| 1998 Latin America: Balance and Perspectives, Progress, Difficulties, Challenges |
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LATIN AMERICA,
BALANCE AND PERSPECTIVES, Chaired by Miguel de la Madrid Hurtado 27 February 1998 |
| Democracy
and "Governability" Growth and Economic Reforms International Insertion and Competitiviness Productive Transformations and Technical Progress Human Resources, Poverty, Inequality Looking Ahead (Synthesis) 1. A high level-expert group meeting on “Latin America, balance and perspectives, progress, difficulties, and challenges.” was held in Mexico City on February 27, 1998. See the attached list of participants.
Also attached is a summary of the background
material on the subject. 2. Progress in democracy has created a severance between democracy and government in several national cases, which holds potentially dangerous implications that democracy is merely superficial and that governments will not change. There is also a widespread feeling that official utterances and public actions do not take into account social needs and that institutions are unable to cope with impunity. Consequently, it is necessary to integrate political "governability," economic competitiveness and social integration as interdependent variables. In order to achieve this goal, the Latin American society must simultaneously increase its capacity for a democratic self-government, improve its economic competitiveness and face up to the main problems regarding social exclusion and poverty. Otherwise the region will face more difficulty in having a presence amongst democratic and modern nations. 3. Latin America, like other non-OECD regions, is going through a process of institutional transformation. Fundamental to the process is not to neglect programs which are actually working but to create what is still lacking. Within this context, it is important to strengthen normatively and operatively market institutions so the market will genuinely function and make progress. With regard to foreign trade, for example, Latin American economies have opened up, but the productive foundation must still be reinforced so that production and trade can be more reconciled and integrated compatibly. 4. A market economy needs the participation of the State to set required rules and guidelines and to create the institutions required by efficiently functioning markets. Furthermore, the State has to overcome market shortcomings, to redistribute income and to combat poverty. Consequently, an adequate balance between State and market is an absolute requirement. 5. Latin America needs to improve democratic institutions, because their prestige has plummeted and has been punished with a whole series of demerit. Institutional improvement is a priority in Latin America. It means making political reforms so that legislative bodies can counterbalance the Executive Power and make the respective legislative process more efficient. Coexistence and obligatory norms should be established for political parties so they can, instead of exacerbating problems, help solve them. In the Latin American experience, political parties have not been able to respond to one of its primary functions -- the interrelation of social demands. Labor unions, in turn, have become anachronistic and lost legitimacy. Political reforms, including a clear and efficient system of sanctions against offending parties that do not abide by terms agreed upon, are likewise indispensable. 6. One of the greatest challenges Latin America has to meet is to combine the legitimacy of origin and the legitimacy of performance in order to guarantee governability. 7. Democratic practices and trials without a critical and controlling basis and disregarding historical experience may lead to ungovernability. Limiting the faculties of the government and giving more power to the legislative branch may lead to excessive "parliamentarianism" and its negative consequences. On the other hand, parliaments lacking effective involvement in the law-making process are prone to rhetorical behavior. 8. The growing importance of the media is a matter of great concern because they only take into consideration the interests of their owners. Consequently their increasing power does not always yield positive results. 9. It is advisable for people in the government to keep an eye on polls, although it is always dangerous to subordinate public action to the changing trends of public opinion, because it shows considerable fickleness and great dependence on media messages. 10. The process of structural changes should be complemented because present strategies have proven insufficient to lead to sustainable and equitable growth. This challenge must be met: to carry out reforms and growth policies, but with due respect to recent achievements in stability terms. It is imperative to undestand how macro and microeconomic factors interact, how macroeconomic consistency restrictions condition each other, and also to comprehend imbalances generated along the reforming process and the consequential changes in the productive groundwork. 11. The worldwide concept of developing policies must be changed, because Latin American problems cannot be separated from those of the rest of the globe. In this context, the revision of the function of international organisms carries great importance. In the contribution of the effort to renew governments and societies, international institutions show obvious deficiencies regarding problems under their care. 12. It is indispensable to arrive at long-term consensus formulas assigning responsibilities to all concerned, because no single country can have everything. This means recognizing the complementarity of all economies. 13. Internal shocks arising from changes in economic policies of the most important countries or in the world economy directly affect Latin American economies. This means that governments must face deeply assailable situations in order to create and apply suitable policies to neutralize adverse effects. Governments cannot, but take appropriate measures doing their best to avoid isolation. 