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6 INTERNATIONAL BUDGET PROBLEMS AND PRACTICES Latin America INTRODUCTION This chapter considers selected fiscal and budget issues in Latin America.The region is critically important to the rest of the globe in providing comparative lessons on what to do and not do in fiscal management and budgeting. Its current budgetary practices are the product of historical influences from Spain, the United States, advice from multilateral (World Bank, UNDP) and regional institutions (IADB), and home-grown ideas.There are at least four features of the Latin American region that make it important for budgetary analysis and comparison . The features are only important, not unique, as this would make comparison and lesson-generation to other regions difficult. First, within each country there is a wide gap between rich and poor.This is a well known socio-fiscal distortion that makes expenditure financing and revenue raising a difficult task for governments of this region.What is less recognized is the wide range in income and GDP levels between Latin American countries themselves—they range from the bottom (e.g., Haiti) to almost-European living and income standards (e.g., Chile). Within our comparative framework, this has important implications for the context of budgeting, especially social spending. EU countries such as Hungary spend 20 percent of their GDP on social services while mid- to upper-range Latin countries spend only about 5 percent (e.g., Mexico) (World Bank 2003, 93). Because of institutional weaknesses, even the small amounts/GDP spent for social welfare programs are often poorly targeted and “leak” out. 171 Second, perhaps presaging what may come to pass in other regions such as Eastern Europe, Latin America has experienced wide variations in political regime types. It is not simply that administrations change often (e.g., Ecuador has had three presidents in the past ten years, none of whom have finished their terms). It is that the underlying regime structures vary qualitatively. Populist, democratic , socialist, and bureaucratic authoritarian or crypto-fascist regimes can all be found in different historical periods, over which several radically different types of regimes try to govern the same country. This pattern has important implications for macro-micro budgetary behavior and institutionalization of budgetary roles. For budgetary stability, predictability, and effectiveness, it makes things very difficult. For example, the Venezuelan state oil company (PDVSA) operates as a parallel state within the populist-authoritarian regime of President Hugo Chavez to provide billions of dollars in financing for a wide range of social projects that are normally the budgetary and program responsibility of the education, housing and health ministries (Economist 2008b, 43). Third, in this region fiscal and budget policies have varied widely, with almost predictable results, from austerity and fiscal discipline to spending sprees in the wake of populist state socialist policies (as with Venezuelan PDVSA noted above). The linkage within regime types is not very predictable. But historically, programs have ranged from centralization of spending/taxation decisions as well as political decisions to engage in varying types of fiscal decentralization. For example, Brazil and Argentina were decentralizing their systems to local governments as early as the nineteenth century (Daughters and Harper 2006, 1). Despite the usual caveat about centralist political culture derived from the heritage of Spanish-Portuguese rule, Latin America has been an important international generator of successful lessons on political and fiscal decentralization. Finally, the Latin American region offers a wide range of design/implementation lessons from successful and unsuccessful cases of budgetary practices. For example, Latin American countries were early leaders in installing integrated financial management systems (IFMSs) and in modernizing their internal audit systems to replace the classical tradition of strong ex-ante external audit of all expenditure transactions. Some of these larger reforms are described in more detail in chapter 7.The region also has some special problems of its own, such as inordinate budget inflexibility (arising from legal rigidity and fragmentation of budget accounts). It is difficult to generalize about fiscal and political patterns in this region (or in others such as Eastern Europe). But by identifying several blocks of countrytypes (poorer, middle range, advanced) it can be argued that the trends at least in the middle and advanced range countries have been positive—institutional modernization , wider development, better service delivery, better fiscal planning and control, improved program implementation, and more electoral accountability. Latin America is testament to the adage that public sector fiscal reform is slow, often costly, but ultimately worth it. 172 COMPARATIVE PUBLIC BUDGETING [3.139.70.131] Project MUSE...

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