INASIA

Insights and Analysis

From Throughout Asia: Honing Expertise in the Political Economy of Policy Reform

June 13, 2007

By V. Bruce J. Tolentino

Economic policy reform is inherently political. Economic policies are codified into public laws, regulations, ordinances and other legal instruments that establish the “rules of the game” and allocate access and assets among various members of the body politic. Changes in economic policy affect the status or welfare of communities in varying ways, often evoking resistance from those whose welfare or status may be diminished by the reforms.

Economic policy reforms are often initiated as research activities, where technocrats ” many of whom are trained economists, gather data, analyze the costs and benefits of current policies, and produce recommendations for policy reforms. However, in most of developing Asia, while economists perform policy analyses, policy makers are often politicians or civil servants ” rare among who are trained in economics ” and subject to the competing claims of policy stakeholders as well as the disciplines of public service. These powerful forces explain the large and persistent gaps found between the recommendations of professional economists and the policies actually enacted by policymakers.

In response, The Asia Foundation promotes economic liberalization and democratic governance as crucial elements for rapid, sustained economic growth and political progress in Asia. Political reforms enhance participation and transparency, while the liberalization of the economy enhances equity and sustained growth. By enhancing efficiency and productivity, and enabling the open flow of investment to capital-hungry economies, market liberalization generates higher growth rates and stimulates employment, thereby raising incomes and living standards for society as a whole. Such growth thus directly reduces poverty and, in combination with enlightened governance, catalyzes further growth through increased investment in crucial public goods: primary education, public health, rational management of natural resources, infrastructure, and access to justice and peace and order.

The Asia Foundation’s 17-country network facilitates effective and continuing dialogue among key stakeholders in economic reforms ” the private sector, government, and more specialized non-government organizations. In many cases, the effectiveness and sustainability of reforms depend on enabling the private sector ” and groups disadvantaged or disenfranchised by policies needing reform — to effectively articulate their voices.

Over the past decade, the economic reform and development portfolio of the Foundation has expanded rapidly. The Foundation now has significant multi-year Economic and Reform Development (ERD) programs in Bangladesh, Cambodia, Indonesia, Mongolia, the Philippines, Sri Lanka, and Viet Nam. Soon, other Asian countries will also benefit from significant ERD projects.

The Foundation’s political economy strategy is to identify and engage with relevant government officials who are supportive of economic reform initiatives and to target strategic assistance that enables the success for reform-minded partners. Moreover, the Foundation maps out the various constituencies for and against reforms, and sets up mechanisms to strengthen the pro-reform groups, while designing incentive or adjustment arrangements for those groups that oppose reforms.

The Asia Foundation deploys its experience and expertise in the political economy to attend to other aspects of policy reform strategy. Currently, The Asia Foundation is implementing programs in regulatory reform, private sector development, trade liberalization and integration, and strengthening local economic governance, while promoting private investment at all levels.

While The Asia Foundation intensifies its work in areas such as competitiveness indexes (the “economic governance index,” one-stop shops, regulatory reform processes and the promotion of private enterprise — specifically small and medium-scale enterprises), it is also laying the groundwork to apply its political economy approach to areas such as microfinance and financial sector governance, corporate governance and corporate social responsibility, local development planning and local fiscal management.

Dr. Bruce Tolentino is the Director for Economic Reform and Development Programs at The Asia Foundation.

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