The Political Economy of Macroeconomic Policy Reform in Latin America: The Distributive and Institutional Context

by Wiesner, Eduardo

• ISBN13: 9781847205797
• ISBN10: 1847205798
• Format: Hardcover
• Copyright: 2008-05-31
• Publisher: Edward Elgar Pub

Summary

'This book is a must read for anyone interested in policy reforms in Latin America. The author combines tremendous experience in the field and deep knowledge of economic theory: a rare combination.' - Alberto Alesina, Harvard University, US 'One of the key contributions of this book is its insistence on the importance of policy, institutional and political accountability for evaluating and enhancing macroeconomic performance and for reducing inequality.' - John B. Taylor, Stanford University and Hoover Institution, US 'Dr Wiesner combines a command of modern political and economic theories and detailed knowledge of Latin America to clarify why reform of policies and institutions has proved so difficult in that region. His general conclusion is that initial conditions of inequality and poverty reduce the demand for reform, but he finds that the process manifests itself differently in different countries. He identifies several necessary conditions for breaking out of these vicious circles. Scholars and practitioners alike can learn from his impressively thorough and detailed analysis.' - Avinash K. Dixit, Princeton University, US 'This book argues insightfully that underdevelopment is the result of the political economy difficulties some countries have in the effectiveness of public expenditures in general and of social pro-poor expenditures in particular. The policy implication is that reform strategies should focus on identifying the "wrong" political incentives in public expenditures.' - Ricardo Hausmann, Harvard University, US 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. This volume is geared toward those interested in the political economy of development and policy reform in general and in Latin America, including academics, policy makers, and the general reader.

Table of Contents

List of figures
List of tables
Acknowledgments
Conceptual Framework
Introduction	p. 3
Objectives of the book	p. 3
The organization and structure of the book	p. 11
Conceptual framework	p. 12
Overview: the current status and prospects of the reform process	p. 25
The political demand for policy reform	p. 26
Inflation targeting as the macroeconomic coordination template	p. 29
Fiscal dominance in Latin America	p. 31
Enhanced Central Bank independence	p. 32
The lessons from the macroeconomic crisis	p. 33
The reform process of multilateral institutions	p. 35
Remaining policy and political economy challenges	p. 36
Conclusions and policy implications	p. 45
The demand approach for a policy reform strategy	p. 54
The political economy of macroeconomic policy making in Latin America	p. 63
The primacy of institutions and incentives	p. 63
The demand for institutions and the role of transaction costs	p. 66
The supply of institutions and collective action problems	p. 67
Institutions and incentives as deus ex machina	p. 68
The measurement of institutional effectiveness	p. 69
The core of macroeconomic principles	p. 70
Latin America's macroeconomic and equity performance in perspective, 1960-2006	p. 72
The macroeconomic implications of poverty and inequality	p. 79
Central Bank independence and complementary 'fiscal rules'	p. 80
Financial depth and informal dollarization	p. 81
Sudden stops and the effectiveness of macroeconomic policy coordination	p. 82
Inflation targeting as a monetary framework	p. 83
Summing up: the political economy of macroeconomic policy making in Latin America	p. 85
Country Narratives and Comparative Economics
Argentina: blinded by hindsight - the economics and politics of learning	p. 95
From Scylla to Charybdis	p. 95
The political demand for the convertibility rule	p. 97
Evaluable history and the political economy of lesson taking	p. 98
Macroeconomic volatility 1980-1990, leading to convertibility	p. 99
Macroeconomic performance in historical perspective	p. 100
Equity and poverty in perspective	p. 102
The 2001 - 2002 crisis in regional perspective	p. 102
Fiscal deficits within macroeconomic complexity	p. 104
The occult fiscal re-election costs or the 'Menem Syndrome'	p. 105
The immediate causes of the crisis	p. 107
The emerging post-crisis policy framework	p. 108
The recovery period 2003-2006	p. 110
The political economy of the 2001-2002 crisis	p. 110
The political economy implications	p. 113
Brazil : the market enhancing role of political economy factors	p. 120
The Lula fears in reverse	p. 120
Macroeconomic performance in historical perspective	p. 121
The financial crisis of 1998-1999 and inflation targeting	p. 123
The 1999 policy regime change: the 'possible trinity'	p. 124
The policy reforms emerging from the 1999 crisis	p. 126
The 2002 crisis: Lula fears and the role of political economy factors	p. 127
Unequal inequality and distributive justice in Brazil	p. 129
Conclusions and policy implications	p. 131
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