Washington consensus

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Characteristics

Washington Consensus is a document presented in 1989 by James Williamson- fellow at the Peter G. Peterson Institute for International Economics (formerly: Institute for International Economics). It was a response to the Latin America debt crisis, but later became a universal "policy handbook" for countries experiencing economic instability or transformation to the market- based economy. The document consisted of a set of instructions, policy guidelines and recommendations which should be promoted by "Washington", which according to Williamson consisted of: US Congress, members of the administration, economic agencies of the US government, the Federal Reserve Board, think tanks and international financial institutions (such as International Monetary Fund or the World Bank). Apart from Latin America Countries, many of document's policy recommendations were adopted in post- communist countries, such as Poland, Hungary, Czech Republic.

Recommendations

The document consisted of ten areas of interest:

  • Fiscal discipline- budget deficits limited to 1 * 2% of Gross National Product
  • Public Expenditure Priorities- government spending should concentrate on productive areas, such as: health care, education, infrastructure
  • Tax Reform- moderate marginal tax rates
  • Interest rates- market- determined interest rates
  • The Exchange Rate- market- determined exchange rates
  • Trade Policy- liberalization of international trade (especially- refrain from protectionism)
  • Foreign Direct Investment- liberalization of FDI
  • Privatization- emphasis of a superiority of the private sector above state- ownership
  • Deregulation- establishing business- friendly environment
  • Property Rights- key to market economy


References


Author: Bartosz Cioch