CEPAL Review - Volume 2003, Issue 81, 2003

Smoothing out capital-account cycles and reducing their vulnerability are desirable policy objectives in developing countries. This paper evaluates the advantages of a simple, non-discretionary, preventive (prudential) price-based incentive that severely penalizes short-term foreign currency liabilities. In particular, it examines the effectiveness of controls on capital inflows in Colombia during the 1990s. The analysis finds evidence supporting the conclusion that these controls were effective in reducing the overall volume of net capital inflows and that they helped to improve the term structure offoreign borrowing. An econometric analysis suggests that capital flows were directly related to interest rate differentials, controlling for the additional cost imposed by unremunerated reserve requirements on foreign borrowing. Hence, the Colombian system of controls on foreign borrowing was both an effective macroeconomic policy that allowed the country’ to gain a degree of monetary and exchange-rate control and a useful “liability policy” that helped improve the term structure of its foreign debt.

In the 1990s, Chile suffered the effects of a surge in external capital inflows that canie to a sudden stop towards the end of the decade, despite its concentration in flows considered to be stable, implying that an appropriate composition of capital flows is not by itself adequate protection against capital flow volatility. The surge in capital flows responded to push factors associated with the supply of foreign financing that narrowed the spread between domestic and external returns. The unremunerated reserve requirement (known as encaje) helped to offset the push factors by widening the spread and restraining net capital inflows, particularly short-term, thus gaining additional room for monetary-policy manoeuvre. An early elimination of the encaje during the capital inflow surge would have boosted the inflows still further, thus aggravating macroeconomic imbalances. An intensification of the encaje, however, would have had limited marginal effectiveness due to circumvention and the bound imposed by short-term inflows, already close to zero. A more effective strategy would have been to apply the encaje on a wider basis, thus avoiding circumvention, or to complement its application with additional restraint on fiscal policy.

From November 2001 to April 2003, the International Monetary Fund grappled with a radical proposal, the Sovereign Debt Restructuring Mechanism, for handling the external debt of insolvent governments of developing and transition economies. That proposal was rejected, but new “collective action clauses” that address some of the difficulties in restructuring bond debt are being introduced. In addition, IMF is developing a pragmatic and eclectic approach to assessing debt sustainability that can be useful to governments and creditors. However, many of the problems in restructuring sovereign debt remain and this paper suggests both specific reforms and modalities for considering them.

Social protection systems have to cope with large discrepancies between the financing needed to cover demand and the resources actually available. For this reason, it is necessary for any reform proposal to include elements of cost restraint as well as measures to increase the population coverage of systems. Efficiency and solidarity must improve together if progress is to be made towards universality of benefits. Any reform strategy needs to consider not only the financial constraints imposed by the macroeconomy, but also the heavy drain on financial resources and the effects on the fiscal accounts that may result from whatever scheme is chosen owing to the amount and volume of benefits, the limited scope for funding them out of contributions, and the need for redistributive financing. This article looks at various approaches to social security finance reform, involving new and different public-private mixes.

Stable development and financing of the social protection system, one of the priorities of fiscal policy in Chile over recent years, has helped to reduce poverty and indigence, particularly since the 1990s. The fiscal accounts have been managed prudently, and budgetary’ balance and efficient administration have been given priority over short-term objectives. Even so, poverty is still a fact of life and the poor are still vulnerable to drastic falls in income. This means that an effort is still required to modernize fiscal policy and develop new institutional arrangements for the social protection system. This paper analyses the challenges involved and the relationship among the different roles played by fiscal policy in Chile over recent years.

This article sets out to describe the main features of the new farm legislation in the United States, assess the extent to which it conforms to World Trade Organization (WTO) rules, and provide a preliminary assessment of its impact on Latin America. The article first looks at the new United States Farm Security and Rural Investment Act of 2002, identifying the different mechanisms used to support the country’s farm producers. It then analyses that Act, referred to hereinafter as the 2002 Farm Act, in the light of the rules established and the commitments made in the Uruguay Round of the General Agreement on Tariffs and Trade (gatt). This is followed by an analysis of the possible impact of the new law on Latin American agriculture. Lastly, reference is made to recent developments in multilateral trade negotiations and the way they relate to the 2002 Farm Act.

This article examines the long-run relationship between export performance and economic growth in three Central American countries from 1950 to 1999. Therefore, it excludes the recent years of slowdown in the world economy, 2000-2002. The cointegration analysts supports the view that the external sector has been a key determinant of these countries’ long-run rate of economic growth. The article also suggests that the trade liberalization experiences seen since the mid-1980s have had very disparate impacts on these countries’ long-run rates of economic growth. Lastly, the implications of these results for trade liberalization strategies and the possible impact of a United States-Central America Free Trade Agreement are examined.

The swift changes being wrought by the information society in the spheres of production and communication have inevitably meant rapid, large-scale alterations in the way knowledge is transmitted, communication carried out at a distance and information used in the new media. Progress in education has to be driven forward in combination with another pillar of the information society, namely access to communication via interactive media, where what is at stake is not only competitiveness but also cultural identity and, increasingly, civic participation. This is why the interaction among education, culture and new information and communication technologies is so vitally important. Educating people with new information and knowledge technologies means teaching them to impart meanings to these that reconcile the new ways of producing and working with the new ways of exercising rights, affirming cultures, acquiring knowledge, communicating at a distance and participating in networks.

For the last two decades, microfinance has ranked high on the lust of policy instruments for fighting poverty. Supporting the creation of access to formal financial services for low-income households holds out the promise of improving the living conditions of poor families and fostering economic development. Furthermore, it is claimed to be a very cost-effective approach because some non-governmental organizations (NGOs) that have been upscaled into microbanks have shown that financial services can be offered to low-income households while covering costs and even earning a moderate profit. Recent studies, however, are sceptical about the high expectations raised by the microfinance approach, since profitable microfinance institutions (MFls) are the exception rather than the rule. Institutional innovation Is called for in order to reproduce these rare successes on a laiger scale. This article aims to offer preliminary’ insights into the potential of two rather new institutional alternatives to upscaling: the creation of microfinance departments at existing for-profit banks (i.e., downscaling) and the founding of greenfield banks.