14. During the 1980s and 90s a world-wide change came about which inevitably had an influence on Latin America. The transformation process in the region cannot come overnight. Consequently, Latin America is experiencing the benefits and also the cost of the said structural change. 15. In many countries, the privatization process has not brought about a deep transformation, because this is a complex task that is supposed to conciliate real -- some times opposing -- objectives. Nevertheless, the basic questions to be considered are social equity and efficiency. 16. There is no conflict between growth and equity, provided economic policy bolsters complementary areas between one and the other; namely, maintaining macroconomic balance within tolerable margins, investment in human resources, policies seeking increased and sustained productive employment, rapid and massive technological know-how. 17. It is necessary to put into practice wide and carefully planned financial deregulation measures that will allow the adaptation of national economies to the dynamics of financial globalization. This raises the need to reinforce financial systems in order to have solvent and efficient financial organizations. In this manner, financial deregulation complements organized financial development. The answer to the question "does capital control make sense?" is far from simple, because the globalization of finances and of the movements of capital affects Latin American countries regardless of controls. At any rate, the answer is affirmative, especially where short-term speculative capitals are concerned. 18.It is to be desired that Latin American central banks study ways to reduce the region’s financial vulnerability, and that they create mechanisms to furnish operational content. International Insertion and Competitiviness 19. Transformations in the world economy affect Latin America because of the economic interdependence we now live in, which presses governments to obtain, simultaneously, the permanent arrival of capital, macroeconomic stability, competitive exchange rates and the strengthening of the saving-and-investment process. Although it is true that vulnerability is in proportion to the risk that sovereign governments take, it is also true that little can be done with the decisions that other countries take to protect themselves, or in view of the dynamics of the world economy. 20. The Asian crisis puts before Latin America external imbalances and their destabilizing danger. It is a clear warning that fiscal austerity is a need that is here to stay, and that it is the way to neutralize, at least in part, the effect of internal shocks. For the present year, the impact of the Asian crisis through the fall of natural resources and energy prices, and consequently on its internal sector, will increase the vulnerability in Latin America with regard to the volatile international capital markets. The external financing requirements in Latin America for 1998 are expected to be in the neighborhood of l00 billion dollars, or 25 percent more than in 1997. It will not be easy to obtain them. 21. Financial speculation affects the real economy and is linked to phenomena regarding the solidity or deterioration of national economies. Even solid economies and fine administration can be affected by a financial turbulence. It is not possible to remain completely isolated from the effect of such a turbulence, although a high level of internal savings and international reserves, fiscal austerity, avoidance of outdated exchange rates and, in particular, rigorous regulation and supervision are proven key elements to reduce vulnerability when financial turbulence crops up. 22. Even though Latin America is now better prepared to defend itself against external factors, such as the current Asian crisis, or, in the 1980s, the debt crisis, this is not enough. However, lessons learned from the the Mexican crisis in 1994 diminished the impact of the new crisis in 1997-98. 23. Regional integration is important and should be strengthened in order to define joint positions. If Latin America is united, we can obtain more. This way, Latin America would be able to handle with increased efficiency its international insertion, a goal already reached by some countries. Among the various integration initiatives now undergoing a consolidation process in Latin America, five are particularly important because of the great weight of the economies involved: the free trade agreement (NAFTA) signed by the United States, Mexico and Canada, Mercosur, the Andean Pact, Common Central American Market (Mercado Comun Centroamericano or MCCA) and the Caribbean Community (Comunidad del Caribe, CARICOM). Participation in trade blocs has repercussions on the development of productive sectors. In view of the hazardous fragmentation of economic spaces considered desirable, attention has been given to the need to structure subsystems or economic spaces. The structural format frequently proposed for the region could be called mutual convergence, in view of the way subregional economic spaces are formed. 24. Inside Latin America, it is necessary to go deeper into intercountry relations. What is going to happen to countries which have not as yet integrated? 25. Latin American competitiveness has decreased, which makes the region vulnerable, especially in the case of "one-product countries." This must be corrected through the diversification of exports, product by product and market by market. Competitiveness based on low wages, or in ecological deterioration, which only yields one-time benefits, should be rejected as pseudocompetitiveness or spurious competitiveness. Productive Transformations and Technical Progress 26. Productive transformations are nowadays concentrated on the promotion of competitivenes in the context of open economies, but they have weak points as far as the treatment of sectoral aspects and fostering small or medium-sized industry are concerned. This makes it necessary to formulate productive encouragement policies linked to internationalization and to export orientation. 