Structural adjustment programs ( SAPs ) consist of loans ( structural adjustment loans ; SALs ) provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries that experience economic crises. Their stated purpose is to adjust the country's economic structure, improve international competitiveness, and restore its balance of payments.
196-438: The IMF and World Bank (two Bretton Woods institutions) require borrowing countries to implement certain policies in order to obtain new loans (or to lower interest rates on existing ones). These policies are typically centered around increased privatization , liberalizing trade and foreign investment, and balancing government deficit. The conditionality clauses attached to the loans have been criticized because of their effects on
392-457: A US dollar tied to gold —a system that relied on a regulated market economy with tight controls on the values of currencies. Flows of speculative international finance were curtailed by shunting them through and limiting them via central banks. This meant that international flows of investment went into foreign direct investment (FDI)—i.e., construction of factories overseas, rather than international currency manipulation or bond markets. Although
588-534: A precommitment device can actually make things worse". In chapter 7 of its report ( Financial Liberalization: What Went Right, What Went Wrong? ) the World Bank analyses what went wrong in Argentina, summarizes the lessons from the experience, and draws suggestions for its future policy. The IMF's Independent Evaluation Office has issued a review of the lessons of Argentina for the institution, summarized in
784-439: A technocratic cabinet and a group of economic policies to fix macroeconomic imbalances known as El Gran Viraje [ es ] (English: The Great Turn ), called by detractors as El Paquetazo Económico (English: The Economic Package ). Among the policies there was the reduction of fuel subsidies and the increase of public transportation fares by thirty percent (VEB 16 Venezuelan bolívares , or US$ 0.4). The increase
980-505: A 'one size fits all' treatment of individual economies. According to Stiglitz the treatment suggested by the IMF is too simple: one dose, and fast—stabilize, liberalize and privatize, without prioritizing or watching for side effects. The reforms did not always work out the way they were intended. While growth generally improved across much of Latin America, it was in most countries less than
1176-489: A central role in successful policy performance." Williamson has summarized the overall results on growth, employment and poverty reduction in many countries as "disappointing, to say the least". He attributed this limited impact to three factors: (a) the Consensus per se placed no special emphasis on mechanisms for avoiding economic crises, which proved very damaging; (b) the reforms—both those listed in his article and,
1372-491: A contractive impact in most countries. Economic growth in African countries in the 1980s and 1990s fell below the rates of previous decades. Agriculture suffered as state support was radically withdrawn. After independence of African countries in the 1960s, industrialization had begun in some places, but it was now wiped out. Critics claim that SAPs threaten the sovereignty of national economies because an outside organization
1568-476: A country's balance of payments position as originally envisaged by the IMF instead of its focusing on structural adjustments. One study pointed towards deleterious effects on countries in Latin America's democratic practices, suggesting that reforms may create an economically and politically marginalized population who views democratic government as unresponsive to its needs and thus less legitimate. However,
1764-562: A creation of Latin American politicians and technocrats, with Williamson's role having been to gather the ten points in one place for the first time, rather than to "create" the package of policies. Kate Geohegan of Harvard University 's Davis Center for Russian and Eurasian Studies credited Peruvian neoliberal economist Hernando de Soto for inspiring the Washington Consensus. Williamson partly credited de Soto himself for
1960-514: A day. Roughly a third of the population has no access to electricity or basic sanitation, and an estimated 10 million children suffer from malnutrition. These problems are not, however, new: Latin America was the most economically unequal region in the world in 1950, and has continued to be so ever since, during periods both of state-directed import-substitution and (subsequently) of market-oriented liberalization. Some socialist political leaders in Latin America have been vocal and well-known critics of
2156-725: A deep and prolonged collapse in output in some (though by no means all) countries making the transition from communism to market economies (many of the Central and East European countries, by contrast, made the adjustment relatively rapidly). Academic studies show that more than two decades into the transition, some of the former communist countries, especially parts of the former Soviet Union, had still not caught up to their levels of output before 1989. A 2001 study by economist Steven Rosefielde posits that there were 3.4 million premature deaths in Russia from 1990 to 1998, which he party blames on
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#17327732258462352-558: A factor that usually goes unexamined when analyzing the effects of structural adjustment. In some rural, traditional communities, the absence of landownership and ownership of resources, land tenure, and labor practices due to custom and tradition provides a unique situation in regard to the structural economic reform of a state. Kinship-based societies, for example, operate under the rule that collective group resources are not to serve individual purposes. Gender roles and obligations, familial relations, lineage, and household organization all play
2548-490: A few longer term options available, which go up to 7 years, as well as options that lend to countries in times of crises such as natural disasters or conflicts. The IMF is supported solely by its member states, while the World Bank funds its loans with a mix of member contributions and corporate bonds . Currently there are 185 Members of the IMF (as of February 2007) and 184 members of the World Bank. Members are assigned
2744-655: A financial account surplus, and payments balanced. Increasingly, Britain's positive balance of payments required keeping the wealth of Empire nations in British banks. One incentive for, say, South African holders of rand to park their wealth in London and to keep the money in Sterling, was a strongly valued pound sterling. In the 1920s, imports from the US threatened certain parts of the British domestic market for manufactured goods and
2940-451: A fortiori , those actually implemented—were incomplete; and (c) the reforms cited were insufficiently ambitious with respect to targeting improvements in income distribution, and need to be complemented by stronger efforts in this direction. Rather than an argument for abandoning the original ten prescriptions, though, Williamson concludes that they are "motherhood and apple pie" and "not worth debating". The Washington Consensus resulted with
3136-533: A global scale. This was successful, as can be seen from the current account of the country's balance of payments. Enormous capital flows to the United States had the corollary of dramatically depleting the availability of capital to poor and middling countries. Giovanni Arrighi has observed that this scarcity of capital, which was heralded by the Mexican default of 1982, created a propitious environment for
3332-489: A limited extent, their general economic policies remained the exact opposite to the Washington Consensus' main recommendations. Both had high levels of protectionism , no privatization , extensive industrial policies planning, and lax fiscal and financial policies through the 1990s. Had they been dismal failures they would have presented strong evidence in support of the recommended Washington Consensus policies. However they turned out to be successes. According to Rodrik: "While
3528-438: A number of other international financial institutions . Some studies suggest that they have been "weakly associated with growth and reform did seem to reduce inflation." Others have argued, however, that "the outcomes associated with frequent structural adjustment lending are poor." Some have argued that, based on only mild improvement of growth in the 1990s from the 1980s, that the IMF should focus more on remedying management of
3724-625: A part in the functioning of traditional society. It would then appear difficult to formulate effective economic reform policies by considering only the formal sector of society and the economy, leaving out more traditional societies and ways of life. While both the International Monetary Fund (IMF) and World Bank loan to depressed and developing countries, their loans are intended to address different problems. The IMF mainly lends to countries that have balance of payment problems (they cannot pay their international debts), while
3920-447: A percentage of GDP in the underlying public health infrastructure. The book claims the consequences have been chronically underfunded public health systems, leading to dilapidated health infrastructure, inadequate numbers of health personnel, and demoralizing working conditions that have fueled the "push factors" driving the brain drain of nurses migrating from poor countries to rich ones, all of which has undermined public health systems and
4116-404: A process that dragged on in a halting and uncoordinated manner until France and the other Gold Bloc countries finally left gold in 1936. — Great Depression , B. Bernanke In 1944 at Bretton Woods, as a result of the collective conventional wisdom of the time, representatives from all the leading allied nations collectively favored a regulated system of fixed exchange rates, indirectly disciplined by
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#17327732258464312-547: A quota to be reevaluated and paid on a rotating schedule. The assessed quota is based upon the donor country's portion of the world economy. One of the critiques of SAPs is that the highest donating countries hold too much influence over which countries receive the loans and the SAPs that accompany them. However, the largest donor only holds 18% of the votes. Some of the largest donors are: Bretton Woods system The Bretton Woods system of monetary management established
4508-602: A repetition of this process of competitive devaluations was desired, but in a way that would not force debtor nations to contract their industrial bases by keeping interest rates at a level high enough to attract foreign bank deposits. John Maynard Keynes , wary of repeating the Great Depression , was behind Britain's proposal that surplus nations be forced by a "use-it-or-lose-it" mechanism, to either import from debtor nations, build factories in debtor nations or donate to debtor nations. The U.S. opposed Keynes' plan, and
