Manuel Hinds Antananarivo May 2005

1. Policy and implementation of Reforms: the Experience in El Salvador and Possible Lessons for Madagascar Manuel Hinds Antananarivo May 2005

2. Choosing and organizing the government’s main objectives • Insert your plan within global trends: what is successful in the world today? • Establish a limited number of objectives and actions to attain them • Undertake only those tasks that can be implemented • Organize programs in a way that makes easy to understand how they contribute to attain the objectives • Design them in simple, fool-proof fashion

3. In El Salvador: The overall objectives • Opening the economy to the world • Trade • Connectivity • Increasing its competitiveness not by reducing salaries but instead: • The cost of capital • Transaction costs • A requisite for these objectives was the stabilization of the economy

4. The program of reforms in El Salvador • Increase the VAT from 10 to 13% • This and expenditure rationalization would allow a: • Reduction in protection, from an average of 25 to 6%... • Plus stabilizing the economy and get investment grade rating, plus… • Increase the expenditure in human capital • Open telecom and electricity to competition • Privatize telecom and electricity • Pension reform • Dollarize the economy

5. The strategic situation • The private sector opposed the reduction of protection • They could not acknowledge this • They opposed the VAT increase • The workers in telecom and electricity opposed competition and privatization • The strategy • Go first for the VAT increase • Prepare all other reforms at full speed

6. All the objectives were fulfilled… • Except dollarization, which was dropped from the plan to reduce the number of objectives • It was attained by a subsequent government

7. Once the objectives were defined… • The key was to coordinate all the resources at the disposal of the government to carry out the reforms in an efficient way • This required close coordination with: • The line ministries • The National Assembly • International institutions • Close contact with the press • Timing of reforms

8. Examples of timing • The increase in the VAT to get the funds to reduce protection, increase investment in education and stabilize the economy • First introduce competition in telecom and electricity and then privatize • The opening of these markets introduced competition from more efficient providers • The workers of the state-owned decided it was better to get privatized to survive

9. Relationship between the MoF and the line ministries • Lines of communication • Strategic committee: Monday mornings, setting the agenda of issues for the President • Focus the activity, review strategic programs • Grab space in the media • Economic committee: weekly • Social committee: weekly • Cabinet meetings: monthly

10. Other crucial linkages: National Assembly • Visit the Finance Committee at least once a month • Two breakfasts per week: • With the leader of the government’s party in the Assembly and the head of the Finance Committee • With the opposition leaders

11. Other crucial linkages: the World Bank, the IMF and the IDB • Met with all missions twice: at the start and wrap up • Discussed projects with them, issues, implementation problems • Visited Washington every three months to discuss overall strategies and each project • This gives you an independent view of what is happening inside the government • And a complementary chain of enforcement

12. Other crucial links: the press • Never refused an interview, even with hostile journalists or TV interviewers • Answered each question in the context of the overall strategy, explaining how decisions were made • Wrote op-eds from time to time on specific issues

13. The advantage of transparency • Reforms always go against vested interests, which can… • Mount formidable opposition • But a clear plan and transparent intentions to carry it forward provides a strong cohesion to the government’s efforts • Which the opposition tends to lack • And elicits support from the population, • Which appreciates the value of stated intentions and coherence

14. The advantage of focusing • El Salvador still has many challenges to face… • But some strategic problems were resolved • These solutions provide new bases for progress

15. Lessons learned from El Salvador: the attitude • Think like a developed country • Aim at the first prize • Insert the country into the international context • What is moving the world’s economy? • Use the developmental power of the small enterprises

16. The global challenges • The ability to communicate • The ability to coordinate to attain complex tasks • The ability to embed existing knowledge in: • Production and • Logistics • Doing things better – the value chain

17. The domestic challenges • Macroeconomic instability • Low productivity: • People disconnected from the rest of the world and from each other • Low human capital in health and education • Low levels of skills • Particularly coordination to attain common goals • High transaction costs • Lack of financing

18. The medium term goal: Madagascar… • With an efficient government, which • Facilitates economic activity, without cumbersome bureaucratic procedures • Delivers services efficiently to the population • Accelerates and implements reforms • Where the main engine of growth in the rural context would be the small enterprise… • Exporting and • Selling domestically

19. The action plan • Keep an eye on stabilization • Create a level playing field • Reduce transaction costs • Use the reform of the state to reform society… • To become a connected society • Train the people to use connectivity to: • Use their existing knowledge better • Improve their knowledge and health • Reduce transaction costs

20. Stabilization is essential • It improves the investment climate • It reduces interest rates • It reduces transaction costs

21. Create a level playing field • Reduce protection • This benefits mostly the small enterprises, which have access to their inputs at international prices in the domestic market • Eliminate privileges • Make it simple to create and manage a business

22. Using the connectivity to reform the state • Simplify and turn more efficient the delivery of government services through the use of connectivity • Choose one or two of these services that could be improved rapidly through connectivity • Create the demonstration effect • Design an overall program to reform the state