Indexes of structural reform in Latin America

This paper is an attempt to quantify the process of structural reform in Latin America in five areas: trade reform, financial liberalization, tax reform, liberalization of external capital transactions and privatization. It presents indexes for these five areas for 17 countries for the period 1970-1995. The resulting indexes permit one to make comparisons of the degree of reform across countries over time and to examine in a quantitative way the impact of these reforms. The indexes show that the reform process has not been uniform across time, country, or area of reform. The reforms started in the 1970s in the Southern Cone stopped or even reversed after the debt crisis of 1982-1985, but spread to the rest of the region after 1985. Trade reform and domestic financial liberalization were the first components to be widely adopted with eleven countries reaching a level of 85% of the most liberalized by 1990, and all but one of the rest reaching that level by 1995. The period after 1990 witnessed a very significant opening of the capital account. By 1995 there was widespread agreement and policy convergence in these three areas of reform. However, there is much less convergence and more variance in the indexes of privatization and tax reform. With respect to privatization, there have been significant sales of government enterprises in a number of countries, but the overall change in the regional index is still quite small. Partly that is because the government enterprise sector is small in quite a large number of countries, and partly it is because of the continuation or even the expansion of big state-owned enterprise in mining and petroleum in a few countries. With respect to tax reform, only seven of our countries reached the reform threshold that we set. Mainly we suspect that this is due to the conflicting goals of tax neutrality and equity, but it may also reflect differences in the size of the government sector as well.