1999 Fiscal Conference Comments - Sustainable Public Sector Finance in Latin America: Guynn - Foreword
Fiscal policy is at the very core of the profound economic transformation under way in Latin America. While price stabilization and liberalizing reforms have placed regional economies in a much more competitive position over the past two decades, the need for additional reform efforts—so-called second generation reforms like fiscal policy—is increasingly apparent.
Because sound fiscal policy is key to viable monetary policy and sustainable economic growth, few issues are as critical to the region’s economic future. This encompassing relevance is the reason the Federal Reserve Bank of Atlanta chose to sponsor a conference on sustainable public sector finance in Latin America, which took place on November 1 and 2, 1999. While our job is the supervision of the U.S. financial sector and the formulation of domestic monetary policy, the reality is that it is no longer possible to think of economic policy—be it monetary policy or supervisory policy—in purely domestic terms. The Federal Reserve’s mandate is indeed domestic, but the setting in which we carry out that mandate is increasingly global.
We are well aware that resolving fiscal imbalances can be politically as well as economically difficult. By its very nature, this policy arena involves complex trade-offs, presenting both short-term sacrifices and long-term benefits. Indeed, getting our own fiscal house in order here in the United States was an arduous and lengthy process. But it is now clear that our improving fiscal picture has been an important component in the economic prosperity the United States currently enjoys. Reductions in our government budget deficit have contributed to the stable inflation outlook and have allowed for lower interest rates, which facilitate everything from greater private sector investment to more favorable terms for home mortgages. These in turn boost overall economic activity, which itself contributes to an improving fiscal environment. Although I should not depict it as an economic panacea—which it is not—prudent fiscal policy can provide a virtuous circle of sorts, reinforcing its own benefits for the macro economy.
However, it is also true that the time needed to carry out reforms has become a bit of a luxury item, especially in the context of global financial markets and emerging economies. Financial market forces can reward countries pursuing sound policies, but those same forces are also increasingly quick to punish economies with sustained economic imbalances—particularly in the fiscal arena.
I would like to acknowledge all the conference participants for their superior contributions and enthusiastic discussion during the meeting. I would also like to thank the staff in the Bank’s Research Department for their efforts in putting together this excellent program.
Finally, our sincere hope, in making this volume available, is that it will be useful for students and policymakers as both a resource and a record of innovative approaches to understanding fiscal policy.