Public Investment and Fiscal Adjustment in Latin American Countries

Abstract

Martner and Tromben consider the solutions which may reverse the decline of public investment occurred in Latin American countries in recent decades. The paper examines public investment trends and notes that in fiscal consolidation episodes there has been a bias against public investment – although this cannot be generalised to all countries. In some countries, the fall in public investment has taken alarming dimensions. The paper evaluates the solutions which can fill the infrastructure gap without endangering fiscal sustainability. It evaluates the golden rule and the broad adoption of the accounting principles of the Government Finance Statistics Manual. However, both these solutions present some problems in the Latin American context. Martner and Tromben also evaluate the exclusion of public enterprise operations from fiscal targets, in line with EU practice, and the role of Public Private Partnerships. They stress the importance of fiscal frameworks based on structural indicators, which can limit the need for painful fiscal consolidations. Finally, they examine the possibility to expand the role of multilateral development banks.