4704-477: A senior official at the U.S. Treasury, Harry Dexter White , rejected Keynes' proposals, in favor of an International Monetary Fund with enough resources to counteract destabilizing flows of speculative finance. However, unlike the modern IMF, White's proposed fund would have counteracted dangerous speculative flows automatically, with no political strings attached—i.e., no IMF conditionality . Economic historian Brad Delong writes that on almost every point where he
4900-726: A ship in the North Atlantic, was the most notable precursor to the Bretton Woods Conference. Like Woodrow Wilson before him, whose " Fourteen Points " had outlined U.S. aims in the aftermath of the First World War , Roosevelt set forth a range of ambitious goals for the postwar world even before the U.S. had entered the Second World War. The Atlantic Charter affirmed the right of all nations to equal access to trade and raw materials. Moreover,
5096-593: A single cash crop , like cocoa in Ghana, tobacco in Zimbabwe and prawns in the Philippines, which made them highly vulnerable to fluctuations in the world market price of these crops. The other main criticism against the compelled integration of developing countries into the global market implied that their industries were not economically or socially stable and therefore not ready to compete internationally. After all,
5292-416: A strong European market for U.S. goods and services, most policymakers believed, the U.S. economy would be unable to sustain the prosperity it had achieved during the war. In addition, U.S. unions had only grudgingly accepted government-imposed restraints on their demands during the war, but they were willing to wait no longer, particularly as inflation cut into the existing wage scales with painful force (by
5488-673: A system of rules, institutions, and procedures to regulate the international monetary system , these accords established the IMF and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group . The United States, which controlled two-thirds of the world's gold, insisted that the Bretton Woods system rest on both gold and the US dollar . Soviet representatives attended
5684-402: A system wherein exchange rate stability was a prime goal. Yet, in an era of more activist economic policy, governments did not seriously consider permanently fixed rates on the model of the classical gold standard of the 19th century. Gold production was not even sufficient to meet the demands of growing international trade and investment. Further, a sizable share of the world's known gold reserves
5880-470: A worldwide monetary expansion despite gold standard constraints, but disputes over World War I reparations and war debts, and the insularity and inexperience of the Federal Reserve , among other factors, prevented this outcome. As a result, individual countries were able to escape the deflationary vortex only by unilaterally abandoning the gold standard and re-establishing domestic monetary stability,
6076-492: Is a damaged brand name... Audiences the world over seem to believe that this signifies a set of neoliberal policies that have been imposed on hapless countries by the Washington-based international financial institutions and have led them to crisis and misery. There are people who cannot utter the term without foaming at the mouth. My own view is of course quite different. The basic ideas that I attempted to summarize in
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6272-410: Is appealing enough. But the document will do little more than drive another nail into the coffin of a long-deceased Washington consensus." The widespread adoption by governments of the Washington Consensus was to a large degree a reaction to the macroeconomic crisis that hit much of Latin America, and some other developing regions, during the 1980s. The crisis had multiple origins: the drastic rise in
6468-405: Is argued that ESAFs may be more beneficial in promoting growth and bolstering balance of payments.It is to be noted that these are the stated goals of SALs and ESAFs and the actual effects on the economy might be different. Another type of loan issued by the World Bank, sector adjustment loans, differs from SAL only in that the former places more emphasis on improving one economic sector rather than
6664-540: Is claimed that with the growing need for structural adjustments in different nations, the lines between SAL and other loan types provided by the International Monetary Fund and the World Bank have become less distinct. For instance, it is purported that both SALs and Enhanced Structural Adjustment Loans (ESAFs) issued by the International Monetary Fund aim to offer favorable assistance for medium-term structural reforms in low-income member countries. It
6860-598: Is dictating a nation's economic policy. Critics argue that the creation of good policy is in a sovereign nation's own best interest. Thus, SAPs are unnecessary given the state is acting in its best interest. However, supporters consider that in many developing countries, the government will favor political gain over national economic interests; that is, it will engage in rent-seeking practices to consolidate political power rather than address crucial economic issues. In many countries in sub-Saharan Africa , political instability has gone hand in hand with gross economic decline. One of
7056-658: Is held out as an example of the economic consequences said by some to have been wrought by application of the Washington Consensus. In October 1998, the IMF invited Argentine President Carlos Menem , to talk about the successful Argentine experience, at the Annual Meeting of the Board of Governors. President Menem's Minister of Economy (1991–1996), Domingo Cavallo , the architect of the Menem administration's economic policies, specifically including "convertibility", said: On
7252-500: Is much improved, but economic growth has been heterogeneous and generally disappointing, despite improvement relative to the 1980s." Another 2021 study found that the implementation of the Washington Consensus in sub-Saharan Africa led to "initial declines in per capita economic growth over the 1980s and 1990s" but "notable increases in per capita real GDP growth in the post–2000 period." The study found that "the ability to implement pro-poor policies alongside market-oriented reforms played
7448-412: Is replaced with the goal of private accumulation. Furthermore, state-owned firms may show fiscal losses because they fulfill a wider social role, such as providing low-cost utilities and jobs. Some scholars, such as Naomi Klein , have argued that SAPs and neoliberal policies have negatively affected many developing countries. Privatization has had disparate effects on women and men; one study examines how
7644-629: Is that workers in the Third World economy nevertheless remain poor, as any pay raises they may have received over what they made before trade liberalization are said to be offset by inflation, whereas workers in the First World country become unemployed, while the wealthy owners of the multinational grow even more wealthy. Despite macroeconomic advances, poverty and inequality remain at high levels in Latin America. About one of every three people—165 million in total—still live on less than $ 2
7840-412: Is the privatization of state-owned industries and resources. This policy aims to increase efficiency and investment and to decrease state spending. State-owned resources are to be sold whether they generate a fiscal profit or not. Critics have condemned these privatization requirements, arguing that when resources are transferred to foreign corporations and/or national elites, the goal of public prosperity
8036-507: The La Década Perdida or "The Lost Decade" in Latin America, when many nations in the region faced sovereign debt crises . It has been argued that the Washington Consensus resulted in socioeconomic exclusion and weakened trade unions in Latin America, resulting with unrest in the region. Countries who followed the consensus initially alleviated high inflation and excessive regulation, though economic growth and poverty relief
Structural adjustment - Misplaced Pages Continue
8232-579: The 1931 banking crisis . Intransigent insistence by creditor nations for the repayment of Allied war debts and reparations, combined with an inclination to isolationism , led to a breakdown of the international financial system and a worldwide economic depression. The beggar thy neighbor policies that emerged as the crisis continued saw some trading nations using currency devaluations in an attempt to increase their competitiveness (i.e. raise exports and lower imports), though recent research suggests this de facto inflationary policy probably offset some of
8428-469: The 1988 Venezuelan general election in his legacy of abundance during his first presidential period and initially rejected liberalization policies. Venezuela's international reserves were only US$ 300 million at the time of Pérez' election into the presidency; Pérez decided to respond to the debt, public spending, economic restrictions and rentier state by liberalizing the economy and proceeded to implement Washington consensus reforms. He announced
8624-464: The Asian financial crisis occurred in 1997, South Korea accepted various loan conditions while accepting the largest financial assistance in the history of the International Monetary Fund. The United States and the International Monetary Fund evaluated South Korea as one of the successful cases of the IMF's structural adjustment. They believe that South Korea has been closer to the developed countries after
8820-491: The Bretton-Woods-System in 1971 and the end of capital controls caused multinational corporations (MNCs) to gain access to large sums of capital that they wanted to invest in new markets, such as in developing countries. However, foreign capital could not be freely invested yet because most of these countries protected their nascent industries against it. This changed radically with the implementation of SAPs in
9016-559: The Great Depression , which created a popular demand for governmental intervention in the economy, and out of the theoretical contributions of the Keynesian school of economics, which asserted the need for governmental intervention to counter market imperfections. However, increased government intervention in domestic economy brought with it isolationist sentiment that had a profoundly negative effect on international economics. The priority of national goals, independent national action in
9212-783: The Institute for International Economics , an international economic think tank based in Washington, D.C. The consensus as originally stated by Williamson included ten broad sets of relatively specific policy recommendations: Although Williamson's label of the Washington Consensus draws attention to the role of the Washington-based agencies in promoting the above agenda, a number of authors have stressed that Latin American policy-makers arrived at their own packages of policy reforms primarily based on their own analysis of their countries' situations. Thus, according to Joseph Stanislaw and Daniel Yergin , authors of The Commanding Heights ,
