Incompetence and Confidence Building behind 20 years of quasi-stagnation in Latin America
Latin America remained almost stagnant in per capita terms in the last twenty years. The original causes are well known: the interrelated debt crisis and the fiscal crisis of the state. But why Latin American countries took so long to recover macroeconomic stability? Not only because fiscal adjustment and market oriented reforms were checked by interest groups, but also because, even when policymakers were free from political constraints, they nevertheless often made serious policy mistakes: mistakes that derived from technical or emotional incompetence, and from a subordinate “confidence building” strategy, that implied doing everything they supposed international agencies and financial markets would expect in order to achieve credit and credibility, instead of using their own judgment to make decisions and design required reforms.
JEL Classification: O1; O5; R1.
Keywords: Latin American stagnation external debt crisis fiscal crisis