WASHINGTON CONSENSUS

 WASHINGTON CONSENSUS

WASHINGTON CONSENSUS

It is a set of reform policy package which was suggested by the International Monetary Fund, World Bank and the US Department of the Treasury (i.e., the US finance ministry) to the developing countries faced with economic crisis. Since all of these institutions were based in Washington, the policy prescription was called Washington Consensus by the US economist John Williamson .      

The (Washington Consensus ) 10-point reform policy prescriptions are as given below:

(i) Fiscal discipline

(ii) A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution, such as primary health care, primary education, and infrastructure.

(iii) Tax reform (to lower marginal rates and broaden the tax base)

(iv) Interest rate liberalisation

(v) A competitive exchange rate

(vi) Trade liberalisation

(vii) Liberalisation of FDI inflows

(viii) Privatisation

(ix) Deregulation (in the sense of abolishing barriers to entry and exit)

(x) Secure property rights

However, in coming times, the term became synonymous to neo-liberalism (in Latin America), market fundamentalism (as George Soros told in 1998) and even globalisation across the world. It has often been used to describe an extreme and dogmatic commitment to the belief that markets can handle everything.

But the reality has been different—the set of polices was already being recommended by the IMF (International Monetary Fund) and the WB (World Bank) together with the US Treasury, especially during the period of the eighties and early nineties. The prescription was originally intended to address the real problems occurring in Latin America at the time, and their use later to handle a wide array of other situations has been criticised even by original proponents of the policies. The name of the Washington Consensus has often been mentioned as being somewhat unfortunate, especially by its creator. John Williamson , says that audiences the world over seem to believe that this signifies a set of neo-liberal 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. He further adds that many people feel that it gives the impression that the points outlined represent a set of rules imposed on developing nations by the United States. Instead, Williamson always felt that the prescription represented a consensus precisely because they were so universal. Many proponents of the plan do not feel that it represents the hard-line neo-liberal agenda that antifree- trade activists say it does. They instead present it as a relatively conservative assessment of what policies can help bring a country to economic stability.

But the policy prescription led to processes which are known as Liberalisation, Privatisation, Globalisation, thus cutting down the role of the State in the economy—more so in the nations which got developmental funding from the WB or went to the IMF in times of the Balance of Payment crises (as in the case of India which commenced its reform process in 1991 under the ‘conditions’ of the IMF). It was as if the Adam Smith’s prescription of ‘free market’ (liberalism) has taken its rebirth (in neo-liberalism).

Experts believe that the US sub-prime crisis of 2008 followed by the great recession across the western developed economies were rooted in the ideas promoted by the Washington Consensus. Post-recession period has seen a clear erosion of faith in market and a rising sentiments in favour of ‘state intervention’ in the economy (i.e., rising faith in the idea of development state).