern as the recentlycompleted review for the MOC. They will include a three-phase program with emphasis on internalreorganization in the first phase and devolution to other ministries and to non-ministerial bodies in thesecond and third phases.

- 94 -

ANNEX 2

PERFORMANCE IMPROVEMNT S IN MJNISTRY OF COMMERCEobjective/ [ssuc Outlinie oflRetOrmn Benchmrs Outcomle

.Phase I P.- sU Phase 11.Oct. .99 to Sept 199 Oct. I 9to §ept 2q00 Oct. 2000.t..Sept 2001

Objective: Develop strategicvision for MOC Complete Functional Align the vision for the Identify further steps for MOC will support development of

Review of the MOC MOC with those of other inter-ministerial foreign trade in Thailand, will promoteIssue: The MOC must identify including 1) Vision, 2) ministries for the coordination. free and fair trade and will collaboratecore activities such as trade Strategy, and 3) purpose of transferring with the private sector in the efficientpolicy development and business Implementation Plan. functions between provision of servicessupport. It must coordinate the ministries.changes in its functional Identify core functions,responsibilities with reforms in functions to be terminatedother Ministries. and functions to be

devolved to other entities.

- 95 -

ANNEX 2

Oct 198 t Set 199 Oct. 199 to Sept 2000 OtW00t et20Objective: Rationalize servicedelivery Issue the decrees Reassign additional Implement the transfer of More rational assignment of service

authorizing the functions within MOC. functions as agreed by delivery responsibilities betweenIssue: reassignment of functions Cabinet. government bodies and elimination of1. Prepare and issue the decrees between departments Submit to Cabinet for unnecessary or ineffective functionsfor internal reorganization and within the MOC. approval plans and Continued HR and ITget Cabinet approval for reforms necessary changes to the activities.affecting other Ministries and law regarding the:Agencies. Identify the laws that must * Transfer agriculture-

be amended to allow the related functions to2. Develop HR and IT programs reassignment of functions MOA including theto support the realignment of and responsibilities. agriculture pricefunctions. stabilization

functions and theMarket Promotionand Developmentdivisions of DIT

* Transfer Office ofFuel Oil to NEPO

* Transfer of theTextile Division toMOI

Develop HR and IT Implement IT and HRprogram strategies. programs.

-96 -ANNEX 2

___._____._____.___ PERFORMANCE IMPROVEM NTS NMINfSTRYOCOMMERCE

Objective/ Issue Outline of Reform Benchmarks Outcome

Phase I Phase [1 Phase IJI_ Oct. 1998 to Sept 1999 Oct. 199 to Sept 2000 Oct. 2000 to Sept 2001

Objective: DecentralizationFormulate plan for Draft the law for creating Create APOs for:

Issue: The MOC must take the decentralization based on the Export Promotion as * Business Registration

legal and administrative steps Functional Review. APO; register the APO; * Intellectual Propertynecessary to establish new APOs and establish the * Industrial Productand to strengthen regional Identify the laws that must financial systems and Standards.networks so that functions now be amended to allow the transition plan.performed centrally can be reassignment of functions.shifted to the most effective Privatize the Publiclevel. Warehouse.

Organization.

Submit to Cabinet forapproval plans regardingconversion of theDepartment of Insuranceinto Office of theCommittee on InsuranceBusiness.

Standardize service levels Expand regional office Further extension ofacross three provincial standardization in line standardization program.business service centers with review of phase Ibased on service standards program.in the Bangkok region. .

- 97 -ANNEX 3

ANNEX 3: LEVERAGING THE BANK'S CONTRIBUTIONPublic Sector Reform Partners

1. Expenditure management BoB ADB Financial Markets Reform Program Loan US$300m.. fiscal strategy(setting long term OCSC .policy reform to strengthen, broaden, and deepenobjectives as basis for framing AG financial markets.shorter term policy). Expenditure planning and project Technical Assistance Grantsselection .review disclosure and compliance requirements to. Regular economic and fiscal ensure transparency in primary and secondary US$2.4moutlook and financial position markets, and asset securitization.reports. Multi-year budget framework Governance and Restructuring Project. Expenditure control to support a range of initiatives such as workshops,. Cash management CIDA training, seminars and other exchanges involving From. Debt management and monitoring Canadian expertise. Areas of cooperation are April. Borrowing strategy and funding determined by Thai priorities and selected on the 1998instruments basis of Canadian capacity. Interventions are. Government procurement usually small and strategic, with quick, multipleincluding private provision of impacts.public servicesAudit functions Golden Jubilee Training and Visits Can $65,800.Accountability/oversight of Funds: Can $75,000government finances -internal auditing techniques. Information flows-statistics -training in fiscal managementcollection and dissemination

