Rory Creedon LSE MPA (ID)


 Follow this link for the full essay: POVERTY AND THE WASHINGTON CONSENSUS

In what way did the Washington Consensus affect poverty in Latin America?

 There is a wealth of qualitative evidence that links the increase in poverty seen in Latin America between 1980 and 2002 to the free-market reforms undertaken in that period. There is a particularly strong association between poverty and the negative effects on employment of sudden exposure to external competition.[1] Empirically however, the causal underpinning of this correlation is somewhat more controversial. Characteristic of the debate is the differing stance taken by Huber & Solt as against Walton. The former conclude that there is a clear statistical link between poverty and the reforms[2]  whereas the latter maintains that once other macro level variables are controlled for there is no statistically significant relationship.[3] These contradictory stances are evidence of the chronic endogeneity and omitted variable problems that plague macro level empirical analysis of this sort, and whilst it is prudent to be sensitive to these different debates, this paper starts from the non-controversial assumption that the policies of the Washington Consensus at best did very little to address the problem of poverty in Latin America, and at worst failed to prevent a large scale increase in the number of people living in poverty. This essay argues that this failure sprung from an internal inconsistency between the initial concept of the Washington Consensus as a short term plan for macroeconomic stabilization, and the policy tools recommended. Whilst certain of the policy tools were pertinent for addressing the severe hyperinflation and balance of payments problems faced by Latin American economies (particularly reducing fiscal deficits, and ensuring a competitive exchange rate), others (particularly trade liberalization) should have been part of a more comprehensive development strategy. This conceptual confusion led to implementation of long-term development strategy policies as though they were short-term macroeconomic policy programmes and this kept poverty extremely high in Latin America.

[1] SAPRIN The Policy Roots of Economic Crisis and Poverty (2002)

[2] E. Huber and F. Solt Successes and Failures of Neoliberalism  Latin American Research Review, Vol. 39, No. 3 (2004) pg.156

[3] M Walton Neoliberalism in Latin America: Good, Bad, or Incomplete? Latin American Research Review, Vol. 39, No. 3 (2004) pg. 174

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