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Regulatory Reform: Some Lessons from International Experience: 

Regulatory Reform: Some Lessons from International Experience Regional Conference on Investment Climate & Competitiveness in East Asia Russell Muir, FIAS Kuala Lumpur, November 22, 2005

Why have regulatory reform?: 

Why have regulatory reform? Benchmark data shows that good regulations help markets function and economies grow; e.g.Doing Business, ICA data Good regulation includes both: Sensible deregulation e.g. creating a transparent business-friendly environment and allowing the private sector to operate responsibly; and Regulation and re-regulation where it is essential, effective and enforceable e.g. raising taxes, protecting health and safety, the environment and the vulnerable

Business deregulation as part of broader reforms: 

Business deregulation as part of broader reforms Regulatory reforms at the micro level have worked best where countries have also pursued: Macro-economic stability Improvements in institutions Governance reforms e.g. UK, USA, Australia, Scandanavia, Singapore BUT The absence of all three is not an excuse for delaying the micro economic regulatory reform agenda

What has worked: international experience - a range of models: 

What has worked: international experience - a range of models Three key drivers: reactions to crisis (transition economies; Korea); legislative opportunity (EU Accesion, NAFTA); and recognition of need to catch up (UK; Australia; Italy) There are a range of ways to go including: Big Bang/Institutionalized Reform (e.g. Mexico) Guillotine (e.g. Hungary; Korea; Kenya) Gradualist/Systemic (e.g. UK; Australia)

International Experience: different drivers, different models: 

International Experience: different drivers, different models

International Experience: different drivers, different models: 

International Experience: different drivers, different models

Hungary: “The Guillotine”: 

Hungary: “The Guillotine” Strategy & key initiatives “First Wave” (1988-1990): Market liberalization and privatization “Implementation” (1990-1994): Building institutions and ownership; first wave of deregulation (guillotine)review of laws “Second Wave” (1994-1998): Privatization, attracting FDI, (“guillotine”) Success factors Reforms undertaken by dedicated Deregulation Commissioners supported at highest level of government - Appointment of institution with mandate to drive implementation was key to better success of “Second Wave” over First Wave Background From being one of the strongest economies in Soviet block, by 1988 Hungary’s economic situation deteriorated drastically. Outcome Highly improved regulatory quality – eliminated or reformed 150 laws and regulations By 1997, trade was diversified to 70% with EU, 80% with OECD countries Dramatic FDI increase: attracts 33% of all investment in E. and Central Europe Source: FIAS Regulatory Reform Notes

MEXICO: “Institutionalized reform”: 

MEXICO: “Institutionalized reform” Strategy & key initiatives Goal to eliminate regulatory barriers to economic growth through trade and investment liberalization anchored in NAFTA Far-reaching privatization programme Government-wide regulatory reform programme (RIA) from 1995 Background Economic crisis caused by collapse of oil prices and 1982 debt default triggered recognition of need for macro-economic reforms. Replaced import substitution model and looked to opportunites under NAFTA in 1989 Outcome Reforms linked to Mexico’s ability to recover after external shocks Significant increase in Private participation in GDP Exports’ share in GDP up from $12b in 1983 to $150b in 2000 FDI = 4.3% of GDP (1989-1999) Source: FIAS Regulatory Reform Notes Success factors Reforms implemented by (Economic Deregulation Unit) assembled outside of bureaucratic structures reporting to President through Trade Minister. By 2000 UDE became autonomous body. Lack of immediate economic results did not hamper commitment to reform agenda

AUSTRALIA: “Broad based gradualist approach”: 

AUSTRALIA: “Broad based gradualist approach” Strategy & key initiatives National Competition Policy (NCP) reform (begun in 1994 and on-going), a broad-based agenda aimed at strengthening competition throughout the domestic economy by changing the regulatory and monopoly roles of the federal and state governments. Used RIA. Background Significant economic decline in 1960s and 1970 spurred Government to address micro- and macro level issues contributing to lagging GDP and productivity by implementing reforms in 1980s Outcome It is estimated that full implementation of the NCP has significantly improved GDP groth. Strong performance over past decade with much of the gain coming from the reforms to be implemented by state governments. Source: FIAS Regulatory Reform Notes Success factors Clear, comprehensive, well-designed plan High level of political/bipartisan support and strong, supportive institutions Adoption of bold, explicit targets Relatively early results created new allies Monitoring & evaluation built in

KOREA: The “Big Bang” approach: 

KOREA: The “Big Bang” approach Strategy & key initiatives Massive deregulation in which Government ordered to eliminate 50 percent of regulations Reform, incl. establishment of Presidential Commission, Regulatory Reform Commission, and other mechanisms to promote/monitor reform Background First attempt at reform started in 1980s, aiming to dismantle regulatory structure favouring Govt. intervention from 1960s-1970s. Reform agenda given sense of urgency following financial crisis Outcome Add 8.6% in GDP growth over 10 years Reduced consumer prices by 7.2% Between 1992 and 2001, percentage of industries subject to foreign entry barriers dropped from 45% to 35% In Global Competitiveness report, Korea ranked 26th of 75 countries in reg. burden (2002), vs. 48th of 53 in 1997 Source: FIAS Regulatory Reform Notes Success factors Govt. & public accepted market discipline as tool for achieving growth, not threat - Opportunistic approach, building on financial crisis to gain reform support - Reforms embedded in strong institutions Used good practices (e.g. RIA) to design/impl. reforms

Lessons learned from international experience: 

Lessons learned from international experience Take advantage of external circumstances to gather stakeholders Draw on solid benchmark data to build consensus for reform Consult stakeholders early and transparently—do not rely on narrow political base to drive reform Build institutions to sustain reform i.e. address the flow as well as stock of regulations Ensure incentives for staying the course, especially if results take time to materialise Think about implementation and monitoring earlier rather than later