Fiscal Policy in Latin America: Prudence Today Means Prosperity Tomorrow


Alejandro WernerBy Alejandro Werner

(Versions Español and Português)

Public finances in most Latin American countries strengthened significantly before the global financial crisis. Since 2009, countries have generally increased public deficits, drawing down on their fiscal coffers.

These expansionary policies continue and are yet to be reversed. With further pressures likely to build over the period ahead—as economic growth has slowed, commodity prices have softened, and external funding costs are bound to rise—now is the right time to rethink fiscal policies across the region.

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The Times They are a-Changin’: will (fiscal) history repeat itself?


Carlo CottarelliBy Carlo Cottarelli

Recent political and social unrest in some emerging and developing countries may have idiosyncratic features. But they also have a common denominator: a yearning for more equality in incomes, economic self-determination, and political power. Are these developments in seemingly unrelated emerging economies the beginning of a trend?

Simple—some would say simplistic!—empirical evidence suggests that this may indeed be the case: look at the convergence of real per capita GDP in emerging markets to the level observed in Western Europe and the United States in the early sixties (see chart 1). One can conjecture that, once per capita income achieves this level, the rise of the middle class prompts demands for more equity in the distribution of economic and political power. We know the sixties. It was a time when the rise of the middle class led to a wave of social unrest and change that rocked the economy and society—a change that gradually spread throughout the western world (what we now call “advanced economies”), with a call for more social justice, more democracy, and a better life for everyone. What followed were deep social and economic transformations.

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Inclusive and Sustained Growth in Asia: The Role of Fiscal Policy


ASinghBy Anoop Singh

(Versions in 中文 and 日本語)

Fiscal management has improved in Asia over the past decade. It has become more responsive to economic conditions and thereby helped stabilize growth, especially during the global financial crisis. While these are important achievements, major challenges still lie ahead—as our latest Asia and Pacific Regional Economic Outlook points out.

What are these key challenges? In a nutshell, fiscal policy can, and should do more to make Asia’s growth sustainable and more inclusive.

In the near term, budget consolidation has to proceed as the recovery takes hold to rebuild the fiscal space needed to respond to future output fluctuations.

At the same time several emerging and low income economies need to create room for higher infrastructure and social spending to support long-term growth, reduce income inequality, and fight poverty.

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Debt in a Time of Protests


by Nemat Shafik

As the world economy continues to struggle, people are taking to the streets by the thousands to protest painful cuts in public spending designed to reduce government debt and deficits. This fiscal fury is understandable.

People want to regain the confidence they once had about the future when the economy was booming and more of us had jobs.

But after a protracted economic crisis, this will take planning, fair burden-sharing, and time itself.

If history is any guide, there is no silver bullet to debt reduction. Experience shows that it takes time to reduce government debt and deficits. Sustained efforts over many years will ultimately lead to success.

Most countries have made significant headway in rolling back fiscal deficits. By the end of next year in more than half of the world’s advanced economies, and about the same share of emerging markets, we expect deficits —adjusted for the economic cycle—to be at the same level or lower than before the global economic crisis hit in 2008.

But with a sluggish recovery, efforts at controlling debt stocks are taking longer to yield results, particularly in advanced economies. Gross public debt is nearing 80 percent of GDP on average for advanced economies—over 100 percent in several of them—and we do not expect it to stabilize before 2014-15.

So what can governments do to ease the pain and pave the way for successful debt reduction?

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Wising Up to the Rising Costs of Aging Populations


Jeremy CliftJeremy Clift

Countries around the world are headed for a dramatic demographic transformation caused by falling fertility and rising life expectancy.  Particularly in advanced economies, but also in other parts of the world, populations are getting older and this will affect every dimension of life—from the shape of the family to the shape of the world order.

Most problematically, perhaps, it could throw into question the ability of many countries to provide a decent standard of living for the old without imposing a crushing burden on the young.

The latest issue of the IMF’s Finance & Development magazine explores the consequences on society of aging populations. The world’s population will reach 7 billion this year and is projected to exceed 9 billion in 2050. But in the lead article, Ronald Lee and Andrew Mason say that hidden behind these headline numbers are important changes in the age distribution of the population. Continue reading

Unlocking Central Asia’s Huge Potential


By Masood Ahmed

The IMF has just finished its Annual Meetings in Istanbul, the traditional start of the old silk road and the gateway to Central Asia. 

Strategically located between East Asia and Europe, and South Asia and Russia, Central Asia is rich in resources and faces tremendous opportunities—yet to be made the most of. Since the outset of their transition to a market economy, the countries of the region have made visible progress toward decentralizing their economies, creating market institutions, expanding international links, and intensifying efforts to diversify and increase production and trade. 

As a result—and owing also to sound macroeconomic management, high commodity prices, and strong foreign inflows—this landlocked region, the size of the European Union and home to 60 million people, enjoyed near double-digit growth on average during 2001–07. 

Oil wells in Baku, Azerbaijan: With global energy demand increasing again, Central Asia's energy exporters should see growth rates increase in 2010 (photo: David Mdzinarishvili /Reuters)

Oil wells in Baku, Azerbaijan: With global energy demand increasing again, Central Asia's energy exporters should see growth rates increase in 2010 (photo: David Mdzinarishvili /Reuters)

But, as elsewhere in the world, the global economic crisis has taken a toll on Central Asia, with average growth for the region as a whole sinking from 5.7 percent in 2008 to 1.2 percent in 2009. Nevertheless, this average masks important differences across countries. 

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