The Washington Consensus: Failure in Latin America's Economic Stabilization, Apuntes de Historia

¡Descarga The Washington Consensus: Failure in Latin America's Economic Stabilization y más Apuntes en PDF de Historia solo en Docsity! During the 1980s debt crisis there were a series of consensuses regarding the main policy reforms that Latin American countries required in order to stabilise their economies. As a result, John Williamson coined the term, the “Washington consensus”; which arose as a by-product of change that provided a common policy agenda for these countries (Williamson, 2009). The “Washington consensus” refers to the development strategies that focused on liberalization, privatisation and macro-stability, which were aimed at stabilising Latin American economies (Gore, 2000). Throughout the late 1980s and the 1990s the implementation of these policies was supported by the International Monetary Fund (IMF) and the World Bank. Moreover, many of the requirements that these financial bodies requested were directly or indirectly correlated with the ten proposals of the “Washington consensus” (Craig and Porter, 2006). The purpose of this paper is to demonstrate why the “Washington consensus” was not successful in Latin America, for the reason that it failed to collectively improve the economy of the nations in which it was adopted. Firstly, I will define what is meant by success and the aims that the “Washington consensus” aimed to achieve. Secondly, I will outline the reasons why the model proposed by Williamson failed, referring, by example, to the Argentine crisis. Finally, I will analyse the idea of the “post-Washington consensus”. To assess whether the “Washington consensus” was a success or failure, one first needs to identify what is meant by success. Success can be defined as the accomplishment of an aim or purpose. The “Washington consensus” arose as a solution to the Latin American crisis. The aim of the doctrine was to set the agenda that the countries were required to pursue and to stabilise their economies (Naim, 2000). Although the consensus successfully set the economic and political agenda for the countries to which it was applied, it was unsuccessful in restoring their economies (Stiglitz, 1998). The main difficulty that many nations encountered when applying the consensus lied in their economic background. Since many of those nations never enjoyed economic prosperity, there was no real measure of prosperity degree that had to be achieved (Rodrik, 2006). As a result, the “Washington consensus” set the agenda but failed to provide the right framework for understanding the economies or their current troubles. 1 In response to the 1980s debt crisis the entire Latin American region experienced profound economic reforms under pressure from international financial institutions such as the International Monetary Fund (IMF). The economic reforms were based on Williamson’s “Washington consensus”, which meant that almost half a century of Keynesian economic policies were to be radically substituted by neo-liberal reforms (Fernandez Jilberto, 2004). However, during the implementation stage some of the reforms proposed by the “Washington consensus” tended to be ignored (Auerbach, 2007). For example, the cuts to public expenditures, otherwise known as fiscal discipline that the countries had to go through were supposed to be reinvested in health and education, but due to the financial situation of the region the savings from the fiscal discipline had to be directed towards the building of factories and the creation of jobs (Stiglitz, 2004). In practice, this measure could be a success in the short term. However, in the long term, education and health would be more beneficial to the nation. The example provided above highlights the main fault of the consensus; it did not take into account the socio-economic situation of the country. The Argentine economic crisis during the late 1900s and early 2000s resulted from a confluence of events that were, to a great extent, related to the adoption of the reforms encouraged by the “Washington consensus”. However, it is worth pointing out that the crisis was not triggered only by a misunderstanding of ‘Washington consensus” policies, but also by a series of socio-political issues (?)(Giarracca and Teubal, 2004). Nevertheless, the constant tendency of borrowing capital from international financial institutions, which the “Washington consensus” encouraged, was a primary catalyst for the crisis (Bird, 2007). In light of the last statement, the flow of capital that Argentina was receiving from international financial institutions and Western banks could not form the basis for creating jobs and stimulating the economy because all the money, or most of it, would have to be paid back to the institutions mentioned above (Stiglitz, 2004). For the aforementioned reasons, we can identify the close relation between the adoption of the “Washington consensus” reforms and the crisis in Argentina. 2 References Auerbach,N.N (2007), The meanings of neoliberalism. In: R, Roy. A, T. Denzau. and T, D. Willet, ed., (2007) Neoliberalism: National and regional experiments with global ideas. New York: Routledge. Bird, G. (2007), Evolution in macroeconomics: principles, policy, and performance. In: R, Roy. A, T. Denzau. and T, D. Willet, eds., (2007) Neoliberalism: National and regional experiments with global ideas. New York: Routledge. Burki, S.J. and Perry, G.E. 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