27. Foreign investment complements national efforts, and its associated technological content should not be underestimated. It increases the capacity of industrial and technological know-how, as the basis for indigenous innovation and dynamic increase of international competitiveness. On the other hand, national savings are decisive for the generation of investments required by the productive transformation process. 28. Latin American manufacturing industries have undergone various transformations in the last few inars. Performance in the export field has been favorable, but growth in production and of investments has been slow, considering the weak recovery of internal demand and the increase of external competition. Consequently, it is indispensable to continue promoting exports, adding new products and exploring new markets. It is likewise important to increase competitiveness in the internal market, which still is the main demand factor for the industry of the region. 29. The farming sector (cattle and crop raising) has fallen behind considerably, and this situation demands productive reconversion, regarding modification of crops and areas under cultivation, and the incorporation of profitable technology. Human Resources, Poverty, Inequality 30. The creation of physical infrastructure, as basis for development, is essential; but basic education is likewise essential to improve the quality of human capital that buttreses development. No country can be competitive or equitable if it does not assign proper teaching and training to its human resources. Education has become a fundamental element of the modernization process, because in view of the changes the production system has gone through and all the corresponding challenges, Latin America will have to live up to its capacity for adaptation, greatly improving the education system. 31. Latin America gives top priority to matters regarding macroeconomics and neglect social policy priorities. This makes more acute the imbalance between income and wealth, which may lead to disorders affecting previous achievements. Social imbalances cannot go on indefinitely. 32. Latin America must create demandable social rights as a redistributive and social cohesion measure. 33. Inequality and poverty levels have not decreased. Social compensation policies have, so far, been limitedly effective. Social outlays have been curtailed by measures meant to achieve budgetary discipline, and the application of social policies has not been sufficiently renewed. 34. The demographic problem is still very serious. There are countries -- especially in South America -- which have substantially reduced population growth. Other countries -- such as Mexico and Central American nations -- have not reached that goal. The former has established with good results moderation programs and, on the other hand, their demographic growth has been traditionally slow. In general, the problem arises from the fact that even when there is real progress, population-growth rates are high when compared to employment possibilities and social service coverage. 35. Fairness cannot be reduced to fighting against poverty. The main goal is to avoid inequality in order to arrive at "all embracing societies." 36. In practice, financial interests, macroeconomics and short-term benefits take precedence over environmental problems. But the truth is that the environment, the space we inhabit now and will inhabit in the future, is supremely important both globally and regionally. Most regional economic analyses say almost nothing about the environment and natural resources; they barely touch on environmental quality with regard to population centers and the fluctuations in the availability of natural resources (especially renewable resources) despite their crucial importance for regional development options. Moderate incorporation to technical progress, intensified world trade, and deterioration of the price of regional products in international markets have increased the pressure on natural resources. Adding demographic growth and increased internal demand to the foregoing facts, one arrives at the conclusion that development strategies, in practice, hardly take into consideration the environment and natural resources. 37. Crises in South America affect countries in North America. That is the reason why long-term trends must be examined from a global viewpoint. Starting from this point, what is required to avoid regional imbalance should jointly be defined. 38. Sustainable development, by meeting of present needs but without endangering the capacity of future generations to satisfy their own needs, must be considered. Building on this ground, changes in development policy must be brought about. 39. Real economy requires careful consideration: macroeconomic analyses are not enough when planning is concerned. Sectoral analyses of national economies are indispensable, covering the steel, mining, petrochemical and automobile industries, among others, as well as subcontractors ("maquila"). Similarly, it must be remembered that small- and medium-sized industries absorb most of the available labor force. These analyses are essential for structuring productivity policies in the context of open economies. The same applies to closer cooperation between the public and the private sectors when consensual decisions are concerned; to the strengthening of social security and health systems; to savings and pensions having a redistributive function; to the interrelation between national and multinational enterprises as a consequence of interrelations at a worldwide production level. 40. Foreign debt is no longer considered a problem, due to policy changes and progress already made. But several sequels of the crisis have not as yet been overcome, because interest payments are still an obstacle that precludes applying resources to real economic growth, particularly in the case of relatively smaller economies. 41. At present, privileged attention is given to
short-term problems, to the detriment of long-term ones.
