Governance and the Future of our Region

Speech by the Hon Alexander Downer MP, Minister for Foreign Affairs, to the 1999 Heindorf Lecture of the Australian Institute of International Affairs

Tattersalls Club, Brisbane, 28 October 1999

(Check Against Delivery)

Thank you [name of MC]; [names of other VIPs]; ladies and gentlemen.

I am very honoured to be asked by the Queensland Branch of the Australian Institute of International Affairs to deliver the 1999 Heindorf Lecture.

The AIIA has been leading the public debate about Australian foreign policy for around three quarters of this century now. In the days before the Second World War, when organisations to promote the public consideration of important areas of government policy were largely nonexistent, the Institute played a vital role in encouraging broader community consideration of Australia's place in the world.

Now, at the end of the century, the AIIA still performs this crucial task. I applaud the work the Institute does in keeping Australians informed about global developments that will affect their everyday lives.

Governance - a key lesson of the Asian crisis

When I was considering what I should talk about in tonight's lecture, the last for this century, my thoughts naturally turned to what is perhaps the most significant event that has occurred since I became Foreign Minister - the East Asian economic crisis. But rather than talk about the economic aspects of the crisis, and the important work Australia has done to help our neighbours recover, I thought I might take a step back and look at some of the broader implications of the crisis.
In particular, I would like to examine one important aspect of the crisis - the issue of governance. I want to do so because I think it offers the key to resolving the region's troubles, and because it also offers lessons for countries around the globe. It is becoming very clear that proper attention to issues of governance can not only help nations recover from economic shocks like East Asia's crisis, but can actually prevent the crises occurring in the first place.

What I want to do today is to examine this question of "governance". What is it, and how does it work in different societies? I want to outline some of the valuable work Australia has been doing in our region to promote the reform of governance, both to meet immediate needs and to strengthen capabilities over the longer term. Such work, I suggest, is not only good for the countries of our region, but is also in the best interests of Australia.

Defining governance

Any review of the literature on causes and effects of East Asia's crisis is likely to indicate broad agreement on the lack of "good governance" as a key factor. But just what is good governance, and how do you go about strengthening it in developing countries?

Governance is a very broad concept that embraces just about every facet of society - the public and private sectors, finance and the economy, law and justice, and civil society. Problems with governance may manifest themselves in very different ways: some countries have good policies but don't have strong institutions to carry them out, while others have competent institutions but poor policies. Some countries lack both policy-making and institutional capacity.

Programs to address governance must be flexible enough to cope with the particular needs of the country in question. We also need to be aware that such programs often deal with very sensitive issues, like corruption, and may threaten powerful vested interests. And on another level, they may even be seen as a challenge to national sovereignty. What is clear, then, is that there is no "one size fits all" solution.

Governance is not, therefore, just about "good government". It is about how individuals and groups within society pursue their interests and make their voices heard. It is about how they settle their differences, and how they organise and exercise their legal rights and obligations. It encompasses the entire economic, social and political fabric of the nation.

Australia is determined to assist our neighbours to ensure stronger and more effective standards of governance throughout our region. With that in mind, our Government established governance as one of the five priorities of Australia's aid program (along with improving health, education, infrastructure and rural development) in our 1997 review of the program, Better Aid for A Better Future. The review defined "effective governance" as "the effective management of a country's social and economic resources in a manner that is open, transparent, accountable and equitable".

As can be seen from this definition, good governance is crucial for the improvement of standards of living in developing countries. That, I guess, is the kind of conclusion which many informed observers would agree with intuitively, but it also happens to be borne out by the empirical evidence.

I have often been struck by the differences in conditions between countries that are otherwise very similar in terms of natural resources and social structure, and much of that can be attributed to standards of governance. The countries where development lags behind - and even the regions within otherwise prosperous countries where there are pockets of poverty - are often those that suffer from corruption, poor control of public funds, lack of accountability, abuse of human rights and excessive military influence.

That judgement has been bolstered by a recent landmark study by the World Bank, Assessing Aid: What Works, What Doesn't, and Why. The report concluded that aid is most effective when delivered within a sound policy environment: with effective policies and management, an additional one per cent of GDP in aid translates into a one percent decline in poverty and a similar decline in infant mortality. Where the environment is weak, however, aid is much less effective, and is often wasted.

Asian governance and Australia's role

Australia is perhaps uniquely placed to foster the development of principles of good governance in our region. We are a stable and prosperous neighbour with a long-standing and strong democratic tradition.

