March 9, 2002

IDB STUDY WARNS OF DISILLUSIONMENT WITH DEMOCRACY Reform process in Latin America must be improved, economists say

FORTALEZA, Brazil – Leading economists and other specialists on Latin America and the Caribbean today decried a backlash against reform that is sweeping the region and warned that new approaches will be necessary to contend with pressing issues such as corruption, income inequity, lax tax collections and disillusionment with democracy.

A paper presented by two economists, Eduardo Lora, principal economist of the Research Department of the Inter-American Development, and IDB Economist Ugo Panizza noted growing dissatisfaction with reforms in recent years, especially among the middle class.
A recent poll showed that Latin Americans held a very low opinion of the wave of privatizations of state companies in the 1990s: 63 percent of the respondents felt the result was negative.

“What makes Latin Americans frustrated is not the privatizations themselves, but the corruption that surrounds them,” commented Lora.

Two out of three Latin Americans are dissatisfied with the results of democracy and only one out of two believe democracy is the best form of government, according to the poll.

The paper concluded that the region, despite a disappointing rate of growth during the 1990s and a current recession, needed to continue the reform process with greater care, integrating the strengthening of public and private institutions to enable reforms to work while taking provisions to enable incomes to rise on an equitable basis.

It noted that some reforms were more successful than others – trade liberalization and financial reforms advanced well, tax reform and privatizations were uneven, while labor reform was scant.

Lora and Panizza presented their paper at a seminar titled “Reforming the Reform,” one of the many conferences held in Fortaleza in conjunction with the 43rd Annual Meeting of the Inter-American Development Bank.

Despite the unevenness of the reform process of the 1990s, “per capita income is 11 percent higher in Latin America than it would have been without the reforms,” Lora and Panizza said.

IDB President Enrique V. Iglesias and Joaquim Vieira Ferreira Levy, chief economist of Brazil’s Planning Ministry, inaugurated the seminar, while IDB Chief Economist Guillermo Calvo served the moderator.

Other speakers included Harvard Professor Andrés Velasco, World Bank expert Augusto de la Torre, renowned Brazilian economist Eliana Cardoso, UCLA Professor Sebastian Edwards, former Argentine Finance Minister Jose Luis Machinea, and former Finance Minister of Mexico Angel Gurría.

Velasco said that it would take many more years before the reform process can be properly evaluated. “In the long run we must be more optimistic,” he said.

Machinea said the reform process was launched in the early 1990s in response to pressing needs that resulted in a “myopia” in which not enough attention was paid to how the reforms were being carried out.