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 6: Colombia: Fairness Perception and the Political Tolerance for Macroeconomic Policy Reform

Eduardo Wiesner

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


Constitutional rules appear to shape economic policy and largely determine economic performance. Persson and Tabellini (2004a, p. 94) I. THE PRIMACY OF CONSTITUTIONAL RULES Colombia seems to be the typical case in which Constitutional rules determine economic policies and the politics of those policies (Persson and Tabellini, 2003; Acemoglu, 2005b, p. 1025).1 In effect, no other set of factors better explains this country’s economic, political and social developments over the last fifteen years2 than the rules that emanated from its 1991 Constitution and from the basic conceptual and philosophical perspective under which it was framed. This is the ‘first-order-context-necessarycondition’ to avoid excessive and unnecessary focus on particular or specific episodes thus running the risk of missing the structural nature of the problems at hand. In brief, understanding Colombia’s recent macroeconomic performance, in terms of growth, inflation, volatility and distributional outcomes, requires careful consideration of its ab initio ‘Constitutional normative philosophy’ and delving into at least the following two 1991 constitutional mandates: Articles 356 and 357 established a formula driven transfers3 system which more than doubled the revenue transfers from the national level to the subnational level, to the states, to municipalities4 and to some sectors. ii. Articles 371, 372 and 373 mandated the creation of an autonomous Central Bank with the instruction to lower inflation and to maintain price stability in coordination5 with the general social and economic policies of the government.6 i. There were other Constitutional mandates with enormous fiscal, economic and political economy...

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