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August 24, 2015

Book Review - PFM Reforms in Latin America


Posted by Carlos Pimenta [1] and Mario Pessoa [2]

 Over the last two decades, almost all countries in Latin America have conducted substantive reforms to strengthen their public financial management (PFM) systems and generate reliable information in an effort to promote fiscal stability and sustainable development. These reforms have enhanced the quality of macro-fiscal management in the region and improved economic performance observed throughout the 2000s. As the recent economic crisis demonstrated, however, there is room for further improvement, as well as a need to increase the resilience of the PFM systems.

 The Inter-American Development Bank (IDB) and the International Monetary Fund (IMF) have provided extensive technical assistance to Latin American countries on PFM issues, from project management, to training and capacity-building, and helped countries carry out significant reforms. With the objective of disseminating this experience, the IDB and IMF edited a book on the implementation of such reforms, including discussion on accomplishments, setbacks, and outstanding challenges.

 The areas covered include treasury single accounts, performance indicators for treasury management, financial management information systems, accrual accounting, cash and debt management, public procurement, and cost accounting. These areas were selected to bridge the gap in the literature about the results achieved in the region.

 Each chapter of the book reflects the perspective of IDB and IMF experts in terms of the design and implementation of PFM reforms. The book also benefits from the lessons drawn from effective practices, extensive research, and sharing of cross-country experiences through multiple fora, in particular, the regional dialogue of Latin American Treasury Forum (FOTEGAL– Foro de Tesorerías Gubernamentales de América Latina) and the Latin American Government Accounting Forum (FOCAL– Foro de Contadurías Gubernamentales de América Latina), both of which the IDB and IMF helped establish and continue to support.

 Most countries in the region have embarked on reforms to improve their financial management performance indicators; better integrate cash and debt management; further improve liquidity management through more efficient treasury single accounts; move gradually to international public sector accounting standards; introduce public sector cost accounting; further integrate financial management information systems; and implement more transparent and efficient public procurement frameworks. The overall objective of these reforms is to allocate and use public financial resources more efficiently and transparently; disclose and manage fiscal risks; and improve the formulation of fiscal and public management policies based on reliable, comprehensive, and timely financial information.

 The book comprises eight chapters. Each chapter begins with a discussion of advanced approaches to PFM in terms of conceptual models, followed by a description of current situation on a sample of Latin American countries, and concludes with an examination of practices, overall conclusions, recommendations, and identification of areas that require further investigation.

 While there are other PFM reforms implemented in the region, the ones discussed in the book have affected a larger number of countries (with the exception of Chapter 6, which focuses on PFM reforms specific to the State of Sao Paulo in Brazil). This has provided a rich sample of empirical evidence. We expect that this experience will inspire other states and countries to consider the implementation of a public service cost system, for which there are limited international experiences and research.

 In the first chapter, “Public Financial Management in Latin America: The Key to Efficiency and Transparency”, the authors present an overview of the book, outlining the main components of PFM that are examined in the chapters. These components hinge on the four key dimensions that include the (i) relationship and complementarity between PFM and macro-fiscal issues; (ii) efficiency of PFM systems; (iii) contribution of PFM to public resource management; and (iv) the impact of PFM on transparency and accountability.

 The relationship between PFM and macro-fiscal issues is not the main subject of the book; rather, it is part of a general framework to understand the importance of PFM on overall macroeconomic management. Chapters 2, 3, 4, and 7 cover more specifically efficiency aspects, including the development of indicators to measure the efficiency of treasury management; organizational arrangements for cash and debt management; management of treasury single accounts; and the role of information and communication technologies to integrate the main PFM functions within an integrated framework. Chapter 6 discusses the experience of cost systems in the public sector, while Chapter 8 analyzes the progress in procurement management in Latin America. Finally, Chapter 5 explores the impact of modern public accounting on transparency and accountability.

 Want to know more? Then download the Spanish version for free thru www.iadb.org/gestionfinanciera. The English version will be available in October 2015.

[1] Principal Specialist in the Fiscal and Municipal Division of the IDB.

[2] Deputy Division Chief, Fiscal Affairs Department, Public Financial Management Division, IMF

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


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