Tag Archives: economic reforms

10 Years of Partnership in Armenia Cements Role for Small Businesses

Association for Foreign Investment and Cooperation’s 2006 roundtable with local business leaders on tax reform in Armenia. (Photo: AFIC) 

Private sector-led economic growth is the key to prosperity for any country.  However, without a tireless advocate to give voice to the concerns of small businesses, corruption and bureaucracy can suffocate entrepreneurial activities.  This, in turn, hampers economic and democratic development.

In 2001, 95 percent of all business entities in Armenia lacked any kind of formal representation to advocate for pro-business reforms to government.  Over the next ten years, CIPE and the Association for Foreign Investment and Cooperation worked together to cultivate a grassroots reform network of local business associations and chambers of commerce.  AFIC is an Armenian membership-based business association, established by former CIPE business association trainees, devoted to the promotion of foreign investment, international economic cooperation, and private entrepreneurship.  What began as an informal network among friends and colleagues eventually, thanks to CIPE’s and AFIC’s assistance, took on greater structure as a reform-oriented coalition.

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Bread and freedom

Gdańsk Shipyard in August 1980 (Photo: www.solidarnosc.gov.pl )

31 years ago – echoing the rallying cry of earlier mass protests in 1956, 1968, 1970, and 1976 – striking workers at the Gdańsk Shipyard in Poland were demanding “bread and freedom” from the communist authorities. The workers called their movement Solidarność (Solidarity) and formulated 21 postulates that encapsulated their aspirations for change. Along with economic grievances, their demands included important democratic priorities such as freedom of speech, freeing political prisoners and – listed as number one – legalization of independent trade unions.

Realizing that it can no longer contain strikes spreading across the country, the government delegated commissions to negotiate with the strikers and signed the so-called August Agreements granting their demands. Although the authorities later went back on their promises and brutally suppressed Solidarity during the martial law imposed in December 1981, the opposition movement survived underground and finally triumphed in 1989, spelling the beginning of the end of communism in the region.

Those early days of Solidarity, filled with hope and upheaval, were captured in many moving photographs. Yesterday, Woodrow Wilson Center in cooperation with the Polish Institute of National Remembrance, unveiled a commemorative photo exhibition The Phenomenon of Solidarity: Pictures from the History of Poland 1980-1981. Carl Gershman, President of the National Endowment for Democracy, delivered opening remarks, emphasizing that Solidarity managed to reveal the duplicity of Poland’s communist regime which claimed to represent the workers but in reality repressed them.

Today the same is true in many dictatorships around the world. Authoritarian leaders who claim to be the voice of the people and to have their best interest at heart in reality silence that voice and deny economic opportunity through trampling on political and economic freedoms. Today the calls for bread and freedom resound as loudly across the Middle East as they did in Poland three decades ago, showing the universality of this most basic human aspiration.

The history of successes and failures in post-communist transformation of Central and Eastern Europe carries an important lesson for Arab Spring reformers. The challenge is to translate revolutionary fervor into concrete policies that bring political freedom and inclusive economic growth. Bread and freedom go together. Reforms meant to advance them must go together as well or the promise of democratic and more prosperous future will remain unfulfilled.

Keeping the economy out of political crossfire

The Pakistan Business Council’s (PBC) agenda for economic reforms calling for reducing public finance deficits and increasing education, health and income support expenditures and reforms in the energy sector, closely echo voice of the nation as also reflected in the demands made by various political parties. By listening to the PBC leadership, the President has given the clear signal that without taking private sector on board, no economic reforms can be successful.

In order to be successful, the dialogues of the government with the business community at various levels must, however, make a quantum leap from the way in which similar talks have been conducted in the past, when political quarrels prevented any substantive debate on economic issues. This time, the government, along with its coalition partners, should present its case as one unified body, with no room for rhetoric mongers in its delegation, but rather bringing to the table seasoned and credible policymakers with deep knowledge of economic issues. The message to the business community and to the people of Pakistan should be clear: it is time to keep politics out of economics.

Despite past shortcomings, a consensus is not completely implausible. A quick review of the agendas of the stakeholders reveals a great deal of overlap and sufficient room for finding common ground among all of the participants. For instance, the business community says its objection to the Reformed General Sales Tax (RGST) is directed at the way it will be implemented, giving a greater role to the inept Federal Board of Revenue (FBR) in processing and calculating tax refunds for businesses.

Moreover, the private sector has called for austerity measures and lambasted colossal government borrowing of nearly Rs 1.17 trillion which has led to literal crowding-out of private borrowing. From 2005-07 to 2008-10, government borrowing increased by 400 percent, while private domestic borrowing fell 83 percent from Rs 768 billion to Rs 132 billion. The business community has also criticized state-owned enterprises (SOEs) for swallowing a whopping Rs 350 billion from the treasury, and called for the recovery of, and accountability for written-off loans to SOEs.

The economic reform proposals contained in the ten-point agenda generated by the opposition Pakistan Muslim League-Nawaz (PML-N) are not too different.

PML-N has asked for the implementation of Supreme Court decisions, a return of defaulted or written-off loans taken out by businesses and politicians from the government or government-run banks, immediate restructuring of SOEs, and relief for price increases on common consumer goods in order curb inflation, and a 30 percent reduction in government expenditures.

Likewise the proposal of the Muttahida Quami Movement (MQM) to steer the country out of the current fiscal and economic crisis recommends imposition of an agricultural tax, withdrawal of support prices for wheat, reform of agricultural land holdings, revamping of SOEs, recovery of loans, and reform of the FBR.

