The current international context of Latin America and the Caribbean opens a window of opportunity that countries in the region should use to design long-term development strategies. In addition to the gradual consolidation and strengthening of its democratic systems, most of the region has withstood the economic and financial crisis well, in great part thanks to the responsible macroeconomic management over the last years.
This publication was jointly elaborated by the Economic Commission for Latin America and the Caribbean (ECLAC) and the Development Centre of the Organisation for Economic Co-operation and Development (OECD).
Acronyms and abbreviations
Latin America’s solid economic performance since 2003 has created the opportunity for transforming the state, enabling the adoption of ambitious public policies that lock in the prospect of long-term development and mitigate short-term risks. Despite important differences in current economic conditions within the region —with South America outperforming Central America, Mexico and the Caribbean— strong external demand (especially from emerging economies like China), in combination with vigorous internal demand, resulted in an average annual GDP growth rate of almost 5% during 2003-08.1 Part of this performance was also due to good macroeconomic management that created sufficient fiscal space to manage the effects of the global financial crisis without jeopardising fiscal sustainability (Figure 0.1). Between 2000 and 2007, public debt in the region shrank on average by 15 percentage points of GDP, while fiscal balances moved from an overall deficit of 2.4% of GDP to a surplus of 0.4% of GDP. Macroeconomic policies and higher primary export prices strengthened macroeconomic stability and provided resources for implementing anti-poverty programmes and increasing access to basic public services. This led to less pronounced recessions and swift recoveries compared to OECD economies. While real GDP growth in the advanced economies is expected to remain sluggish, Latin America is expected to grow 4.4% in 2011 and 4% in 2012.2 In this context, Latin American countries have the opportunity to design and implement public policies with long-term development goals and also reduce some medium and short-term risks.
Latin American economies weathered the 2008-09 financial crisis better than those in other regions of the world —including in OECD outside Latin America— and their recovery has also been faster. The main challenge for the region is to manage this favourable environment with prudence in order to rebuild fiscal space to face potential risks, such as disruptions in capital markets due to problems in the euro zone. Greater ties with China —which were important for the recovery— mean the region’s economies are now more sensitive to a potential slowdown in Chinese growth, in particular because of its potential impact on the prices of raw materials and consequently, the fiscal accounts of many of the region’s economies. The present chapter argues that it is essential to rebuild the defences of macroeconomic policy and increase predictability in public finances in order to implement policies that enable more and better growth.
Public administration for development
This chapter assesses public administration in Latin America. The region faces many important and common issues such as the quality of civil service, managerial transparency and the high level of centralisation in public administration. In addition, the Latin American state has limited resources to tackle some of the larger goals such as the supply of goods, the fostering of social equity, the delivery of social services, the re-allocation of resources and the stabilisation of the economy. However, Latin American countries are now better positioned than ever to reform their public sector and create states that are able to meet their development needs. This requires proper co-ordination of public policies such as the mobilisation of fiscal resources, the professionalisation of civil service, the appropriate use of new technologies and the mobilisation of diverse public and private actors.
Fiscal policy reform
The countries of Latin America and the Caribbean have made significant progress over the past two decades in the area of public finances. Higher tax revenue has made it possible to reduce debt and increase spending on productive investment and in programmes to fight poverty. The recent crisis has not interrupted this progress, as the fiscal space accumulated in the boom years has made it possible to finance fiscal stimulus programmes similar to those of OECD economies. Despite the progress made, Latin America continues to face major fiscal challenges. Low levels of personal direct taxes, limited targeting of public spending and the small size of transfers explain the lack of redistribution of public finances. In addition, low tax revenues in most countries are an obstacle to the development of a modern state. This chapter contends that a combination of advances in fiscal institutions in Latin America could help to address these challenges. It highlights the need for transparent fiscal statistics, multi-year budgetary frameworks and fiscal rules to ensure sustainability, stabilisation and medium and long-term objectives. This could be structured around a fiscal pact to strengthen citizens’ trust in their governments.
Reforming education systems
The progress that Latin America and the Caribbean has achieved in recent years in terms of coverage, expenditure and performance in education creates the space for new challenges to be considered. The fundamental task for the region involves using the potential of education policies as an instrument for equal opportunities, social inclusion and the shaping of qualified human capital. For this reason, a number of reforms have looked to extend the access, quality and management, with a central role for the State as regulator and provider of quality education. This chapter presents a panorama of the state of education in Latin America, and the role of these reforms to attain this objective: decentralisation policies, national evaluation systems, reforms in higher education and management of teaching staff. The chapter presents a series of recommendations for the design and implementation of policies: allocating more funds for management at sub-national levels; fostering a population trained in the use of new technologies; strengthening technical-university education, adapting it to the demands of the production sector; consolidating national evaluation systems and extending them beyond schools; and promoting efficient management of teaching staff through a true professionalisation of the teaching career through improved selection, evaluation and incentives. These aspects should be at the core of education reforms over the next few years.
The State and reform of public infrastructure policy
This chapter examines the changes needed in the role of the State in managing infrastructure to increase the effectiveness and efficiency of public investment and support economic and social development. The gap between Latin America and other emerging economies in economic infrastructure such as transport, telecommunications, water and energy hampers economic development potential and social cohesion in the region. Greater investment alone will not suffice to solve this problem if the way in which public management policy is conceived and implemented is not changed. This chapter analyses infrastructure policies in transport and telecommunications (in particular, broadband Internet) and suggests that to increase the effectiveness of public infrastructure policies, Latin American states must improve policy design through a comprehensive and sustainable framework, fostering a clear and flexible institutional and regulatory framework for an effective participation of the private sector and civil society.
Better institutions for innovation and productive development
Following a period of structural reform oriented towards free trade and exports, Latin America has turned its attention to strategies for innovation and productive development. The region is currently seeking to insert itself in the global knowledge economy. To do this, it will need to achieve better coordination of actions in this field. Governments, firms, scientific agents and civil society act in a context that has been made more complex by changes in the global economy and by new technological paradigms. Despite these difficulties, many countries have made strides thanks to the creation of institutions, methodologies, and instruments that take on the challenge of innovation and technological change. In order to consolidate these advances, the region needs to support the definition of new models of governance, stronger institutions and models of public policy that can mobilise the agents in the national innovation system. These efforts can motivate the commitment of the private sector in innovation, research and development.
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