This document discusses fiscal policy in Latin American countries. It notes that international institutions traditionally advocated fiscal consolidation through austerity measures. However, some South American governments in the 2000s abandoned neoliberal policies in favor of growth with stable public policies. Data shows that these "Pink" countries experienced higher economic growth and declining public debt compared to other Latin American nations, though inequality remained an issue. While these governments had more autonomy, international credit markets still imposed conditions that limited their fiscal policy sovereignty.

1. Fiscal Policy and Public Debt
Eugenia Correa
Economics Faculty, UNAM
12th International Post Keynesian
Conference
Kansas City, Missouri
September 25–28, 2014

2. Financial Markets doing their job ? (FT-4-09-2014)

3. Key Ideas on LAC-Fiscal Policy
at the WC
• Stabilization through Fiscal Consolidation as a
condition for Growth;
• Which means, abandoning fiscal stimulus policies
• Increase in public debt in local currencies
• Privatizations
• Decentralization
• Reduction and focus of Subsidies
• Increased Tax revenue by VAT

4. Key ideas in Fiscal Policy for LAC, today
• Fiscal discipline to avoid volatility, high inflation
and devaluations that marked the 1980s and
1990s. (IMF, WB, OCDE, etc)
• Moderate Fiscal Stimulus during a prolonged
slump (debates about its size and duration)
• Created strong ceiling (fiscal superavit, descend
public debt in local currency) during growth
periods, for eventual stimulus in long slump
• The conventional view is still that expansionary
fiscal policy could stimulate the economy,
• Country risk rating based on sound fiscal policies

5. How Have Fiscal Policies Evolved?
• Privatization and PPP
• Capital and Income Concentration
• For developing countries, also:
• - no BC loans to Government
• - growing rent transfers
• - dollarization (total or partial) / off-shore
credit circuit
• - Fiscal consolidation and Austericy Policies
• - Changes in Financial Structures: decline of
Public Banks.

6. WC vs Now
• Stabilization Policies
• Reduction of Expenditure,
except for debt service
• (Temporary) Increase in
revenues, by
privatizations and non-income
taxes
• Only sound fiscal policies
can improve a country´s
rating - linked to the
interest rates of private
foreing debt
• Long term Sustainability of
public accounts
• Transparency of public
accounts
• Privatization of Public Services
and parts of public
administration
• Goverment Debt Ceiling
• Privatization in Education and
Health
• Only responsable fiscal
policies can improve the
rating, call contry risk. That
was no-linked to the interest
rates of private foreing debt

7. LAC comprise a large region, with
different pasts and institutions, so
LET US SEE WHAT HAPPEN WITH
THE SO CALL “PINK” COUNTRIES

8. Debate:
• Some South America governments in 00s
abandoned Neoliberal Policies towards
Growth with Stable Public Policies.
(Argentina, Bolivia, Brazil, Ecuador,
Paraguay, Uruguay and Venezuela)
• Those governments called “Pink South
America’ countries” have moved away from
IMF policy supervision. Which means less
fiscal policy constraints?
• Lets take a look …

9. Economic Growth
LAc out-WC Governments
GDP per capita
2003-2013
Argentina 5.9
Bolivia 2.8
Brazil 2.5
Ecuador 3.6
Paraguay 3.1
Uruguay 5.8
Venezuela 2.9
Source: Cepal, Balance Preliminar, several
years.

10. Less Inequality ?

11. But, Less Poverty

12. Declining Public Debt
140
120
100
80
60
40
20
0
Central Government Gross Debt
(as % GDP)
Argentina Bolivia Brazil Ecuador Paraguay Uruguay Venezuela LAC
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

13. Surplus Primary Balance - Public Sector

14. Surplus of General Balance before Crisis

15. Resilience in Public Budget
LA Pink Governments
Public Sector Interest Payments as % of Central Government Income
2003 2004 2005 2006 2007 2008 2009 2010 2011
Argentina 15 10 14 12 13 13 13 7 9
Bolivia 13 12 11 7 5 3 5 5 5
Brazil 41 31 32 30 27 23 23 14 17
Ecuador 17 15 13 13 10 5 3 4 4
Paraguay nd nd nd nd 6 4 4 2 1
Uruguay 28 23 21 20 18 14 14 11 11
Venezuela 22 16 11 7 6 6 7 7 11
Source: Cepal, Anuario Estadístico 2011
2010 and 2011 are Central Government

16. Preliminary Conclusions
• Even “pink” countries, haven´t recovered sovereignty in
fiscal policies.
• External debt: strong renegociation gave more fiscal space
for Argentina, as the previous default crashed debt ratings
• Weak Fiscal Policies also mean Weak National States and
Growing Ingovernability.
• This also brings greater corruption and social violence?
• International credit markets still impose macroeconomic
conditions and therefore government economic policies
• The political ideologies of the ´pink governments´ are left
unfillfilled in economic terms.

17. Inequality limits growth, but can even
tip the system?

18. www.olafinanciera.unam.mx