Posted by Bogdan Lissovolik and Marcos Poplawski-Ribeiro
Latin America’s countercyclical response to the 2008–09 global financial crisis (GFC) was the right medicine at the time, but resulted in a significant fiscal stimulus that it has yet to be fully withdrawn. Does this mean that the fiscal institutions established in the region before the crisis were not the Holy Grail to enshrine discipline? A recent study sheds light on this question by looking at the performance and design of fiscal institutions in six large Latin American countries (LA6: Brazil, Chile, Colombia, Mexico, Peru, and Uruguay). Overall, the crisis revealed both strengths and weaknesses in the fiscal frameworks in the LA6, underscoring the perils of making discretionary changes in fiscal policy without a medium-term anchor.