What was the Washington Consensus?

The washington consensus is how a set of economic measures were known, specifically ten of them to stabilize the macroeconomyThis was due to the financial crisis that various developing countries were going through.

As for the concept of him, it was the British economist John Williamson who coined this term in 1989, is known in this way because these measures had a consensus within various institutions based in the capital of the United States, among which the World Bank and the Department of the Treasury of the United States stand out. United States. This concept has been used rather in a pejorative way for market fundamentalism or neoliberalism.

Reforms in the economic policy of the Washington Consensus

Motivated by the deep financial crisis, exchange rates were proposed that were more competitive, in order to encourage the growth of exports, reduce the role of the state and that it could focus on public spending and the generation of much better basic public services and finance investment, among others aspects.

These are some of the reforms:

Fiscal policy discipline

Its main objective was to concentrate on avoiding large fiscal deficits, relative to the gross domestic product. In this way, it seeks to prevent inflation resulting from a macroeconomic dislocation from affecting the investor confidence and will cause, among many other things, capital flight and deficit budgetary.

Priorities in public spending

With this, it was sought to direct public spending in the best way, in this way, a way was sought to create reforms to support primary education and in general lines develop better public services and cut all those indiscriminate subsidies to companies known as companies parastatals.

It was important that this be done without using taxes, this directly affected the companies that depended of the state, but on the other hand, as we mentioned, these resources will be directed to strategic areas for social development.

Tax and fiscal reforms

These reforms aimed to collect more taxes, one of the ways to do it would be through to cut public spending and thus guarantee growth with a tax base guaranteed.

Financial liberalization and interest rates

Its objective was to implement positive interest rates that were real and determined by the market. Among some of the effects that this would have would be to increase savings to avoid any problem that this could bring with respect to public debt.

Promote a competitive exchange rate

This requirement was considered essential to generate growth in exports, this would have as a consequence that companies would be interested in investing in export industries.

These policies of the Washington consensus had the focus on Latin America and that in this way they could recover from the financial crises they went through during this period of time.

Free trade

This would be the reform that complements the competitive change. Policies and restrictions at the import level were considered to be counterproductive and should be replaced by measures that allow imports at favorable prices, especially at the level of products that allow to activate production in the sector agricultural.

Foreign investment

In the Washington Consensus, investment was a fundamental point, foreign countries would invest in developing countries, capital, knowledge and experience at the production level would be vital, so that these developing countries could grow exports.

Here also emerged 2 currents that had to do with those who agreed with foreign investment and those who opposed it. Through an exchange known as a swap, the companies contributed a kind of barter that would prevent these economies from development would be indebted with external financing, however, for many this would increase the fiscal deficit causing an increase in public debt internal.

Privatization policies

One of the most controversial points of the measures implemented in the Washington Consensus, in essence this would help governments to relieve their budgets and at the same time the resources obtained from these privatizations would be available for improvements in the sector Social.

The Monetary Fund together with the world Bank promoted these reforms to combat the multiple problems of a social nature that Latin America was experiencing and as an excellent way to boost its growth, although many opposed it, especially those currents of economic thought that observed capitalism as the source of all problems.

Abolition of regulations

They are reforms that were applied in specific periods in the United States, specifically during the Reagan and Carter terms. These reforms are linked to the privatization policies, this is due to the fact that the sales of State companies required modifications of laws that allowed the entry or the arrival of new investors from both national companies and those foreign companies that would like to invest in them, this would result in greater investment foreign.

Protection of private property

These measures were related to the legal security that would be provided to guarantee the articulated functioning of a capitalist system. This would result in the strengthening of the private sector through the legal and accounting systems.

Other fundamentals

John Williamson, in a 1990 article, highlights several parameters and foundations on which this consensus is based, Among which highlights the importance of globalization, since the economy to grow had to go international.

For this, foreign investment and the inclusion of small industries and domestic companies that could have access to international markets are essential. Another important foundation was related to the State, since it was necessary for it to reduce its presence in the private sector, since the private sector is more efficient when managing resources.

As a last point we can say that these measures undoubtedly had an effect, which even today is debatable whether they really helped those at the bottom of the poverty line or if it only made those with power richer and possibilities.