José Manuel Suárez Mier *
John Williamson, the talented British economist who created the famous and much-maligned Washington Consensus (WC), passed away last week after a fruitful career spent analyzing and proposing economic and financial policies that he believed were the most appropriate for growth with stability.
When I arrived in Washington in 1989 at the Institute for International Economics, I met John, an excellent center for studies in economics in this city, just as they began to discuss the basic elements to avoid the economic crises that were rampant then.
His idea was to list the ten economic policies in which all of Washington more or less agreed to be applied in Latin America, at the time suffering the aftermath of the debt crisis that began in Mexico in 1982 that spread to almost all its countries.
The list that he prepared seems impeccable to me:
- Fiscal discipline that, if it does not exist, ends in excessive indebtedness and the eventuality of not being able to pay, inflation, and bankruptcy.
- Prevent public spending from being dispersed in indiscriminate subsidies and use it to invest in key aspects: quality education, health, and infrastructure.
- Tax reform that broadens the tax base and adopts moderate rates that encourage investment.
- Interest rates are determined by the market but are moderate and higher than inflation.
- The competitive exchange rate is determined by the supply and demand of foreign exchange.
- Liberalization of foreign trade. If tariffs apply, they should be low and uniform.
- Openness to foreign direct investment.
- Privatize state companies that are usually a drain on the treasury.
- Eliminate excessive and unnecessary government regulations.
- Legal certainty for property rights and contracts.
This decalogue was demonized ad nauseam by opponents of the market economy and attributed to it all sorts of evil, neocolonialist intentions with malicious designs to weaken national governments when it was just the opposite: to grow and prosper.
When some countries that seemed to have adopted the WC fell into new crises, its detractors accused it of failing, which is false. The case that I know best is that of Mexico, which had begun to liberalize its economy from the shackles of a nationalized, closed, and inefficient economy.
This path lacked a long way to comply with the WC decalogue when the 1994 exchange crisis occurred as a result of events that put in doubt the confidence in the country and the enormous influx of short-term financial investment, it became copious flight, aggravated by maintaining a parity that did not fully adjust to the supply and demand of foreign exchange.
None of this is attributable to the WC. The countries that did apply the decalogue, such as Chile, Colombia, and Peru, are the ones that have grown the most with stability and a notable drop in poverty. Those who reject it retreat into misery: Venezuela, Argentina, and now Mexico.
*Consultant in economics and strategy in Washington DC and professor at universities in Mexico and the US. Email: aquelarre.economico@gmail.com
This column is also published in Spanish on April 22, 2021, in the Excélsior newspaper, based in México City.