Fiscal adjustment and social spending

The external and internal imbalances that appeared in the early 1980s, together with the adjustment and stabilization policies applied throughout that decade in Latin America, juxtaposed the need to reduce the fiscal deficit with the need to make up for the loss of income sustained by the most vulnerable groups of the population as a consequence of the external debt crisis. This article examines patterns of social expenditure in a number of countries in the region, in an effort to determine how these policies affected the level and composition of social spending and, hence, influenced social policy. As a method of analysis, the author reviews patterns of social spending during various episodes of fiscal adjustment and maladjustment in each of these countries and compares them with the trends observed in those countries' public-sector finances. The data suggest that social expenditure was used chiefly as an instrument of fiscal adjustment, which would account for the widespread deterioration seen in this variable during the 1980s. In addition, the impact of this policy was not evenly distributed among the various social sectors but instead had a particularly strong effect on housing and education.