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