 |
Table of Contents |
 |
|
|
Annual Report 2003
The Role of Institutions in Inclusive Development
Well-functioning social institutions, both formal (legal) and informal (conventions/codes
of behavior), can greatly aid in the fulfillment of human aspirations
just as malfunctioning institutions can impede progress. Certain
traits have come to be identified with effective performance: (i)
mandates for participation and transparency of transactions, (ii)
provisions for public and professional scrutiny and accountability,
(iii) public voice in determining outcomes, and (iv) taking local
circumstances into account in institutional design. Recognizing
the close nexus between poverty reduction and institutional and
legal regimes, ADB supports legal and institutional reform (see
boxes).
The formal laws, policies, and rules that determine the efficient functioning
of the state and the market are crucial for inclusive development
in Asia. Most people recognize that the state has responsibilities
to provide affordable, effective, and equitable public goods and
services, including those targeted under the Millennium Development
Goals. Understanding the relationship among governance, poverty,
and vulnerability from the viewpoint of the poor is vital to institutional
reform that promotes inclusive development. Equally important are
reforms that protect the poor against the misuse of power. ADB has
started identifying approaches that can enable the poor to exercise
their rights to public entitlements and to seek protection from
such misuse.
Policymakers must resist the temptation to replicate institutional arrangements
simply because they have been successful elsewhere or because theoretically
they seem optimal; instead, institutional makeup must be anchored
in local knowledge of practices. The prospects for experimentation
are vast, and the intersection of theory and practice promises to
be incredibly dynamic. Regional and country analyses and interventions
will yield the greatest insights going far beyond the few international
best practices. Much remains to be done to learn from and support
the positive lessons that are emerging from the region.
To promote pro-poor, sustainable growth, developing member country (DMC) governments
are reconfiguring existing institutions to improve access by the
poor to credit and technology. Supporting small and medium enterprises
(SMEs) is a major policy thrust as is widening the reach of markets
by building transport networks.
In social development, investments and capacity building are essential for
any meaningful improvement. However, without institutional and policy
reform, many of these interventions will not bear fruit or be sustained.
Areas of reform where ADB has been particularly active include (i)
adequate budgetary allocations for human capital, (ii) basic social
services for the poor, (iii) removal of gender discrimination, (iv)
formulating effective population policies, and (v) designing social
protection.
Better macroeconomic management and improved governance call for major institutional
changes. ADB support, particularly in recent years, has been significant
in this area. Legal and institutional changes have focused on improving
bureaucratic responsiveness, supporting devolution and decentralization,
strengthening the enforcement of justice, and providing greater
information and transparency about performance and spending. Finally,
ADB has worked closely with DMCs to overcome barriers to effective
participation in globalization4 by initiating national
and regional institutional reforms.
Legal Empowerment
An ADB-commissioned study examined how legal empowerment
contributes to good governance, poverty reduction, and other
development goals. Using seven country reports, the study
identified the constraints faced by the poor in accessing
the legal system and in participating in local or national
governance. These included (i) lack of economic independence;
(ii) minimal understanding of law and the rights it confers;
(iii) limited access to affordable legal services; (iv) lack
of knowledge, incentives, and resources among government officials;
(v) limitations in the outreach and capacity of civil society
organizations to provide legal services to the disadvantaged;
(vi) inconsistency between formal law and traditional values;
(vii) poorly drafted or contradictory laws and regulations;
(viii) failure to implement sound laws; (ix) traditional use
of law as an instrument of control; and (x) corruption.
Legal empowerment can be undertaken through a variety of
activities and strategies. The first step is awareness of
the law and the rights it confers. The second is assistance
to poor communities to assert their rights or to enforce judgments
through formal or informal decision-making bodies. A third
and potent area of activity is participation in local governance
by the poor or by nongovernment organizations representing
their interests.
|
Evolution in ADB of the Concept of Legal Systems and Access
to Justice
In the past, definitions of legal systems have been narrow
and too limited to address poverty reduction and development
objectives as they are now understood. Because of this, a
definition that is much more robust and emancipating has been
adopted by ADB: “A legal system encompasses the rights and
obligations of any individual or private or public institution
that is supported by formal or informal enforcement mechanisms.”1
Among other things, this functional definition eschews the
traditional and often artificial line that is drawn between
bureaucracies and judiciaries.2
Just as the scope of a legal system has expanded, so too has ADB's definition
of what constitutes access to justice. Earlier definitions
included a narrow and mostly formal set of institutions and
activities. Research on legal empowerment supported by ADB
demonstrated the need to expand the boundaries of what is
meant by access to justice and the institutions involved in
enhancing it. In this context, legal empowerment is defined
as, “The use of law to increase the control that disadvantaged
populations exercise over their lives.” Thus, the law becomes
a key instrument in the empowerment of people.
1 Lawrence M. Friedman. 1969. “On Legal Development” Rutgers Law Review 24:56–67.
2 Jensen, Erik G. and Thomas C. Heller, eds. 2003.
Beyond Common Knowledge: Empirical Approaches to the Rule of
Law. Stanford University Press. Erik G. Jensen, “The Rule of
Law and Judicial Reform: The Political Economy of Diverse Institutional
Patterns and Reformers’ Responses.” |
Insolvency and Secured Transactions
The recommendations of an ADB study in 11 Asian countries
provided the basis for determining good practice standards
essential to debtor-creditor relations. Recognizing the pioneering
nature of this work, the United Nations Committee on Trade
Law adopted these standards and incorporated them into its
draft Legislative Guide on Insolvency Law.
Good insolvency laws should provide for continued functioning of debtors, if
possible, with effective rescue processes in which creditors
and shareholders have confidence so that businesses can be
rehabilitated and employees can retain their livelihoods.
The laws can provide an awareness of what practices lead to
insolvency, and in cases where there appear to have been infringements
by corporate managers or directors, prosecution could be launched
thus building awareness of what constitutes illegal corporate
conduct. Sound insolvency laws also permit all economic players
to understand in advance how their interests will be protected.
The Asian financial crisis highlighted the importance of developing a framework
for regional cooperation to address the growing problem of
cross-border corporate insolvency. ADB’s discussions with
key stakeholders on strengthening national frameworks led
several countries to consider ways of cooperating in this
area.
When the insolvency risk for a country is predictable and financial institutions
can ascertain and price this risk, the cost of credit stabilizes
and eventually falls. Evidence from the Asian financial crisis
highlighted the potentially destabilizing impact of systems
that were overly dependent on the banking sector for credit
and on real estate as collateral for credit. Secured transaction
regimes allow small and medium enterprises and farmers to
use moveable property such as equipment and raw materials
as collateral when these groups cannot provide real estate
or land as collateral, thus reducing risks.
|
 Back
The Challenge: Unleashing Human Capability in Asia | Next
ADB's Experience and Lessons Learned |
Publications 
Top of page