This page deals with economics and business issues,concerning Latin America, and the global economy.-
Sunday, November 30, 2014
About Reforms and its conditions for successfull implementation
It has beeen usual to ask for economic reforms, every time economic results do not match expectations.Besides, as an aditional input, past reforms has a limited life span; which call for further ones, such as to make possible the economy to move on, further beyond what the previous reform did, before the economy get weaker.Reforms has diminishing returns so to speak, which require a complementary set of policies every time a new framework arise, otherwise its impact will vanish in the political inertia.-
But what is the problem with focusing only in the demand for doing reforms in some areas?.Aside from the complementary policies requirement , is the issue of political support any reform also need to be succesful.So, it implies a lot of political skills to get that support ,and on the other side to make them tunning with the proper time.There is also the right time and the right field contraints, to do reforms. The premise should be, do not change what it is working well,and do change what it is not working along with to get strong allies before going forward.-
But above all, the ultimate source for sucessfull reforms ,is related to the instituional frameworks which it is based on to take place.Any refoms means change and with it ,the unexpected . Strong institutions make the difference, as long as it represent the supply side.
It is not the same to do changes, within the context of the rule of law,economic police rules, and Central Bank autonomy, than to do the same missing any of those .
The demand for reforms must match the supply of resources for it, otherwise as the traditional demand and supply tools indicates,the price of implementing the reform will get higher.-
What includes this price?:
a.- Political Uncertainty and with it weaker economic expectations
b.- Unneccesary widening the Conflicts area, overcoming the specific scope concerning the focus of the reform
c.- Higher risk of failure because of misscalculation about the proper deepness of the reform
d.- Political desillusion concerning not fulfilling the expected outcome
e.- The reforms are left out of the negotiation zone
d.- Financial sector volatility
It follows, that it is not only to ask for reforms, but also to wonder about institutional conditions characteristic it requires as a key input.-
a.- Can any economy with high level of corruption,be capable to get a positive outcome with reforms dealing with more private sector involvement into public investments.?
b.- Can any economy with the State heavily involved into the citizens life ,to get the most of any reform dealing with more entrepreneurs?.
c.- Can any economy with the business sector out of the negotiation table, to get full political support for reforms dealing with labor practices?.
Finally, the best way to evaluate the chance of successfull reforms is to have very clear where it is headed.In other word, what a difference does it make the situaion without and with the reforms, given the supply side variables. That is the real meaning of politics, to work out the gap between what any economy have, and what it needs to move forward.