In one form or another, this question continues to dominate public debate over economic and social policy in Latin America. Frustrated by persistent unemployment and a perception that the reforms have not improved the lives of the poor, many interest groups recently have criticized the economic reform programs that most of the region's governments currently embrace. In some countries, labor unions staged strikes and opposition political parties took to the streets to protest reform policies.

It is appropriate to ask whether the "major surgery" of macroeconomic reform has been worth its considerable pain. After all, the region's economic growth has still not regained its pre-1980s levels, despite recent signs that Argentina and Mexico have recovered from the peso crisis of 1995 and that the region as a whole is continuing to grow (see article "The region posts solid gains" on this issue).

And no one disputes the fact that reform policies have been followed by a difficult period of adjustment. Federal and provincial governments have dismissed workers and scaled back programs to meet stricter budget objectives, and companies in many sectors have also trimmed payrolls in an effort to compete with foreign producers. This combination of slow recovery and painful adjustment to liberalized markets has understandably led to a feeling of "reform fatigue."

Given the discontent, one might expect opposition political parties to be calling for a wholesale abandonment of market-oriented reforms. But this is almost nowhere the case. On the contrary, voters have made it clear that they value the low inflation, stability and gradual economic reawakening that has followed market reforms. They don't want those gains to be squandered.

In fact, a closer look at the most frequent sources of discontent shows that voters want new kinds of reform, in new areas, rather than a simple reversal of the financial and trade liberalization that has already taken place.

For example, as evidence of the poor performance of the region's public schools continues to mount, people are clamoring for radical reforms in the way education systems are funded and managed. Faced with repeated evidence of official corruption, financial mismanagement and criminal impunity, they are calling for an overhaul of justice and law enforcement systems.

Small and medium-sized companies, many of which are hampered by inconsistent government rules and excessive bureaucratic interference, want efficient and transparent regulatory entities that will give small players a fighting chance against large conglomerates. And the lingering specter of bank failures and financial service fraud is prompting broad-based demand for more effective government supervision of these sectors.

According to the 1997 edition of the IDB report Economic and Social Progress in Latin America, these so-called "second-generation" reforms, which must also include the areas of taxation and labor law, are crucial to expanding the gains of earlier reforms. "The untapped potential of all of these reform areas offers scope for raising the region's long-term growth rate above 5 percent," Ricardo Hausmann, the IDB's chief economist, writes in the introduction to the report.

Perhaps more significant in the short term is the effect that these new reforms could have on public perception--and the continued political viability--of existing reform programs. Public opinion about the fairness of privatizations and other market reforms depends largely on how well the gains are administered. That, more than any other factor, will determine whether people think the last 10 years have been worth the effort.

--Paul Constance

IDB´s "Economic and Social Progress in Latin America" 1997 Report