9408-514: The International Monetary Fund (IMF), World Bank and United States Department of the Treasury . The term was first used in 1989 by English economist John Williamson . The prescriptions encompassed free-market promoting policies such as trade liberalization, privatization and finance liberalization. They also entailed fiscal and monetary policies intended to minimize fiscal deficits and minimize inflation. Subsequent to Williamson's use of
9604-653: The Millennium Development Goals . As a result of PRSPs, a more flexible and creative approach to policy creation has been implemented at the IMF and World Bank. While the main focus of SAPs has continued to be the balancing of external debts and trade deficits, the reasons for those debts have undergone a transition. Today, SAPs and their lending institutions have increased their sphere of influence by providing relief to countries experiencing economic problems due to natural disasters or economic mismanagement. Since their inception, SAPs have been adopted by
9800-541: The United States Secretary of State from 1933 to 1944. Hull believed that the fundamental causes of the two world wars lay in economic discrimination and trade warfare. Hull argued [U]nhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition, with war … if we could get a freer flow of trade…freer in the sense of fewer discriminations and obstructions…so that one country would not be deadly jealous of another and
9996-507: The debt crisis of the 1980s provided the IMF with the necessary leverage to impose very similar comprehensive neoliberal reforms in over 70 developing countries, thereby entirely restructuring these economies. The goal was to shift them away from state intervention and inward-oriented development and to transform them into export-led, private sector-driven economies open to foreign imports and FDI . Privatization of utilities given into by imposed structural adjustment has had negative effects on
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#173277322584610192-431: The debt crisis of the 1980s . While the structuralist period led to rapid expansion of domestically manufactured goods and high rates of economic growth, there were also some major shortcomings such as stagnating exports, elevated fiscal deficit , very high rates of inflation and the crowding out of private investments. The search for alternative policy options thus seemed justified. Critics denounce, though, that even
10388-799: The modern procedure of colonization. By minimizing a government's ability to organize and regulate its internal economy, pathways are created for multinational companies to enter states and extract their resources. Upon independence from colonial rule, many nations that took on foreign debt were unable to repay it, limited as they were to production and exportation of cash crops, and restricted from control of their own more valuable natural resources (oil, minerals) by SAP free-trade and low-regulation requirements. In order to repay interest, these postcolonial countries are forced to acquire further foreign debt, in order to pay off previous interests, resulting in an endless cycle of financial subjugation. Osterhammel's The Dictionary of Human Geography defines colonialism as
10584-462: The reproductive labor women do while assuming the "reproductive economy" will continue to function in the same way it did prior to the economic restructuring. Postcolonial feminist Chandra Mohanty says “the proliferation of structural adjustment policies around the world has reprivatized women’s labor by shifting the responsibility for social welfare from the state to the household and to women located there.” Critics hold SAPs responsible for much of
10780-405: The shock therapy imposed by the Washington Consensus. Neoliberal policies associated with the Washington Consensus, including pension privatization, the imposition of a flat tax, monetarism, cutting of corporate taxes, and central bank independence, continued into the 2000s. Many Sub-Saharan African 's economies failed to take off during the 1990s, in spite of efforts at policy reform, changes in
10976-534: The "Buenos Aires Consensus", a manifesto opposing the Washington Consensus' policies. Skeptical political observers note, however, that Lula's rhetoric on such public occasions should be distinguished from the policies actually implemented by his administration. In the 1980s, a fall in oil prices and the start of the Latin American debt crisis brought economic difficulties to Venezuela. Additionally, President Luis Herrera Campins ' economic policies led to
11172-705: The "enduring relationship of domination and mode of dispossession, usually (or at least initially) between an indigenous (or enslaved) majority and a minority of interlopers (colonizers), who are convinced of their own superiority, pursue their own interests, and exercise power through a mixture of coercion, persuasion, conflict and collaboration". The definition adopted by The Dictionary of Human Geography suggests that Washington Consensus SAPs resemble modern, financial colonization. Investigating Immanuel Kant 's conception of liberal internationalism and his opposition to commercial empires, Beate Jahn said: ... private interests within liberal capitalist states continue to pursue
11368-496: The 1930s, the British created their own economic bloc to shut out U.S. goods. Churchill did not believe that he could surrender that protection after the war, so he watered down the Atlantic Charter's "free access" clause before agreeing to it. Yet U.S. officials were determined to open their access to the British empire. The combined value of British and U.S. trade was well over half of all the world's trade in goods. For
11564-399: The 1930s. Thus, negotiators at Bretton Woods also agreed that there was a need for an institutional forum for international cooperation on monetary matters. Already in 1944, the British economist John Maynard Keynes emphasized "the importance of rule-based regimes to stabilize business expectations"—something he accepted in the Bretton Woods system of fixed exchange rates. Currency troubles in
11760-423: The 1980s and 1990s, when controls on foreign exchange and financial protection barriers were lifted: Economies opened up and foreign direct investment (FDI) flowed in en masse. A great example of this is the fall of the local textile industry within many African nations, replaced in part by Chinese counterfeits and knockoffs. The scholars Cardoso and Faletto judged this as yet another way of capitalist control of
11956-504: The 19th and early 20th centuries gold played a key role in international monetary transactions. The gold standard was used to back currencies; the international value of currency was determined by its fixed relationship to gold; gold was used to settle international accounts. The gold standard maintained fixed exchange rates that were seen as desirable because they reduced the risk when trading with other countries. Imbalances in international trade were theoretically rectified automatically by
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#173277322584612152-430: The Bretton Woods conference, fresh from what they perceived as a disastrous experience with floating rates in the 1930s, concluded that major monetary fluctuations could stall the free flow of trade. The new economic system required an accepted vehicle for investment, trade, and payments. Unlike national economies, however, the international economy lacks a central government that can issue currency and manage its use. In
12348-425: The Consensus prescriptions, if implemented correctly, would benefit the poor. In a book edited with Pedro-Pablo Kuczynski in 2003, Williamson laid out an expanded reform agenda, emphasizing crisis-proofing of economies, "second-generation" reforms, and policies addressing inequality and social issues. As noted, in spite of Williamson's reservations, the term Washington Consensus has been used more broadly to describe
12544-468: The East Asian countries, a set of policies which (in another simplification) came to be called the development state . The critique laid out in the World Bank's study Economic Growth in the 1990s: Learning from a Decade of Reform (2005) shows how far discussion has come from the original ideas of the Washington Consensus. Gobind Nankani, a former vice-president for Africa at the World Bank, wrote in
12740-482: The IMF and World Bank during the 1997–1998 'Asian Crisis' […] What they have achieved in the past 10 years is all the more remarkable: they have quietly abandoned the Washington Consensus by investing massively in infrastructure projects […] this pragmatic approach proved to be very successful". While opinion varies among economists, Rodrik pointed out what he claimed was a factual paradox: while China and India increased their economies' reliance on free market forces to
12936-568: The IMF's structural adjustment. However, others doubt whether South Korea is a successful case of IMF structural adjustment. In the process of South Korea and the International Monetary Fund reaching an agreement, the United States played a major role in it. The US government's structural adjustment to South Korea should be based on its own interests. At present, South Korea's economic structure and financial market contain many problems, which leads to an increase in social problems in South Korea and
13132-753: The IMF, the Enhanced Structural Adjustment Facility was succeeded by the Poverty Reduction and Growth Facility , which is in turn succeeded by the Extended Credit Facility . Structural adjustment loans are mainly distributed to developing countries , located primarily in East and South Asia, Latin America, and Africa. including Colombia, Mexico, Turkey, Philippines, Pakistan, Nigeria, Sudan, Zimbabwe and other countries. As of 2018, India has been
13328-653: The International Monetary Fund. Typical stabilisation policies include: Long-term adjustment policies usually include: In the Washington Consensus the conditions are: Structural adjustment policies were developed by two of the Bretton Woods institutions - the IMF and the World Bank. They were advised by the top economists of both. After the run on the dollar of 1979–80, the United States adjusted its monetary policy and instituted other measures so it could begin competing aggressively for capital on
13524-541: The LDCs under SAPs. Moreover, very few of the loans have been paid off. Pressure mounts to forgive these debts, some of which demand substantial portions of government expenditures to service. Structural adjustment policies, as they are known today, originated due to a series of global economic disasters during the late 1970s: the oil crisis , debt crisis , multiple economic depressions, and stagflation . These fiscal disasters led policy makers to decide that deeper intervention
13720-462: The Northern industrialized countries, it also brought advantages to local elites and to larger, more profitable companies who expanded in size and influence. However, smaller, less industrialized businesses and the agricultural sector suffered from reduced protection and the growing importance of transnational actors led to a decline in national control over production. Overall, it can be said that
13916-515: The Treasuries of the U.S. and the UK. U.S. representatives studied with their British counterparts the reconstitution of what had been lacking between the two world wars: a system of international payments that would let nations trade without fear of sudden currency depreciation or wild exchange rate fluctuations—ailments that had nearly paralyzed world capitalism during the Great Depression . Without
