For the sake of comparison, Figures 3A and 3B depict “official” forecasts recently published by the Ministry of Finance (Ministerio de Hacienda y Crédito Público, 2004) and IMF (2004b), respectively. Though none of these pieces provide a clear description of the policies being implemented, they foresee a significant consolidation effort with no apparent growth sacrifice. This comparison provides an opportunity to assess whether the proposed approach to policy evaluation provides further insights into understanding the relation between policies and economic performance vis-à-vis the perspective provided by the Financial Programming approach. Interestingly, the two approaches provide fundamentally opposing views on the economy’s future growth path.

The Ministry of Finance recently released its Medium-Term _Economic Program_ . This report provides medium-term baseline projections (2004-2020) for the economy’s main macroeconomic aggregates, assuming the continuation of current policies (no new reforms are spelled out). The report assumes that from 2004 onwards the economy’s GDP will grow at a rate of 4% per annum retaking, for no apparent economic reason, its longrun path of economic growth (see Figure 3A). On the expenditure side of the national income and product accounts, growth is fueled by private consumption and investment - in sharp contrast to predictions of the intertemporal model. The share of private consumption and investment in GDP will increase from 62% to 64% for the former and from 13.3% to 17.5% for the latter. The space gained by consumers and private investors in GDP is at the expense of the public sector whose share will shrink by 6% of GDP over the next 15 years with no noticeable growth impact. Hence public debt will fall from 54% of GDP in 2003 to 42% fifteen years later. In summary, in the authorities’ view, the fiscal position will improve “endogenously” thanks to a rapid resumption of private economic activities and historical growth trends, leaving little trace of what was once considered a sustainability concern.

The IMF (2004b) also provides baseline projections and similar developments are forecast for the economy (see Figure 3B). Its projections assume that the authorities can sustain a combined public sector primary surplus of 2.7% of GDP per year starting in 2005. This would require an adjustment of approximately 3.8% of GDP in the combined primary surplus over the 2003 stance (including new pension obligations, in average 2.5% of GDP in the near future). If an adjustment of this magnitude is assumed, the Fund’s _debt sustainability analysis_ “finds” (“assumes”) that, under all stress tests, the public accounts are sustainable. However, the report does not explain how to achieve such an adjustment in the very short run with no apparent growth effect (the economy’s growth rate is constant at 4% per year in the next six years).

# **4.3 Experiment 2: Public Investment Cutbacks**

Both the government’s _Economic Program_ and the Fund’s Third Review Report anticipate substantial fiscal consolidation efforts in the short run: the first requires a reduction of government spending of 6% of GDP and the second an improvement in the combined primary balance of 3.8% of GDP. In both, the distinction between capital and current expenditures is irrelevant because the economy is assumed to grow at its historically average rate, independently of how fiscal policy unfolds. This section uses 20