The Washington Consensus

The Washington Consensus emerged in 1989 in Latin America, after what we call “the lost decade”, with the aim of liberalizing Latin American economies. After the failure of protectionist policies and the import substitution industrialization (ISI) model, the economic model of Latin American countries needed to be reformed in order to fix their external debt and sovereign default issues and that countries such as Mexico or Argentina had experienced in the late 1980s. Likewise, the implementation of the Washington Consensus coincides with the democratization processes undertaken by many Latin American countries that went out from the years of dictatorship.

The Consensus is a list of economic measures prepared by John Williamson, an English economist who was a World Bank member at that time. 

The Washington Consensus reflects perfectly the neoliberalism era that started at the end of 1970s in the USA. It is a set of economic policies that aim to reduce the public deficit through the reduction of expenditures, reforms to reduce tax progressivity, privatization of companies (contrary to the ISI model), liberalization of financial and commercial markets and facilitation of foreign direct investment (FDI) and deregulation of markets, among other things. Here are the 10 key principles established by Williamson in his document:

1. Budget discipline

2. Changes in public spending priorities

3. Tax reform

4. Market-defined interest rates

5. Market-defined exchange rate

6. Trade liberalization

7. Openness policy regarding foreign direct investment (FDI)

8. Privatization policy

9. Market deregulation policy

10. Protection of property rights

If the implementation of these neoliberal policies has never been mandatory, these measures constituted conditions for accessing loans from international organizations such as the IMF or the World Bank. As mentioned before, at the end of the 1980s many Latin American countries had huge external debts and needed means of financing, so in reality they had no other option than to apply the Washington Consensus to be able to obtain loans from these international organizations. 

Results of the implementation of the Washington Consensus in Latin America

Neoliberal policies allowed countries in the region to achieve macroeconomic stability and drastically increase their exports. The inflation from which many Latin American countries had been suffering for many years was reduced thanks to stabilization policies and economic reforms. The fiscal reform made it possible to reduce the budget deficit and the public external debt.

However, there was not sufficient growth in productive sectors and the expected results in terms of socioeconomic development were not achieved. The improvement in social conditions and social inequalities was almost nil. Additionally, the region suffered from international economic fluctuations at the end of the 20th century that impacted its economic growth and development: the Mexican economic crisis of 1995; the Asian crisis of 1997 and the recession of the US economy in 2001. Finally, the levels of investment in fixed capital were insufficient, preventing the modernization of industries and affecting the competitiveness of Latin American companies in international markets. 

John Williamson argued that the failure of the Washington Consensus policies in Latin America was mainly due to: the way in which economic measures were applied by Latin American governments; the fact that the reforms were incomplete; the reforms did not include distribution of wealth policies.

Bibliography:

Béjar, R. C. (2004). América Latina y el consenso de Washington. Boletín económico de ICE, (2803). 

Rangel, R. M., & Garmendia, E. S. R. (2012). El Consenso de Washington: la instauración de las políticas neoliberales en América Latina. Política y cultura, (37), 35-64.

Moreno-Brid, J. C., Pérez Caldentey, E., & Ruiz Nápoles, P. (2004). El Consenso de Washington: aciertos, yerros y omisiones. Perfiles latinoamericanos, 12(25), 149-168.