1999 Fiscal Conference Comments - Sustainable Finance in Latin America: Eisenbeis - Introduction

Introduction

ROBERT EISENBEIS
Federal Reserve Bank of Atlanta

In order to address the broad policy implications and wide-ranging nature of fiscal policy, participants in the conference on Sustainable Public Sector Finance in Latin America were asked to explore the issue from various angles, employing different disciplinary approaches. The following overview of the papers and presentations from the conference provides insight into some of these perspectives.

The basic policy elements of sustainable public sector finance are presented in the introductory paper by Elizabeth McQuerry, Michael Chriszt, and Stephen Kay. Economic fundamentals and the notion of policy credibility are explored through a review of existing research on fiscal policy in Latin America. The authors also examine how Latin American governments have performed in achieving their fiscal policy objectives and provide a selected research bibliography that will be a useful guide for scholars.

Larry Graham offers a comprehensive, historical survey of four key countries. In analyzing the developmental paths of Argentina, Brazil, Mexico, and Venezuela, Dr. Graham outlines four distinct political trends, which to varying degrees have been manifested throughout the region and which continue to shape contemporary policy outcomes in the region.

Ben Ross Schneider explores why administrative reform has been so problematic in the region. His analysis draws insight from institutional economics to examine the specific political dynamics of the life cycle of reform, from elections to final implementation. The analysis has important policy implications for administrative reform efforts as well as for other types of economic and political reforms.

Juan Carlos Echeverry and Verónica Navas evaluate fiscal policy in Colombia, analyzing public sector net worth using both flow and stock approaches. The authors argue that the feasibility of a particular fiscal package depends not only on a sound economic approach but also on the establishment of a new political and judicial approach to the decision-making process that would avoid the type of institutional conflicts that have occurred in some countries. Echeverry and Navas also argue that policy should be directed toward the pursuit of a dynamic equilibrium related to public sector net worth as opposed to explicit debt and deficit targets.

Deficit finance is the subject of a panel featuring remarks by two distinguished practitioners of debt management in Latin America. Carlos Boloña, who served as Minister of Economy and Finance in Peru from 1991 to 1993, shares insight from his experiences as finance minister during a very difficult period in the country’s economic and political history. His tenure was also the period during which Peru effectively came to terms with many debt-management issues. The discussion by Fábio de Oliveira Barbosa, the Secretary of the Treasury in Brazil, maps out the Brazilian government’s debt strategy. His presentation provides important insight for countries seeking to establish and maintain access to international credit lines as they build domestic credit markets. The Brazilian experience also illustrates how fiscal policy and global economic conditions can work at cross-purposes, presenting policymakers with even larger budgetary challenges.

The panel on international lending and capital flows features the views of two prominent investment practitioners. The assertion by Francisco Gil-Díaz that all foreign debt in emerging market economies—whether held by the sovereign and in private hands—is a sovereign liability is a sobering reminder that the rapid increase in capital flows and international markets has wide-ranging implications. At the same time, Graham Stock notes in his paper that creditor analysis of emerging market lending is essentially the same as other credit analysis: countries that meet these criteria will find ready access to international capital markets while those that fail to meet them must resort to much more onerous terms.

Conference participants were also fortunate to hear the views of two distinguished speakers. Ann Helwege shared her research with Eliana Cardoso on how Latin American governments have fared with poverty alleviation efforts and outlined the prospects for future efforts in an environment of resource constraints. Cláudia Costin provided the keynote address from her first-hand experience with state reform as Brazil’s secretary of state for administration and government property. The Brazilian example illustrates many of the multifaceted challenges facing reformers.

The conference also benefited from a very learned and enthusiastic group of participants—encompassing viewpoints from academia, banking, government, and the private sector—who shared their perspectives and experiences on fiscal policy. This depth allowed participants to discuss public sector finance along a broad spectrum during the two-day conference.

At the end of the proceedings, participants were asked to identify the primary areas on which further research on fiscal policy would most fruitfully be focused. Three areas figured prominently in this discussion: (1) the need for greater understanding of the role of institutions in fiscal policy reform, especially as regards constitutional reform, congress, and transparency of the policy process; (2) several issues, such as tax reform, income distribution, foreign direct investment, hidden public debt, and pension liabilities, were seen as needing further study and specification to determine the significance of their role in fiscal policy reform. Finally, the need for a greater understanding of the relationship between fiscal policy and dollarization was cited.


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