In recent years, and with varyingdegrees of intensity, the economies of Latin American and the Caribbean have embarked uponambitious reform programmes aimed at consolidating stability within a climate of growthand openness. The nations of the region are attempting to take advantage of the newopportunities made available by the international economy, while reducing the riskspresented by globalization and ever more rapid technological change.

This reorientation of regionaldevelopment has involved significant revision of the role of the state, and of itsinteraction with the private sector and society as a whole. To succeed, the reformsrequire an agile and efficient public sector, which complements the private sector as wellas efficiently and competently carrying out the responsibilities assigned to it bysociety. A prior requisite, of course, is that public finances are in order. HenceECLAC's decision to focus on the theme of public finance and fiscal management in theregion at its upcoming biennial session to be held in Aruba from 11 to 16 May.

The region's public financeshave advanced significantly within the framework of the economic reforms. Greaterbudgetary discipline has substantially reduced deficits and led to more careful managementof both these and the public debt. Improvements have been made in tax administration andin consolidating revenue sources. Progress has been slower in public-sector management,the introduction of results-based methods and the creation of a systematic administrativeculture based on evaluation and the linking of resources to performance. Efforts toenhance transparency in public accounts and democratic discussion of budgets are stillinsufficient.

The priority given to adjustment inthe 1980s relegated the pursuit of social equity to second place in both the design of thetax system and public spending. Although the 1990s have seen an important recovery in thepriority given to social expenditure, and in focusing this where it is most needed,considerable room for improvement remains in the contribution of public policy to reducingpoverty, improving income distribution and reinforcing social integration.

Recurring events, triggered byexternal or internal shocks, point up the continuing fragility of both the fiscaladjustment and the sustainability of the reform process itself. The challenge thereforeremains to better allocate public money, avoid waste, inefficiency, duplications,discretionality and the potential for corruption, and to bring the public sector into linewith the profound economic transformations sweeping the region.

Second generation reforms currentlybeing introduced underline the need for a state which is more committed to achievingsocial equity, especially in education and investment in human resources; a state which iseffective at promoting and regulating competition, and which guarantees high-qualityinfrastructure and an adequate technological base. Such challenges cannot be metefficiently if finances are weak.

The degree of efficiency of publicfinances reflects the weakness or strength of the fiscal covenant which sustains them. Theabsence of widespread agreement on the state's main economic and socialresponsibilities erodes any consensus about the quantity and sources of the funds itshould manage or rules for their allocation and use. On the other hand, politicalagreement on these matters between the different social sectors, be it implicit orexplicit, helps to legitimize the amount, composition and direction of public expenditure,and the tax burden necessary to finance it.

A new "fiscal covenant"would seem to be needed to improve public sector performance and its results in terms ofgrowth, equity and competitiveness. ECLAC's proposal to its member states argues thatsuch a covenant should include five basic elements: the consolidation of the fiscaladjustment already underway, an increase in the productivity of public-sector management,increased fiscal transparency, the promotion of social equity, and the encouragement ofdemocratic institutions.

The document that ECLAC will putbefore Latin American and Caribbean governments in Aruba analyzes the region's publicfinances in detail, highlighting national differences and comparing the region with theOECD and South-East Asia. It includes a complete diagnosis, and proposals, for each aspectof the "fiscal covenant", all of which will be debated in Aruba and enrichedwith the governments' own contributions. In this way, ECLAC looks forward to renewingits commitment to serve the governments and societies of Latin America and the Caribbeanby providing pertinent proposals, updated and in line with its underlying concern totransform production patterns in the region while improving social equity.