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.



The Brazilian Fiscal Adjustment

Structural Change and Policy Continuity, 1995–2004

This chapter discusses fiscal adjustment in Brazil since macroeconomic stabilisation in the mid-1990s. It is argued that the authorities’ growing awareness of the need for fiscal discipline was as important as the pace of structural reforms for understanding the dynamics of public indebtedness. Fiscal adjustment intensified after the abandonment of the exchange rate peg in 1999 to avoid a default on the public debt with certainly ruinous consequences for the economy. The chapter discusses the composition of fiscal adjustment, based predominantly on tax revenue hikes, against the backdrop of Brazil’s still high public debt-to-GDP ratio, and concludes that the hard-won fiscal discipline will have to be entrenched in fiscal institutions and the quality of the fiscal adjustment improved to support higher and sustainable economic growth.


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