Economic Development in Asia and Rule of Law

Keynote address by ADB President Takehiko Nakao on 10 June 2013 at the Annual Meeting of the Conference of Presidents of Law Associations in Asia in Tokyo, Japan

(as drafted)

Introduction

Good evening ladies and gentlemen. I would like to thank President Kenji Yamagishi and the Japan Federation of Bar Associations for inviting me to speak to you at your annual conference. It is my pleasure to be here with you tonight to discuss the important topic of Economic Development in Asia and the Rule of Law. I will also highlight Asian Development Bank’s work in this area, and how we view the role of Law Associations.

The Rule of Law is essential to sustainable economic development

At the Asian Development Bank, we believe the Rule of Law is essential to the economic development of our region. We see good governance - in its broader sense - as indispensable for economic development that is inclusive and sustainable. Governments need to be accountable and transparent, provide predictability in the application and enforcement of rules, and facilitate participation in governance by citizens. Each of these aspects of good governance involves the Rule of Law.

As you all know, the Rule of Law primarily refers to having a comprehensive and transparent framework of laws by which all persons and entities must abide - including the government itself. The Rule of Law also means competent, reliable and fair enforcement of those laws.

The Rule of Law provides the basic underpinnings of all economic activity, and thus of economic development. It secures property and contract rights - the fundamental building blocks of market economies. The right to own property encourages investments to enhance productivity. Recognition of intellectual property rights encourages activities in research and development. And a well-established framework for enforcing contracts assures entrepreneurs that contracting parties will comply with their obligations. Private parties need to feel secure from abuses of government and private crimes before investing their time and capital. Under the Rule of Law, people can trust that the benefits of their efforts will not be lost or stolen.

Here, I would like to emphasize that the Rule of Law is a universal value, not one belonging to the East or West. Asian societies have long traditions of governing through legal system.

For instance, in Japan, as early as in AD 701, the first comprehensive laws, "Taihoritsuryo", covering criminal, civil and administrative laws, were established modeling after China. During Kamakura Shogunate started in 1192, "Monchusho" or the dispute tribunal was established to take care of disputes between people especially regarding land ownership. According to remaining documents, in those days, women were also entitled to land ownership and could be parties for disputes.

In today’s world, legal issues can be complex, but the importance of Rule of Law and its fundamentals remain the same.

ADB facilitates economic development by helping its member countries develop the essential elements of sustainable growth. These include both physical infrastructure and soft infrastructure. Soft infrastructure encompasses, among others, the Rule of Law. I would like to mention five elements of the Rule of Law which are supported by ADB.

First, in some of ADB’s developing member countries, the legal framework for business is still lacking. ADB advises governments in establishing and improving their legal and regulatory frameworks. To create a conducive business environment, governments must enact laws for managing land ownership and use, defining and enforcing contract rights, and regulating economic activity. Laws concerning competition, consumer protection, corporate financial disclosure, and bankruptcy all fall under this umbrella. An important component of a market economy is financial intermediation. The quality of the regulatory environment is crucial to development of the financial sector. This is also true of energy, agriculture, transportation and other major sectors.

Second, of course, laws are useful only when they are enforced. This is where ADB can also help. Many countries have excellent laws on the books, but their institutions still do not competently, reliably and predictably implement and enforce these laws. Economic actors need assurance that the entire legal system will function as mandated. Regulators must issue sound regulations pursuant to laws and must enforce them, including through the imposition of penalties for non-compliance. Justice sector institutions such as the police, prosecutors, court systems and judges must be fair and efficient in enforcing laws and resolving disputes. Effective law enforcement allows business risks to be assessed rationally and lowers transaction costs.

Third, the Rule of Law supports the inclusiveness and sustainability of economic growth that are increasingly important objectives of ADB and other development partners. The Rule of Law requires that all citizens have effective access to justice. Laws providing equal opportunity and gender equality are important not only to individuals but to society as a whole, because they enable society to tap all of its resources for development. Laws requiring transparency and accountability of governments and public companies facilitate their better performance, and hence, promote sustainable growth. In all these areas, civil society participation should be encouraged to support the Rule of Law and improve development outcomes.

