American governments still face formidable hurdles to deepen
the reforms of their economies, promote inclusive growth and
further reduce inequality. First, the trend towards increasing
taxation and social expenditure needs to continue in much of the
region, with the objective of building a lean state that avoids the
high costs of the European welfare model while offering universal
coverage. Second, while the funding of the reforms has come in
part from gains in t h e terms of trade, the revenue needed to
sustain social expenditure in the future will have to come from a
diversification of the economy into new labor- and skilled-
intensive sectors. Third, an intensification of the new policy
model by LOC governments in the region faces considerable
political opposition, as shown by the case of Bolivia and
Argentina, where a few doubtful policy decisions and the opposition
of interest groups nearly stalled even moderate attempts at
redistribution. Perhaps, the main effect of the financial crisis is
that it may dig a gap between the responses expected from LOC
governments and what they can actually do. In this regard, it is
important to note that the region will undergo 24 national elections
between 2009 and 2010 (UNDP 2009). An unchecked deterioration
of living conditions might lead to a collective perception that the
crisis is due to inadequate policy responses. Failure to stay – with
the needed corrections - the policy course adopted in recent years
may cause a credibility gap, undermine support for L O C
governments, and push the region towards its traditional path of
unequal development or towards more radical solutions, possibly
overturning in this way the inequality gains of the recent past.
References
Altimir, Oscar (1993), “Income Distribution and Poverty Through Crises and
Adjustment”, paper presented at the ECLAC/UNICEF Workshop on Public
Policy Reforms and Social Expenditure, Santiago, Chile, 14-15 June 1993.
Altimir, Oscar (1996), “Economic Development and Social Equity,” Journal of
In teramerican Studies and World Affairs, Summer/Fall 1996.
Baltagi, Badi H. (2005) “Econometric Analysis of Panel Data”, John Wiley and
Sons, Chichester.