2007 APEC Economic Policy Report

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2007 APEC Economic Policy Report

Report - Ecomonics

2007 APEC Economic Policy Report PREFACE: As tariffs, quotas and other trade barriers at the border have declined in the APEC region, the focus of APEC has naturally shifted to the structural and regulatory obstacles that inhibit cross-border trade by creating “behind-theborder barriers” to improving business performance.

Structural reform consists of improvements made to institutional frameworks, regulations and government policies such that the economic environment supports the efficient functioning of markets, contributes to macroeconomic stability, productivity, economic growth, and ultimately enhances living standards in a sustainable way.

In 2004, Leaders gave the Economic Committee (EC) a mandate to promote the benefits of structural reform in APEC economies. The Leaders Agenda to Implement Structural Reform towards 2010 (LAISR 2010) aims to facilitate cooperation and dialogue in five priority areas: public sector management and governance, regulatory reform, economic and legal infrastructure, competition policy and corporate governance.

The APEC Economic Policy Report is the main publication of the Economic Committee, and this year focuses on one of the five LAISR priority areas—public sector governance. The 2006 Report provided a high-level overview of the structural reform mandate given to the EC by Leaders in 2004 and as with this year’s report, future reports will continue to focus on more specific priority areas in structural reform.

The first chapter contributes to the work plan for LAISR 2010 by establishing a range of generalized high-level principles for good public sector governance and identifies key tensions in public sector governance and the processes that have evolved to overcome these challenges. This chapter captures the insights from the seminar on public sector governance held in Viet Nam, September 2006.

The second chapter is drafted by the respective host economy. This year Australia, host of APEC 2007, drafted the chapter on the topic of “Using Institutions to Support Structural Reform.” This chapter focuses on how domestic institutions can contribute to the reform process, characteristics of effective institutions and how effective institutions can be developed. This chapter intersects with all five LAISR themes.

The third chapter reviews individual economies’ domestic public sector governance reform activities over the last 10 years and identifies key priorities and challenges in future years.

The APEC Economic Policy Report was produced through a collaborative effort of all member economies, the APEC Secretariat and the Economic Committee Chair’s Office.

I would like to extend a special thanks to New Zealand for contributing the first chapter, Australia for drafting the second chapter, and member economies that submitted individual reports on public sector governance reform.

Bob Buckle
Chair, APEC Economic Committee
Principal Advisor, The Treasury, New Zealand
Adjunct Professor of Economics, Victoria University of Wellington
Wellington, New Zealand, September 2007

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APEC Secretariat, 35 Heng Mui Keng Terrace, Singapore 119616
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Contents
Preface
Chapter One: General Principles of Good Public Sector Governance
1. Introduction ................................................................................................................ 1
2. What is public sector governance....................................................................................... 2
2.1 Governance is the steering or guidance of groups .................................................. 2
2.2 Good public sector governance is distinct ............................................................... 2
2.3 Good public sector governance operates at two levels ........................................... 2
2.4 Approaches to good public sector governance......................................................... 3
3. General principles of good public sector governance......................................................... 4
3.1 Rule of law ................................................................................................................ 5
3.2 Transparency ............................................................................................................ 6
3.3 Accountability − oversight and control of the public sector ....................................... 9
3.4 Managing the performance of public sector agencies ............................................ 11
3.5 Public sector ethics and probity − the culture and values of public service............ 13
3.6 Responsiveness to stakeholders − the public and clients ...................................... 14
3.7 Political and bureaucratic structures ....................................................................... 14
3.8 Good policy and institutions .................................................................................... 15
3.9 Risk management ................................................................................................... 16
4. Tensions and issues in public sector governance ............................................................ 17
4.1 Accountability or trust? − The principal-agent problem........................................... 17
4.2 Multiple and diverse objectives ............................................................................... 18
4.3 Rules versus discretion − encouraging performance while managing risk............. 18
4.4 Managing toward outcomes.................................................................................... 19
5. Conclusion ........................................................................................................................ 19
Bibliography............................................................................................................................ 21

Chapter Two: Using Institutions to Support Structural Reform
Preface ............................................................................................................................... 23
1. Introduction ...................................................................................................................... 24
2. Impediments to structural reform ..................................................................................... 24
3. The characteristics of effective policy review institutions ................................................. 29
4. Regional examples of institutions to support structural reform......................................... 31
5. How regional processes can help..................................................................................... 33

References .............................................................................................................................. 36
Annex 1: Individual Economy Reports on Public Sector Governance
• Australia ..................................................................................................................37
• Brunei Darussalam.................................................................................................. 47
• Canada....................................................................................................................51
• Chile ........................................................................................................................ 59
• Hong Kong, China................................................................................................... 63
• Indonesia................................................................................................................. 71
• Japan....................................................................................................................... 77
• Republic of Korea.................................................................................................... 83
• Malaysia .................................................................................................................. 89
• Mexico .....................................................................................................................93
• New Zealand ........................................................................................................... 99
• Peru....................................................................................................................... 103
• Philippines............................................................................................................. 107
• The Russian Federation........................................................................................ 115
• Singapore ..............................................................................................................125
• Chinese Taipei ...................................................................................................... 129
• Thailand................................................................................................................. 135
• United States......................................................................................................... 139
Annex 2: Abbreviations and Acronyms ............................................................................ 143
Boxes
Box 1: Promoting Good Corporate Governance and Transparency in APEC FinancialInstitutions: ABAC, ABA and PECC Symposium, 2005............................................. 4
Box 2: Case Study: Doi Moi and the Reform of Legal Institutions in Viet Nam .................... 5
Box 3: Case Study: Transparency in Mexico’s Reform Agenda ........................................... 8
Box 4: Transparency and Sustainability in the Public Balance Sheet: Discussion at Senior
Finance Officials’ Meeting (SFOM) II, May 2007 ....................................................... 8
Box 5: Case Study: Accountability for Results in the New Zealand State Sector............... 11
Box 6: Using Indicators as Performance Targets................................................................ 12
Box 7: Case Study: Governance Arrangements for Australian Government Bodies.......... 16
Figures
Figure 1: An Orderly Policy Development Process ................................................................ 26