It is not a coincidence that this period has overlapped with the rise of attention paid to good governance. One may just look at the number of occurrences of the word “governance” in academic search database (Econ-Lit) over time. It occurred just five times from 1970 to 1979, 100 times in the 80s, 4000 times in 1990s, and more than 10000 times since 2000. Globalization of economic activity and greater reliance on private sector in economic decisions has created an environment in which the pursuit of efficiency has acquired utmost  BIS Review 38/2008  1  importance. Globalization has increased the likelihood of international financial crisis in countries where the governments do not function properly. Economic crisis in South Eastern Asia in late 1990s showed that even countries with considerable success in economic development may easily collapse into turmoil if they do not follow good governance practices. Quite paradoxically, as the control of governments over the economy decreases, the quality of governance becomes more critical and decisive. With greater mobility of capital, countries have become more vulnerable to negative assessment of investors. Today, financial markets are facing the most acute crisis they have experienced since the emergence of globalization. It is not surprising that good governance is once again at the center of public debate at this juncture. The seeds of current problems may be traced to past governance practices of governments, monetary authorities, financial institutions, and corporate sector. But before that, let me first introduce some conceptual issues.

This may help us understand how we ended up here. It is not easy to give a short and comprehensive definition for economic governance. For the sake of our discussions, let me define it simply as the nature and practice of economic management, regulation and development. Economic governance is in fact part of a larger picture that combines political governance, corporate governance and legal governance, which continuously interact with each other. The term “economic governance” is explained as “the study of arrangements, and organizations that arise and evolve to govern economic activity.” These institutions underpin economic transactions by protecting property rights, enforcing contracts, and organizing the physical and regulatory infrastructure to facilitate economic activity. Good governance provides a very important set of pillars, which are critical in the design of an economy. The most widely cited ones are transparency, accountability, rule of law and participation. Let me go over these four principles rather quickly. Transparency ensures that the necessary information is freely available and directly accessible to those who will be affected by decisions and their enforcement. Accountability is a mirror image of the authority. It is critical for decision makers to be responsible for the consequences of their decisions and actions to those who will be affected. In democracies, every independent institution or organization is accountable to the public and to its institutional stakeholders. Participation is the cornerstone of democracies, where every person in the system, in one way or the other, has a voice in the decision-making process.