CEPAL Review - Volume 2001, Issue 74, 2001

This essay summarizes some of the main ideas behind proposals for a new development agenda. It highlights first the need to strike a new balance between the market and the public interest, and to understand by “public policies” any initiative organized in pursuit of common goals, and not just State actions. The author makes five proposals for a new agenda: i) more balanced globalization with genuine respect for diversity, underpinned by a network of regional institutions; ii) a broad view of macroeconomic stability and the role of countercyclical policies; iii) the use of development strategies to foster innovation and production complementarities, without which macroeconomic policies are insufficient to generate dynamic growth; iv) improved social linkages, through long-term equity and inclusion policies, complemented by economic growth to create sufficient high-quality employment and measures to reduce structural heterogeneity among production sectors; v) subordination of the economic system to broader social objectives.

This article will focus on the central role played by imperfect or incomplete markets in the spread and perpetuation of recessionary situations. It is a known fact that demand volatility perpetuates such situations, and this can only be mitigated by sustainable economic stimulus policies. Macrofiscal rules, which are important for enhancing the tarnished credibility of State action, need to combine two basic principles: responsibility and stability. This means preserving regulation mechanisms so that excessive macroeconomic fluctuations can be stabilized. The best thing the authorities can do is to use flexible intervention policies to prevent such fluctuations. The new paradigm of public management by results thus entails setting clear fiscal rules with medium-term targets and short-term stabilization capabilities, but it must also involve allocating a larger and larger proportion of public expenditure on a multi-year basis. In seeking to combine stable economic growth with proper implementation of the plans and programmes voted for by citizens, public management faces three essential challenges: adhering to a macrofiscal rule over the cycle, identifying structural deficits as they arise, and correcting the traditional bias against investment. This article will look at some recent efforts to deal explicitly with these serious obstacles by applying legal provisions designed to cope with the uncertainties that surround both the cyclical behaviour of the economy and calculations of its long-term growth potential.

This article looks at the evolution of international competitiveness in the countries of Latin America and the Caribbean in the 1990s, focusing on the microeconomic and sectoral aspects. It evaluates the competitive performance of the region’s countries, contrasting it with that of their main competitors in the developing world; it analyses the corporate actors involved, including the subsidiaries of transnational enterprises and large locally owned firms; and it sets forth some political considerations. Although progress has been made with competitiveness in the region, this has been largely confined to just a few countries, sectors and firms. Differences in the institutional conditions under which the countries participate in the world economy, and in their comparative cost advantages, have resulted in the emergence of two distinct trading styles. In Mexico and the Caribbean Basin, exports of manufactures assembled for the United States market predominate. In South America, on the other hand, natural resource production and processing activities prevail, with more technologically advanced manufactures having some presence in intraregional trade, especially within Mercosur. Both sectoral specializations present opportunities and problems. Improvements in the competitiveness of large companies (whether transnational or locally owned) have enhanced their efficiency. But the same is not true of other agents in the countries’ economies, whose production structures have thus become more polarized. This polarization needs to be dealt with by policy initiatives. Four areas of action are important: increasing efforts to attract selected foreign direct investment (FDI); strengthening the links between leading companies and the other firms in each country; supporting the creation of global knowledge networks; and enhancing the ability of domestic companies to enter into joint ventures and strategic alliances with their global competitors.

This article analyses the effects of tax competition on developing countries. Since the 1980s, globalization and greater capital mobility have led many developing countries to adopt the policy of competing with one another to attract capital investment. One of the main forms taken by this competition has been the granting of tax holidays and other tax reductions to investing multinationals. This paper reviews the normative arguments for and against this type of tax competition, from a global perspective. It then examines these arguments in depth from the point of view of developing countries. The conclusion in general is that, since transnational companies would invest in developing countries even if they did not receive tax subsidies, but are able to receive them through a kind of bidding process among developing countries, it would be more advisable for the latter to agree to refrain from granting such subsidies. Lastly, consideration is given to some ways in which cooperation of this sort could be achieved, either regionally or globally (through the World Trade Organization, for example).

Population, natural resources and domestic market size have been the traditional components of the equation determining the wealth of nations, according to classical economists. The new lines of research opened up by endogenous growth theories and the results of comparative statistical studies into the factors determining this growth have reawakened interest in the relationships between scale effects, market size and the role of international trade in the economic growth of small economies. At a time of ever-increasing globalization, these economies are being confronted with a number of challenges and opportunities in relation to which their small economic size is generally regarded as a disadvantage. Diseconomies of scale increase their production costs, while their relatively undiversified exports mean they are extremely vulnerable to shocks of external origin. All these factors weigh all the more heavily in that trade has become one of the key factors in economic development, as is demonstrated by the sharp increase in imports and exports as a share of GDP since the second half of the 1980s. The central role played by intraregional trade or the North American market as non-traditional export engines is heightening the importance of price competitiveness, and thus of subsidy or tax exemption programmes to ensure an outlet to these markets. For those small developing countries in the region that suffer relative disadvantages, success would therefore seem to depend on the preferential terms under which they do business with their main developed-world trading partners, namely North America and, for members of the ACP group (the developing countries of Africa, the Caribbean and the Pacific), the European Union. Again, excessive specialization to serve a large regional market (Brazil or the United States) entails risks that merit consideration.

