Abstract

Difficulties in ensuring credible sustainability of fiscal policies have been central to the problems of Latin American economies.34 Notable examples over the past decade have been the financial crises in Mexico (1994–95), Ecuador (1999), Brazil (1999 and 2002), Argentina (2001), and Uruguay (2002). Although the relative importance of domestic policy errors versus external developments is a matter of debate, it is clear in retrospect that these economies were not sufficiently “crisis-proofed” to weather the global shocks that materialized in the late 1990s.35 Most of the region continued to experience procyclicality in fiscal policies that contributed to macroeconomic volatility and reduced resilience with respect to external shocks. In contrast, Chile is an example of a country in the region that has followed generally sound fiscal policies and avoided financial crises under similarly challenging external circumstances.