Fourth, corruption is a scourge that drains a country’s resources available for sustainable development. Implementation of the Rule of Law safeguards precious resources for use in social and economic development, for the benefit of all citizens, especially the poor. Here again, civil society organizations have an important role to play.

Fifth, growth must also be environmentally sustainable. This requires a strong legal framework for environmental protection, including strong environmental laws and diligent enforcement of them.

Examples of ADB work

Let me now highlight some of ADB’s concrete work in promoting the Rule of Law.

ADB’s developing member countries are in different stages of development and have different histories, cultures, governments and expectations. We work with governments to provide assistance tailored to each country’s needs in strengthening both its legal framework and legal institutions.

For example, some countries are at basic stages of opening and establishing market economies. In Myanmar, ADB is the lead development partner providing technical assistance to develop the legal and regulatory structure of its energy sector. We are advising on revision of the Electricity Law to support development of transmission and distribution networks, allow private sector participation in electricity generation, and establish a regulator consistent with international best practices. In Myanmar, we are also advising ministries in other fields on how to improve implementation of many new and revised laws, including the land law, microfinance law, and foreign direct investment laws.

Some other countries have been in transition from centrally controlled to market oriented economies. ADB has supported them in developing basic frameworks for business and broadening legal and regulatory systems to address specific issues. For example, ADB has supported Cambodia’s 10-year rolling Financial Sector Development Strategy for more than a decade. This program is comprehensively developing and updating the laws regulating the banking sector, including the central bank law and the banking law. Similarly, ADB is assisting Viet Nam to improve its legal framework to facilitate public-private partnership or PPP projects. In Viet Nam, ADB has also supported a large program to reform state-owned enterprises.

Many ADB members are now middle income countries. However, these countries still have large numbers of absolute poor in them, so helping them strengthen legal frameworks for social protection remains a very important task for ADB. ADB also supports middle income countries to enhance sustainable growth to avoid the "middle income trap". For example, to strengthen market mechanisms for sustaining growth, ADB has worked with the People’s Republic of China to develop its competition law and a comprehensive competition policy. In middle income countries, we regard assisting development of legal systems for effective environmental protection and labor rights protection is also essential for sustaining growth. Finally, regarding enforcement of law, ADB has provided support to countries such as the Philippines to strengthen their judicial sectors. The Philippines strengthened the independence of the judiciary by providing increased funding to the sector and ensuring budget releases.

Role of Law Associations

My third topic today is on the importance of Law Associations. Lawyers in private practice possess expertise that is critical to sustainable economic development. They are closest to the specific issues that are important to people, to companies and to investors, who all rely on the Rule of Law. Law Associations fill the essential function of educating and engaging their members in these important issues.

More specifically, Law Associations can promote the Rule of Law in four ways: First, Law Associations can help raise awareness with governments of needed reforms in the laws. As lawyers conclude transactions and advise their clients on how to comply with applicable laws and resolve disputes, they have a natural advantage to identify problems and gaps in the legal framework.

Second, Law Associations can help make the law more accessible to all people, including the poor, by supporting legal assistance programs.

Third, Law Associations can ensure that arbitrary use of discretionary powers by the government is checked and that the legal system delivers justice to all segments of society.

Finally, Law Associations can lead in developing the capacity of legal professionals and the judicial sector.

Concluding message

Ladies and gentlemen, this has been a tremendous opportunity for me, as President of ADB, to share my thoughts about the interaction of economic development and the Rule of Law with you.

I hope ADB can partner with Law Associations to advance the Rule of Law in all Asian countries. For I believe, ADB and Law Associations have a shared interest in promoting economic development, inclusiveness, sustainability, and the welfare of the people in Asia and the Pacific.

Thank you very much.