In This Review

The State of State Reform in Latin America
The State of State Reform in Latin America
By Eduardo Lora (ed.)
Inter-American Development Bank, 2006, 460 pp
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Regional Economic Outlook: Western Hemisphere
Regional Economic Outlook: Western Hemisphere
By
International Monetary Fund, 2006, 48 pp
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A worthy sequel to the Inter-American Development Bank's groundbreaking The Politics of Policies, The State of State Reform in Latin America is a superb collection of essays arguing forcefully and persuasively that the quality of public governance is improving in Latin America, even if progress is uneven across countries and sectors. The authors, mostly IDB staff, survey key areas of state performance, including public administration, fiscal systems, education, pensions, courts, regulation, financial oversight, and electoral systems. Lora's own chapter on taxation is particularly noteworthy: he demolishes the myth that market-oriented economic reforms have dismantled the state, as tax revenues have actually risen slightly. (Public-sector coffers are still shallow compared with the treasuries of industrial countries, due in part to widespread tax loopholes for the powerful, a culture of tax evasion, and the underutilization of corporate, real estate, and individual income taxes.) The various chapters identify the political obstacles that have slowed -- but usually not reversed -- reforms and wisely argue that reformist coalitions must be built carefully.

In their annual survey, IMF economists take full advantage of Latin America's unusually strong foreign exchange and fiscal accounts and extended economic upturn to shift attention to some of the same longer-term political-economy issues also of concern to the IDB. They attribute recent advances in part to institutional reforms undertaken since the early 1990s, including greater central-bank autonomy, and reforms of budgetary institutions, taxation, and debt management. They concur that public revenues remain too low in some countries, "particularly in light of social needs," noting that the collection of taxes on incomes and profits in the region is below global trends; without adequate revenues, the IMF warns, governments cannot address critical infrastructure and educational requirements. If Latin American societies were more equitable, policies might be steadier and growth more sustainable; recent conditional cash-transfer programs, such as Oportunidades in Mexico and Bolsa Familia in Brazil, are properly progressive and worthy of expansion. Spectacularly, the IMF calls for a stronger state, capable of delivering better government services, stronger regulatory frameworks, the rule of law, and personal safety and able to crack down on crime and tax evasion. This is not your grandfather's IMF.