14112-452: The U.S. dollar took over the role that gold had played under the gold standard in the international financial system . Meanwhile, to bolster confidence in the dollar, the U.S. agreed separately to link the dollar to gold at the rate of $ 35 per ounce. At this rate, foreign governments and central banks could exchange dollars for gold. Bretton Woods established a system of payments based on the dollar, which defined all currencies in relation to
14308-458: The U.S. to open global markets, it first had to split the British (trade) empire. While Britain had economically dominated the 19th century, U.S. officials intended the second half of the 20th to be under U.S. hegemony . A senior official of the Bank of England commented: One of the reasons Bretton Woods worked was that the U.S. was clearly the most powerful country at the table and so ultimately
14504-475: The United States, a fact that contributed to the supremacy of the United States. Thus, the U.S. dollar was strongly appreciated in the rest of the world and therefore became the key currency of the Bretton Woods system. Member countries could only change their par value by more than 10% with IMF approval, which was contingent on IMF determination that its balance of payments was in a " fundamental disequilibrium ". The formal definition of fundamental disequilibrium
14700-421: The Washington Consensus have continued to gain wider acceptance over the past decade, to the point where Lula has had to endorse most of them in order to be electable. For the most part they are motherhood and apple pie, which is why they commanded a consensus." According to a 2011 study by Nancy Birdsall , Augusto de la Torre , and Felipe Valencia Caicedo , the policies in the original consensus were largely
14896-438: The Washington Consensus, arguing "I continue to find that when properly interpreted as a guide to the formulation of country-specific development strategies, the Washington Consensus has withstood the test of time quite well." According to Spence, "The Washington Consensus was never intended as a complete or a one-size-fits-all development program." He does however note that the Washington Consensus "was vulnerable to misuse due to
15092-554: The Washington Consensus, such as the late Venezuelan President Hugo Chávez , Cuban ex-President Fidel Castro , Bolivian President Evo Morales , and Rafael Correa , President of Ecuador . In Argentina, too, the recent Justicialist Party government of Néstor Kirchner and Cristina Fernández de Kirchner undertook policy measures which represented a repudiation of at least some Consensus policies. Some European and Asian economists suggest that "infrastructure-savvy economies" such as Norway , Singapore, and China have partially rejected
15288-551: The Washington Consensus. If one means the ten points that I tried to outline, then clearly it's not right. If one uses the interpretation that a number of people—including Joe Stiglitz, most prominently—have foisted on it, that it is a neoliberal tract, then I think it is right. After the 2010 G-20 Seoul summit announced that it had achieved agreement on a Seoul Development Consensus , the Financial Times editorialized that "Its pragmatic and pluralistic view of development
15484-401: The Washington consensus policies failed to efficiently handle the economic structures within developing countries. The cases of East Asian states such as Korea and Taiwan are known as a success story in which their remarkable economic growth was attributed to a larger role of the government by undertaking industrial policies and increasing domestic savings within their territory. From the cases,
15680-534: The World Bank and the USA government. The problems which arise with reliance on a fixed exchange rate mechanism (above) are discussed in the World Bank report Economic Growth in the 1990s: Learning from a Decade of Reform , which questions whether expectations can be "positively affected by tying a government's hands". In the early 1990s there was a point of view that countries should move to either fixed or completely flexible exchange rates to reassure market participants of
15876-464: The World Bank began saying that the Washington Consensus was dead. These included former British Prime Minister Gordon Brown , who following the 2009 G-20 London summit , declared "the old Washington Consensus is over". Williamson was asked by The Washington Post in April 2009 whether he agreed with Gordon Brown that the Washington Consensus was dead. He responded: It depends on what one means by
16072-412: The World Bank offers loans to fund particular development projects. However, the World Bank also provides balance of payments support, usually through adjustment packages jointly negotiated with the IMF. IMF loans focus on temporarily fixing problems that countries face as a whole. Traditionally IMF loans were meant to be repaid in a short duration between 2 + 1 ⁄ 2 and 4 years. Today, there are
16268-401: The World Bank, have spoken of " poverty reduction " as a goal. SAPs were often criticized for implementing generic free-market policy and for their lack of involvement from the borrowing country. To increase the borrowing country's involvement, developing countries are now encouraged to draw up Poverty Reduction Strategy Papers (PRSPs), which essentially take the place of SAPs. Some believe that
16464-401: The absence of an accompanying and explicit development model." Many critics of trade liberalization , such as Noam Chomsky , Tariq Ali , Susan George , and Naomi Klein , see the Washington Consensus as a way to open the labor market of underdeveloped economies to exploitation by companies from more developed economies. The prescribed reductions in tariffs and other trade barriers allow
16660-760: The additional cost of imported oil (by contrast, many countries in East Asia, which had followed more export-oriented strategies , found it comparatively easy to expand exports still further, and as such managed to accommodate the external shocks with much less economic and social disruption). Unable either to expand external borrowing further or to ramp up export earnings easily, many Latin American countries faced no obvious sustainable alternatives to reducing overall domestic demand via greater fiscal discipline, while in parallel adopting policies to reduce protectionism and increase their economies' export orientation. Many countries have endeavored to implement varying components of
16856-399: The aided country that may have been made while ignoring the actual situation of the aided country. It often overemphasizes market liberalization and financial market opening. In the long run, these loan conditions have brought bad results to the aided countries. Largely as a result of the experiences in Latin America , a new theory was formulated to build upon the experiences of the 1980s and
17052-432: The alternative use of the term, which became common after his initial formulation, to cover a broader market fundamentalism or " neoliberal " agenda. I of course never intended my term to imply policies like capital account liberalization (...I quite consciously excluded that), monetarism , supply-side economics , or a minimal state (getting the state out of welfare provision and income redistribution), which I think of as
17248-502: The amount of money would act to reduce the inflationary pressure. Supplementing the use of gold in this period was the British pound . Based on the dominant British economy, the pound became a reserve, transaction, and intervention currency. But the pound was not up to the challenge of serving as the primary world currency, given the weakness of the British economy after the Second World War. The architects of Bretton Woods had conceived of
17444-537: The banking and currency crises of 1931 instigated an international "scramble for gold". Sterilization of gold inflows by surplus countries [the U.S. and France], substitution of gold for foreign exchange reserves, and runs on commercial banks all led to increases in the gold backing of money, and consequently to sharp unintended declines in national money supplies. Monetary contractions in turn were strongly associated with falling prices, output and employment. Effective international cooperation could in principle have permitted
17640-450: The beneficiaries of these agreements-sometimes intentionally so, often unintentionally-turn out to be the rich countries. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), it has been argued, turned the WTO into a "royalty collection agency" for the rich countries. The Structural Adjustment Programs (SAPs) connected to IMF loans have proven singularly disastrous for
17836-422: The bipartisanship governments. Once elected in 1998, Chávez began to revert the policies of his predecessors. As of the 2000s, several Latin American countries were led by socialist or other left wing governments, some of which—including Argentina and Venezuela—have campaigned for (and to some degree adopted) policies contrary to the Washington Consensus policies. Other Latin American countries with governments of
18032-467: The broader debate over the expanding role of the free market , constraints upon the state , and the influence of the United States, and globalization more broadly, on countries' national sovereignty . Some US economists, such as Joseph Stiglitz and Dani Rodrik , have challenged what are sometimes described as the 'fundamentalist' policies of the IMF and the US Treasury for what Stiglitz calls
18228-416: The capital and other towns across the country. By late 1991, as part of the economic reforms, Carlos Andrés Pérez' administration had sold three banks, a shipyard, two sugar mills, an airline, a telephone company and a cell phone band, receiving a total of US$ 2,287 million. The most remarkable auction was CANTV 's, a telecommunications company, which was sold at the price of US$ 1,885 million to
18424-399: The case in their article "IMF-World Bank Adjustment and Structural Transformation on Sub-Saharan Africa" for the ineffectiveness of structural adjustment in part being attributed to the disconnect between the informal sector of the economy as generated by traditional society and the formal sector generated by a modern, urban society. The rural and urban scales and the different needs of each are
18620-421: The charter called for freedom of the seas (a principal U.S. foreign policy aim since France and Britain had first threatened U.S. shipping in the 1790s), the disarmament of aggressors, and the "establishment of a wider and more permanent system of general security". As the war drew to a close, the Bretton Woods conference was the culmination of some two and a half years of planning for postwar reconstruction by
18816-421: The complete removal of government discretion in foreign exchange matters. After the Argentina collapse, some observers believe that removing government discretion by creating mechanisms that impose large penalties may, on the contrary, actually itself undermine expectations. Velasco and Neut (2003) "argue that if the world is uncertain and there are situations in which the lack of discretion will cause large losses,