Our commitment to liberal democratic ideals that emphasize the rights of the individual have enabled the development of key aspects of our own systems of governance. I mention just a few - accountability and transparency in public administration, freedom of speech, the contestability of ideas, respect for human rights and the rule of law, and support for sensible market-oriented economic policies that make proper allowance for social goals. I am sure you could think of many others. It is these principles, so central to our national personality, that inform our interactions with the countries of the Asia Pacific.

Although these are all important aspects of any civil society, we do not presume to dictate that the Australian way of governance is the only way. As I have mentioned, any program to promote good governance that hopes to be successful must be tailored to meet the individual circumstances of the country involved. Take freedom of the press, for example: it is a principle held dear in both Australia and the United States, but the manner in which it operates in each country is very different.

The Australian Government recognises that different societies can make different choices in relation to governance, both in substance and in style. We don't necessarily see that as a disadvantage - indeed, diversity in such matters can be a great strength. In fact, the old notion that developing countries had to mould their institutions into exact replicas of those in developed countries has been more of a failure than a success - artificial homogeneity simply does not work.
What we need to focus on is the substance of good governance, not the form. If a country can, for example, fight corruption most effectively through an institution that finds no counterpart in Australia, we should not be concerned. In fact, we might be able to learn something from them - just as we did, for example, when Australian states began imitating the operations of Hong Kong's Independent Commission Against Corruption, or ICAC.

But we should not, in any case, assume that we and our neighbours have completely different perspectives on issues of governance. There is actually much we have in common, a fact I am often able to affirm in conversations with my counterparts around the region. And if we concentrate on what we can all agree on, we are much more likely to produce a shared vision of what good societies might look like in the Asia Pacific region.

To encourage a wider debate in our region on governance-related issues Australia has established in the South Pacific region the Pacific Policy and Management Reform (PMR) fund as an incentive-based activity to support public sector reform. The fund provides assistance to any South Pacific country that prepares a detailed proposal to promote good governance, and the scheme has no conditionality. Put simply, if South Pacific countries want to introduce reform, Australia will help.

We have adopted a similar approach in Asia. Australia has supported the creation of an Asia Crisis Fund, which operates rather like the PMR fund. The Asia Crisis Fund has already funded projects in partner countries in such areas a fiscal management, economic monitoring and financial sector reform.

What we are hoping to foster in our region is a genuine commitment to reform. As I have noted, these are ideas that cannot be simply imposed from outside. Until local leaders, people and institutions develop some "ownership" of the idea of change, reform is likely to go nowhere. Australia is striving to get aid recipients talking about what might work in their own communities, developing the ideas and programs that will suit their own conditions. We can offer monetary and practical assistance, but the best guarantee of lasting success is strong commitment from the beneficiaries.

Australia's practical assistance

Australia's aid program targets four main areas to advance good governance:

• economic and financial management;
• law and justice;
• public sector management; and
• the development of civil society.

One of the most obvious lessons of the East Asian economic crisis has been the importance of institutions that support the good economic and financial management of modern market economies. Developed countries, like Australia, tend to take this for granted - our institutions, after all, were developed over hundreds of years. We forget that the experience with modern market economies of many of our neighbours can only be counted in decades.

One of the positive outcome of the crisis has been the emergence of a consensus on the need for major institutional reforms in crisis-affected countries, particularly in the financial and the corporate sectors. Our neighbours have seen the need for change, and are moving to embrace it.

Australia is doing all it can to assist our neighbours in this task. We have raised awareness of economic governance reform in APEC Finance Ministers Meetings and the South Pacific Forum Economic Ministers Meetings, and the Report of the Prime Minister's Task Force on International Financial Reform, which was published in December last year, has also helped advance the debate.

We have set up a $50 million, three-year Economic and Financial Management Package for the region, as well as the Asia Crisis Fund, now funded at $12 million. And we are including specialised activities to boost governance in our bilateral aid programs, like the $70 million Indonesia Technical Advice Management Facility to give the Indonesian Government access to specialist advice on economic reform, and the $25 million Philippines-Australia Governance Facility project to strengthen the economic and fiscal policy formulation.

Good governance also means effective systems of law and justice. Economic activity will be hampered if contracts and agreements cannot be honoured in the courts, or if citizens do not feel secure from arbitrary detention.

