1. A DECADE AFTER THE GREAT WAVE OF STRUCTURAL REFORMS: What Have We learned? Eduardo Lora Research Department Inter-American Development Bank A Decade of Development Thinking

2. 2 Structural Reform Index, average LAC Reforms have stalled 0.30 0.35 0.40 0.45 0.50 0.55 0.60 198519861987198819891990199119921993199419951996199719981999 20002001 2002 Source: Adapted from Lora (2001). The great wave

3. 3 …although the extent of reform has been very uneven by type of reform and by country The Extent of the Reforms (Margin of Reform Put to Use) Source: Adapted from Lora (2001). Note: Progress in reforms is measured as that part of the potential for reform as of 1985 that was actually used by the years 1989, 1994, and 1999. -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% TotalTradeFinanceTaxPrivatizationLabor Until 1989 Until 1994 Until 1999 Until 2002

4. 4 Many people have turned against reforms... Support for Privatizations 52% 25% Source: Latinobarometro Opinion Surveys

5. 5 Not to mention the top international economic advisers  Krugman declares himself in favor of a capital curfew and other financial controls (1998)  Stiglitz becomes the beacon of the anti- globalizers (2000-…)  Rodrik criticizes the emphasis on trade liberalization and other key elements of the Washington Consensus  Sachs pushes for more social protection and less IMF-led debt-sustainability ideology

6. What have we learned on the economic effects of reforms?

7. 7 AuthorsPeriodEffect Easterly, Loayza and Montiel1991-93 vs. 86-902,2%* Lora and Barrera1993-95 vs. 87-892,2%* Fernández-Arias and Montiel1991-95 vs. 86-901,7%* Loayza, Fajnzylber, Calderón1996-99 vs. 86-901,9%* Lora and Panizza1997-99 vs 85-870,7% *Includes the effect of macro stabilization The reforms seem to have helped growth...

8. 8 Effect of Reforms on Growth 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1988-901991-931994-961997-99 Source: Lora and Panizza (2002). …although the effects have probably been transitory and below the expectations created by the reformers

9. 9 What have we learned on the economic effects of reforms? Trade reforms are no panacea â Although trade is good for growth it is still unclear how good trade liberalization is â Appreciated exchange rates reduce the export-promotion effect of tariff reductions â Complementary policies are key:  Access to markets  Infrastructure  Industrial and innovation policies (Hausmann & Rodrik)

10. 10 What have we learned on the economic effects of reforms? Financial liberalization does increase financial depth and efficiency in the financial sector (Levine; Galindo at al.), but: â May lead to crisis when creditor rights and the rule of law are weak, or when regulation is deficient (Caprio & Hanson; Demigurc; Arteta)

11. 11 What have we learned on the economic effects of reforms? Privatization does lead to higher profitability of the firms privatized …which result from efficiency gains, not from the consumers or the fisc (Chong & López de S.) However, some failures do occur due to: â Corruption, inadequate regulation and deficient corporate government institutions.

12. 12 What have we learned on the political economy of reforms? Great theories (Tommasi & Velasco, Rodrik) …but little explanatory power (Lora & Olivera; Navia & Velasco) More important is to understand the actual policy making processes and the political factors that affect the ability of policymakers to pursue and implement reforms (Spiller, Stein & Tommasi).

13. The great wave of reforms may be over but research on the economic, social and political effects of the reforms has just begun.