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While there are clearly political trade-offs involved in the implementation of safety nets, the politics of implementing permanent reforms of the institutions that deliver public services are even more complex. Reform of such institutions requires more implementation capacity than does either macroeconomic reform or the implementation of safety net measures, and entails very different political dynamics. The providers of public services tend to be politically powerful and highly organized, while the users, although numerous, tend to be diffuse and poorly organized. It is no surprise that most governments, already faced with the political challenges of macroeconomic reform, postpone or avoid more difficult reforms of public institutions, particularly when the implementation of visible safety net policies can address public concern about social welfare issues, at least in the short term. Yet in most countries that complete adjustment programs, it becomes evident that for growth to be sustainable in the long run, there are no alternatives to reform of the social sectors. In much of Latin America, for example, public attention has shifted from the costs of adjustment measures to concern about the quality and quantity of basic public services, particularly health and education.

Despite these difficulties, it is possible to make progress in reforming social-sector institutions, and to do so under a democratic regime. In Latin America, Chile is the country that has made the most progress in implementing structural reforms of the social sectors, and it has done so under authoritarian rule.5 Yet the reforms have been maintained and even extended since the 1990 transition to democracy. And since then, a number of other countries in Latin America—and a few in Africa—have implemented "Chile-style" reforms under democratic regimes. Progress has been most visible in the social security arena in Latin America, but there have also been some reforms in health and education.6 The policy framework—rapid and extensive macroeconomic reform—has been critical to the political viability of these reforms


East Asia also provides several examples of efficient and well-targeted social expenditures, in particular investments in basic education (see Birdsall et al., 1995). Yet because the East Asian countries were neither democracies nor undergoing major economic adjustments at the time their social welfare frameworks were established, their experiences are less relevant to the transition economies. Indeed, most East Asian countries have not had to reform their social welfare systems dramatically; rather, they were initially set up in an efficient manner in the context of good macroeconomic policies. Pension systems, for example, were not established in most East Asian countries until it was clear that they were affordable from a fiscal standpoint. This is in sharp contrast with the experience of most Latin American or transition economies.


Argentina, Bolivia, Colombia, and Peru have all implemented major social security reforms. A major health-sector reform is under way in Argentina, and Peru is beginning such a process. In Africa, among other countries, Zambia has implemented far-reaching health-sector reform (Graham, 1996a).

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