Consequently, consensual strategic planning, answering
basic questions asked by public opinion, falls in the sine
qua non category. Mr. Miguel de la Madrid Hurtado, former President of Mexico Mr. Jose Sarney, former President of Brazil Dr. David Ibarra, Advisor to CEPAL-Mexico Dr. Salomon Kalmanovitz, Co-director, Banco de la Republica o Banco Emisor, Colombia Dr. Nora Lustig, Inter-American Development Bank Dr. Carlos Moneta, Secretary-General of SELA, Venezuela Dr. Osvaldo Rosales, CEPAL, Chile Dr. Victor L. Urquidi, Professor Emeritus, College of Mexico Mr. Mitsuhiro Kagami, Institute of Developing Economies, Japan Mr. Romulo Caballeros, CEPAL-Mexico Mr. Elio Gaspari, journalist, O GLOBO, Brazil Mr. Sergio Mota, Fondo de Cultura Economica, Mexico |
| . BALANCE AND
PERSPECTIVES OF (Synthesis) Presented for the
High-level Expert Group Meeting |
1.
Governability, Democracy and Economic Reforms in Latin
America 1. Governability, Democracy and Economic Reforms in Latin America Latin America is in the midst of an intense transformation process, characterized by advancement in democratic pluralism in the field of governability and deep economic reforms. The balance is twofold: in comparison with the previous decade, it is clearly positive, but the average deriving therefrom is still unsatisfactory. It cannot be doubted that the “lost decade” in the economic field meant in the political sphere considerable advancement. Never before had there been simultaneous democracy in so many countries of the region. Beyond and above the restrictions which may be found in practice, more open regimes have now the upper hand. “Emergency governments” are disappearing; the periodic election of new authorities is becoming the general rule and, furthermore, flagrant cases of political anormality tend to find a solution applying institutionalized methods. Economic activities show more quality and progress in technology, and relevant progress can be seen in the administration of public organizations having decisive influence on economic stability, such as central banks, budget administration agencies, financial regulation bodies. There persists a considerable backlog in the re-adaptation of political institutional aspects to new challenges, especially as regards the urgent need to increase uprightness in public affairs, to decentralize political and administrative power, to modernize political parties and to fight against signs of corruption present nationwide in several cases. Political parties, to some extent, resist modernization, and tend to be not amenable to taking in problems and questions of great concern for the people. Polls show widespread adverse opinion of political activity and institutions, as well as a growing lack in the average citizen of motivation with regard to public affairs, specially among the young. Strict macro-economic management is now a key element of governability and international participation. Consequently, the international scene is imposing a rapprochement between opposing economic positions, thereby virtually shutting populism off. Latin American parliaments show a deficiency as far as modernity is concerned, specially when compared with the technological advancement of the principal levels of the executive machinery. This imbalance is clearly seen in the feebleness of budgetary discussions and in the limited capacity of parliaments to come up with efficacious fiscal legislation in emerging spheres of public policy. The evaluation of the judicial and police systems is plainly deficient. These processes are specially serious in well-known cases, linking drug-trafficking and politics, since they severely threaten democratic governability, the solidity of institutions, and therefore, the subsistence of economic reforms. Economic and political reforms in Latin America, in fact, search for progressive institutionalization of open and competitive market economies, and try to introduce social remedies within a frame of increasingly solid democratic practices. Nevertheless, it seems that the cost of reform is high and unevenly distributed. This region is far from being characterized by high levels of social integration, due to the fact that poverty, unemployment, underemployment, unfair distribution of income, social segmentation regarding achievements in the education field have been structural features of its performance. The realities of globalization and economic openness, with diversified impact that increases uncertainty, operate with exclusion as a backdrop. Urban violence is growing in Latin America at an alarmingly high cost, both human and economic. This violence increases a feeling of public insecurity and lack of confidence in economic activity. A marked urban concentration process and the consolidation of urban poverty nuclei, within a context of frustrated social expectations, provide a setting that encourages the development of criminal practices and urban violence. The drug trafficking-corruption-violence structure, although with certain differentiating factors, tend to operate as a unit destabilizing established institutions. In these cases, basic coexistence norms are destroyed, governability is eroded and institutions fall into discredit. There undoubtedly is a heavy backlog in the re-adaptation of justice and police systems. 