The entry of China into the World Trade Organization, if it takes place, will unquestionably have a major impact on many nations. What is focused on here is the impact it would have on trade between the United States and the countries of the Caribbean Basin. The problems caused to the latter by Mexican membership of the North American Free Trade Agreement could be exacerbated by the shift of forces that would result from this new situation. The major expansion of textile and clothing exports from China to the United States that is in prospect would intensify the competition faced by the countries of the Basin and Mexico in that market. Nonetheless, the recent expansion of the trade benefits granted by the United States to the Caribbean Basin, which came into effect on 1 October 2000, gives a short respite (five years or so) in which these countries can seek to consolidate their exports, particularly of wearing apparel. In the case of footwear, increased trade between China and the United States could have adverse effects on the exports of the Dominican Republic to the United States market. As regards medical instruments, Chinese exports would compete strongly with those of Costa Rica and the Dominican Republic in that same market.

This article sets forth some reflections on the position of the region’s countries and the different segments of their domestic financial structures in the international financial system. In the light of the financial globalization taking place in Latin America, it considers the circumstances of the largest countries in the region, looking beyond the stylized arguments of conventional wisdom to analyse different factors influencing the financial situation: sovereignty risk, financial globalization, the degree of financial integration, the cost of capital and the burden of country risk premiums, the link between sovereign risk and fiscal solvency and the consequences of segmented integration. Consideration is then given to courses of action that could reduce country risk. In addition, the role of the different institutional sectors in generating savings is analysed, and the main trends of financial intermediation in the region are considered: banking concentration, the increased involvement of foreign organizations and the role of the public-sector banking system in the circumstances that now prevail.

The banking sector reforms that the countries of Latin America undertook in the 1990s were an important step forward, but proved insufficient. Although it is true that the region as a whole progressed significantly, particularly in reducing the role of the State, and that market mechanisms and the regulatory framework in which banking institutions operated were improved, while at the same time the presence of foreign operators increased, it is no less true that most of the Latin American countries continued to experience systemic crises or severe banking instability. This shows that there are still issues that need to be addressed before the region can have a sound banking sector. They include in particular the need to do more to increase the real independence of supervisory bodies by separating bank supervision from short-term economic and political decisionmaking. Bank supervision needs to be regarded as a matter of State, which means giving priority to its technical and professional aspects; to overcome the difficulties involved, it is essential that there be a real political will to carry through the changes that are required. This article highlights the need to deal with some structural issues, such as the supervision of financial conglomerates, excessive market concentration among a few institutions nationally and region-wide, and the relationship between this and the safety nets which are supposed to contain systemic crises, but which are unable to do so adequately. As regards the regulatory aspects, this paper argues that transparency and market rules in general need to be improved, as do mechanisms for evaluating portfolio and related-party credit risk, especially where effective application of existing rules is concerned.

Following a conceptual analysis of the term “quasi-market”, this article will look at four national efforts to reform healthcare management in what can be regarded, in respect of the degree of solidarity and universality applied, as three different health-care models. The changes in Chile are a continuation of the country’s previous reform, which went further than any other in the region in undermining the solidarity and universality of the health-care model. The conclusion is that it would be beneficial to consolidate purely managerial aspects so that progress can be made with the use of administered prices, relevant information on the quality and cost of care can be produced, and efficiency and effectiveness criteria can be applied to clinical services. In Argentina and Colombia, while there are large differences between the two, the changes that have been made are part of a reform process aimed at encouraging competition while upholding the principles of solidarity and universality. Because change has mainly centred on the financing model, management has had a subordinate place since the outset. In the case of Colombia, the article highlights the excessive complexities of hospital financing, which have combined with regulatory shortcomings to inhibit management change. In the case of Argentina, where hospitals are excessively large, it describes the wide range of hospital management reforms that have resulted from past decentralization, the degree to which management is independent of fiscal discipline and the different ideas that exist of the part played by hospitals in referral systems. In the case of Costa Rica, where health care is primarily public and based on principles of solidarity and universality, the article looks at the creation of internal health markets that resulted from the introduction of a new performance-related organizational and financing model in the Costa Rican Social Security Fund; it notes that the management contracts used have interesting features as regards organization and information and the shaping of a health-care system, but that they are excessively complex and involve high transaction costs, and it analyses the difficulties involved in introducing real provider decentralization and creating performance incentives.

This article analyses the main determinants of private-sector investment in Brazil during the period 1956-1996, using an empirical model employed in the most recent studies on developing countries. The econometric procedures followed not only take into account the non-stationarity of the data series examined, but allow for the possible difficulties involved in treating the conditioning variables as exogenous ones or as policy instruments. The findings –both the longterm equations and the short-term models– reveal the positive impact of the output, public investment and financial credit variables and the negative effect of the exchange rate. The results of the weak exogeneity and superexogeneity tests show the importance of credit and public investment as economic policy instruments, while obviating Lucas’ critique.

In 1991, the Government of Chile began to pursue a new business development strategy. The Small and Medium-sized Enterprise Support Programme (Programa de Apoyo a la Pequeña y Mediana Empresa) provides for a number of instruments to correct market failures and improve the efficiency, productivity, competitiveness and international trading position of Chilean products made by these firms. The importance of small and medium-sized enterprises (SMEs) in the national economy is illustrated by their number and by the share of jobs they create. The particularly adverse experience of the economic crises of the 1970s and 1980s, and the difficulty these companies had in adapting to the new ground rules of the open economy model, were what led the Government to decide on this new development strategy. The objective of this article is to identify and analyse the policies applied and the effects of the different actions undertaken and instruments used. Although the strategic development framework has included new instruments that have made important contributions to the SME sector, the overall impact of these is less encouraging. The challenge now facing companies of this type in Chile is to find ways of applying successful experiments on a mass scale and reformulating strategies that have not worked as well as hoped.