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Washington Consensus

This is the set of 10 policies that the US government and the international financial institutions based in the US capital believed were necessary elements of “first stage policy reform” that all countries should adopt to increase economic growth. At its heart is an emphasis on the importance of macroeconomic stability and integration into the international economy - in other words a neo-liberal view of globalization. The framework included:

  • Fiscal discipline - strict criteria for limiting budget deficits
  • Public expenditure priorities - moving them away from subsidies and administration towards previously neglected fields with high economic returns
  • Tax reform - broadening the tax base and cutting marginal tax rates
  • Financial liberalization - interest rates should ideally be market-determined
  • Exchange rates - should be managed to induce rapid growth in non-traditional exports
  • Trade liberalization
  • Increasing foreign direct investment (FDI) - by reducing barriers
  • Privatization - state enterprises should be privatized
  • Deregulation - abolition of regulations that impede the entry of new firms or restrict competition (except in the areas of safety, environment and finance)
  • Secure intellectual property rights (IPR) - without excessive costs and available to the informal sector
  • Reduced role for the state.

These ideas proved very controversial, both inside and outside the Bretton Woods Institutions. However, they were implemented through conditionality under International Monetary Fund (IMF) and World Bank guidance. They are now being replaced by a post-Washington consensus.

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