The Washington Consensus – Implications for Developing Countries

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The development in many, if not all national states since the late 1980s (1989 in particular) has been markedly affected by the so-called Washington Consensus; the liberal ‘left wing’ speaks of the ‘neo-liberal bible’ in this context. The document was elaborated as a treaty between the IMF, the World Bank, and the US Treasury Department. Its contents were: a demand for monetary stability and caution; tolerance only to such budgetary deficits which would not have to be refinanced by levying new taxes; introduction of priorities in public expenditures by shifting resources from politically sensitive areas, such as social expenditures, into neglected areas of great economic recoverability, such as tangible and intangible infrastructures; a tax reform that would extend the tax base and limit marginal tax rates aiming at promoting incentives (Lee in: Michie, 2003). The main point of the Consensus was to define general principles for a policy that would henceforth be exercised chiefly toward developing countries.

The assertion of this policy was principally affected by the influence held in the IMF by the richest industrial countries, in particular the commercial and financial interests in these countries, that is, the business sphere, including MNCs. The financial interests of the United States as the only global superpower also played a crucial role. The negative consequences of globalisation have so far affected about 100 countries. A number of economic crises appeared in the developing countries in the 1990s as a consequence of the implementation of the Washington Consensus (Stiglitz, 2003).

Especially after the collapse of the bipolar world, the full power of these inter-governmental organisations (IGOs) has been put into effect on the broadest scale. It has covered not only the former colonial or developing countries, but also the post-totalitarian countries, and those that only wished to receive an approval by these organisations to enter international capital markets. The global IGOs have thus joined the dominant players in the global economy.

These organisations provide the majority of loans in the Third World (Stiglitz, 2003). They condition their provision to the governments by the so-called structural adjustment programmes following the purposes of the above described Washington Consensus mantra. In principle, this has meant introduction of harsh market mechanisms in countries that were prepared for them neither culturally nor institutionally. Financial institutions, tax systems, legal systems (particularly protection of private property), and executive judicatures were missing or defective. It has ultimately led to temporary collapses of the countries’ economies and to social disturbances.

It is difficult to estimate which direction the future development is likely to take. Three tendencies are of topmost importance here: firstly, national states learn to resist the decoy of globalisation individually. Besides that, they set up firmer interest (network) and regional interest groups. The third tendency is the least noticeable at the moment: theoretical rather than practical searching for a new global consensus for the regulation or control of the global political system.

Way Out for Developing Countries

The experience with the operations of international inter-governmental institutions in the developing countries over the last decades should be a lesson in the searching for and finding of a way to change their practices. Experts have therefore recommended publishing more widely the historic experience of developing countries with the solving of their own developmental problems: the point is to enable developing countries to make better-informed decisions than they have been making so far. In addition:

  • conditions for giving aid to developing countries should change radically;
  • the rules of the WTO should be redefined so that developing countries can make active use of the tariffs and subsidies;
  • institutions should be reformed so that it can be judged which of them would be most appropriate for given types of countries in respect to their development status, economic, political, social and cultural conditions (Chang, 2003).