Diverse Models of Macroeconomic Coordination in East Asia --Thailand, Malaysia and the Philippines--

Policy Formulation in Developing CountriesGRIPS Development Forum

Highlights1. Critical role of central economic agencies (CEAs) in

the development process2. Country contexts: macroeconomic and aid manage

ment in Thailand, Malaysia, and the Philippines 　3. Diverse models of CEA macroeconomic coordinatio

n in three East Asian countries 4. Synthesis

Thailand and Malaysia (esp. 70-80s): mobilizing resourcesand organizing for development

The Philippines (late 80s-): renewed effort for CEA buildingafter democracy restoration in 1986

1. Critical Role of Central Economic Agencies (CEAs)<The Case for Central Administration> Policy coordination in the presence of

scale economies Inter-jurisdictional externalities, with

spillover effects across localities Support to local administration

-- Complementary to decentralized administration-- Providing the enabling environment for private

sector development

Critical Role of CEAs<“Developmental” Role of CEAs> Agent of managing the transformative, developmen

t process (Leftwich 1995) Additional dimension to Weber’s modern, rational bureaucracy

Strategic core centers Aligning policy planning and resource mobilization toward attaining s

trategic priorities Coordinating different interests of various stakeholders

-- domestic and external (incl. donors)-- vertically and horizontally

“Developmental coalition” with leaders

Critical Role of CEAs<Key Perspectives> Coordination mechanisms of central economic age

ncies (CEAs) Role of Development Plan (DP) in policy and resource planning, alig

nment functions; Budget and public investment planning; Aid management

Key actors affecting CEA functions: the role of leadership, technocrats, etc.

PublicInvestmentselection

Key actors affectingCEA functions

VisionPolitical will

BudgetResourceallocation

Development plansPriority policies

Macroeconomic mgt.

Policy & resource planning, alignment functions

Leader

MinistriesLocalgovt.

Donors

CEA Technocrats

Aid

Other stateorgans

UtilizePrivate &non-govt.

stakeholders

Private &non-govtactivities

Implementation, Service delivery etc.

Coordination Mechanisms of CEA

Alliance between Leadership and Technocrat Team in East Asia

Leadership Type

TechnocratTeams

Development & Industrial Vision

Formulation

Japan(late 50s-70s)

Organizational leadership

MOF, EPA, MITI (super-ministry for industrial policy)

Economic and physical plans for vision sharing; industry-specific policies

S. Korea (60s-70s)

Strong personal leadership

EPB (super-ministry)

5-year plans and plans for targeted industries

Malaysia (80s-90s)

Strong personal leadership

Prime Minister’s Dept. esp., EPU (super-ministry)

Vision 2020, 5-year plans; and Industrial Master Plans (IMP)

Thailand (80s)

Organizational leadership

Core macro- economic agencies (no super-ministry)

5-year plans; no industry-wide plan (except after financial crisis)

Organizational leadership

No single super-ministry

Govt. formulating MLT economic and physical plans via. deliberation councils

MITI serving as super-ministry for industrial policy

PrimeMinister

MITIMOFEcon. PlanningAgency, LandAgency, etc.

PM’s Office

- MLT Economic Plans- Comprehensive National Development Plans (physical planning)

DeliberationCouncils

DeliberationCouncils

- Industrial vision- Industry-specific policies- Coordination & support to business activities (e.g., finance, technology)

Participation fromofficials, business,academia, media,labor, consumers.

Japan (late 50s-70s): Development and Industrial Vision Formulation

Direct presidential control over economic policies

EPB as super-ministry

Research institute (KDI, etc.), providing analysis for MLT economic policies

Govt.-business: very close & cooperative relations

Performance-based rewards & penalties

(Blue House) Economic

Secretariats

President

FinanceBusiness

EPBDeputy PM

KDI

MCI

Ministries/Agencies

South Korea (60s-70s): Development Vision and Govt.-Business Partnerships

Five-year plan Economic Minister’sCouncil

State Council

Chaired by Deputy PM

Govt.-BusinessMeetings:

- Export promotion- Economic briefs- HCI drive, etc.

- Development planning- Public investment planning- Budget- Monitoring- Aid management

- Policy analyses

2. Country Contexts: Macroeconomic and Aid Management<Socio-Economic Indicators>

GNP per capita ($)

1976 1990

Annual growth rate (%)

per capita GNP avr.

1965-90

Poverty ratio (%)1980-90

avr.

South Korea 670 5400 7.1 16

Malaysia 860 2300 4.0 27

Thailand 380 1420 4.4 30

The Philippines 410 730 1.3 58

Sources: World Development Report (1976, 92, 93) and Human Development Report (1992)

Country Contexts: Macroeconomic and Aid ManagementThailand Strong fiscal discipline; prudent debt

managementActive, but selective use of aid; changes

in aid mix and “graduation”

Malaysia Fiscal activism to support large development expenditures; overall balanced economic management

Selective use of aid; changes in aid mix and “graduation”

The Philippines Problems of allocative efficiency; heavy debt burden constraining development expenditures

Active use of aid continuing; selectivity?

