Economic restructuring in a highly repressed economy: perspectives on the order of policy reform

Abstract

How to restructure the economy is an important question for many developing countries in order to minimise the reform cost and adverse effects to the economy. This paper provides insight into the order of economic restructure in the perspectives of policy reform, particularly in timing and sequencing of liberalization. It argues that, stabilizing macroeconomic such as fiscal consolidation and low inflation should be achieved first. Next, remove distortions in domestic goods, capital, and financial sector. Removing distortion means deregulate domestic interest rate, remove distortion in prices and free up wages in labour market. Third, liberalise international trade, which removing quotas, tariffs and other direct administrative controls, and reducing tariffs across the board. Finally, liberalize capital account involving the elimination of restrictions on inflows and outflows of foreign direct investment as well as portfolio investment and the use of long and short term financial instruments.