- 98 -ANNEX 3

Capacity iul1ding for Public Thai Partners SCOr O a sistance FY Amount

Sector Governance Counterparts. :.....-.....CIDA -Competition under a new Constitution and the Can $

Role of the Government-a set of policy 250,000recommendations regarding competition and thecontinuing the momentum of economicreform(TDRI)

NZODA Public Sector Reform Training for senior Thaiofficials -five NZ based programs for senior Thai 1998/99 To beofficials provided in 1998/99, future direction of determinedtraining assistance to be determined

Public and financial sector reform training for seniorThai officials - five programs per year at theMekong Institute Khon Kaen. Ongoing NZ$

3-10 380,000NZ Post graduate scholarships in area of public weeks per yearsector reform/financial management per year

NZODA Technical Assistance Program Ongoing NZ$ 1.3Development of strategy to increase awareness million peramong officials of the gender dimension of yearpolicy advice, service delivery, public sectoremployment practices (OCSC) 1998- NZ$

2000 340,000 forSelection, induction and training of members 1998/1999of Boards of Government companies and andautonomous organizations (State Enterprise 1999/2000

_______________________ ___________ ___________ Office-CGD) . combined

- 99 -

ANNEX 3

Advice on framework issues for establishmentof autonomous public organizations(APOs)Development of new accounting and financial reportir garrangements that comply with relevant internationalstandards (OAG)

Short-term placements of Audit Office officialsin New Zealand (OAG)

Establishment of supportive bilateral relation-ship with counterpart NZ agencies(including

AusAid Office of the Ombudsman)

A study on government projects which arefinancially supported by loan or technicalassistance from international organizations concerningallocation of the budget andloan execution. (TDRI)

BoB World Bank Economic Management Assistance Project (Total ofSep 98- US$

BoB -Public Expenditure and Investment Feb 99 1,500,000.Review Oct 98 -

BoB - Modernizing Budget Management Feb 99- Performance-Based Budgeting ongoing

CGD - Government Payment Systems ongoingTreasury Dept - Treasury Modernization ongoing

- Government Senior Public Sector Reform advisor ongoing

- 100 -

ANNEX 3

Capacity Building for Public Tbai Partners Scope-of -ssktnce - FY Amount

Sector Goyernane . Counterparts .- -_._._-.

2. Revenue management World Bank Revenue Dept. Tax Administration. Taxation policy-Improve taxpayer compliance Customs Dept. Custom Administration

-strengthen collection enforcement-Balance Business and IT systems. $us

ongoing 1,500,000

3. Human resource OCSC AusAid The Australian Public Service Merit and Protection 1998/1999

management BoB Commission(PSMPC) is contracted directly to A$349,835

-strategy for organizational, CG coordinate Australian government inputs. The focus

structural and human resource AG of this core public sector reform project is on specific 1999/2000

management reform skill transfers from Australian practitioners to their A$650,000

-develop detailed organizational RTG counterparts. Activities supported to date (est)

development and restructuring include:

programs for government -two 2 week courses on the public sector reform

departments process in Australia targeting very

-Develop regulatory framework forautonomouspublic organizations. World Bank 1. Improve public administration by reforming civil

service (total of

2. Public Relation Program US$

3. Ethics Promotion Center 1,500,000)

4. Performance Improvements in Line Ministries5. Legal Reforms

- 101 -

ANNEX 3

-develop performance-based AusAid senior officials from a wide range of Thaimanagement systems for civil government ministries; andservice a series of work attachments for officials to examine;-match staffing profiles and ethnic promotion; remuneration reform; positionnumbers to new functional classification reform; and, development ofrequirements of civil service and government accrual accounting.contain cost of government-Develop well motivated, Short courses:politically insulated, cross- A two week course for 18 RTG offcials on Methods March 99governmental senior cadre to lead for Economic Analysis and Public Setting was held Aus $civil service renewal program in Thailand 1996/1997

$1,501,065Ten courses for three weeks duration for middleranking RTG officials were conducted in Australia. 1997/1998-Public Sector Management and Organizational $665,165Change(14)-Participation, Decentralization and Civil Society(10) 1998/99-Information Technology management (11) $1,036,478-Managing Development in an InternationalContext(1 5) 1999/2000Human Resource Management for Public Sector $2,719,000Organizations(15)Development and Public Policy Analysis(12) 2000/01(est)Environmental Assessment and Planning( 10) $2,500,.000Natural Resource Management Strategies(9)Strengthening National Economic Management(14)Development Management andImplementation Skills(14)[brackets indicate numbers of participants). _

- 102 -ANNEX 3

Capoolt Building for Public Thai Partners Scope ofta nce . Y AmountSeclor Goverance Counterparts ___-- --. - - ..

