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Challenges to Fiscal Adjustment in Latin America

The Cases of Argentina, Brazil, Chile and Mexico

image of Challenges to Fiscal Adjustment in Latin America

This volume discusses progress made to date in Argentina, Brazil, Chile and Mexico in putting their finances in order and points out the challenges ahead. It provides an overview of trends and highlights the diversity of fiscal adjustment processes in Latin American countries. It also describes the financial market perspective and role of sovereign debt ratings.

The chapter on Argentina debunks the view that fiscal management in the 1990s was irresponsible, arguing instead that the financial crisis was caused by a confluence of costly pension reforms, Brady debt restructuring and the recognition of fiscal “skeletons” in the closet. The chapter on Brazil makes a case for a more entrenched culture of fiscal austerity to make the current achievements sustainable. The Chile chapter describes the role of political cohesiveness following the return of democracy in driving the economy to fiscal rectitude. Finally, the chapter on Mexico discusses different scenarios for debt dynamics and the country’s efforts to contain expenditure pressures.

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Challenges of Mexican Fiscal Policy

This chapter reviews the Mexican experience with fiscal adjustment. Different scenarios are presented for Mexico’s debt dynamics, arguing that the country has been relatively successful at containing expenditure pressures, while facing important challenges for the future. These include the need to ensure fiscal sustainability over the longer term, given the remaining unrecorded contingent liabilities associated with the public enterprises and the pension system, and to boost revenue performance, against a backdrop of continued reliance on oil revenue. The chapter also discusses the microeconomic aspects of fiscal adjustment, focusing on the need for improving the cost-effectiveness of government spending on infrastructure and social programmes.

English

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