Authors: Paul Holden and Sarath Rajapatirana
Produced for the World Bank, 1995

During the past decade, many countries in Latin America and the Caribbean that were plagued by high inflation, a large debt burden, and low growth have transformed themselves into stable, capital-receiving, and growing economies. This study examines evidence from a number of recent reports of the private sector in Latin America and the Caribbean and finds that the economic transformation that has taken place is not a simple story but the product of complex interactions among macroeconomic stabilization, incentive reforms, and institutional adaption. No one element would have produced the results that have been achieved. For example, fiscal stability and better incentive structures give the correct signals for a shift of resources to more productive uses, but they do not address the barriers that hinder resource movement. Likewise, the traditional package of adjustment measures may be necessary to lay the foundation for rapid growth, but it is not sufficient to elicit a strong response from the private sector. There is a second generation of issues that strongly influence development of the private sector. Among these are the need to reduce the amount of discretion in policy regimes, the burden of regulation on businesses; the need for incentive reforms in new areas such as competition policy; the inability of the financial system to secure collateral; the cost of uncertainty of contracts under current legal systems; and issues related to property rights.

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Unshackling the Private Sector