After the Washington Consensus: Latin American Growth and ... - Alide

After the Washington
Consensus:
Latin American Growth and
Sustainable Development
John Williamson
Senior Fellow, Institute for
International Economics

A Common View
• Washington Consensus held sway in early
1990s
• Growth revival was modest
• Then there was another lost half-decade
• And then the voters moved left
• Result: A New Dawn? Or Continued
Failure?

Another View
• At least 5 of Latin America’s 7 large
countries are now committed to macro
prudence

Another View

Another View
• At least 5 of Latin America’s 7 large
countries are now committed to macro
prudence
• Little policy reversion
• Less liberalization in part because
economies are now less dirigiste
• No expectation of finding simple solutions
to complex problems

The Macroeconomic Agenda
• Past crises, so crisis prevention needs to be a
priority
• Macro policy focused more on preserving sound
fundamentals and less on S-R growth
maximization will actually increase L-R growth:
– Counter-cyclical fiscal policy
– High reserves and/or stabilization fund in good times
– Relatively flexible exchange rate
– Avoid currency mismatches
– Borrow in growth-linked bonds

Brazil
• Less likelihood of a new round of crises due to
prudent policies (primary surplus, c/a surplus)
• But needed monetary tightening overshot:
– Growth slowdown
– Debt/GDP ratio
– Appreciation of real
– Lower investment
• Remember Greenspan 1996-98!
– Continue cutting interest rate, even if cautiously

The Microeconomic Agenda
• The major determinant of L-R growth:
– Whether business has a chance to succeed, in conditions where its
success aids society
• The old issue: state versus market
• Good news: markets already there
• Bad news: public hostility to market
• Needs politicians prepared to brave the electoral
consequences of pro-market reforms

Priorities
• Technology:
– Industrial policies no, national innovation
strategies yes
• Labor markets in the formal sector
• Establishing new formal enterprises
• Property rights in the informal sector
• Corporate social responsibility

Institutions
• Matter
• Nellis’s list:
– The definition and protection of property rights;
– Contract enforcement and commercial dispute settlement through credible,
predictable, peaceful means (more broadly, court decisions that are timely
and based on law, not payments or social precedence);
– Independent, well-staffed agencies to regulate the natural monopoly
elements of natural utilities (that deliver timely, law-based decisions,
predictable and credible for both investors and consumers);
– Functioning bankruptcy/insolvency regimes for firms operating in
competitive markets; and, in general,
– A public administration that meets modicum standards of predictability,
competence and probity and promotes and enforces rules enhancing
competition.
• Can institutions change?
Yes, though it will take time.

The Social Agenda
• Little in 1989 Agenda
– Which was supposed to be a consensus!
• No excuse to neglect today
• Growth versus redistribution?
• Improved pattern of expenditure
– Oportunidades, Bolsa-Família
• Vested interests as the main obstacle

Conclusions
• Going beyond simple ideological solutions
does not imply reversal of reforms
• Macro policies basically right
• Institutional importance now appreciated
• Social agenda more prominent
• Biggest threat to the future is distrust of
market.