Several countries of the region were moving that way

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Unformatted text preview: region’s social assistance systems are insufficient to respond to sudden economy‐wide contractions in income, especially among the middle classes. On the other, the technology to measure inequality of opportunities has recently become available and, more critically, operational.7 Both realities will unlock a long overdue effort to focalize universal subsidies—why should the state continue to pay for, say, the heating, gasoline or college education consumed by the rich? The end result will be a pattern of social policy more focused on giving the same chances to all. 7 See Barros, R. P. de; F. H. G. Ferreira, J. R. Molinas Vega, and J. Saavedra Chanduvi, 2009, Measuring Inequality of Opportunity in Latin American and the Caribbean. New York: Palgrave Macmillian and Washington, DC: The World Bank. 4 More broadly, the role of the state will change worldwide, and Latin‐America will be no exception. What is different in the region is that the relationship between its states and its people has long been one of mistrust—a manifestation of which is Latin‐Americans’ idiosyncratic reluctance to pay taxes. The crisis may become an opportunity to change that relationship, to reach a new contract. At a time when less resources will be available to the state but more will be expected of it—from regulating finance to facilitating job creation—the door opened to begin to base public sector management on results. The technology is now available to connect public action, and more particularly public expenditures, to specific outcomes—in education, in health, in infrastructure, in public services. Several countries of the region were moving that way before the crisis, at both federal and sub‐national levels. That move is now likely to become the norm. Result‐based management of the state will put a framework to its interventions in many sectors where it had been less active in the past. Nowhere will that be clearer than in finance. By and large, Latin‐ America avoided many of the mistakes that led to, and triggered, the implosion of financial markets in the developed world—no subprime lending, no off‐balance‐sheet risks, no exotic instruments. Much of this is due to over a decade of laborious improvements in regulatory and supervisory institutions. Those institutions will now be challenged by the sweeping reforms that the global financial industry is about undergo. Systemic risk regulation, capital requirements, the use of credit ratings, accounting norms and consumer protection are just some of the parameters of the industry that will change worldwide. How Latin‐America adopts and adapts those parameters may prove critical for a region that will increasingly have to rely on its own savings to develop.8 Finally, the crisis has revealed the breadth of global interconnectedness—witness the viral speed at which financial and trade flows collapsed across the world. The externalities created by the actions of individual countries have become so patent that quickly triggered the appearance of new or renewed mechanisms for global coordination and...
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