MICROECONOMIC POLICY REFORM

STRATEGY FOR REGIONAL COOPERATION

Hadi Soesastro

CSIS, Indonesia

Economic Reform and Regional Cooperation

Looking Back

Economic Reform

- agenda: focus on removing border

barriers

- manfestation: open borders

- challenge: deal with the protection of

“sensitive sectors”

Regional Cooperation

- agenda: focus on liberalization and

facilitation of trade and investment

towards regional economic integration

- manifestation: regional principles/norms

and action plans (individual and

collective)

- challenge: regional arrangements to

enforce members’ commitments

In East Asia

they can be seen as Economic

Reforms and Regional Cooperation of the

First Generation

The “Second Generation”

Towards A New EraEconomic Reforms

- agenda: focus on behind-the-border issues- manifestation: institutional and regulatory changes- challenge: more complex political

economy

Regional Cooperation

- agenda: focus on improving capacity for

policy development and implementation

- manifestation: policy and capacity

building packages that are tailor-made to

needs of individual members

- challenge: existing regional

arrangements need restructuring

Challenges for East Asia

Regional competitiveness not only influenced by openness to trade and competition but also by the region’s regulatory and structural architecture

Region needs to promote economic reforms of the “Second Generation”

Region needs to design cooperation structures that supports “Second Generation” economic reforms

APECis the regional cooperation structure

involving East Asian economies that come closest to being able to meet the demand

Economic Reform and APEC

Rationale for a New Agenda

- momentum for “first generation” reform

and cooperation in APEC region has run

out of steam

- a new “economic mission” to enhance

regional growth, dynamism, productivity

and competitiveness

Options for APEC

(1) Transform V-APEC to B-APEC tostrengthen and bind memberscommitment (eg. FTAAP)

(2) Strengthen domestic capacity ofmembers to undertake necessaryeconomic reforms

Opening for Second Option exists in APEC

2003: Leaders recognized economic reform is painful but “necessary and beneficial in the long-term”2004: Leaders adopted the Leaders’ Agenda To Implement Structural Reform (LAISR)

2005: Leaders instructed Ministers to work on behind-the-border issues and welcomed the adoption of the APEC Work Plan (“roadmap”) on LAISR 2010 “as a policy-oriented approach to bring about needed structural reforms”2006: Leaders recognized the need to intensify work on structural reforms2007: ?

On LAISR 2010

Priority Areas

- regulatory reform

- competition policy

- public sector management

- strengthening economic and legal

infrastructure

- corporate governance

Modality

To discover good practice principles within

each priority area that may be applicable to

the more specific reforms that individual

economies may choose to voluntarily adopt.

The Economic Committee

Is mandated to promote structural reform

within APEC, responsible for overseeing

LAISR, and undertaking coordination with

other relevant APEC fora (SELI, CPDG,

Finance Ministers’ Process)

Work Plan

“From 2006 to 2010, 2 to 3 coordinating economies, ideally from developed and developing economies, will take the lead on a particular policy issue. The coordinating economies will undertake policy-oriented work in this area, which may include policy dialogue …, capacity-building projects and a recommendation or good practice paper. This work will be conducted within a one to two-year time frame. The key findings of this work will be submitted to Ministers and Leaders”

Observations

This New APEC Agenda/Initiative:

(1) Introduced concept of Second

Generation economic reform but is short

of developing Second Generation-type of

regional cooperation to support it

(2) Regional cooperation can help improve

national capacity for policy development

and policy implementation by developing

of mechanisms for:

(a) sharing policy experience

(b) drawing upon international expertise in

relevant policy areas

(c) developing a regional vehicle that can be

used for independent review and

evaluation of policy performance

Proposed Steps

(1) Strengthen the capacity of the APEC

Economic Committee to undertake review of policies in some key

areas by establishing an on-going APEC

Productivity and Efficiency

Commission (APPEC).

(2) APPEC should have the capacity to

respond to requests by APEC and

member economies for analysis of micro-

policy and regulatory issues

(3) This Commission could draw in capacities

and research networks from around the

region, and be associated with the APEC

Secretariat

(4) A strengthened Economic Committee

should be coupled with provision for

Ministerial-level direction and

responsibility for follow-through

(5) Leaders might commission research and

analysis of costs and benefits of policy

regimes, and Ministerial Sub-Committees

charged with follow-up and formulating

responses to the implications of the work

Three Essential Elements

(1) Arrangements to produce independent analysis with transparency in reporting and discussion of results

(2) Delivery mechanisms to assist in enhancing capacity of member economies for policy development and implementation

(3) Follow through mechanisms to ensure implementation by member economies