2. Growth and Economic Reforms The exceptional character of the crisis that broke out in the 1980s was shown in simultaneous and persistent deterioration. Together with diminished production or drastic reduction of its growth rhythm, the employment situation worsened and real wages declined; inflationary processes spread and became more acute; and the problems of the external sector became increasingly serious. As counterpart of macro-economic deterioration, there appeared severe crises of the internal financial system, arising from the combined impact of recessionary situations, with higher interest rates and sharp currency devaluation. Although there were some exceptions due to national differences, the said adjustment process continued in most cases until 1990, with successive falls of per capita domestic product. Something that started as a mere political adjustment, in the fact of the importance of certain imbalances and the characteristics of the new international order, quickly took a turn towards structural reforms. Even though they are far from being similar, all reform processes had macro-economic stabilization and internationally competitive goals, based on fiscal discipline, trade and financial liberalization, operation of market mechanisms, increased confidence in private investment, and new incentives and regulations, including easier terms of foreign investment. As a whole, the said processes include a fundamental transformation of regional development methods, which has encouraged the renewal of external financing. Access to new external financing sources likewise permits certain reorganization of public debt, increasing the issuance of long-term bonds, which allows for the replacement of old and more costly debt and, at the same time, permits the liberation of warranty funds. This mechanism reduces interest payments, and lightens fiscal burdens. The process at present operates in Mexico, Argentina and Brazil; it could grow deeper roots in these economies and also spread gradually to other countries. The overall average still shows a vulnerability context and low growth, with the corresponding unsatisfactory social results. First, with a few exceptions, product growth rates have been moderate (3 percent a year between 1990 and 1996), lower than the rates of both the historic performance (5.5 percent between 1945 and 1980) and the levels considered necessary by CEPAL (Comision Economica para America Latina), i.e., 6 percent a year, when it comes to facing a social and economic backlog. Second, most Latin American economies are still developing within a vulnerability context, with, in many cases, macro-economic stability depending excessively on a high deficits in the current account, sometimes financed by transient capitals, which is often reflected in brief expansion and adjustment cycles, in accordance with the behavior of said capitals. Therefore, instability in the economic growth rates and relative prices shuts off improved consolidation of the labor market, in the face of the slowness with which employment rates react in economic activity levels and, furthermore, it tends to put at a disadvantage the relative position of groups with a modest income, because they have less resources and information to adapt to the economic and occupational cycle. Third, the sudden drop in the 80s of savings coefficients, specially those regarding investments, show only slow recuperation in the 90s, on the understanding that in the vast majority of countries levels of the early part of the 80s, prior to the crisis, have not as yet been regained. The fiscal crisis of the 80s to a great extent can be explained by specific conditions in each country, but there are also several common elements found throughout Latin America, such as large fiscal deficits, restrictions connected with tax policies, outdated tariff structures, lack of financing for public enterprises, new obligations that governments had to meet, shake-ups in net transfer of external resources, difficulties to finance fiscal deficit, radical, deterioration of public function. External credit recovery, renewed growth and price stability have been the keynotes of Latin American Economy in the 90s, in spite of the Mexican crisis around 1995. This way, the said keynotes have become decisive variables that explain improved fiscal performance. The possibility to obtain voluntary financing in international markets widened the domestic debt margin and, at the same time, brought costs down. Currency appreciation, linked to arrival of foreign capitals and the accumulation of reserves, reduced the load of external interests on public budgets. The income derived taxes responded promptly