Reaching new policy deal for Latin America
Posted on Mon, Jan. 02, 2006
INTERNATIONAL
Reaching new policy deal for Latin America
THE WASHINGTON CONSENSUS HAS BECOME AN UGLY TERM, INVOKED AS THE CAUSE OF LATIN
AMERICA'S WOES
pbachelet@MiamiHerald.com
WASHINGTON - BY PABLO BACHELET
Shortly before leaving for a trip to Brazil last month, World Bank President Paul Wolfowitz was asked about Latin
America's growing criticism of U.S.-backed free-market policies known as the ``Washington Consensus.''
''It's important for everybody to be pragmatic and see what works and what doesn't work, and the Washington
Consensus shouldn't be elevated to an ideological principle,'' said Wolfowitz, a conservative who normally would
have defended such policies. ``I think we should be open-minded.''
Once embraced by presidents and pundits alike, the Washington Consensus and its cousin, neoliberalism, have
become almost ugly terms, invoked by leftist leaders such as Venezuelan President Hugo Chávez and Bolivian
President-elect Evo Morales as the prime cause of the region's woes.
John Williamson, the economist who coined the term in 1989, once remarked that many critics cannot utter the
phrase ``without frothing at the mouth.''
Now, after several years of soul-searching and debate over why the free market reforms adopted in the 1990s
failed to deliver the progress they promised, a new version of the Washington Consensus is beginning to emerge,
interviews with specialists and recent position papers and speeches show.
As Wolfowitz's response suggests, the new consensus is more pragmatic and calls for policies more sharply
focused on helping the poor rather than strictly pushing for economic growth.
Some of the old Consensus' more controversial suggestions -- the insistence on privatizing public firms, for
example -- have been dropped.
But the new consensus is also more demanding, experts say, because it adds political elements to a set of
recommendations that were primarily economic.
Governments, for instance, are urged to revamp their judicial systems and shore up property rights, which are
often much harder to do than setting up monetary or fiscal targets.
The shift comes as leftwing critics of free-market reforms are making gains on the political front around Latin
America.
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Reaching new policy deal for Latin America
Bolivia's Morales won a lopsided victory in the presidential race earlier this month, and Peru's leftist Ollanta
Humala has surged to second place in recent polls. And earlier this year, angry mobs forced relatively centrist
presidents to resign in Bolivia and Ecuador.
Argentine President Néstor Kirchner said he decided to pay off the $9.8 billion owed to the International
Monetary Fund to gain independence of the institution's Washington Consensus-type advice.
Oddly, these events have come at a time when Latin American economies are on the upsurge, suggesting that
many citizens aren't benefiting from better times. According to the International Monetary Fund, Latin American
economies grew at 5.6 percent in 2004.
'A key factor in understanding the region's political panorama is to recognize the widespread feeling of
disappointment with the results of the reform agenda . . . typically associated with the `Washington Consensus,'
'' Luis Alberto Moreno, the new head of the Inter-American Development Bank, said in a recent speech.
For many Latin Americans, wages have stagnated and job opportunities have declined in the wake of ''intensive,
often over-sold reforms,'' Moreno added.
Williamson's 1989 paper contained 10 recommendations endorsed by institutions such as the U.S. Treasury
Department, the IMF, the World Bank and the IDB. Governments were urged to show fiscal discipline, reform
their tax systems, liberalize trade, privatize state companies and deregulate their economies, among other -mostly monetary and fiscal -- recommendations.
These days the IMF continues to serve up ''Washington Consensus'' advice. The December issue of one of its
magazines said Latin American economies had made big gains lowering their public debt, strengthening their
fiscal positions, exporting more and adopting policies such as floating exchange rates. But it also discussed
income inequalities and the need to consolidate democratic institutions and change labor laws.
Claudio Loser, a former head of the IMF's Western Hemisphere department, said the ''new'' Washington
Consensus eschews selling state companies, because many such sales were marred by corruption. He also said
that building stronger institutions is now a key part of the development equation.
Those institutions are not ''just [those] that you can draw on a chart'' like a Central Bank or a schooling system,
but things such as respect for property rights and mechanisms for achieving social consensus, said Nancy
Birdsall, founder of the Center for Global Development think tank and a former No. 2 at the IDB during the
Clinton administration.
And that, she said, doesn't ``translate into any simple recipe that could ever come from Washington.''
DIFFERING OPINIONS
But implementing even some of the ''new'' Washington Consensus policies may prove difficult since many of the
region's left-leaning governments are publicly criticizing almost any advice emerging from Washington.
Moreno said there is a good reason for this. Mostly conservative politicians who supported reforms in the 1990s
got punished at the polls, losing on average 15 percent of the vote in their presidential races. More aggressive
reformers in Argentina, Bolivia and Peru may have sacrificed as much as 30 percent of their votes.
''Not surprisingly, structural reforms have stalled in the region since the late nineties and proposals for
aggressive pro-market reforms are conspicuously absent in the current electoral campaigns,'' Moreno noted in
his speech.
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Reaching new policy deal for Latin America
WEAK RESISTANCE
But that does not mean the region will necessarily swing back to old leftist policies of heavy government
intervention in economic affairs, Moreno added.
Resistance to some free-market reforms is weakening as Latin economies continue to improve, he said. A recent
poll by the Chile-based Latinobarómetro firm showed the percentage of Latin Americans who consider
privatizations beneficial rose from 20 percent in 2003 to 31 percent in 2005. Even in Venezuela, where Chávez is
touting his socialist ''revolution'' as an alternative to capitalism, the polls showed that two of every three people
say there is no better system than a market economy.
© 2006 MiamiHerald.com and wire service sources. All Rights Reserved.
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