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.



Perspectives for Fiscal Adjustment in Latin America

This chapter discusses the market’s perception of fiscal adjustment in Latin America. It reviews the key methodological features used to determine a sovereign credit rating and assesses the fiscal performance of a number of Latin American credits. Several fiscal indicators are reported. A sovereign rating focuses only on a government’s ability and willingness to repay debt on time and in full. Sovereign rating methodology is argued to be both quantitative and qualitative, incorporating an assessment of policy credibility, transparency and predictability. Fiscal policy plays a crucial role in credit rating analysis, including the fiscal authorities’ ability and willingness to adjust policy to shocks or changing economic conditions.


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