The Process of Reform in Latin America

Asking the right question: from what to how…

Most discussion of how to improve economic performance in developing countries focuses on what public policies should be changed. But it is equally important to study how these reforms are to be implemented. This is the dilemma of the process of reform. Research related to reforms in Latin America and the Caribbean tends to look at one of two aspects of this dilemma. Some authors explore political-economy aspects, i.e. the impact of the social and economic context on the approval of reforms. Others look at  the policymaking process that leads to reforms, i.e. the behavior and role of actors and institutions and their impact on the policy outcome. A recent paper combines these approaches, simultaneously incorporating the context and the interactions between agents and institutions during the different stages of reform (Dayton-Johnson et al., 2011).  

After looking at the recent history of Latin American reforms, this research argues that the process of reform is best understood in terms of a “reform cycle” with five phases: planning, dialogue, adoption, implementation and sustainability. Although these phases do not always unfold in a sequential pattern, it is useful to distinguish between them to assess the relative strengths of the various players, as well as the specific bottlenecks that obtain, at different stages of this reform cycle (Figure 1). A more careful assessment of these considerations could aid decision makers in avoiding pitfalls in the future. 

Figure 1.  The Stylized Reform Cycle: Stages, Major Actors, and Bottlenecks
 
 Source: Dayton-Johnson et al. (2011).
 
Imbalances among stakeholders affect the planning and dialogue phases of a reform 

In Latin America, the planning stage – where the reform agenda is built – tends to be a creative and disorganized process. Executives have a near monopoly on the formulation of policy proposals, and only occasionally receive input from other actors. Political parties’ involvement in this initial phase is particularly moderate in Latin America. Low levels of party institutionalization, meanwhile, coupled with high party fragmentation and polarization, have created clientelistic, weak and short-lived political parties in the region. In recent years, Latin American presidents have not represented the traditional parties in their countries, as new parties have been established by them and/or the political movements that support them. Álvaro Uribe Vélez’s Partido de la U (Colombia, 2005), Hugo Chávez’s Partido Socialista Unido de Venezuela (2007), Rafael Correa’s Alianza País (Ecuador, 2006), Evo Morales’ MAS (Bolivia, re-founded by Morales in 1997), and Néstor and Cristina Fernández de Kirchners' Frente Para La Victoria (Argentina, 2003) are recent examples. Such parties tend to be personalistic and non-programmatic in that their platform is limited to support for a particular leader (Scartascini et al., 2010). This present challenges for reform planning, as policies will lack ex-ante planning and consistency over time.  

Once designed, nevertheless, reform proposals are generally subject to an inclusive dialogue between the executive and legislative branches, civil society, the private sector, labor unions, and similar actors with vested interests. This stage involves a progression of bargains and exchanges among political actors. To harmonize divergent interests, high levels of communication and civil participation are necessary not only to persuade voters and stakeholders of the need to undertake reform, but also to warn them of the costs of non-reform.  

In building political support for reform, recent administrations have learned to take advantage of the media’s influence on public opinion by employing techniques such as "strategic communication" and "news management". Indeed, presidents have strengthened direct communication with the public. Luis Inácio Lula da Silva made over 2,000 public speeches between 2002 and 2007, and his radio program Café com o Presidente aired almost weekly beginning in 2003. Chávez made more than 1,923 televised addresses between 1999 and 2009, and his televised program Aló Presidente aired over 360 times between 2009 and 2010. Similarly, Uribe Vélez held more than 300 marathon community councils lasting up to 12 hours each, and Correa made 233 addresses in 2009 alone (Guevara, 2010). While better communication between the executive and the electorate is a good thing, manipulation of (and by) the media and of public opinion might adversely affect the quality of reform proposals. Incumbents face strong incentives to give priority to highly visible plans and reforms rather than effective long-term solutions. This conflict of interest between the executive and the media has led some governments to co-opt and control critical media outlets or individual journalists. In Peru, for instance, newspapers and television channels were bribed to get Fujimori reelected for a third term in the 2000 presidential elections (McMillan and Zoido, 2004). 