Thailand (consolidated central government)

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Domestic Debt (right axis) Foreign Debt (right axis) Total Revenue and Grants

Current Expenditure Capital Expenditure Over-all Deficit/Surplus

Source:　 IMF Government Finance Statistics Yearbook 1983, 1990, 1996, 2002. GDP data are based on IMF International Financial Statistics 1992, 1997, 2004.

Key Fiscal Indicators ： Thailand

Malaysia (cosolidated central government)

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Domestic Debt (right axis) Foreign Debt (right axis) Total Revenue and Grants

Current Expenditure Capital Expenditure Over-all Deficit/Surplus

Source: IMF Government Finance Statistics Yearbook 1983, 1996, 2002 and ADB Key Indicators of Developing Asian and Pacific Countries 2003. GDP data are based on IMF International Financial Statistics 1992, 1997, 2004.

Key Fiscal Indicators ： Malaysia

Philippines (consolidated central government)

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Domestic Debt (right axis) Foreign Debt (right axis) Total Revenue and Grants

Current Expenditure Capital Expenditure Over-all Deficit/Surplus

Source: IMF Government Finance Statistics Yearbook 1983, 1990, 1996, 2002 and ADB Key Indicators of Developing Asian and Pacific Countries 2002. GDP data are based on IMF International Financial Statistics 1992, 1997, 2004.

Key Fiscal Indicators ： The Philippines

3. Overview of CEA Macroeconomic Coordination Mechanisms<Points> What are the role and functions of CEAs in three Ea

st Asian countries? How have macroeconomic coordination mechanisms

worked? What are key actors (incl. the relationship btw. politi

cal leaders and technocrats)? What is the role of development plans (DPs) in polic

y and resource alignment (i.e., budget, public investment selection, aid)?

What are implications for building CEAs?

Comparison of Macroeconomic Coordination Mechanisms by CEAs in Three Countries

Thailand (esp.70s-80s)

Malaysia(esp.70s-80s)

The Philippines(late 80s-now)

Role of CEAs in development mgt.

Strategic core centers

Strategic core centers

Strategic core centers?

Features of macroeconomiccoordination

Centralized, but responsibility shared among core economic agenciesSubtle check & balance

Centralized, under super-ministry (EPU)Multi-layered, rule-based coordination

“Dual track” (the executive vs. the legislature)Insufficient, inter-agency coordination

Role of DPs Guiding policy alignment with development priorities, under annual fiscal scrutiny

Guiding policy & resource alignment with development prioritiesDPs as action plan to achieve LT vision

Limited policy & resource alignment with DPs

Enforcement of macro-guidelines

Comprehensive (incl. ODA, SOEs)

Comprehensive (incl. ODA, SOEs)

Limited, with exemptions

3-1. Thailand: CEA Functions and Key Actors Centralized power in the core

macroeconomic agencies NESDB (National Economic & Social Development Board):

PM’s Office BOB (Bureau of the Budget): PM’s Office FPO (Fiscal Policy Office) + PDMO (1999-): MOF Bank of Thailand: central bank

Leadership: empowering technocrats to plan and administer economic policies Technocratic insulation from political interventions

Role of CEA technocrats Strong inter-agency coordination; shared responsibility Enforcing legal limits for fiscal deficits and external borrowing

(But, sector-level coordination not necessarily strong)

DP alignment Figure

Thailand: macroeconomic coordination mechanism

DTEC/TICA

PDMO(1999-)

CentralBank

BOBNESDB

FPO

PrimeMinister

•Planning•Public investment•Development budget •Budgeting

(investment & recurrent)

•Public debt management (including foreign loans)

•Fiscal policy•Monetary policy

•Technical assistance

Delegate authority to plan and administer policy

Prudent macroeconomic management as a whole

Vision

Thailand: Role of DP in Policy and Resource Alignment Indicative DPs, without budget implications Development priorities clearly indicated in DPs

ODA utilization strategy included (esp. 60-70s) Eastern Seaboard Development Plan (esp. 80s)

Flexibility in medium-term planning, while scrutinizing all projects in the annual budget & debt approval decisions BOB “mobile units” providing vertical link to line agencies, through t

he annual budget process. National Debt Policy Committee; National Committee on State Ente

rprises. Consultation with the private sector (from the 70s, str

engthened in the 80s)

3-2. Malaysia: CEA Functions and Key Actors Centralized power in Prime Minister’s Dept. (EPU as

super-ministry) EPU (Economic Planning Unit): PM’s Dept. ICU (Implementation Coordination Unit): PM’s Dept. MOF (Ministry of Finance) and Central Bank

