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The Washington Consensus Developmental State Notes

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This is an extract of our The Washington Consensus Developmental State document, which we sell as part of our Politics of International Development Notes collection written by the top tier of University Of Warwick students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Politics of International Development Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

*Cross-reference - PO203 Development // PO219 Postcolonialism

THE WASHINGTON CONSENSUS & DEVELOPMENTAL STATE
QUESTIONS

1. How did neoliberalism go global?
Is neoliberalism the orthodoxy for contemporary development thinking? [2014]

2. Why have the World Bank and the International Monetary Fund attempted to structurally adjust the economies of poor countries? [2014]
Is the World Bank adequately meeting its goal of reducing global poverty? [2013]

3. What made the 'East Asian miracle' so controversial in development theory? [2015]
Is neo-statist development theory relevant only in the context of East Asia? [2013]

4. Why did the post-Washington Consensus emerge? [2016]
What is the difference between the Washington Consensus and the Post-Washington Consensus [2013]
How has the World Bank changed since its inception in 1944? [2015]

CONTEXT

In the late 1970s, many developing countries - especially Brazil, Argentina, Mexico - were faced with the dual burden of skyrocketing oil prices and plummeting commodity prices. They subsequently began borrowing heavily from private international banks to reduce fiscal imbalance. However, these banks had accumulated surplus holdings of dollars and thus actively pursued loan agreements with the developing world, at the expense of long-term sustainability.

The orgy of borrowing that ensued, coupled with existing policies of import substitution and economic interventionism,
triggered a debt crisis. This was characterized by bloated bureaucracies, grossly inefficient state-owned enterprises,
inflation and over-indebtedness to European and North American banks.
˃
Between 1975 and 1982, Latin American debt to commercial banks increased at a cumulative annual rate of

20.4% from US$75 billion to over $315 billion (or 50% of the region's GDP).

Recognizing that standard austerity programs weren't enough, the IMF and World Bank began pipelining billions of dollars to debt-stricken states with conditionality clauses attached. The continued release of 'structural adjustment'
loans (SAPs) depended on the successful implementation of certain policies.

With both institutions seeking to impose mutually reinforcing cross-conditionality restrictions on lending, they became embroiled in far closer association that previous years. This rapprochement gave rise to the 'Washington Consensus'.

THE 'WASHINGTON CONSENSUS'

Coined by John Williamson in 1989, the 'Washington Consensus' is a cocktail of monetarist policy prescriptions that constitute the 'standard' recovery package promoted by Washington-based IFIs (e.g. IMF, World Bank, US Treasury) for crisis-wracked countries in the global South.
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Williamson claimed that the Washington Consensus was a 'universal convergence' which formed 'the common core of wisdom embraced by all serious economists'.

Accorded priority to economic 'fundamentals': 'prudent macroeconomic policies, outward orientation and free-market capitalism' [Williamson].

1. Fiscal policy discipline - avoidance of large fiscal deficits relative to GDP (which contribute to inflation and capital flight);

2. Shifting public expenditure priorities from (indiscriminate) subsidies to investment in key pro-growth, pro-poor services like primary education, healthcare and infrastructure development;

3. Tax reform - broadening the tax base and adopting moderate marginal tax rates (incurred on each additional dollar of income);

4. Interests rates that are market-determined and positive in real terms;

5. Competitive exchange rates that bolster exports by making them cheaper abroad

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