19012-434: The conference but later declined to ratify the final agreements, charging that the institutions they had created were "branches of Wall Street". These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement. According to Barry Eichengreen, the Bretton Woods system operated successfully due to three factors: "low international capital mobility , tight financial regulation , and
19208-488: The consortium composed of American AT&T International, General Telephone Electronic and the Venezuelan Electricidad de Caracas and Banco Mercantil . The privatization ended Venezuela's monopoly over telecommunications and surpassed even the most optimistic predictions, with over US$ 1,000 million above the base price and US$ 500 million more than the bid offered by the competition group. By
19404-623: The contractionary forces in world price levels (see Eichengreen "How to Prevent a Currency war" ). In the 1920s, international flows of speculative financial capital increased, leading to extremes in balance of payments situations in various European countries and the US. In the 1930s, world markets never broke through the barriers and restrictions on international trade and investment volume – barriers haphazardly constructed, nationally motivated and imposed. The various anarchic and often autarkic protectionist and neo-mercantilist national policies – often mutually inconsistent – that emerged over
19600-444: The convertibility of their respective currencies into other currencies and to free trade. What emerged was the " pegged rate " currency regime. Members were required to establish a parity of their national currencies in terms of the reserve currency (a "peg") and to maintain exchange rates within plus or minus 1% of parity (a "band") by intervening in their foreign exchange markets (that is, buying or selling foreign money). In theory,
19796-536: The core problems with conventional structural-adjustment programs is the disproportionate cutting of social spending. When public budgets are slashed, the primary victims are disadvantaged communities who typically are not well organized. An almost classic criticism of structural adjustment is pointing out the dramatic cuts in the education and health sectors. In many cases, governments ended up spending less money on these essential services than on servicing international debts. SAPS are viewed by some postcolonialists as
19992-406: The counterrevolution in development thought and practice that the neoliberal Washington Consensus began advocating at about the same time. Taking advantage of the financial straits of many low- and middle-income countries, the agencies of the consensus foisted on them measures of "structural adjustment" that did nothing to improve their position in the global hierarchy of wealth but greatly facilitated
20188-527: The devaluation of the Venezuelan bolívar against the US dollar in a day that would be known as Viernes Negro (English: Black Friday ). Following the oil price crisis, the Herrera Campins government declared bankruptcy to the international banking community and then enacted currency restrictions. The policies centred on the establishment of an exchange-rate regime , imposing a restriction on
20384-402: The developed states. Employment, stability, and growth were now important subjects of public policy. In turn, the role of government in the national economy had become associated with the assumption by the state of the responsibility for assuring its citizens of a degree of economic well-being. The system of economic protection for at-risk citizens sometimes called the welfare state grew out of
20580-403: The disappointing outcomes have vindicated their concerns about the inappropriateness of the standard reform agenda. Besides the excessive belief in market fundamentalism and international economic institutions in attributing the failure of the Washington consensus, Stiglitz provided a further explanation about why it failed. In his article "The Post Washington Consensus Consensus", he claims that
20776-460: The dollar convertible to gold bullion for foreign governments and central banks at US$ 35 per troy ounce of fine gold (or 0.88867 gram fine gold per dollar). It also envisioned greater cooperation among countries in order to prevent future competitive devaluations , and thus established the International Monetary Fund (IMF) to monitor exchange rates and lend reserve currencies to nations with balance of payments deficits. Preparing to rebuild
20972-438: The dollar as good as gold. In fact, the dollar was even better than gold: it earned interest and it was more flexible than gold. The rules of Bretton Woods, set forth in the articles of agreement of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provided for a system of fixed exchange rates. The rules further sought to encourage an open system by committing members to
21168-514: The dollar, itself convertible into gold, and above all, "as good as gold" for trade. U.S. currency was now effectively the world currency, the standard to which every other currency was pegged. The U.S. dollar was the currency with the most purchasing power and it was the only currency that was backed by gold. Additionally, all European nations that had been involved in World War II were highly in debt and transferred large amounts of gold into
21364-485: The dominant economic and financial position of the United States and the dollar ." On 15 August 1971, the United States ended the convertibility of the US dollar to gold , effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency . Shortly thereafter, many fixed currencies (such as the pound sterling ) also became free-floating, and the subsequent era has been characterized by floating exchange rates . The end of Bretton Woods
21560-596: The economic community, while recognizing that the others have evoked some controversy. He argues that one of the least controversial prescriptions, the redirection of spending to infrastructure, health care, and education, has often been neglected. He also argues that, while the prescriptions were focused on reducing certain functions of government (e.g., as an owner of productive enterprises), they would also strengthen government's ability to undertake other actions such as supporting education and health. Williamson says that he does not endorse market fundamentalism, and believes that
21756-487: The economic institutions of countries that underwent them. After the Second World War , a Structuralist model of development relying on Import Substitutions Industrialization (ISI) had become the ubiquitous paradigm. It entailed the substitution of foreign imports by goods produced by national industries with the help of state intervention . State intervention included providing the infrastructure required by
21952-455: The economic stagnation that has occurred in the borrowing countries. SAPs emphasize maintaining a balanced budget, which forces austerity programs. The casualties of balancing a budget are often social programs. For example, if a government cuts education funding, universality is impaired, and therefore long-term economic growth. Similarly, cuts to health programs have allowed diseases such as AIDS to devastate some areas' economies by destroying
22148-553: The effects of IMF structural adjustment loans, called New Developmental Theory . This sought to build upon Classical Development Theory , by utilizing insights from Post-Keynesian Macroeconomics and Classical Political Economy, emphasizing the role of the necessity of export-oriented integration into the world economy toward industrialization, while also rejecting foreign indebtedness and management of balance of payments to avert recurrent crises. Structural adjustment programs implemented neoliberal policies that had numerous effects on
22344-463: The end of 1945, there had already been major strikes in the automobile, electrical, and steel industries). In early 1945, Bernard Baruch described the spirit of Bretton Woods as: if we can "stop subsidization of labor and sweated competition in the export markets", as well as prevent rebuilding of war machines, "oh boy, oh boy, what long term prosperity we will have." The United States could therefore use its position of influence to reopen and control
22540-534: The end of the year, inflation had dropped to 31%, Venezuela's international reserves were now worth US$ 14,000 million and there was an economic growth of 9% (called as an "Asian growth"), the largest in Latin America at the time. The Caracazo and previous inequality in Venezuela were used to justify the subsequent 1992 Venezuelan coup d'état attempts and led to the rise of Hugo Chávez 's Revolutionary Bolivarian Movement-200 , who in 1982 had promised to depose
22736-404: The entire economy. SAL initially financed the loan by selling gold held in trust funds and accepting donations from donor countries. Subsequent loans are based on the repayment of trust funds and interest earned. The SDR is the accounting unit of the loan, and the disbursement and repayment of the loan are in US dollars. The amount of SALs issued to a country is usually proportional to its quota in
22932-558: The exchange rate and necessitate costly market interventions that risked depleting a country's foreign exchange reserves). The Bretton Woods Conference led to the establishment of the IMF and the IBRD (now the World Bank ), which remain powerful forces in the world economy as of the 2020s. A major point of common ground at the Conference was the goal to avoid a recurrence of the closed markets and economic warfare that had characterized
23128-403: The existence of the IMF loan itself has not led to any change away from democracy itself. Critics (often from the left) accuse such policies to be "not-so-thinly-disguised wedge[s] for capitalist interests." Take South Korea after 1997 as an example. Since the loan conditions have a huge influence on the economy of the recipient countries, there are many arguments about the loan conditions. When
23324-443: The expense of governance which will affect key functions of the state. For other commentators, the issue is more what is missing , including such areas as institution-building and targeted efforts to improve opportunities for the weakest in society through equal opportunity , social justice and poverty reduction . The concept and name of the Washington Consensus were first presented in 1989 by John Williamson , an economist from
23520-638: The fight against HIV/AIDS in developing countries. A counter-argument is that it is illogical to assume that reducing funding to a program automatically reduces its quality. There may be factors within these sectors that are susceptible to corruption or over-staffing that causes the initial investment to not be used as efficiently as possible. Recent studies have shown strong connections between SAPs and tuberculosis rates in developing nations. Countries with native populations living traditional lifestyles face unique challenges in regards to structural adjustment. Authors Ikubolajeh Bernard Logan and Kidane Mengisteab make
