FROM AUSTERITY TO THE RETHINKING OF MONETARY AND FISCAL POLICIES IN LATIN AMERICAN

Abstract

One of the most common policies in Latin America from the eighties of the twentieth century until the
second decade of the twenty-first century is fiscal austerity, technically called fiscal consolidation,
whose objective is to reduce fiscal deficits to maintain balanced public finances. It not only seeks to
balance expenditures with public revenues, but also to reduce the external debt / GDP ratio. The main
assumption behind this strategy is that inflation is a monetary phenomenon, so controlling the amount
of money in circulation is essential, but this implies reducing public spending without considering the
negative impacts that this has on social welfare. The theoretical framework used belongs to heterodox
economics and the methodology is quantitative and documentary. The main result of the analysis is
that with open capital accounts and closely interrelated and deregulated financial markets, the fiscal

1 Este trabajo está integrado al Proyecto de Investigación PAPIIT (2020) de la Facultad de Economía, Universidad Nacional
Autónoma de México titulado: La movilidad del capital en el siglo XXI: una mirada a las instituciones y mercados de América
Latina ", coordinado por la Dra. Noemi Levi y el Dr. Jorge Bustamante. El financiamiento es de la Universidad Nacional
Autónoma de México.
consolidation policy implies that monetary and fiscal policies are misaligned from a macroeconomic
management aimed at achieving higher rates of economic growth and employment, and they focus
on maintaining the inflows of external capital in the Latin American region.