to the increased level of activity. Lower domestic interest rates (together with international interest rates and the elimination of credit rationing that weighed on many countries of the region) as well as the renewed production drive, favored the fulfillment of fiscal obligations. Furthermore, reduced inflation increased real income receipts. The above conditions came together with an emerging fiscal situation. Another crucial element has been the increased impetus in structural reform policies in various public sector fields. On this point, it is a well-known fact that the agenda has been both wide and pointed. New tax policy schemes were adopted, emphasizing taxes on consumption, wider bases, tariff reductions, improved legal and administrative structure of instruments regarding fulfillment and control of taxpayers’ fiscal obligations. Enterprises and public services were privatized. Decentralization continued making progress. Public administrations were restructured. In several cases, nationwide, health and prevention services were likewise deregulated. Public regulation modality has been acquiring a different character, allowing for more market space and developing programs and policies aimed at increased efficiency and fairness in various social expenditure programs. To preserve macro-economic stability and a realistic rate of exchange, it requires the opening of capital accounts corresponding to the capacity of each economy to efficiently absorb and assign external resources. For example, an efficient liberalization of the trade account requires a real devaluation, so it will succeed and also in order to cut down costs of a productive and occupational transition. Since financial markets adjust more quickly than real markets, premature opening of capital accounts may lead to abrupt appreciation, generating contradictory signals between commercial opening and financial opening. Nevertheless, a change of sign in the net transfer of resources is not enough to explain the present Latin American economic situation. Next to it are deep economic reforms and a perceptible shake-up in the quality of economic policy. 3. International Insertion and Competitiveness Between 1970 and 1990, the exports volume in Latin America and the Caribbean registered sustained expansion at a yearly rate exceeding 6 percent. This increase was higher than GNP growth in the 70s and, naturally, during the crisis in the 80s. However, in purchasing power terms, exports expansion was eroded by the fall of interchange terms. Since the mid-80s, world trade and Latin American exports adopted a faster rhythm. Some countries registered significant growth rates in export volumes, particularly in the 90s. Price evolution in main export items of the region still shows a negative trend. In real terms, the long-term trend of these prices has waned in most cases. With regard to 16 of the 18 main products, this deterioration assumed a sustained and long-term character, since for more than 10 years, as an average, relative prices have been cut, thereby forcing exporters to increased efforts in order to improve external balance. This adverse evolution affects both commodities and manufactured goods, although in these cases deterioration has been less severe. 4. Productive Restructuring and Technical Progress The 1980s were marked by virtual stagnation in the economic level and serious economic imbalance. In the present decade Latin America is experiencing severe relative backwardness in the worldwide economic picture. During the 1990s, the level of activity in Latin America expanded at moderate, but stable rates, gradually adapting to growth-rhythms of various countries. Likewise, those years registered gradual recovery of investments ? although varying considerably from country to country ? and marked productive rationalization in economic units. On the other hand, productivity showed significant increase, particularly, but not exclusively, in the field of manufacturing production. The degree of internationalization of production and consumption structures also increased significantly. Adjustment processes, macro-economic stabilization and structural reform, began after the foreign debt crisis, and acted as a powerful selection mechanism, which, in turn, pressured each economic agent to look for the way to adapt to new scenarios in the field of price signals and for regulation processes of productive activity. The export sector, activities linked to natural resources, large domestic capital conglomerates and multinational enterprises adapted more successfully. 