Managing Reforms for Development: Political Economy of Reforms and Policy-Based Lending Case Studies


Successful reform has to resolve two separate and conflicting dimensions: people and time. Reforms, by their very nature, challenge the status quo, often threatening those with a stake in the current system—from society's power brokers, to better-off stakeholders who may benefit unintentionally and disproportionately from a policy, through to the intended beneficiaries, even if the status quo is unsustainable over the long term. Their changed influence, incentives, and behavior, as a result of reforms, have to be managed, until the success of the reforms becomes apparent for both them and society more widely.

Time, too, has to be assuaged, in the sense that while technocrats may see cuts are needed in, say, subsidies because of a weak budget, the near-term negative effects on low-income groups will be on the minds of both those supporting the political status quo and reformers. And the technocrats know this, so we come full circle.

This is what the Asian Development Bank (ADB)—and many other development agencies—in an admittedly long process of trial and error have found out over more than 2 decades of supporting reforms. The more deeply these agencies became involved in reform efforts, the more they recognized that, although there is no blueprint for success, there are clues as to what may work in particular situations, and how the reform process can be better managed. This recognition and acceptance of the wider, political economy dimension of reforms began in ADB in the late 1990s and led to early work to better understand reform processes to improve reform outcomes.

The book's intended readers are development practitioners involved in the policy reform process. It aims to help them understand political economy factors that shape actual outcomes, and to simplify the complexities of policy reform and the loans and technical assistance that support such reform.


"These insightful and nuanced case studies, of diverse institutional settings, advance significantly our knowledge of how to achieve durable and effective policy reform. Highly recommended."Hal Hill, Professor of Economics, Australian National University

"Everyone in public service is faced with the dual challenge of designing effective reform measures and organizing a political constituency to support such reform measures. This requires astuteness and careful use of political capital. The chapter on the political economy of reformed value-added tax in the Philippines recounts how the Department of Finance had to manoeuvre to pass the EVAT bill despite political difficulty, making the point that in order to create successful policy the long term-interests of the country have to be aligned with its more pressing concerns.

The lesson we learned from that debate helped us in our more recent efforts to pass the Sin Tax Law. It is with pride that I lend my endorsement to this publication and the excellent chapter on the Political Economy of the Reformed Value-Added Tax in the Philippines."Hon. Cesar V. Purisima, Finance Secretary, Republic of the Philippines

"More than its compelling arguments of the government’s current initiative to achieve fiscal consolidation through VAT, the chapter was able to identify critical issues in the past, such as institutional weakness and political resistance, that significantly affected the implementation of this tax reform. Learning from these lessons, President Benigno S. Aquino III, through its good governance and anti-corruption programs, has already embarked rigorous management processes in order to increase the acceptability of VAT and other crucial reform efforts.

As a Filipino, I have high hopes that this book will not only materialize better coordination mechanisms in the government structure, but will be able to generate strong political commitment among development stakeholders and ensure that reform programs continue even after government leadership changes."Hon. Arsenio M. Balisacan, Socioeconomic Planning Secretary and NEDA Director-General

"Managing reforms for development is a tricky enterprise. This book explains very well why—both analytically and concretely through three chapters discussing reforms in the Philippines, the Pacific Island countries and Vietnam. It does an excellent job of explaining and illustrating why reforms that are based on policy lending by institutions like the ADB are almost doomed from the start unless certain conditions are met.

Like Murphy's law, anything that can go wrong; whether it's the timing, the alignment of the interest of politically influential groups, and the failure of reform-oriented groups to get the nuts and bolts of reform design and implementation together; can indeed go wrong. And if by luck, reform pushes through, there's the almost ubiquitous risk of backsliding (e.g., when the crises that galvanized the reforms ease) and unintended consequences (e.g., the creation of private monopolies after privatization).

In short, I think the book should be in the reading list of people who teach public administration or applied public economics."Philip Medalla, Former Dean, University of the Philippines School of Economics