The State of State Reform in Latin America (review)

Commissioned by the Inter-American Development Bank, this volume examines post-1980s state reform in Latin America. It focuses on political institutions and state organizations, fiscal institutions such as budget, tax and decentralization institutions, public institutions in charge of sectoral economic policies (financial, industrial, and infrastructure), and selected social sector institutions (pensions, social protection and education). In each area, the contributors summarize the reform objectives, describe and measure their scope, assess the main outcomes and identify the implementation obstacles, especially those of an institutional nature.

The integrative opening chapter argues that during the early 1980s crisis, occasioned by the centralist and bloated state, created opportunities to recover or establish democratic institutions. Efforts to take advantage of these opportunities lead to the volume’s most important finding: that a quiet institutional revolution across the region has gradually transformed many critical dimensions of the state (p. 51).

Chapters 2, 3 and 4 address the first area of reform: political institutions and state organization. Here there is agreement that the basic structures of political regimes has not changed dramatically, but neither have they been static. Presidential elections in many countries have added a second round of voting and national legislatures are now more representative. New constitutions have given judiciaries greater powers although the characteristics of rule implementation have changed very little. Bureaucratic reform also has occurred, but out of the public eye. Reformers have introduced models of organization and management practices intended to improve responsibility, independence and technical capacity in state bureaucracies.

Chapters 5, 6, and 7 examine changes in fiscal institution, tax policy and decentralization. Reforms in fiscal institutions emerge as the results of political processes used by a diverse group of actors to pursue their own interests. Here the reform process highlighted the “problem of the commons,” that is excessive and inefficient expenditure of public resources. The rules employed to discipline groups and individuals pursuing their personal interests included: restrictions of the size of the budget; procedural rules (separation of powers executive-legislature); and transparency rules that facilitate public oversight. The institutional reforms undertaken by Latin American states on procedural rules were less extensive than on size of the budget. Where fiscal institutions were concerned the efficiency of formal institutions (which are most susceptible to definition and measurement) depended on political culture and informal practices.

Most Latin American countries, except for Argentina and Brazil, were politically, administratively and fiscally centralized until the 1990s. The popular election of mayors, which became widespread in the 1990s, stimulated political demand for additional institutional reforms linked to the decentralization process. Nevertheless, national governments did not promote greater tax decentralization because they feared the erosion of national revenue and did not wish to spark competition or widen inequalities between jurisdictions.

The chapters dealing with sectoral policy reform, as indicated earlier, examine privatization, financial reform, pensions and education. Third wave democratization stimulated the privatization of activities which historically fell within the public sector. Unfortunately, large numbers of privatizations took place in the absence of a meaningful regulatory framework. Chapter 8 examines the consequences of not establishing a regulatory framework before privatization, and sets out the main challenges currently faced by the state in belatedly regulating privatized enterprises.

Reforms in the financial and industrial sectors gained momentum during the 1990s. Whereas Latin America was the region with the highest level of public sector banking a decade earlier, by 2000 liberalization increased the presence of private financial institutions to levels similar to those of developed countries. This did not result in a more dynamic expansion of the private financial sector, as anticipated. Consequently, liberalization has retreated in some countries of the region. This has led to “new” public intervention, which has been guided by the use of private criteria in the approach to state banking.

Post 1980s reform of industrial policy in Latin America has not envisioned a return to ISI...