In the third phase, the policy is adopted (or not). A reform will be adopted only if its targets and agendas are clearly defined, its procedures and strategies receive public support and there is commitment from the political leadership. The Latin American experience confirms that the economic context affects the probability of reforms: in general, crises beget reforms – though not necessarily reforms of a structural nature. On the fiscal policy-making front, for example, evidence that reforms are catalyzed by crises is provided by the well-designed structural balance fiscal rules (e.g., that adopted by Chile in 2001, or the Colombian rule currently in the approval process), and fiscal responsibility and transparency frameworks (e.g. those adopted by Argentina in 1999, Brazil in 2000, Colombia in 2003, Mexico in 2006, and Peru in 1999). In the area of financial reform, some Latin American countries improved the regulation and supervision of financial systems in the aftermath of the banking crises of the past decade (e.g., Colombia in 1999, Peru in 1999, and Uruguay in 2002). Launching a "package" of reforms, moreover, rather than introducing reforms piecemeal, can increase the chances of adopting good policies. Additionally, leadership and a reasonably good degree of legitimacy of the incumbent are crucial at this stage (OECD, 2010). This is not good news for would-be reformers: surveys tell us that fewer than half of Latin Americans trust the government, an indicator that incumbents' legitimacy is weak.  

The implementation phase is the most complex and uncertain part of the policymaking process. Narrowing Latin America’s “implementation gap” – or the disparity between what is announced as a reform and what is actually executed – remains a major challenge in the region. The power of interest groups, weak institutional structures, coordination failures between sub-national and national governments, and soft sub-national budgetary constraints lead to policy obstruction, as well as delay and amendments in the reform process (especially in the case of fiscal reform). In Argentina, for example, governors tend to influence their provinces' legislative delegation and bargain with the president, trading congressional votes in exchange for fiscal resources (Scartascini et al., 2010). This fragments and volatilizes the country’s policymaking process, and has particularly negative effects on fiscal performance. 

The link between crises and reform possibilities raises the question about the degree to which the currently fragile global economy – but relatively resilient Latin American economies – presents an opportunity for undertaking structural reforms in the region. That such reforms are needed is evident in the wide gulf between de jure reforms and de facto implementation in Latin America. As such, countries in the region cannot afford to squander this historic juncture to enforce bolder and more development-oriented institutional reforms (OECD/ECLAC, 2011).  

More legitimate states, better coordination, and ex-post evaluation improve the adoption, implementation, and sustainability stages of a reform

In the final phase, the reform is sustained until it has achieved the objectives targeted in the planning phase. Serious ex-post evaluations – by drawing attention to the successes or failures of past reform decisions – can help to sustain useful reforms that bear fruits over a longer time horizon that the relatively short electoral cycle relevant to elected officials. Evaluations can furthermore facilitate changes to make policies more effective by learning from the implementation process. Indeed, if the evaluations deem a policy correction to be necessary, policymakers must plan the reform, and the reform cycle begins over again. Increasingly in Latin America, independence in ex-post evaluations has been better protected by the strengthening of a professional technocracy and by the input and influence of international organizations (ECLAC, IDB, World Bank, OECD), allowing for greater accountability and enhancing the legitimacy of the State throughout the policymaking process. In spite of this, there is still great room for improvement.  

Bibliography 

DAYTON-JOHNSON, J., LONDOÑO, J., and NIETO-PARRA, S. (2011), “The Process of Reform in Latin America: A Review Essay”, OECD Development Centre Working Paper No. 304, Paris. 

GUEVARA, E. (2010), “L'Amérique Latine en Perspectives: La Crise de la Représentation Médiatique en Amérique Latine”, in OPALC Latin American Political Outlook, CERI/Sciences Po. 

MCMILLAN, J. and P. ZOIDO (2004), “How to Subvert Democracy: Montesinos in Peru”, The Journal of Economic Perspectives, 18 (4), 69-92. 

OECD. (2010), Making Reform Happen: Lessons from OECD Countries. Paris: OECD. 

OECD/ECLAC. (2011), Latin American Economic Outlook 2012: Transforming the State for Development. Paris: OECD and Santiago: ECLAC. 

SCARTASCINI, C., STEIN, E., and TOMMASI, M. (2010), How Democracy Works: Political Institutions, Actors, and Arenas in Latin American Policymaking. Washington DC: Inter-American Development Bank.

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