Washington Consensus - Continuing Controversy

Continuing Controversy

Most Latin American countries continue to struggle with high poverty and underemployment. Chile has been offered as an example of a Consensus success story, and countries such as El Salvador and Uruguay have also shown some positive signs of economic development. Brazil, despite relatively modest rates of aggregate growth, has seen important progress in recent years in the reduction of poverty.

Joseph Stiglitz has argued that the Chilean success story owes a lot to state ownership of key industries, particularly its copper industry, and currency interventions stabilizing capital flows. Many other economists, though, argue that Chile's economic success is largely due to its combination of sound macroeconomics and market-oriented policies (though the country's relatively strong public institutions, including one of the better public school systems in the region, also deserve some credit).

There have been claims of discrepancies between the Washington Consensus as propounded by Williamson, and the policies actually implemented with the endorsement of the Washington institutions themselves. For example, the Washington Consensus stated a need for investment in education, but the policies of fiscal discipline promoted by the International Monetary Fund have sometimes in practice led countries to cut back public spending on social programs, including such areas as basic education. Those familiar with the work of the IMF respond that, at a certain stage, countries near bankruptcy have to cut back their public spending one way or another to live within their means. Washington may argue for enlightened choices among different public spending priorities, but in the last analysis it is domestically-elected political leaders who ultimately have to make the tough political choices.