Governance and public sector management

The People’s Republic of China’s (PRC) economy has shown signs of overheating despite a sharp slowdown in economic growth, suggesting that, constrained by the supply of labor, its potential growth rate might have fallen significantly from its past level. With the priorities of the PRC’s authorities shifting from raising economic growth to curbing inflation, they are expected to change their stance on macroeconomic policy, including monetary policy, from easing to tightening. As a result, the PRC economy is likely to slow in 2014.

Japanese Prime Minister Shinzo Abe’s economics platform, dubbed Abenomics, is a policy package consisting of three “arrows”: aggressive monetary easing with inflation targeting; flexible fiscal policy; and growth strategy. Together, the three arrows aim to lift Japan’s economy out of chronic deflation and stagnation, putting it on a path of sustainable growth. Thanks to the first and second arrows, Japan’s economy is firmly on the pathway to recovery and ready for the third arrow, barring political will. Tokyo’s recent successful bid to host the 2020 Olympic Games complements the Abenomics strategy by presenting a not-to-be-missed opportunity to solve Japan’s debt sustainability problem.

The growth of public policy research organizations, or think tanks, over the last few decades has been nothing less than explosive. Not only have these organizations increased in number, but the scope and impact of their work have also expanded dramatically. The potential of think tanks to support and sustain responsible governments and civil societies is far from exhaustive as policymakers worldwide face a common problem of bringing expert knowledge to bear in their decision making.

The BRICS countries—Brazil, Russian Federation, India, People’s Republic of China (PRC) and South Africa—have been the recipients of much admiration for their high growth rates, which have helped to increase their share in the world economy and reduce global poverty. However, doubts have grown as to whether the process of income convergence will continue. “Sustainable governance” in the BRICS, or rather the lack thereof, lies at the heart of these doubts. The Sustainable Governance Indicators (SGI) study by the Bertelsmann Foundation, a German think tank, sheds light on the status of sustainable governance among the BRICS countries. The study found that economic and social governance appears sustainable in Brazil and the PRC, India is in the middle, and the Russia Federation and South Africa follow the least sustainable economic and social policies among the five BRICS.

At the 2009 G20 Pittsburgh Summit, leaders recognized the problem of fuel subsidies and made a commitment “to rationalize and phase out inefficient fossil fuel subsidies” (G20 2009). But Asian economies have gone the other way, and are pushing economic growth at a breakneck pace underpinned by fuel subsidies not only to consumers, but also to oil companies, mostly through production incentives. These subsidies have created an expectation that gas and oil are cheap and plentiful fuels available on demand. Yet without oil, the world would grind to a halt and chaos and social upheaval would probably ensue. Alternative and renewable energy resources are simply not yet available on a large commercial scale, leaving many people without recourse.

This is the first question I have met across at the ADBI seminar on APEC on January 28th. Of course they have not. Nobody raised this within APEC, because APEC is a non-binding organization. But so long as APEC sticks in its weak modality, it may get left behind mushrooming FTAs. What is the APEC’s raison d’etre nowadays? Established in 1989, APEC seeks to promote trade and economic cooperation in the Asia and Pacific region. In 1994 in Bogor, Indonesia, APEC leaders pledged to achieve free and open trade and investment in the Asia and Pacific region by 2010 for developed members and by 2020 for developing economies.

Is fiscal and/or political union, where more sovereignty is shared among countries in Europe’s Economic and Monetary Union, the way forward for the eurozone to stay together and deal with economic and financial divergences among member states? Differences in size, development, and institutions present the monetary union with a policy coordination dilemma, as countries often tend to let domestic interests prevail on agreed commitments. At the current juncture, and learning from the sovereign debt crisis, the countries of Europe need to consider what is the best institutional framework for the monetary union. Such a framework should avoid the building up of imbalances and help countries to live with the euro and within the currency union. Is political union the way forward for EMU? Surely continuing the status quo is not an option.

Although it is widely considered to be an ineffective policy, a number of developing countries offer universal fuel subsidies. However, the prolonged implementation of fuel subsidies creates a misallocation of resources as a subsidy targets the fuel rather than the consumer. Consequently, fuel subsidies benefit the affluent more than the poor. A number of countries implement fuel subsidies, including Algeria, the People’s Republic of China, Ecuador, Egypt, Indonesia Iran, Iraq, Malaysia, Nigeria, Russia, Saudi Arabia, Thailand, and Venezuela. Granado et al (2010) reported that in countries that have subsidized fuel, on average, the top income quintile consumed about six times more subsidized fuel than the bottom quintile.

The G20 leaders group achieved several significant examples of international economic cooperation in the first few meetings during the global financial crisis in 2008 and 2009. In the fraught crisis atmosphere, the G20 discussion encouraged bolder fiscal expansion, discouraged trade protectionism, spurred the world’s financial regulators into action to re-write the inadequate rules, and drew attention to the antiquated governance structure of the International Monetary Fund (IMF). With the immediate threat of global depression averted and the eurozone crisis not amenable to a global approach, many commentators observe that more recent meetings have lost a sense of urgency and purpose. This group has been successfully established as the paramount international economic coordination body (taking over that role from the G7 and G8) with a far more representative membership, but with the urgency of the immediate crisis gone, critical attention is focusing on the G20’s composition and agenda.

The escalating Eurozone crisis and signs of spluttering world growth have put Asia and its manufacturing enterprises into the spotlight again. Part of Asia’s rapid trade-led growth over several decades is associated with production networks and a regional division of labor. An expanding literature suggests that the region’s trade is increasingly made up of growing intraregional trade in intermediate inputs (Athukorala 2011). Production activities are increasingly being geographically fragmented across countries and linked by a dense network of trade in intermediate goods (Baldwin 2008). Small- and medium-sized enterprises (SMEs) are viewed as the backbone of national economic development in many Asian economies, accounting for the majority of firms and a large share of employment (Harvie 2010).