Latin America and the Caribbean in the first quarter of the 21st century. What should be reformed, what can be reformed, and how to think about it?

Latin American countries in the 2020’s face many economic and social challenges, including low growth, low investment levels, low productivity, as well as high levels of poverty and inequality. Rising international interest rates might induce capital outflows and debt sustainability problems. A “reform agenda” discussion is on the table once again. This note provides some elements to think about a political economy of reform for Latin American countries in the 2020s. In order to organize our thinking, we suggest a framework in which (a) vectors of public policies have effects on vectors of relevant social outcomes, and (b) political economy arguments explain extant policy vectors and potential obstacles to reform. In the agenda reported in this paper, as a step towards that broader framework, we use fiscal vectors as primary anchor of analysis. In order to provide some guidance and general principles for a country-focused research agenda, we attempt to develop: (A) a fiscal diagnostic framework of what the main problems are and what priorities should be, and (B) a political economy framework to identify the main constraints in each case. The logic in each case operates at two levels of aggregation, across countries, and within countries across budget items (public programs). The note has the purpose to guide the analysis, starting from cross-country comparative indicators, and moving forward to more detailed diagnostics at the country level.