Studying the modern economic histories of eleven of the largest countries in Latin America teaches us that a lack of fiscal discipline has been at the root of most of the region's macroeconomic instability. The lack of fiscal discipline, however, takes various forms, not all of them measured in the primary deficit. Especially important have been implicit or explicit guarantees to the banking system; denomination of the debt in US dollars and short maturity of the debt; and transfers to some agents in the private sector, which are large in times of crisis and are not part of the budget approved by the national congresses. Comparing the histories of our eleven countries, we see that rather than leading to an economic contraction, fiscal stabilization generally leads to growth. On the other hand, rising commodity prices are no guarantee of economic growth, nor are falling commodity prices a guarantee of economic contraction.
This paper has been written as part of the Monetary and Fiscal History of Latin America Project sponsored by the Becker Friedman Institute at the University of Chicago. It will be a chapter in _A Monetary and Fiscal History of Latin America, 1960—2017_, edited by Timothy J. Kehoe and Juan Pablo Nicolini and published by the University of Minnesota Press.