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The Washington Consensus is a set of policies believed to be the formula for promoting economic growth in Latin America (although not for all countries). It was first presented by John Williamson from the Institute for International Economics in 1989.

Reforms

The consensus included reforms that should be undertaken from 1989 (these reforms were also summarized by the World Bank in its year 2000 Poverty Report):

• Fiscal policy discipline
• Redirection of public spending toward education, health and infrastructure investment
• Tax reform - Flattening the tax curve: Lowering the tax rates on proportionaly high tax brackets (typically above median income), and raising the tax rates on the proptionally low tax brackets (typically below median income); lowering the marginal tax rate.
• Interest rates that are market determined and positive (but moderate) in real terms
• Competitive exchange rates
• Trade liberalization - replacement of quantitative restrictions with low and uniform tariffs
• Openness to foreign direct investment
• Privatization of state enterprises
• Deregulation - abolition of regulations that impede entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions
• Legal security for property rights

Anti-globalization and anti-capitalist critics argue that the consensus' neoliberal policies have been imposed on economically vulnerable countries and have in fact led them to crisis instead of overcome it. Some leftist critics of trade liberalization, such as Noam Chomsky and Naomi Klein, see it as a way of throwing open the labor market of an underdeveloped economy to exploitation by a more developed economy. Many of the other reforms (e.g. privatization of state industries, tax reform, and deregulation) are thus seen as mechanisms for ensuring the development of a local monied elite who will then have a vested interest in maintaining the local status quo. Other more liberal commentators argue that it was not the policies themselves, but the extreme speed at which they were implemented which caused the damage.

Most critics, including neo-Keynesians and post-Keynesians, argue that the underlining policies were incorrectly laid down and are too rigid to be able to succeed. For example flexible work laws were supposed to create new jobs, but economic evidence from South America draws no such conclusion. In addition they do not take into account economic and cultural differences bewteen countries. They also point that should this set of policies work it must be implemented during a period of rapid growth and not - as often is the case - during a crisis. The Washington Consensus is widely held by many economists to be a 'suicidal policy' if implemented when an economy is weak. Moises Naim, chief editor of Foreign Policy, states that there was no 'consensus' in the first place, since there are major differences between economists what is the 'correct economic policy', hence the idea of there being a consensus was also flawed.

There have also been major discrepancies between the Washington Consensus and the policies themselves. For example the Washington Consensus stated a need for investment in education, but the policies pursued by the International Monetary Fund stated the need to put up standard fees for primary education.

NAFTA and DR-CAFTA

In the 1990s, President George H. W. Bush began to draw up a U.S.-Mexican-Canadian free-trade proposal that came to be known as the North American Free Trade Agreement (NAFTA.) NAFTA was later signed into law by Bush's successor, President Bill Clinton, and the three North American countries agreed to gradually phase out or sharply reduce tariffs on foreign goods, a policy perfectly in line with the ideals of the Consensus. Current President George W. Bush continues to support NAFTA, and his administration is currently negotiating a similar agreement known as the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) with the Dominican Republic and Central America.

Proponents of NAFTA and DR-CAFTA claim that they promote economic growth in developing countries and are a boon to American consumers, providing them with less-expensive foreign goods. Critics from left and right accuse the agreements of crippling the American working class by promoting the relocation of production to cheaper labor markets in Mexico, and allege that such shifts have resulted in the exploitation of Mexican laborers. Anti-globalization critics tend to emphasize the latter, while conservative critics such as Pat Buchanan tend to emphasize the former.

Support for the agreements in the U.S. Congress and the executive branch has been bipartisan, with Democratic President Clinton having signed NAFTA and current Republican President Bush pushing for DR-CAFTA. Anti-globalization critics claim that the agreements only enjoy such widespread support amongst Washington politicians because they seek to appease corporate sponsors of their individual campaigns.

Current progress

Most Latin American countries continue to struggle with high poverty, unemployment, and underemployment, though Chile has been a Consensus success story, and countries such as El Salvador and Uruguay have shown some positive signs of economic development. However it can be also be shown that the Chile success story owes a lot to the state ownership of key industries and currency interventions stabilizing capital flows, as Joseph Stiglitz states.

Countries that have implemented market reforms following Washington Consensus

• Bolivia
• Brazil (Plano Real)
• Chile
• Colombia
• Costa Rica
• Dominican Republic
• Ecuador
• El Salvador
• Guatemala
• Honduras
• India
• Mexico
• Morocco
• Nicaragua
• Paraguay
• Peru
• Uruguay
• Zambia

Countries with governments currently opposed to Washington Consensus

• Argentina
• Brazil
• Cuba
• Venezuela

External links

• Diversity in Development: Reconsidering the Washington Consensus (Jan Joost Teunissen and Age Akkerman (eds.), December 2004, book, pdf)
• Did the Washington Consensus Fail? (by John Williamson)
• The Washington Consensus as Policy Prescription for Development (World Bank)
• What Should the World Bank Think about the Washington Consensus? (by John Williamson)
• Fabian Global Forum for Progressive Global Politics: The Washington Consensus (by Adam Lent)
• The Economics of Empire - Notes on the Washington Consensus (by William Finnegan)
• Fads and Fashion in Economic Reforms: Washington Consensus or Washington Confusion? (by Moises Naim)
• [http://multinationalmonitor.org/mm2000/00april/interview.htm Unraveling the Washington Consensus

An Interview with Joseph Stiglitz]

• Macroeconomics