Availability and efficient resource management: many countries in the region (probably with the exception of Argentina, Brazil and Uruguay) require more fiscal resources to meet the needs of the public sector and contribute more effectively to development. This also requires greater efficiency in the administration and implementation of spending. and in the context of public administration, greater planning, co-ordination and risk assessment is needed to generate sufficient resources. Given that the structure of public policy evolves with the country’s level of development, countries may be increasingly challenged to expand services and transfers. this may be implemented within increased decentralisation, but needs to be accompanied by regular monitoring of the volume and quality of services. 

The professionalization of the civil service: as shown in Figure 2.1., as a percentage of the total workforce, Latin American countries have far fewer public employees than OECD economies. In some countries, the percentage is slightly more than half that found in the OECD economies with the highest levels of public employment. the biggest difference, however, is that the Latin American states are normally pre-bureaucratic, in that they are characterised by the lack of a formal, professional civil service and by a high proportion of political appointments among civil servants. Some countries seem to have developed a highly distorted bureaucracy, with low-skilled workers protected by strict contractual arrangements and managers appointed on the basis of their political affinities. This situation generates levels of job rotation and patronage of little use to the development of public policies that require a high degree of coherence and continuity if they are to be effective. Under this regime, the flexibility that might be necessary to better meet different public needs can easily become discretionary and a source of incoming influences. In many countries the proportion of public employees with high skills and high motivation could be much greater. Some countries such as Brazil, Chile, Mexico and Peru have recently undertaken reforms to establish a highly professional civil service, though they are more the exception than the rule in the region. The reforms in these countries are very recent and still have many hurdles to overcome. 

Another indicator often used to identify the size of the state —public spending as a percentage of GDP— shows that the region is behind OECD states. Public spending has increased, but the differences remain substantial, and have even widened in recent years (Figure 2.2).


Centralisation: Latin American countries have a level of fiscal and administrative decentralisation below that of the OECD economies. Municipal spending in Latin America is less than half that of OECD economies as a percentage of GDP (9.5% and 20.6%, respectively), and their revenues constitute slightly less than one third. 

This reflects significant vertical imbalances. Regional figures are more balanced but with great variations between large federal countries (Argentina, Brazil and Mexico) and smaller unitary states which may not even have a regional administration.2

Beyond its impact on the efficiency of public administration and equity in the distribution of public resources, centralisation seriously limits the ability of citizens 

to participate in state affairs. If sub-national governments provide a significant part of services required by citizens and the investments of greatest interest to communities, then their lack of resources and powers, as well as their over-reliance on central government transfers, are structural constraints on citizen participation that the government will struggle to overcome. 

Lack of transparency and trust: Latin America has been on the path of democratic consolidation since the early 1980s. Democracy as a political system has the strong ideological support of the Latin American population.3 according to opinion polls, satisfaction with democracy increases steadily with ascendance in economic status. However, the middle classes, though in relative solidarity with the tax system and a strong supporter of democracy, are not satisfied with the public services they receive. They are “dissatisfied customers” of the state.4 Despite progress in some areas, high inequality, a lack of transparency and poor-quality public services undermine trust in the government and in the social contract in Latin America. The institutions in the region often suffer from a lack of trust. Trust in democratic institutions, such as the judicial and legislative system, is very low and the degree of satisfaction with local services almost never exceeds 50%.5 this can trigger a vicious circle of distrust and weakened legitimacy, which in turn limits the possibility of raising taxes and impedes the provision of more universal services. When people have the means to afford private services, they may come to completely abandon public services, thereby contributing to their stigmatisation. In fact, in Latin American countries, the private provision of basic services in education, health and even security is high compared to in OECD economies. 

Comparative international studies suggest that in a large majority of Latin American countries there is a significantly higher perception of corruption than in OECD economies. Whatever the causes, the recent progress made by some countries in the region is commendable. For instance, according to transparency international, the levels of corruption perception in Chile and Uruguay is similar to the level recorded in European countries such as Belgium, France and Slovenia and only marginally below the levels recorded in the United States and the united kingdom.6 

Regulation as a policy instrument: many countries in Latin America developed their systems of regulation in the 1980s and 90s to adapt to the process of privatisation of public services and state-owned enterprises. During this process, some countries created independent bodies responsible for regulation in the energy, telecommunications and water sectors. However, this wave of reform failed to build a coherent regulatory system. The degree of implementation depended largely on the importance of the institutions responsible for regulation. A common problem for many countries in the region was the imbalance between the power of industry and the fragility of the regulators, who had limited resources and a workforce paid below market wages, as is the case of concessions in transport. In some of the smaller countries in the region, the ability to manage regulations and regulatory processes remains limited, affecting the rationalisation and effectiveness of regulatory frameworks. Thus, regulation as a policy instrument is used less in Latin America —and is often less effective— than in most OECD economies. 

Figure 2.1

Latin American & OECD countries: Public Sector Employment of Labour Force, 2008 (%)

Note: Data for Finland, Israel, Mexico, Panama and Poland correspond to 2007; France, Japan, New Zealand and Uruguay to 2006; and Brazil to 2003.

Figure 2.2

Latin America & OECD Countries: public expenditure, 2000, 2007 & 2009

(% of GDP)