The Political Economy of Macroeconomic Policy Reform in Latin America

The Political Economy of Macroeconomic Policy Reform in Latin America

The Distributive and Institutional Context

Eduardo Wiesner

Eduardo Wiesner’s book makes an important contribution to the understanding of development by blending together the interdependent issues of (i) macroeconomic performance and volatility, (ii) equity and distributive justice, (iii) fiscal deficits and the redistributive effectiveness of social public expenditures, and (iv) the demand for the ‘right’ institutions and for policy reform in Latin America. It does this by examining recent macroeconomic crises from a political economy perspective, and finds that information is the critical algorithm that links together the demand for macroeconomic stability, macroeconomic performance and, ultimately, distributive justice.

Chapter 1: Overview: The Current Status and Prospects of the Reform Process

Eduardo Wiesner

Subjects: development studies, development economics, economics and finance, development economics, political economy, politics and public policy, political economy


Deductive reasoning no longer suffices for predicting economic behavior without constant assistance from empirical observation. Herbert A. Simon (1957) This overview offers a summary of the current status of the process of macroeconomic policy reform in Latin America. The focus is on the main reforms emerging out of the macroeconomic crisis that several countries experienced since the mid-1990s. The central objective is to extract the underlying political economy factors (that is, the real interests and incentives) that may explain the nature and rationale of the policies adopted and of the results observed. The idea is not only to look at the immediate past or even at the present but also to try to extract the political economy and policy implications that are particularly relevant for a forward-looking perspective. In general terms Latin America has done well since about 2002–03; the question is, to what extent have the reforms adopted actually given the region enough macroeconomic resiliency and political tolerance to assimilate the upcoming unfolding of international adjustment processes and of each country’s own particular circumstances? The answer seems to vary across countries and appears to be largely a function of the pace at which distributive justice and equity challenges are perceived and are actually addressed and corrected. The overview ends with the key policy implication that one of the most important sources and origins of the political demand for reforms and for institutional transformation, on the one hand, and for the eventual supply of the ‘right’ institutions...

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