The willingness of Asian governments to find new ways to improve their finances has shielded them from some of the worst effects of the global economic crisis. Embattled eurozone economies could learn a thing or two by looking east
The world economy is in a precarious situation. It is not long since the entire global financial system looked like it was about to collapse. Europe’s sovereign debt crisis of Europe is not yet over and indeed it has been given a fresh lease of life. Public finance systems, particularly in developed countries, need a sea change in order to boost stagnant economies. But several lessons can be learnt from places that are thousands of miles away from Europe.
Asian economies have performed quite well in the past few years. Before their recent success, they had tried to follow models of public finance that were based on developed economies. Much of their recent success, however, is based upon not following a traditional developed world model for public finance but building something of their own.
The Philippines has achieved tremendous success in the outsourcing industry. Its success is attributed to the Philippines Economic Zone Authority, which has given a new dimension to promoting economic zones. Economic zones the world over offer a set of similar benefits. What Peza does differently is how it promotes and supports private enterprises. Most governments try to work like ‘Big Brother’ or a watchdog. Peza works more like a facilitator. The entire approach is not only professional but is friendly and courteous.
Peza brings a centralised approach to these zones. Such is its success that, according to a National Statistical Coordination Board report in March 2012, it accounted for 87.3% of total investment in the Philippines in the fourth quarter of 2011. The country has already overtaken India in the voice-based call-centre industry.
Economies looking to attract foreign investments could follow the model of the Philippines or other impressive Asian countries.
Every economy suffers from financial leakages caused by tax havens, but not much has been done to plug these. The Indian government recently introduced draft legislation to address this, the Finance Bill 2012, which has caused flutters in global trade and industry.
The bill, which is yet to be approved, will have an aspect of retrospective tax that will allow the Indian government to tax transactions since 1952 that have been carried out overseas for assets in India. It is believed that it has its origin in Vodafone’s $10.7 billion acquisition of the Indian assets of an Indian entity, which was carried out using an entity in Mauritius. The government of India lost a legal battle against Vodafone to tax the acquisition because it was completed abroad.
It may not seem like a perfect solution at this stage but it shows the directions that other governments may follow in the future. It could plug the revenue leakages that are plaguing the global economy.
In order to improve its education system, India has been charging an education ‘cess’ on all taxes for the past few years. This has been effectively used by the government to enhance the education system at all levels, from primary to professional education.
The South East Asian oil-rich state Brunei Darussalam has emerged as a major investor in the area of entrepreneurship and encouraging its citizens to take up business. The Brunei Economic Development Board has an initiative towards promoting entrepreneurship and even financing new entrepreneurs.
It has already setup the iCentre (incubation centre), the Knowledge Hub (research and development centre) and is developing many eco-zones. It also promotes online business facilitation and marketing through the Buy Brunei Portal. BEDB’s Opportunity Centre offers consultations on both setting up new businesses and managing existing businesses and it has also invested in venture capital funds, as well as investing strategically in startups. Their Local Enterprise Applications & Products (LEAP) programme is a grant scheme to develop new products and applications.
This has all taken the promotion of entrepreneurship to a level that has not even been planned by most governments and is set to give Brunei a strategic edge in establishing new businesses.
Elsewhere, China is using the prosperity of its economy to enhance social development. Its 11th Five-Year Plan acknowledged the need for further restructuring and reordering of priorities with regard to its public finances. It is investing in building a harmonious society as well as infrastructure and employment opportunities across China.
Asia has many lessons in public finance for the rest of the world. If only a few of these lessons were successfully implemented, it could have a positive impact on economies worldwide
Dr Frank-Jürgen Richter is founder and chairman of Horasis (www.horasis.org), an independent international organisation committed to enacting visions for a sustainable future