Social Policy Reforms in Latin America: Urgent but Frustrating

Attempts to reform social policies in Latin America have surged since the early 1990s, intensifying earlier efforts to broaden coverage of basic health and education services. More controversially, many countries have restructured aspects of their pension, health, and education policies and programs in an effort to improve quality, reach the poor more effectively, increase efficiency, and contain costs. Broader economic and political trends have spurred and shaped the surge.

In the early 1990s, as the region emerged from the difficult decade of the 1980s, one priority was to revive decimated social programs. At the same time, in much of the region, the turn or return to democratic government and competitive elections pressed politicians to expand and improve health care, education services, and pension coverage. As a result, "almost all Latin American leaders feel a markedly greater concern for the social agenda than before."¹ Data from the Economic Commission for Latin America and the Caribbean (ECLAC) indicate that social expenditures rose from 9.6 percent to 12.8 percent of gross domestic product (GDP) between 1990 and 2003 (cited in Measuring Inequality, 49).

However, the experience of the l980s, including hyperinflation in several countries, has also generated stronger appreciation of the imperative of macroeconomic stability, pointing to the need to make social services more cost-effective and financially sustainable. International encouragement, pressure, and support have reinforced both sets of internal pressures. The World Bank and the International Monetary Fund in particular have pressed for more financially sustainable programs. At the same time, they and other regional and global organizations have sharply escalated the emphasis on and funding for social programs, especially those directed to the poor. The Millennium Development Goals, which the United Nations adopted in 2000, featured specific targets in education and health as keys to poverty reduction.

Ever more intense international economic competition has added to the debate on social policies, with somewhat mixed impacts. The scramble for market access sometimes creates downward pressures on wages and benefits. Yet policy makers are increasingly recognizing that better education is a crucial underpinning for the transition to more skilled and productive workforces. By about 2002, moreover, the commodity boom generated in large part by China's escalating demand was providing some Latin American nations with a welcome boost in revenues.

The character and issues of debate on social policies have also shifted. New research has revised economists' understanding of the links between social policies and growth. Many economists used to view most social programs (with the exception of basic education) as benefits from growth rather than contributors to it. Efforts to expand social programs rapidly at earlier stages of development were often viewed as competitive with growth. By the 1990s, however, research had provided persuasive evidence that the health status of a nation's people is a powerful determinant of its economic growth.² Recent research also suggests that deep inequalities may impede rapid growth. Social policies, in short, are increasingly regarded as complementary to, rather than competitive with, goals of rapid and sustainable economic growth.

The decidedly mixed, and in some respects discouraging, record of attempted reforms has also fed into ongoing...