Representatives from governments, banks and financial regulatory institutions joined World Bank staff in March to discuss the viability of regulatory reforms in the current economic environment.
While the current economic crisis represents considerable risks, particularly for Africa, there are valuable lessons to be learned from the regulatory reform experiences of such countries as China, Korea, Brazil, and Mexico.
WBI's Investment Climate Team will host a follow up meeting in June.
April 7, 2009—An economic crisis such as the one the world faces now—while painful—can trigger action on needed investment and reforms. That was a key message emerging from a two-day Global Peer-learning Workshop on the Financial and Economic Crises hosted by the World Bank Institute in Washington March 19-20.
"The scope and severity of the current economic downturn go well beyond the capability of any one government. It requires the concerted actions by all countries, both developing and developed. We need to go beyond Keynesian economics in order to pull rich and poor countries out of the slump. The crisis can also be an opportunity for us to carry out many reforms that are due or overdue to achieve more sustainable and inclusive growth." Justin Lin, the World Bank's Senior Vice President and Chief Economist told the seventy-five participants, including many heads of government agencies, attending the conference. In his opening address, Lin urged industrial countries to contribute to the Vulnerability Fund which will be used to invest in the growth bottlenecks in developing countries.
High-profile speakers from the governments of China, Croatia, Korea, Italy, Mexico, and Serbia, as well as regional integration bodies such as the ASEAN secretariat shared their experiences with regulatory reforms and strategies to cope with crises.
Italy and China targeted first labor regulations, and removing barriers for SMEs entry and financing.
China and Mexico took the opportunity of multilateral and regional trade integration to drive and lock-in regulatory reforms.
Korea and Serbia both pushed for "big-bang" comprehensive regulatory reforms after they had survived crises, and obtained good results.
Brazil was successful in setting up the Fiscal Responsibility Framework after the 1998 crisis, but failed to achieve tax reform.
The global workshop was attended by 75 participants, including government officials, central bankers, regulatory officials and World Bank staff.
"Different reforms have different payoffs in terms of cost and benefits, gainers and losers. So it is important to be pragmatic in terms of comprehensive versus selective reforms, in order to keep the reform agenda moving." said Octaviano Canuto, new PREM Vice President, in summarizing Brazil's experiences.
Beware of Undoing the Positive
In Africa, economic opportunities which had emerged recently have suddenly vanished as the global crisis spreads.
"Africa is facing a huge human crisis right now due to no fault of their own. The opportunities of Africa in the last 4-5 years have been turned to crises," said Fred Omach, Uganda's Minister of State for Finance, Planning and Development. He called for the industrial countries to fulfill their commitment to African countries and transfer funds to invest in breaking growth bottlenecks in these countries.
Crisis can also stop reform in its tracks. Seventeen of the G20 countries have put up some measures of protectionism, putting ongoing regulatory reforms at risk particularly in developing countries.
Is regional integration the answer? With protection rising and the multilateralism slipping, regional integration could be a driver of reform, said some speakers.
Examples can be found from East Asia after the 1997-98 crisis and Mexico following the crises of the 1980's and 1990's.
Bilateral and regional trade agreements helped countries to build consensus, drive and lock-in needed domestic reforms.
Regional risk management mechanisms emerged, such as the Chiang Mai Initiative. In February 2009, the finance ministers of ASEAN plus China, Korea and Japan agreed to double their reserve fund.
By investing in regional transport infrastructure, reducing trade barrier, intra-regional trade increased considerably. Cross-boarder value chain and cluster were able to thrive.
All speakers agreed that countries, despite distinct characteristics, can learn from others' reform experiences. "There is indeed a thirst for dialogues not only with neighboring countries but with others, especially in the emerging world on reforms," said Marilou Uy, Director of Finance and Private Sector Development in the Bank's Africa Region. "That dialogue really does help a lot in providing an extra voice, an extra source of information and influence for policy-makers."
Going forward
WBI Vice President Sanjay Pradhan stresses the need for dialogue and peer-learning to address the current financial crisis.
Participants in this peer-learning event included two vice ministers, deputy governors, and many heads of government organizations, central bankers and officials from regulatory agencies, World Bank staff, and practitioners from the development community.
"There is need for the organizers to keep this dialogue going through follow-up dialogues, GDLN events, field visits," said Jinlin Yang, Deputy Director General of Asia-Pacific Finance and Development Center affiliated with the Ministry of Finance, China.
This peer event is part of WBI's strategy to serve as a connector of knowledge within and outside the World Bank. "Peer-learning is especially pertinent during this crisis when established paradigms give way to debate, experimentation and collective learning." said Sanjay Pradhan, Vice President of WBI.
WBI is preparing a core learning program, in consultation with FIAS and other partners, on "Effective Regulatory Reform: Why, What and How?" to be delivered in early June 2009. Regional learning programs will be offered depending on demand in FY10.
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