Washington Consensus

Washington Consensus refers to a set of ideas that were dominant in IMF and World Bank policy from 1980 to 2008. This term was coined by John Williamson in 1989, and comprised of 10 principles which developing countries facing crises should apply.

These 10 principles, as he writes in his original paper (http://www.iie.com/publications/papers/paper.cfm?researchid=486) , are:

Fiscal policy discipline; Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment; Tax reform – broadening the tax base and adopting moderate marginal tax rates; Interest rates that are market determined and positive (but moderate) in real terms; Competitive exchange rates; Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; Liberalization of inward foreign direct investment; Privatization of state enterprises; Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions; Legal security for property rights.

Although these principles are particularly useful for developed countries, a shock therapy of infusing these in developing countries has proven disastrous - a "one size fits all" policy has deepened crises in Latin America (Argentina, Brazil, Mexico), Russia, ex-communist Eastern European states and Turkey. This is why this consensus has yielded to a "Beijing Consensus," which advocates that each emerging country should formulate the ideal policy composition itself for development.