Yet, there has been progress in the major political parties’ understanding of the urgent need for economic reforms. They are unanimous in their calls to restructure, dissolve or sell off SOEs, reduce the size of the government, and impose taxation across the board (while an across–the-board tax imposition is not the most pro-market policy, it is necessary when the country’s tax-to-GDP ratio is 9.5 percent). It is very clear that a political consensus has already evolved toward the core agenda of strengthening Pakistan’s market economy. PBC’s economic agenda also suggests that the business community has come of age, by advocating for concrete economic reforms rather than more concessions.

This emerging consensus calls for a series of high-level consultative dialogues between parliamentarians, government and the business community at all levels. Its need has become imminent as the present government prepares its forth budget. With each passing day, Pakistan’s economy is becoming increasingly unsustainable, and if it continues on the present trajectory, it will soon be on the brink of collapse.

This text originally appeared in Dawn, the largest newspaper in Pakistan. The author is CIPE’s Pakistan Country Director.

The Legacy of Solidarity 30 Years Later

Lech Wałęsa signing August Agreements (Photo:gazeta.pl)

Many recognize the iconic 1980 image of Lech Wałęsa signing – with a giant pen – the so-called August Agreements that symbolized the rise of the Solidarity movement in Poland and ultimately paved the way to the collapse of communism in Eastern Europe. However, few remember what these agreements, which represented major concessions of the then-communist government of Poland to its citizens, actually contained.

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Cubans’ Confidence in Government Continues to Fall

The International Republican Institute (IRI) recently released the results of a survey the Institute conducted in Cuba last summer. Among the chief findings of the survey was the fact that more than three-quarters of Cubans are generally pessimistic when it comes to the leadership of the current Cuban government – they have little or no confidence that Raul Castro can solve the many everyday problems facing Cubans, including food shortages, lack of jobs and brutal high costs of (simple) living.

In fact nearly the same amount of Cubans, if given the chance tomorrow, would vote to change the Cuban political- and economic systems. Indeed, more than four-out-of-five Cubans (86 percent) support immediate economic change.

A Communist Party Congress planned for this year, where economic reform was to be the main topic of discussion, was postponed indefinitely. Meanwhile economic growth on the island, affected by the global economic crisis as well as declines in global nickel prices, slowed from 7.0 percent in 2007 to 4.3 percent in 2008 and is expected to dip to as low as 1.6 percent in 2009.

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Happy Anniversary?

As China is getting ready to celebrate the 30th anniversary of its economic reform push with none other than a set of gold and silver commemorative coins, fears of unrest prompted the government bailout of the country’s exporters.

China began its historic process of opening up to the rest of the world after the third Plenary Session of the 11th Central Committee of the Communist Party, held from December 18 to 22, 1978. Today indeed China has come a long way, basing its economic boom on seemingly ever-growing exports. But the current global financial crisis is dampening the celebratory mood. NPR reports on the situation in one of China’s many manufacturing hubs, Dongguan city located in the southern Guangdong Province’s Pearl River Delta:

    Official statistics show that thousands of factories in Guangdong province have gone bankrupt this year. In the latest flare-up of unrest, laid off toy factory workers protested in Dongguan on Nov. 25, flipping police cars and smashing company offices. This has Beijing worried. It has decided to protect exports by increasing export tax rebates and halting the three-year-long appreciation of China’s currency against the dollar. And local governments in the delta have used billions of dollars to bail out small and medium enterprises.

Much like the United States and other Western economies, China has resorted to salvaging its export sector out of concern that its collapse could trigger a serious economic downturn leading to massive unemployment and social unrest. But as the attention of China’s leaders is turning inward, hopefully their reaction will not be that of reversing 30 years of economic openness. Beijing University finance professor Michael Pettis reminds us that 80 years ago it was the U.S. that was exporting its oversupply of goods. To protect those exports the country passed harmful legislation such as the Smoot-Hawley Tariff Act of 1930, which led to a collapse of global trade and contributed to the Great Depression.

Is Putinomics Russia’s economic future?

One of our recent blogs discussed how the substance of the political and economic platform of President Putin’s United Russia party was conspicuously missing in the hype preceding the December 2 parliamentary elections. In fact, the party’s slogan “Putin’s plan is Russia’s victory” rang somewhat hollow in the light of survey results showing that only 6% of Russians could explain what that plan was.

As United Russia’s predicted landslide victory came to fruition, the continuation of President Putin’s leading role in the country seems assured for the years to come. His hand-picked likely successor Dmitry Medvedev suggested that Putin (barred by the constitution from the third consecutive term in office) become Prime Minister after the March presidential elections and linked his own nomination to “the need to guarantee the continuity of the policies that our country has been pursing over the past eight years.”

What policies might those be, then? Andres Åslund from the Peterson Institute for International Economics offers some interesting insights on what he calls “Putinomics.”

    In his first term, Putin appeared to be an authoritarian reformer, undertaking substantial market reforms, such as introducing a 13 percent flat income tax. But in his second term, Putin was simply authoritarian, undertaking no economic or social reforms worth mentioning. The expropriation of the oil company Yukos, valued at $100 billion, was the signal event and was followed by rising corruption. (…) Putin’s regime may be described as a group of clans, consisting of state-dominated corporations, such as Gazprom, Rosneft, Vneshtorgbank, Rosoboronexport, and the Russian Railways, together with the security agencies. Putin’s KGB cronies (…) control these institutions and tap them for huge kickbacks. (…)

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