A nation's justice system - its courts and judges, police force, prosecutors, law firms, law schools, and gaols - is very complex. It can also be very expensive. Developing countries might balk at spending $50,000 to educate a judge, when the same sum might provide clean drinking water for an entire community. This is one area where outside help can be very effective, and Australia has long been providing assistance of this type. For example, Australia helped establish the PNG Ombudsman Commission to promote transparency and accountability within the public sector, and we have provided over $11 million to the Cambodia Criminal Justice Assistance Project to strengthen the processes of law enforcement and ensure their adherence to international standards of human rights.

The development of effective institutions of public sector management are also crucial to good governance. Some governments in our region are perceived as too strong, and too ready to use coercion to preserve their power. And yet, paradoxically, those same governments may in some respects be quite weak. What such countries require is a rebalancing of sources of power - a reduction in the authority of some institutions (often those exercised by the police and the military) and an increase in others.

Markets simply don't work well when the enabling environment provided by public sector agencies is deficient. Investors won't risk their money when the rules of the game are uncertain, and the public will be dissatisfied when key government services are lacking. One of the best ways of strengthening the private sector in such countries is, therefore, to strengthen the public sector so that it can play its proper role. With this in mind, we have provided an Australian management team to help the Indonesian State Audit Agency to strengthen anti-corruption provisions and strategies, auditing techniques, and public sector accountability systems.

The final aspect of Australia's work in fostering good governance lies in the development of civil society. Last year we spent over $60 million in our aid program on civil society projects across the region, projects like the $10 million Vulnerable Groups Facility in the Philippines, which provides targeted support to assist in the social and economic integration of disadvantaged groups in that country. We have boosted our Human Rights Fund, which supports small-scale NGO human rights activities in developing countries, to $1 million. We fund some work by national human rights bodies, like the Indonesian National Human Rights Commission (Komnas HAM). And we provide support for the holding of democratic elections in our region - fore example, $15 million to assist the conduct of the Indonesian elections in May and June, and $10 million to the UN Trust Fund to support August's referendum vote in East Timor.

One important initiative to promote good governance and civil society came with our establishment of the Centre for Democratic Institutions (CDI) in August 1997. The CDI is aimed at providing practical support for democratic institutions in countries where such structures are still evolving or yet to emerge. Its programs show in a very practical way what Australia can achieve when it approaches its neighbours in a spirit of helpfulness and cooperation, rather than with the dismissive and condemnatory approach that some would have us adopt.

Conclusion - Australia showing the way forward

Just last week, US Federal Reserve Chairman Alan Greenspan praised the strength of Australia's banking and financial system in the face of the challenge from East Asia's economic crisis. He said that:

"Despite its close trade and financial ties to Asia, the Australian economy exhibited few signs of contagion from contiguous economies, arguably because Australia already had well-developed capital markets as well as a sturdy banking system. But, going further, it is plausible that the dividends of financial diversity extend to more normal times as well. The existence of alternatives may well insulate all aspects of a financial system from breakdown."

This is an opinion that has been echoed by many economic analysts over the past two years. But I think the point can be extended to other aspects of Australia's civil society. It is particularly telling, for example, that our country was last year able to undertake a federal election in a completely orderly manner. No social conflict ensued, and our economy was not significantly affected. And all this at a time when many of our neighbours remained gripped in the depths of their economic crisis. I ask you, in how many countries around the world could the population assume that the same smooth process could take place.

Australians have every right to feel proud of their standards of governance and their society. We rightfully cherish our institutions, and our rights and freedoms. But just as we have an obligation not to take them for granted, so also do we have an obligation to share our good fortune with our neighbours.

We do so because the development of good governance and democratic processes across our region will also promote peace and stability. As I have often noted, functioning democracies rarely have famines, do not wage war on each other, and are less likely to suffer serious civil conflict.

But we do so also because we know that liberty and individual freedom are not divisible - what is good for us is also good for everyone. Democracy may come in all different shapes and sizes, but it has one very distinguishing feature - its absence is very noticeable indeed.

As we approach issues of good governance across our region, we do not seek to impose our will on our neighbours. We do not assume that our approaches will automatically succeed in other countries.

We want to help our neighbours build their own solutions to local problems. We seek points of consensus as the starting point for our dialogues, and to encourage strong local ownership of reform programs.

In all this, we will be unstinting in our assistance. We believe we have learned some valuable lessons as we have developed our own society, and are willing to share them. And above all, we stand as a model for what good governance can do - a country that is proud and assured of its achievements, that has built strong and resilient institutions to cope with shocks like the region's economic crisis, and that faces the future with confidence.

ENDS

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