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Responsive to the enormous changes which have taken place in the
economic, social and political realities of the region and the
world over these five decades, ECLAC has developed a dynamic line
of thought. During the last few years, in the midst of a transition
from economies strictly controlled by the State to economies in
which the interplay of market forces predominate and in which
new forms of interaction between private agents and the Government
are urgently needed, the institution has formulated a new message
centered around the concept of changing production patterns with
social equity.
This concept
is based on six basic propositions: an appreciation of the importance of
having a healthy macroeconomy and an efficient State, and the effective
utilization of the opportunities offered by trade liberalization and globalization;
an awareness that development objectives, economic growth, social equity,
sustainable development and democracy are multiple, complementary in various
ways but non-substitutable among themselves; a recognition that there is
not a direct correlation between growth and social equity, but rather a
complex relationship which presents important policy making challenges;
the need to combine sound macroeconomic policies with active meso- and
microeconomic policies in order to achieve a dynamic form of productive
development; the importance of social capital – in its widest economic
and sociological connotations– as a factor in economic growth; and finally
the need for assertive public policies, which take full advantage of the
myriad ways of complementing the State and the market.
As a result of
the integrated approach with which ECLAC addresses these matters, the Secretariat
proposed to the Governments of Latin America and the Caribbean to focus
the substantive debates of the Aruba conference on the theme of public
finance and fiscal management, and the challenges of macroeconomic stability
and economic growth, on the one hand, and social equity and social integration,
on the other.
 The
starting point of this analysis is the recognition that successful
reforms require an agile and efficient public sector, which complements
the private sector carrying out, efficiently and competently,
the responsibilities assigned to it by society. A prior requisite,
of course, is that public finances are in order, a matter in which
significant progress has been achieved. Greater budgetary discipline
has substantially reduced deficits and led to more careful management
of both these and the public debt. Improvements have been made
in tax administration and in consolidating revenue sources. Progress
has been slower, however, in public-sector management, the introduction
of results-based methods and the creation of a systematic administrative
culture, based on evaluation and the linking of resources to performance.
Similarly, the efforts to enhance transparency in public accounts
and democratic discussion of budgets are still insufficient.
An issue of particular
concern is the fact that, as a result of the priority given to adjustment
in the 1980s, the pursuit of social equity was relegated to second place
in both the design of the tax system and public spending. Although the
1990s have seen an important recovery in the priority given to social expenditure,
and in focusing this where it is most needed, considerable room for improvement
remains in the contribution of public policy to reducing poverty, improving
income distribution and reinforcing social integration. Concern also arises
from the persisting fragility of both the fiscal adjustment and the sustainability
of the reform process itself, evidenced by recurring events triggered either
by external or internal shocks.
The challenge,
therefore, remains to better allocate public money, avoid waste, inefficiency,
duplication, discretion and the potential for corruption, and to bring
the public sector into line with the profound economic transformations
sweeping the region.
The second generation
reforms currently being introduced underline the need for a state which
is more committed to achieving social equity, especially in education and
investment in human resources; a state which is effective at promoting
and regulating competition; and which actively promotes competitivity,
guaranteeing high-quality infrastructure and an adequate technological
base. Such a challenge cannot be met efficiently if public finances are
weak.
The degree of
efficiency of public finances reflects the weakness or strength of the
“fiscal covenant” which sustains them. The absence of widespread agreement
on the state’s main economic and social responsibilities and on the tools
to be put at its disposal, erodes any consensus about the quantity
and sources of the funds it should manage or the rules for their allocation
and use. On the contrary, political agreement on these matters between
the different social sectors, be it implicit or explicit, helps to legitimize
the amount, composition and direction of public expenditure, and the tax
burden necessary to finance it.
It seems, therefore,
that a new “fiscal covenant” is required to improve public sector performance
and its results in terms of growth, equity and competitiveness. ECLAC’s
proposal to its member states argues that such a covenant should include
five basic elements:
fiscal
covenant
1) the consolidation
of the fiscal adjustment already underway, particularly its capability
to harmonize macroeconomic stability with other public responsibilities
in terms of growth and distribution;
2) an increase in
the productivity of public-sector management, not only as an intrinsic
economic value in itself, but also as a response to a social demand of
primary importance;
3) increased fiscal
transparency, since there can be no healthy public sector management, nor
true democracy for that matter, without the maximum transparency in fiscal
affairs;
4) the promotion
of social equity, especially after the neglect suffered in this area during
the 1980s; and
5) the encouragement
of democratic institutions, given that the fiscal covenant not only requires
them in order to work, but is itself an essential contributor to the strengthening
of those institutions.
In Aruba,
the governments of Latin America and the Caribbean welcomed ECLAC’s proposal
and shared the diagnostic which recognizes the cornerstone role played
by fiscal consolidation in the stabilization and adjustment of their economies
as well as the challenges remaining, particularly in terms of government
revenues and social equity. Emphasis was placed on the need for much greater
transparency in decision-making on matters of expenditure and for a considerable
limitation of “quasi-fiscal” practices, comprised of certain government
activities with effects analogous to the collection of taxes or the granting
of subsidies, but not subject to debate or approval by the legsilature.
Naturally the opacity of those “quasi-fiscal” activities protect them also
from public scrutiny.
Acknowledging
that issues raised by ECLAC must reach beyond technical circles, governments
requested ECLAC to disseminate its proposal and promote its consideration
throughout the region. They also requested the secretariat to develop in
greater depth some very specific technical points. It is expected that
this will stimulate national dialogue regarding the main components of
the “fiscal covenant” in the light of each country’s specific circumstances,
as a contribution to the achievements of the required consensus-based fiscal
commitments at the national level.
Thus, fifty years
after ECLAC entered the arena of development ideas and policies in our
region, at a juncture marked by a new “style of development”, it continues
to play its traditional role as a sounding-board for promoting economic
and social debate of relevance to our regional development.
José Antonio Ocampo
is the Executive Secretary of the UN Economic Commission for Latin America
and the Caribbean, Casilla 179-D Santiago, Chile. Tel: (56-2) 210-2000;
Fax: (56-2) 208-0252. For more information on ECLAC’s proposal, see “The
Fiscal Covenant: Strengths, weakenesses, challenges”, ECLAC 1998. A summary
of this document can be found on its website: http://www.eclac.cl |