A further program of short courses is underconsideration for implementation on an ongoingbasis throughout 1999-2000. It is expected that1999/2000 should see a greater emphasis on in-Thailand training courses than in previous years,although in-Australia courses would continue to havea major role

4. Decentralization UNDP Promoting Sound Governance through US$-Establish capability to support and Decentralization(local governance) 500,000monitor decentralization -determine the most appropriate roles, functions,-Devolve appropriate expenditure structures, staffing and financing arrangements forfunctions central and local government-Enhance local revenues/resources agencies to enable them to effectively operate in a-Revise intergovernmental grant decentralized environment, in accordance with thesystem provisions of the Constitution.-Enhance local accountability -determine the most appropriate structures, systems

and procedures for public service personnelmanagement which can ensure an effective, efficientand responsive public service at central and locallevels under the decentralization arrangements-provide a select number of local administrationswith sufficient capacity and appropriate supportfrom participating central ministry department toenable them to carry out their new roles.

Decentraliza- World Bank IDFtionCommission

- 103 -ANNEX 3

Seti-r (1T+ ̂ rpR1:e Cutr Ars1

5. Education and Health MOF ADB Social Sector Program Loan US$500m.-Improve planning and BoB -mitigate the short term adverse impact of the crisisimplementations capability MOPH on the most vulnerable groups-Develop performance standards MOE -initiate structural reforms to enhance-Develop performance-based competitiveness through the development of humanmanagement resources reduce inefficiencies in the provision of-Align organizational structures of social servicesministries with their servicesobjectives NZODA Advice to Bureau of Budget on implications of Part of the

university reform (BoB) TA program$340,000

IMF Stand-by arrangements to supporteconomic reforms. US$4.OB.-portion of this fund would support social safety netprogram to minimize the social impact of therecession.

OECF Improving Infrastructure and strengthening thesocial sector Y 105947

CIDA -Social Impact Assessment of the economic Can $crisis(TDRI) 250,000

(Portion ofthis amount)

AusAid -A technical needs assessment of governmentagencies concerning crisis problems.(TDRI) N/A

- 104 -ANNEX 3

Capacity Building for Publfc Thai Partners Scope of assistante :Y Amount

Sector Governance Coutnterparts __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

6. Accountability and -OCSC CIDA Governance and Restructuring Can

Transparency -OOIC Project(implemented through the Development $500,000

-NCCC Cooperation Foundation)-Increase institutional -Ombudsman -Series of workshop on Conflict of Interest

accountability -StateAudit -Conference on Access to Information and Privacy

-enhance public access to Protectioninformation -Conference on Accountability in Thai Criminal

-Review government procurement Justice and the Administration of Criminal Justice

procedures -Seminar on the Money Laundering Bill and

-promote probity among civil Protection of Citizen's Rights and interests

servants -Seminar on the Thai Police's Role in Enhancing

-promote civil society support for Justice Under the Constitution

public sector transparency UNDPStrategic Interventions in Supporting EmergingIssues in Governance (TDRI) US$-Civil Society Participation 560,000-Public Sector Accountability and transparency-Political Accountability-Rule of law-Human rights-Civic Education-Media Responsibility

AusAid -Corporate Governance

In the process of developing new strategy forThailand on Democratic Institutions.Potential organizations include the National CounterCorruption Commission, the Parliament and theOmbudsman.

- 105 -ANNEX 3

NZODA International Good Governance Programme To bedetermined

Assistance to Office of the Attorney General and NZ$ 20,000Judiciary in area of child evidence legislation- studytours and workshops

NZ adviser (former Proceedings Commissioner, NZ$ 11,000Human Rights Commission)to act as an international resource person at a seminarfor Thai Parliamentarians geared towards raisingawareness of the international standards andlegislation and experiences related to national humanrights institutions.

Participation of a Thai delegation (Governmental andNGO) at a workshop on the relationship between NZ$ 6,000NGOs and national human rights institutions atKandy, Sri Lanka, organized by the Asia PacificForum of National Human Rights Institutions

Funding toward a seminar being held by the ThaiCriminal Law Institute on domestic violence against NZ$ 30,000women(with NZ presenters).

- 106 -ANNEX 3

,, ,, ., , . . ,., .. E ... _ .. .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~......

Capacity Building or Public Thai Partners Scope of assistance FY AmountSector Governanuce Counterparts

Asia In the process of developing a counter corruption N/AFoundation program at the national and local levels.

Potential organizations include the NCCC and civilsociety organizations working on transparency andcounter-corruption such as the TransparencyInternational-Thailand Chapter, the PoliticalEconomy Center,

Thai Research Research Study on the OmbudsmanFund

OCSC World Bank Anti-Corruption databaseUnisearch, Anti-corruption Survey July 1999 US$Chula -Jan 00 150,000PoliticalEconomyCenter, ChulaUniversity ofThai Chamberof CommerceTDRI