Strong political leadership, providing long-term visions and direction for changes

Role of CEA technocrats Technical arms to realize PM’s visions (esp. New Economic Policy or Bu

miputra policy in the 70-80s) DPs and budgets as rolling plans to achieve long-term visions

DP alignment Figure

ICU

CentralBank

MOF

PrimeMinister

EPU

•Planning•Public investment•Development budget•Development assistance

•Project monitoring

•Monetary policy

•Budgeting (investment& recurrent)•Fiscal policy•Public debt management(including foreign loans)

Balanced macroeconomic management

Technical support arm to realize PM’s vision

Vision

Malaysia: macroeconomic coordination mechanism

Malaysia: Role of DP in Policy and Resource Alignment Directive DPs, with budget implications Development priorities and resource allocation clearly ind

icated in DPs Enforcing budget and sector ceilings for the plan period, while adjusting

at mid-term review New Economic Policy as overarching priority (esp. 70s-80s) ODA utilization strategy included in DPs (from the 60s and later expande

d as int’l cooperation strategy) Multi-layered, inter-agency coordination for planning and i

mplementation to ensure coherency National Planning Committee, National Action Committee (as apexes); “t

op-down” and “bottom up” coordination Role of the “planning cells” technocrats -- macro-sector links

Consultation with the private sector: e.g., annual budget dialogue (from the 80s)

3-3. The Philippines: CEA Functions and Key Actors President-led NEDA Board: major reform since 1987 EO

230 NEDA (National Economic & Development Authority) DBM (Dept. of Budget Management) DOF (Dept. of Finance) Central bank

Cabinet-level, inter-agency coordination bodies (incl. Development Budget Coordination Committee) Effort to synchronize DP, Public Investment Plan (PIP), and annual bud

get; MTEF introduced in 2003. Effort to strengthen supervision of GOCCs (Govt. Owned and Controlle

d Corporation), esp. on budget and debt approval. “Dual track” system: executive vs. congressional chann

els

DP alignment Figure

The Philippines: macroeconomic coordination mechanism

NEDACentralBank

DOF DBM

NEDA Board Cabinet level interagency committees

•Monetary policy•Budgeting (investment & recurrent)

•Planning•Public investment•Development budget•Development assistance

•Public debt management (including foreign loans)

Other relevant Departments

•Planning•Budgeting•Public investment•Regional development etc.

LegislatureDualtrack

Intervention(especially during budget process)

Executive branch

PresidentVision?

The Philippines: Role of DP and Macroeconomic Coordination Features Limited role of DPs in policy planning and resource alignm

ent No budget ceilings for DP and PIP Strategy for ODA utilization and private sector collaboration unclear (until

recent DP) Weak enforcement of macroeconomic guidelines

Large GOCCs exempted from ceiling of Foreign Borrowing Act Vigorous appraisal and monitoring procedures, applied only for ODA and

BOT projects Congressionally initiated projects (“pork barrel” funds) outside the regular

budget process Congressional interventions in the annual budget proces

s, undermining the Executive efforts of DPs-PIP-budget synchronization

4. Synthesis Importance of strengthening CEAs as strategic cor

e centers of development management Forming “developmental” coalition between leaders and tech

nocrats Imposing developmentally-driven rules governing economy

Diverse models of macroeconomic coordination in three East Asian countries Institutional variation for CEA design and coordination mecha

nisms Need to take account of the local context when building CEAs

Synthesis The Philippines:

Building “formal” institutions is not sufficient to ensure their effective operations.

Importance of the political environment, often challenging nationwide consensus-building

Role of aid? – enclave, or an entry point for the broader institutional reforms?

Thailand and Malaysia: Despite differences, they share common “functional” p

rinciples to make CEAs function as strategic core centers

Synthesis: Thailand and Malaysia<Differences> Leadership style and operating principles of CEAs Degree of DPs binding medium-term resource allocat

ion and project selection

<Similarities – “functional” principles> The content of DPs is strategic enough to serve as th

e core document for policy alignment Comprehensive enforcement of macro- economic gui

delines

Synthesis: Thailand and Malaysia Good inter-agency coordination to ensure policy and r

esource alignment with development priorities -- within CEAs, plus between CEAs and line agencies

Commitment and capacity to use ODA, as integral part of the development planning, budget and investment programming processes

Strong alliance between political leadership and CEA technocrats around “shared visions”

Topics for Discussions What are the types of macroeconomic coordinati

on in your country? What is the role of DPs in policy planning and res

ource alignment in your country? How and to what extent there exists “developmen

tal” coalition between political leaders and CEA technocrats in your country?

What are factors contributing to, or preventing the above coalition building?

The END