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Cambodia is one of the world's most open economies, sustaining high levels of growth in an environment of relatively weak governance. Emerging from a legacy of genocide and civil conflict, the country has sought to address human and social capital deficits across sectors, weaknesses in public finance, and corruption. Despite improvements in access to basic services, governance constraints persist and may threaten gains from economic integration. Over the 2004-10 period, the Bank's engagement on Governance and Anticorruption (GAC) issues in Cambodia was not defined by a single, overarching priority or entry point (such as core public sector management, natural resource management, or service delivery). Rather, the Bank was opportunistic, opting to support the government's GAC efforts across multiple sectors and institutions. The relevance of this opportunistic approach is judged to be moderately relevant. The Bank's objectives on public financial management (PFM) were highly relevant given Cambodia's nontransparent and weak public expenditure management and limited capacity. The Bank's response to sectoral governance weaknesses such as red tape, inefficiencies, and other forms of rent-seeking in customs is rated modest given the need for the government to implement its World Trade Organization commitments. The Bank's project level engagement is rated as moderately relevant. As a basis for reinstating suspended projects, portfolio-wide measures included the use of an Independent Procurement Agency (IPA) for the International Development Association (IDA) procurements, and the implementation of Good Governance Frameworks (GGF) for all IDA projects.

The purpose of this issues note is to review the experience in and outside the World Bank of using different diagnostic tools in fragile state situations. It will identify trends in the use of such tools, lessons learnt, and arrive at suggestions for the future. Because governance has continued to be a major concern in the international community, over the years this has led to a growing diversity in the application of the concept. With this diversification the types of assessment in use have also increased, a process that reflects two things. First, each agency tends to design an assessment to meet its own program needs. Second, diagnostic tools have often fallen short of expectations leading agencies to develop new ones, including more recently political economy studies that go beyond what was at least until recently mainstream types of assessing governance. Accepting the diversity of definitions and assessments, this note does not intend to review the whole field. A diagnostic tool here refers to the approach and methodology used in assessing governance. Choice of tool has a direct bearing on how an activity is designed and carried out. Making the right choice, therefore, is important. A tool may become 'main stream' and the original rationale for its use disappears. It is applied because everyone else is using it or there is pressure to use the same tool as others. A shift to other tools, however, may become necessary because existing tools do not deliver. Such a shift is occurring in the governance field where a focus on institutions is being increasingly complemented, if not replaced, by a studies of underlying political economy factors. This Note tries to trace this process by highlighting both specific and more general experiences with tools used to assess governance. Fragile states or situations are not typical but they give rise to governance challenges that more than other contexts test the limits of particular tools. This becomes an especially important issue given that what works in countries that are not fragile seems to fall short of the same achievement in fragile situations.

Developing a diagnostic and action framework for donor-assisted governance reform in conflict-affected countries and fragile states was the objective of a program implemented by the World Bank's Social Development Department (SDV) and funded by the French Ministry of Foreign Affairs. The first phase of the program developed lessons and outcomes based upon a review of international experience of governance reform in fragile and conflict-affected states. A major objective was to identify specific approaches and activities that will be most effective in strengthening institutions, promoting transparency and accountability, and enhancing capacity at local and national levels. This phase also derived lessons on the utility and shortcomings of governance-related diagnostic tools in designing and evaluating country strategies and programs in fragile states. A key issue concerns methodology. What type of analytical method provides a more useful assessment: country-specific analyses of the political economy, indicators designed for purposes of cross-country comparison, indices that rank state fragility, or some combination of diagnostic tools? The second phase of the program also was in two parts. Cote d'Ivoire's poverty reduction strategy process was used as an entry point for an initiative that facilitated process and method-oriented exercises for local stakeholders on the how rather than the what of policy development in an effort to build governance capacity. One result is a model that may serve for future engagement in other fragile and conflict-affected countries. The second part of this phase is an ongoing effort to work with local partners in the Central African Republic and Chad to identify strategies that could strengthen access to justice at the local level. Activities include assessing the strengths and weaknesses of formal and informal justice systems and mapping community-based practices and informal justice systems, including some under the aegis of NGOs, as well as identifying possible linkages to state justice systems. The paper will first examine the concepts of state fragility and governance in terms of donor engagement. Part two will discuss the lessons (opportunities and constraints), diagnostic tools and entry points for governance reform. Part three will offer conclusions.