5. Employment and Remuneration New growth bases in Latin America and the Caribbean have had limited influence in the creation of jobs and in the average level of remuneration. This is due, first, to moderate growth which, even when historical patterns are used, generates a number of jobs below what is required to absorb totally the emerging economically active population (EAP). Second, restructuring the productive system favors more capital-intensive activities and, therefore, the adaptability of employment vis-a-vis GNP trends to decrease. Consequently, an emigration of workers employed in “ modern” activities, who are relatively highly productive, towards activities with various degrees of “informalization” and low productivity has taken place. Most new jobs generated in the 90s are found in the informal sector, characterized by low productivity and remuneration levels. Eighty-four out of every 100 jobs generated between 1990 and 1995 corresponded to this sector. This means that 56 percent of people gainfully employed in Latin America belong to the informal sector, which explains both present average stagnation in medium work-productivity levels, with different national differences, such as wages not as yet on a par with 1980 levels, and growing income differentiation in the occupational sphere. The recent overall picture of poverty shows certain progress, particularly linked to sustainable economic recovery situations. Between 1990 and 1994, in nine out of 12 countries poverty level decreased (it increased in only one case). This gradual improvement tendency was interrupted -- perhaps only temporarily -- in 1995, when growth slowed down in several countries (particularly in Mexico and Argentina); but, on the other hand, this tendency was vigorously strengthened by a sudden drop of poverty incidence in Brazil, due to a stabilization program. However, since 1994, results have been more heterogeneous: in three cases poverty decreased, it increased in four, and remained at the same level or registered small variations in five other cases. In comparison with 1980, only four countries have nowadays a lower poverty level -- Brazil, Chile, Panama and Uruguay. In most Latin American countries, the public expenditure level assigned to social sectors went up during the first years of the 1990s. In contrast to what was observed until 1993, seven out of 11 cases that registered increases, among other achievements, the indexes were higher than those reached in the early 80s. 7. Debate over the State and the Market After behavioral norms determining industrialization processes substituting imports, in the framework of commercial openness and economic reforms, Latin America has been passing from deregulation policies and privatization which, in correcting previous excesses and inefficiency, defined the role of the State, to approaches that today set forth the necessary complementary relationship between markets and government performance. It has taken into consideration, the difficulties regarding regulation that have been detected in the privatization of public services, the inadequacy of environmental protection regulations and, in general, equity and promotion of competence in the context of open economies. The objective in view is the improvement of quality in the State and in the market, searching strategic complementary aspects, in accordance with relative advantages in each case. To make the most of market advantages, it is necessary to correct lack of concentration, discrimination and asymmetrical information, to strengthen the regulating capacity of the State widening access to capital markets, and protecting the rights of the consumer and of small stockholders. If logic in public action is compromised by the promotion of competence, and if it leans on the market, instead of trying to substitute or ignore it, there will be complementary efforts between the State and markets, and both institutions will benefit by their mutual interaction. 8. Governability and Economic Reforms: An Overview Making progress in the global economy demands a unified conception of economic and social policies, giving support to all kinds of competitiveness that encourage social cohesion and vice versa. This does not mean ignoring practical conflicts between growth and equity; on the contrary, it means making an effort to minimize them and to take advantage of many types of mutual complementary aspects, in particular, macro-economic discipline, investment on human resources, generation of new jobs, rapid spreading of technical change in a vast entrepreneurial sphere. Growth and equity are product of both economic policy and social policy. In this sense, the idea that the only objective of economic policy is to boost growth, whereas social policy should concentrate exclusively on the distribution problem, should be cast off. Neither one nor the other are neutral when distributive terms are concerned, and both have a bearing on growth capacity. That is why an integrated approach is required, where public policy as a whole favors both productive transformation and equity. Emphasis on the stable character of growth means that various types of macro-economic balance must be stable. Or, in other words, great attention must be given to the impact of macro-economy on the efficient allocation of resources i.e., avoiding distortions that distance the economy from an expanding productive borderline. |
