But a little appreciated fact is that even prior to the latest wave of reforms, the public sector in Latin America was proportionately much smaller than in the world's industrialized nations. Today, it is smaller still.

"In sharp contrast with the industrial economies, where public spending has generally risen throughout recent decades, government spending in Latin America declined as a share of national income during the 1980s," according to Economic and Social Progress in Latin America Report, whose 1997 edition was recently issued by the IDB's Office of the Chief Economist.

According to the report, Latin America's public sector typically spends about a quarter of a country's gross domestic product, compared with 50 percent in a typical advanced industrialized country. However, despite the steady pace of privatizations, Latin American countries still typically spend 6 percent of their GDP on public investment. In industrialized countries, where the private sector plays a more important investment role, the corresponding figure is less than 2 percent of GDP.

The single greatest difference between developing and industrialized countries in public sector spending is social security. This one item accounts for roughly 15 percent of GDP in an advanced industrial country compared with only 2.5 percent of GDP for the typical Latin American country.

The lower level of spending on social security in Latin America mainly reflects the region's much younger population, a factor that will pose a major challenge for social security systems as the population ages in the decades to come. The lower social security spending also reflects the large number of informal sector workers, and the governments' relatively limited ability to raise revenue.

"In this sense, thinner is not always better," says Michael Gavin, the IDB's lead research economist.