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 7: Costa Rica: The Effectiveness of Political Economy Compromise

Eduardo Wiesner

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


7. Costa Rica: the effectiveness of political economy compromise Institutions cannot absolutely prevent an undesirable outcome, nor ensure a desirable one, but the way that they allocate decision making authority makes some policy outcomes more probable and others less likely. Cukierman et al. (1992, p. 353) I. THE SUSTAINABILITY OF HISTORY Few countries in Latin America can claim more political economy wisdom than Costa Rica. For decades this country has deservedly prided itself on its capacity to maintain political stability together with the record of having had positive rates of GDP growth for the last 20 years (Table 7.1). In addition, Costa Rica has had amongst the best indicators of social welfare in Central America and Latin America in general. These results have been attributed to the country’s capacity to compromise and to reconcile competing interests and views about the role of the state and markets. Avoiding Table 7.1 Year 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Costa Rica: GDP rates of growth, 1980–2005 GDP rate 6.2 1.0 5.8 6.9 3.8 5.1 3.9 2.6 9.2 7.4 4.7 3.9 Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 GDP rate 0.9 5.6 8.4 8.2 1.8 1.1 2.9 6.4 4.1 4.1 7.9 Source: Central Bank of Costa Rica. 197 198 Country narratives and comparative economics open confrontation and seeking consensus has been the generally preferred option.1 It is difficult to argue against the effectiveness of this particular political economy arrangement....

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