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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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Structural Change in Chile

From Fiscal Deficits to Surpluses

This chapter discusses the driving forces behind Chile’s strong fiscal performance. It is argued that fiscal rectitude owes much to the progressive concentration of policymaking powers on the executive branch of government, including over sub-national finances. The ban on revenue earmarking is highlighted as a means of rendering fiscal management more flexible. Structural reform since the return to democracy in 1990 was facilitated by a high degree of political cohesiveness. The use of fiscal policy as a demand management instrument is due to the introduction of mechanisms to deal with the impact on the budget of fluctuations in copper prices and the business cycle, an achievement that is underpinned by Chile’s low level of public indebtedness.

English

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