In the six months since the previous East Asia and Pacific (EAP) economic update, developing EAP has faced a challenging external environment. Financial market conditions in the region, however, have been volatile over much of the past 6 months, as in the rest of the world. Over the next two to three years, growth in developing EAP is expected to ease modestly. Poverty in developing EAP has declined rapidly in recent years, and is projected to fall further with continued growth; however, in several countries the pace of poverty reduction has been restricted by limited labor market opportunities, particularly for disadvantaged groups. The positive outlook for growth and poverty reduction in the region in this base case is subject to elevated risks. The outlook for the Pacific Island Countries (PICs) is heavily dependent on their ability to overcome geographic constraints and take advantage of the relatively narrow set of opportunities available to them. Sustaining the pace of poverty reduction will require measures to enhance the business environment, improve education and health outcomes, and strengthen social safety nets.

By all accounts, Cambodia has been a postconflict country for much of the last 15 years, stretching as far back at 1991, when the Paris Peace Accords proclaimed a truce between the Vietnamese-backed government and the Khmer Rouge. Subsequent attempts to put in place the desired political and governmental structures remained furtive in the midst of ongoing politicomilitary violence, which only subsided definitively in 1997. Many important institutions of governance and public sector management, destroyed by the ultra-radical Khmer Rouge regime, were only just starting to be rebuilt as recently as 2002.

As well-designed decentralized intergovernmental system is key to developing country's ability to achieve its 2015 Millennium Development Goals. And, whereas fiscal decentralization has many facets, there is a necessary condition that must be satisfied for its success: local governments must be given, and then exercise, the authority for own-source taxation. However, in newly implementing a policy of own-local revenues, policymakers face special challenges that range from addressing the broad considerations of their country's fiscal architecture to the more narrow, but critically important, arrangements of tax administration.

Medium term expenditure frameworks (MTEFs) are receiving renewed attention in the context of the formulation of Poverty Reduction Strategy Papers (PRSPs). Conceptually, MTEFs are the ideal tool for translating PRSPs into public expenditure programs within a coherent multiyear macroeconomic, and fiscal framework. But, do MTEFs work in practice? With a view to drawing preliminary lessons from experience, the paper undertakes a comparative assessment of the design, and impact of MTEFs on public finance, and economic management in nine African countries. Based upon the assessment, it offers recommendations, and practical guidelines for improving both design, and implementation of MTEFs, and sets out a framework for further evaluation. The paper concludes that MTEFs alone cannot deliver improved public expenditure management (PEM) in countries in which other key aspects of budget management, remain weak. The study recommends that comprehensive diagnoses of budget management systems, precede MTEFs to ensure appropriate design of reform programs, and, that in order to have an impact, the MTEF should be integrated with the budget process from the start, with MTEF projections published as part of the budget document. Moreover, it stresses that political motivations for launching MTEFs explain (partly) why MTEFs have been more successful in some African countries than others.

The reforms were remarkably successful: by 1997 internal tax revenue had recovered to 13 percent of GDP-despite an extremely difficult political and economic environment-and 90 percent of large corporate taxpayers surveyed believed that taxpayer services had improved. The reforms had several key elements: granting the National Tax Administration Superintendency (SUNAT) meaningful administrative and financial autonomy, implementing radical personnel reform, investing in infrastructure and information technology, and generating public support. The reforms also forged a new relationship between taxpayers and the tax agency and committed to improving services. At the same time, the agency made clear its intention to enforce compliance with the tax code. SUNAT's experience offers several lessons for tax administration reform in other countries. First, the immediate efficacy of SUNAT as a semiautonomous revenue authority was due to a combination of several factors, perhaps the most important of which was a coupling of political leadership with managerial expertise. But Peru's experience also highlights pitfalls to avoid for other countries engaging in tax administration reform.

A well designed intergovernmental system is key to the accomplishment of increasing the quality of life as now formally expressed in the Millennium Development Goals. And whereas fiscal decentralization has many facets, there is a necessary condition that must be satisfied. Local governments must be given, and then exercise, the authority for own-source taxation. In every case, the decision to decentralize is political. But once that decision is taken, the technical issues of tax policy become paramount with respect to a community's ability to efficiently and effectively pay for poverty reduction, safe drinking water, improved maternal health, and literacy programs, to name a few. This will not be an easy task; indeed, as one moves from the developed to developing economies, the job becomes much more difficult as the tax policy options are narrowed by not only considerations as broad as the fiscal architecture of nations and considerations of revenue administration, but alsoby such matters as whether there is a paved road or a list of potential tax bases and taxpayers. Despite all the challenges, the payoff of doing decentralization and decentralized tax policy well is enormous. The evidence is that the rich counties of the world are those who have decentralized; and a key to that strategy has been attention to good subnational tax design.