23716-491: The first half of the decade worked inconsistently and self-defeatingly to promote national import substitution , increase national exports, divert foreign investment and trade flows, and even prevent certain categories of cross-border trade and investment outright. Global central bankers attempted to manage the situation by meeting with each other, but their understanding of the situation as well as difficulties in communicating internationally, hindered their abilities. The lesson
23912-515: The following quotation: The Argentine crisis yields a number of lessons for the IMF, some of which have already been learned and incorporated into revised policies and procedures. This evaluation suggests ten lessons, in the areas of surveillance and program design, crisis management, and the decision-making process. While President Néstor Kirchner 's reliance on price controls and similar administrative measures (often aimed primarily at foreign-invested firms such as utilities) clearly ran counter to
24108-470: The former President of Brazil (and former leader of the Workers' Party of Brazil ), has stated explicitly that the defeat of hyperinflation was among the most important positive contributions of the years of his presidency to the welfare of the country's poor, although the remaining influence of his policies on tackling poverty and maintaining a steady low rate of inflation are being discussed and doubted in
24304-473: The free movement of goods across borders according to market forces , but labor is not permitted to move freely due to the requirements of a visa or a work permit. This creates an economic climate where goods are manufactured using cheap labor in underdeveloped economies and then exported to rich First World economies for sale at what the critics argue are huge markups, with the balance of the markup said to accrue to large multinational corporations. The criticism
24500-668: The funds to support allies such as France during the War; the Allies could not pay back Britain, so Britain could not pay back the U.S. The solution at Versailles for the French, British, and Americans seemed to entail ultimately charging Germany for the debts. If the demands on Germany were unrealistic, then it was unrealistic for France to pay back Britain, and for Britain to pay back the US. Thus, many "assets" on bank balance sheets internationally were actually unrecoverable loans, which culminated in
24696-415: The general shift towards free market policies that followed the displacement of Keynesianism in the 1970s. In this broad sense the Washington Consensus is sometimes considered to have begun at about 1980. Many commentators see the consensus, especially if interpreted in the broader sense of the term, as having been at its strongest during the 1990s. Some have argued that the consensus in this sense ended at
24892-416: The gold standard. A country with a deficit would have depleted gold reserves and would thus have to reduce its money supply . The resulting fall in demand would reduce imports and the lowering of prices would boost exports; thus, the deficit would be rectified. Any country experiencing inflation would lose gold and therefore would have a decrease in the amount of money available to spend. This decrease in
25088-533: The implication conveyed by the term Washington Consensus that the policies were largely external in origin, Stanislaw and Yergin report that the term's creator, John Williamson, has "regretted the term ever since", stating "it is difficult to think of a less diplomatic label." Williamson regretted the use of "Washington" in the Washington Consensus, as it incorrectly suggested that development policies stemmed from Washington and were externally imposed on others. Williamson said in 2002, "The phrase "Washington Consensus"
25284-626: The importation of half of the nation's food and nearly all its raw materials except coal. The British had no choice but to ask for aid. Not until the United States signed an agreement on 6 December 1945 to grant Britain aid of $ 4.4 billion did the British Parliament ratify the Bretton Woods Agreements (which occurred later in December 1945). Free trade relied on the free convertibility of currencies. Negotiators at
25480-408: The increase of the local government's participation in creating the policy will lead to greater ownership of the loan programs and thus better fiscal policy. The content of PRSPs has turned out to be similar to the original content of bank-authored SAPs. Critics argue that the similarities show that the banks and the countries that fund them are still overly involved in the policy-making process. Within
25676-417: The industrialized countries had engaged in the free trade of goods only after they had developed a more mature industrial structure which they had built up behind high protective tariffs and subsidies for domestic industries. Consequently, the very conditions under which industrialized countries had developed, grown and prospered in the past were now discouraged by the IMF through its SAPs. The erosion of
25872-660: The international economic system while World War II was still being fought, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire , United States, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference . The delegates deliberated from 1 to 22 July 1944, and signed the Bretton Woods agreement on its final day. Setting up
26068-478: The interwar period had yielded several valuable lessons. The experience of World War I was fresh in the minds of public officials. The planners at Bretton Woods hoped to avoid a repetition of the Treaty of Versailles after World War I, which had created enough economic and political tension to lead to WWII . After World War I, Britain owed the U.S. substantial sums, which Britain could not repay because it had used
26264-406: The interwar period, and the failure to perceive that those national goals could not be realized without some form of international collaboration—all resulted in "beggar-thy-neighbor" policies such as high tariffs , competitive devaluations that contributed to the breakdown of the gold-based international monetary system, domestic political instability, and international war. The lesson learned was, as
26460-419: The interwar years, it was felt, had been greatly exacerbated by the absence of any established procedure or machinery for intergovernmental consultation. Washington Consensus The Washington Consensus is a set of ten economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C. -based institutions such as
26656-491: The largest recipient of structural adjustment program loans since 1990. Such loans cannot be spent on health, development or education programs. The largest of these have been to the banking sector ($ 2 billion for IBRD 77880) and for Swachh Bharat Mission ($ 1.5 billion for IBRD 85590). According to its stated goals, Structural Adjustment Loans (SALs) aim to achieve three main objectives: boosting economic growth, addressing balance of payments deficits, and reducing poverty. It
26852-585: The left, including Brazil, Chile and Peru, in practice adopted the bulk of the policies included in Williamson's list, even though they criticized the market fundamentalism that these are often associated with. General criticism of the economics of the consensus is now more widely established, such as that outlined by US scholar Dani Rodrik , Professor of International Political Economy at Harvard University , in his paper Goodbye Washington Consensus, Hello Washington Confusion? . As Williamson has pointed out,
27048-417: The living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance of lasting peace. The developed countries also agreed that the liberal international economic system required governmental intervention. In the aftermath of the Great Depression , public management of the economy had emerged as a primary activity of governments in
27244-469: The more developed market economies agreed with the U.S. vision of post-war international economic management, which intended to create and maintain an effective international monetary system and foster the reduction of barriers to trade and capital flows. In a sense, the new international monetary system was a return to a system similar to the pre-war gold standard, only using U.S. dollars as the world's new reserve currency until international trade reallocated
27440-569: The movement of currencies, and were strongly objected to by the then-president of the Central Bank of Venezuela , Leopoldo Díaz Bruzual . The currency controls devalued Venezuelan purchasing power by 75% in a matter of hours; banks did not open on Viernes Negro, and even the Central Bank did not have many reserves of foreign currencies, causing the government to devalue the bolívar by 100%. Carlos Andrés Pérez based his campaign for
27636-400: The national experts disagreed to some degree on the specific implementation of this system, all agreed on the need for tight controls. Also based on experience of the inter-war years, U.S. planners developed a concept of economic security—that a liberal international economic system would enhance the possibilities of postwar peace. One of those who saw such a security link was Cordell Hull ,
27832-416: The only source for developing countries to obtain such currency. For the inward-oriented economies it was therefore mandatory to switch their entire production from what was domestically eaten, worn or used towards goods that industrialized countries were interested in. However, as dozens of countries underwent this restructuration process simultaneously and often were told to focus on similar primary goods ,
28028-414: The opening up of markets abroad, and they continue to enlist their governments' support, through multilateral and bilateral arrangements—conditional aid, International Monetary Fund (IMF), and World Trade Organization (WTO). While the latter agreements are formally "voluntary," in light of the desperate economic dependence of many developing states, they are to all intents and purposes "imposed." Moreover,
28224-402: The past this problem had been solved through the gold standard , but the architects of Bretton Woods did not consider this option feasible for the postwar political economy. Instead, they set up a system of fixed exchange rates managed by a series of newly created international institutions using the U.S. dollar (which was a gold standard currency for central banks) as a reserve currency . In
28420-530: The policy prescriptions described in the Washington Consensus were "developed in Latin America, by Latin Americans, in response to what was happening both within and outside the region." Joseph Stiglitz has written that "the Washington Consensus policies were designed to respond to the very real problems in Latin America and made considerable sense" (though Stiglitz has at times been an outspoken critic of IMF policies as applied to developing nations). In view of
28616-416: The political and external environments, and continued heavy influx of foreign aid. Uganda , Tanzania , and Mozambique were among countries that showed some success, but they remained fragile. There were several successive and painful financial crises in Latin America, East Asia, Russia, and Turkey. The Latin American recovery in the first half of the 1990s was interrupted by crises later in the decade. There
