International Conference on Small States and Economic Resilience April 2007 Valetta, Malta Islands and Small States Institute Government intervention and optimal regulation in the building of Small States Resilience Dr. Indrajit Coomaraswamy Director Economic Affairs Division Commonwealth Secretariat

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Structure of Presentation The characteristics of Government intervention in Small States Changing views on the role of government The redefinition of the role of Government Service reform, service delivery and working with private partners

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute The characteristics of Government intervention in Small States There are some special characteristics associated with Small States that have an impact on the role of the state in these jurisdictions: –The limited institutional capacity of small states especially in multi-island small states –The indivisibilities of certain public services such as judicial systems, social welfare, education, health and social systems –The cost of providing public services such as implementing international obligations have to be borne by a small population base –Ministerial portfolios must be multifaceted if the public sector is to be confined within reasonable limits

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Changing views on the role of government Prior to the mid-1980s The main features and arguments for the role of the government were –Institutions and indigenous entrepreneurs were seen as weak –Only state enterprises were capable of taking over and investing in foreign-owned plants (nationalisation) –The state was seen as the major agent for development and the delivery of public services –The state was seen as self-serving, patrimonial and linked to self-serving foreign interests

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Changing views on the role of government The Washington consensus where public provision became the exception rather than the rule: –Governments implemented a number of policies aimed at liberalization, privatisation, stabilisation of the economies and reduction of the role and scale of the public sector –Addressing poverty through providing social safety nets –Strengthening the capacity of government to make policy, perform basic administrative functions, work with private partners and ensure the provision of infrastructure and public services

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute The redefinition of the role of Government Indirect roles –Policy and rule making: analysing options, identifying the need for intervention, setting policy frameworks – Enforcing and upholding law –Regulating markets: maintaining competitive conditions –Enabling providers – providing information, financing and support –Contracting independent providers

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute The redefinition of the role of Government Direct Roles –Managing service delivery through decentralised management and market mechanisms within government –Direct provision of services by government administration

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Service reform, service delivery and working with private partners Reform types: –Decentralising management within the public sector through autonomy and corporatization –Charging user fees –Contracting out –Private sector participation –Enabling the private sector through tax breaks, information, marketing and subsidies –Regulating the private sector

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Service reform, service delivery and working with private partners The major forms of Regulating and enabling the private sector –Regulation to limit the sphere of the market, e.g. prohibition or direction of private producers –Regulation to control the exercise of monopoly power –Social or product regulation to improve operation of the market by setting standards of products –Regulation to ensure common standards –Enabling policies to strengthen the efficiency and equity of markets through informing and supporting market actors

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Service reform, service delivery and working with private partners Factors fundamental to successful Public- Private Partnerships are: –The rationale for PPP – what are the motives for the involvement of the private sector –Risk allocation –Funding mechanisms and guarantees –Affordability and provision for the poor –Regulation and competition –Public acceptance and support

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Service reform, service delivery and working with private partners Key constraints to successful PPPs –Internal organisation factors such as low pay, lack of staff skills and experience, poor information systems –Intra-organisational factors such as inadequate monitoring and accountability systems, weak policy guidelines –External institutional factors such as resistance to change, economic and political instability and limited private sector development and trust

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Service reform, service delivery and working with private partners To encourage public-private partnerships Governments can –Use of multi-lateral funding to act as a guarantee for the private sector –Use of the standard frameworks developed by the World Bank and others to set up the structure of the PPP, and allocate risk –Consider the establishment of central PPP units, probably within the Finance Ministry, which would act as a central repository of expertise, help promote PPPs both internally and externally, and also act as advisor and arbiter on PPP projects, –Develop a longer term programme of PPPs which will reduce the bidding costs of private companies, develop expertise within the country, and attract quality private sector bidders

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute Service reform, service delivery and working with private partners To encourage public-private partnerships Governments can: – Ensure that a secure internal lending environment exists, to encourage internal investment in PPPs, –Set up properly resourced independent regulators, which will operate within a broad structure set down by government, but will subsequently be allowed to make independent decisions within the framework set out by government, –Publicly support PPPs, and work to try to obtain cross-party support so that bidders are not put off by the threat of termination following elections.

International Conference on Small States and Economic Resilience, April 2007 Islands and Small States Institute CONCLUSION The realities of Small States makes it important and urgent for Small States to improve efficiency in the Government The new roles of government are still evolving and the capacity of government to perform them needs to be strengthened There are strong links between the improvement in the way states govern themselves and development Optimal Government intervention can have an immediate and major impact in Small Countries precisely because of their limited size

International Conference on Small States and Economic Resilience April 2007 Valetta, Malta Islands and Small States Institute THANK YOU