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Economic reform and progress in Latin America and the Caribbean

  • Loayza, Norman
  • Palacios, Luisa

In the late 1980s, after decades of poor economic management, many Latin American and Caribbean countries undertook structural reform that placed them on a path toward superior economic performance. The authors examine the experience in structural reform in five areas: governance (reforming public institutions), international trade, financial markets, labor markets, and the generation and use of public resources. To characterize the experience with structural reform in the region, they develop quantitative indicators for different types of policy reform and for their outcomes. They conclude that the most progress has been made in liberalizing international trade. In this area the region has done almost as well as the Asian newly industrialized countries (NICs). The least progress has been made in reforming labor markets. In most countries there are still severe constraints on hiring and firing workers, payroll tax rates are high, there are few or no mechanisms for resolving labor disputes, and there is too much public employment. Financial development has improved, especially the depth of financial intermediation, private sector participation in banking, and the size and activity of stock markets. As for the efficient generation and use of public resources, much has been done to make the value-added tax system efficient and to privatize public enterprises. Reform gains in governance have been modest. Latin America remains well behind the Asian NICs and OECD countries, especially regarding the rule of law (judicial and police systems) and the quality of public administration (procedural clarity and the bureaucracy's honesty and technical competence). A great deal has been accomplished, but compared with the Asian NICs and OECD countries, there is still substantial room for improvement.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1829.

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Date of creation: 01 Sep 1997
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Handle: RePEc:wbk:wbrwps:1829
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  1. Bruno, Michael & Easterly, William, 1996. "Inflation's Children: Tales of Crises That Beget Reforms," American Economic Review, American Economic Association, vol. 86(2), pages 213-17, May.
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