28812-481: The poor countries but provide huge interest payments to the rich. In both cases, the "voluntary" signatures of poor states do not signify consent to the details of the agreement, but need. Obviously, trade—with liberal or nonliberal states—is not a moral obligation, yet conditional aid, like IMF and WTO policies, aims at changing the cultural, economic, and political constitution of a target state clearly without its consent. A common policy required in structural adjustment
29008-448: The poor. This includes improving the investment climate and eliminating red tape (especially for smaller firms), strengthening institutions (in areas like justice systems), fighting poverty directly via the types of Conditional Cash Transfer programs adopted by countries like Mexico and Brazil, improving the quality of primary and secondary education, boosting countries' effectiveness at developing and absorbing technology, and addressing
29204-400: The preface: "there is no unique universal set of rules.... [W]e need to get away from formulae and the search for elusive 'best practices'...." (p. xiii). The World Bank's new emphasis is on the need for humility, for policy diversity, for selective and modest reforms, and for experimentation. The World Bank's report Learning from Reform shows some of the developments of the 1990s. There was
29400-440: The prescriptions, saying his work was "the outcome of the worldwide intellectual trends to which Latin America provided" and said that de Soto was directly responsible for the recommendation on legal security for property rights. The Washington Consensus is not interchangeable with the term "neoliberalism." Williamson recognizes that the term has commonly been used with a different meaning from his original prescription; he opposes
29596-464: The price of imported oil following the emergence of OPEC , mounting levels of external debt, the rise in US (and hence international) interest rates, and—consequent to the foregoing problems—loss of access to additional foreign credit. The import-substitution policies that had been pursued by many developing country governments in Latin America and elsewhere for several decades had left their economies ill-equipped to expand exports at all quickly to pay for
29792-408: The principal architect of the Bretton Woods system New Dealer Harry Dexter White put it: the absence of a high degree of economic collaboration among the leading nations will … inevitably result in economic warfare that will be but the prelude and instigator of military warfare on an even vaster scale. To ensure economic stability and political peace, states agreed to cooperate to closely regulate
29988-425: The privatization of the male-dominated manufacturing and extractive industries in Argentina as a result of structural adjustment programs and subsequent rise in unemployment among men have forced women into the labor market in which they are underpaid and face poor working conditions. Feminist studies critique the economic theory behind structural adjustment because its focus on the "productive economy" renders invisible
30184-530: The privatized system implemented by Menem-Cavallo. Accusations have emerged of the manipulation of official statistics under the Kirchners (most notoriously, for inflation) to create an inaccurately positive picture of economic performance. The Economist removed Argentina's inflation measure from its official indicators, saying that they were no longer reliable. In 2003, Argentina's and Brazil's presidents, Néstor Kirchner and Luiz Inácio Lula da Silva signed
30380-399: The production of their currencies to maintain fixed exchange rates between countries with the aim of more easily facilitating international trade. This was the foundation of the U.S. vision of postwar world free trade , which also involved lowering tariffs and, among other things, maintaining a balance of trade via fixed exchange rates that would be favorable to the capitalist system. Thus,
30576-453: The productive state sectors were restructured for the sake of integrating these developing economies into the global market . The shift away from state intervention and ISI -led structuralism towards the free market and Export Led Growth opened a new development era and marked the triumph of capitalism . Since SAPs are based on the condition that loans have to be repaid in hard currency , economies were restructured to focus on exports as
30772-408: The quintessentially neoliberal ideas. If that is how the term is interpreted, then we can all enjoy its wake, although let us at least have the decency to recognize that these ideas have rarely dominated thought in Washington and certainly never commanded a consensus there or anywhere much else... More specifically, Williamson argues that the first three of his ten prescriptions are uncontroversial in
30968-441: The redirection of capital flows toward sustaining the revival of US wealth and power. Mexico was the first country to implement structural adjustment in exchange for loans. During the 1980s the IMF and World Bank created loan packages for the majority of countries in Latin America and Sub-Saharan Africa as they experienced economic crises. To this day, economists can point to few, if any, examples of substantial economic growth among
31164-478: The reduction of barriers to foreign capital would allow for increased investment, production, and trade, boosting the recipient country's economy. Countries that fail to enact these programmes may be subject to severe fiscal discipline. Critics argue that the financial threats to poor countries amount to blackmail, and that poor nations have no choice but to comply. Since the late 1990s, some proponents of structural adjustments (also called structural reform ), such as
31360-492: The reform packages, the implementation sometimes being a condition for receiving loans from the IMF and World Bank. According to a 2020 study, the implementation of policies associated with the Washington Consensus significantly raised real GDP per capita over a 5- to 10-year horizon. According to a 2021 study, the implementation of the Washington Consensus in Brazil, Chile, and Mexico had "mixed results": "macroeconomic stability
31556-518: The reformers had originally hoped for (and the "transition crisis", as noted above deeper and more sustained than hoped for in some of the former socialist economies). Success stories in Sub-Saharan Africa during the 1990s were relatively few and far in between, and market-oriented reforms by themselves offered no formula to deal with the growing public health emergency in which the continent became embroiled. The critics, meanwhile, argue that
31752-669: The reliability and affordability of access to water and electricity in developing countries such as Cameroon , Ghana, Nicaragua , Pakistan and others. In addition, SAL also has the advantages of long loan life, low loan interest rate, loose loan conditions, and easy negotiation. Because of this, SAL has been welcomed by many developing countries and has played a role of positive for the improvement of economic conditions in these countries. There are multiple criticisms that focus on different elements of SAPs. There are many examples of structural adjustments failing. In Africa, instead of making economies grow fast, structural adjustment actually had
31948-463: The reserve currency would be the bancor (a World Currency Unit that was never implemented), proposed by John Maynard Keynes; however, the United States objected, and their request was granted, making the "reserve currency" the U.S. dollar. This meant that other countries would peg their currencies to the U.S. dollar, and—once convertibility was restored—would buy and sell U.S. dollars to keep market exchange rates within plus or minus 1% of parity. Thus,
32144-402: The respective industry, the protection of these local industries against foreign competition, the overvaluation of the local currency, the nationalization of key industries and a low cost of living for workers in urban areas. Comparing these inward-oriented measures to neoliberal policies demanded by the SAPs, it becomes obvious that the structuralist model was fully reversed in the course of
32340-467: The result of instability in South Korean society. Because the IMF is subject to the distribution of power and interests of major powers, it is difficult to implement actions with fair and objective criteria. The main reason is that the International Monetary Fund reflects the political issues of American financial hegemony and voting power to a certain extent. This has led to the request of the IMF for
32536-411: The role for government was proven to be critical at the beginning stage of the dynamic process of development, at least until the markets by themselves can produce efficient outcomes. The policies pursued by the international financial institutions which came to be called the Washington consensus policies or neoliberalism entailed a much more circumscribed role for the state than were embraced by most of
32732-569: The rules for commercial relations among the United States , Canada , Western European countries, and Australia and other countries, a total of 44 countries after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The Bretton Woods system required countries to guarantee convertibility of their currencies into U.S. dollars to within 1% of fixed parity rates, with
32928-439: The rules of the world economy, so as to give unhindered access to all nations' markets and materials. United States allies—economically exhausted by the war—needed U.S. assistance to rebuild their domestic production and to finance their international trade; indeed, they needed it to survive. Before the war, the French and the British realized that they could no longer compete with U.S. industries in an open marketplace . During
33124-509: The second semester of 1998 Argentina was considered in Washington the most successful economy among the ones that had restructured its debt within the Brady's Plan framework. None of the Washington Consensus' sponsors were interested in pointing out that the Argentine economic reforms had differences with its 10 recommendations. On the contrary, Argentina was considered the best pupil of the IMF,
33320-425: The situation resembled a large-scale price war : Developing countries had to compete against each other, causing massive worldwide over-production and deteriorating world market prices . While this was beneficial for Western consumers, developing countries lost 52% of their revenues from exports between 1980 and 1992 because of the decline in prices. Furthermore, debtor states were often encouraged to specialize in
33516-435: The social sector. SAPs are created with the stated goal of reducing the borrowing country's fiscal imbalances in the short and medium term or in order to adjust the economy to long-term growth. By requiring the implementation of free market programmes and policy, SAPs are supposedly intended to balance the government's budget, reduce inflation and stimulate economic growth. The liberalization of trade , privatization , and
33712-452: The special needs of historically disadvantaged groups including indigenous peoples and Afro-descendant populations across Latin America. In a book edited with future president of Peru , Pedro Pablo Kuczynski in 2003, John Williamson laid out an expanded reform agenda, emphasizing crisis-proofing of economies, "second-generation" reforms, and policies addressing inequality and social issues. Nobel laureate Michael Spence has defended
33908-705: The spirit of the Consensus, his administration in fact ran an extremely tight fiscal ship and maintained a highly competitive floating exchange rate; Argentina's immediate bounce-back from crisis, further aided by abrogating its debts and a fortuitous boom in prices of primary commodities, leaves open issues of longer-term sustainability. The Economist has argued that the Néstor Kirchner administration will end up as one more in Argentina's long history of populist governments. In October 2008, Kirchner's wife and successor as president, Cristina Kirchner , announced her government's intention to nationalize pension funds from
34104-464: The status of "motherhood and apple pie" (i.e., are broadly taken for granted), whereas the subsequent broader definition, representing a form of neoliberal manifesto, "never enjoyed a consensus [in Washington] or anywhere much else" and can reasonably be said to be dead. Discussion of the Washington Consensus has long been contentious. Partly this reflects a lack of agreement over what is meant by
34300-483: The term has come to be used in a broader sense than its original intention, as a synonym for market fundamentalism or neoliberalism. In this broader sense, Williamson states, it has been criticized by people such as George Soros and Joseph Stiglitz . The Washington Consensus is also criticized by others such as some Latin American politicians and heterodox economists such as Erik Reinert . The term has become associated with neoliberal policies in general and drawn into
34496-408: The term, but there are also substantive differences over the merits and consequences of the policy prescriptions involved. Some critics take issue with the original Consensus's emphasis on the opening of developing countries to the global marketplace and transitioning to an emerging market in what they see as an excessive focus on strengthening the influence of domestic market forces, arguably at
34692-483: The terminology, and despite his emphatic opposition, the phrase Washington Consensus has come to be used fairly widely in a second, broader sense, to refer to a more general orientation towards a strongly market-based approach (sometimes described as market fundamentalism or neoliberalism ). In emphasizing the magnitude of the difference between the two alternative definitions, Williamson has argued that his ten original, narrowly defined prescriptions have largely acquired
34888-431: The turn of the century, or at least that it became less influential after about the year 2000. More commonly, commentators have suggested that the Consensus in its broader sense survived until the time of the 2008 global financial crisis . Following the strong intervention undertaken by governments in response to market failures , a number of journalists, politicians and senior officials from global institutions such as
35084-409: The underlying Neoclassical "financial orthodoxy" that characterizes the Washington Consensus, instead initiating a pragmatist development path of their own based on sustained, large-scale, government-funded investments in strategic infrastructure projects: "Successful countries such as Singapore, Indonesia , and South Korea still remember the harsh adjustment mechanisms imposed abruptly upon them by
35280-481: The wake of the Brazilian Economic Crisis currently occurring in Brazil. These economists and policy-makers would, however, overwhelmingly agree that the Washington Consensus was incomplete , and that countries in Latin America and elsewhere need to move beyond "first generation" macroeconomic and trade reforms to a stronger focus on productivity -boosting reforms and direct programs to support
35476-544: The way out of the trade deficit was to devalue the currency. But Britain could not devalue, or the Empire surplus would leave its banking system. Nazi Germany also worked with a bloc of controlled nations by 1940. Germany forced trading partners with a surplus to spend that surplus importing products from Germany. Thus, Britain survived by keeping Sterling nation surpluses in its banking system, and Germany survived by forcing trading partners to purchase its own products. The U.S.
35672-490: The workforce. A 2009 book by Rick Rowden entitled The Deadly Ideas of Neoliberalism: How the IMF has Undermined Public Health and the Fight Against AIDS claims that the IMF's monetarist approach towards prioritizing price stability (low inflation) and fiscal restraint (low budget deficits) was unnecessarily restrictive and has prevented developing countries from being able to scale up long-term public investment as
35868-426: The world depression was a structurally flawed and poorly managed international gold standard. ... For a variety of reasons, including a desire of the Federal Reserve to curb the U.S. stock market boom, monetary policy in several major countries turned contractionary in the late 1920s—a contraction that was transmitted worldwide by the gold standard. What was initially a mild deflationary process began to snowball when
36064-627: The world's gold supply. Thus, the new system would be devoid (initially) of governments meddling with their currency supply as they had during the years of economic turmoil preceding WWII. Instead, governments would closely police the production of their currencies and ensure that they would not artificially manipulate their price levels. If anything, Bretton Woods was a return to a time devoid of increased governmental intervention in economies and currency systems. The Atlantic Charter , drafted during U.S. President Franklin D. Roosevelt 's August 1941 meeting with British Prime Minister Winston Churchill on
36260-408: Was included than with what was missing . This view asserts that countries such as Brazil, Chile, Peru and Uruguay, largely governed by parties of the left in recent years, did not—whatever their rhetoric—in practice abandon most of the substantive elements of the Consensus. Countries that have achieved macroeconomic stability through fiscal and monetary discipline have been loath to abandon it: Lula,
36456-437: Was able to impose its will on the others, including an often-dismayed Britain. At the time, one senior official at the Bank of England described the deal reached at Bretton Woods as "the greatest blow to Britain next to the war", largely because it underlined the way financial power had moved from the UK to the US. A devastated Britain had little choice. Two world wars had destroyed the country's principal industries that paid for
36652-617: Was concerned that a sudden drop-off in war spending might return the nation to unemployment levels of the 1930s, and so wanted Sterling nations and everyone in Europe to be able to import from the US, hence the U.S. supported free trade and international convertibility of currencies into gold or dollars. When many of the same experts who observed the 1930s became the architects of a new, unified, post-war system at Bretton Woods, their guiding principles became "no more beggar thy neighbor" and "control flows of speculative financial capital". Preventing
36848-463: Was formally ratified by the Jamaica Accords in 1976. There was a high level of agreement among the powerful nations that failure to coordinate exchange rates during the interwar period had exacerbated political tensions. This facilitated the decisions reached by the Bretton Woods Conference . Furthermore, all the participating governments at Bretton Woods agreed that the monetary chaos of
37044-580: Was insignificant. The consensus resulted with a shrinking middle class in Latin America that prompted dissatisfaction of neoliberalism, a turn to the political left and populist leaders by the late-1990s, with economists saying that the consensus established support for Hugo Chávez in Venezuela , Evo Morales in Bolivia and Rafael Correa in Ecuador . The Argentine economic crisis of 1999–2002
37240-502: Was less growth in per capita GDP in Latin America than in the period of rapid post-War expansion and opening in the world economy, 1950–80. Argentina , described by some as "the poster boy of the Latin American economic revolution", came crashing down in 2002. A significant body of economists and policy-makers argues that what was wrong with the Washington Consensus as originally formulated by Williamson had less to do with what
37436-490: Was located in the Soviet Union , which would later emerge as a Cold War rival to the United States and Western Europe. The only currency strong enough to meet the rising demands for international currency transactions was the U.S. dollar. The strength of the U.S. economy, the fixed relationship of the dollar to gold ($ 35 an ounce), and the commitment of the U.S. government to convert dollars into gold at that price made
37632-410: Was necessary to improve a country's overall well-being. In 2002, SAPs underwent another transition, the introduction of Poverty Reduction Strategy Papers . PRSPs were introduced as a result of the bank's beliefs that "successful economic policy programs must be founded on strong country ownership". In addition, SAPs with their emphasis on poverty reduction have attempted to further align themselves with
37828-538: Was never determined, leading to uncertainty of approvals and attempts to repeatedly devalue by less than 10% instead. Any country that changed without approval or after being denied approval was denied access to the IMF. Maintaining the fixed exchange system required countries to maintain sufficient foreign exchange reserves to intervene in markets and prevent fluctuations away from the pegged rate. This also meant that international movement of capital could not be too large (because that might lead to large fluctuations in
38024-504: Was overruled by the Americans, Keynes was later proved correct by events. Today these key 1930s events look different to scholars of the era (see the work of Barry Eichengreen Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 and How to Prevent a Currency War ); in particular, devaluations today are viewed with more nuance. Ben Bernanke 's opinion on the subject follows: ... [T]he proximate cause of
38220-575: Was supposed to be implemented on 1 March 1989, but bus drivers decided to apply the price rise on 27 February, a day before payday in Venezuela. In response, protests and rioting began on the morning of 27 February 1989 in Guarenas , a town near Caracas; a lack of timely intervention by authorities, as the Caracas Metropolitan Police [ es ] was on a labor strike , led to the protests and rioting quickly spreading to
38416-542: Was that simply having responsible, hard-working central bankers was not enough. Britain in the 1930s had an exclusionary trade bloc with nations of the British Empire known as the Sterling Area . If Britain imported more than it exported to such nations, recipients of pounds sterling within these nations tended to put them into London banks. This meant that though Britain was running a trade deficit, it had
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