[Nasional-e] 'Not so fast' is new reform line

[Ambon]

 'Not so fast' is new reform line
  Paul Blustein The Washington Post Friday, September 27, 2002

Economic orthodoxy under fire as results disappoint

WASHINGTON In moments of candor, the anti-globalization activists planning
to storm Washington streets Friday and Saturday acknowledge that their
movement is struggling to regain momentum after the Sept. 11 attacks, which
dampened the appeal of militant protest and diverted attention from issues
such as Third World debt cancellation.
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But here is the irony: While the wind may have gone from the protesters'
sails, the same might be said of the free-market economic dogma promoted
during much of the past couple of decades by the International Monetary Fund
and the World Bank, the institutions whose meetings this weekend are the
activists' target.
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Anemic growth, economic crises and stubbornly high poverty rates in a number
of countries that pursued programs backed by the IMF and World Bank have
combined to spread a sense of disillusionment with the "Washington
consensus," the package of policies long touted by U.S. policymakers and
international lenders as keys to prosperity for the poor of the world. The
main elements of the consensus include policies aimed at curbing inflation,
opening markets, dismantling government controls and privatizing state
enterprises.
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The disgruntlement is manifesting itself politically in countries such as
Brazil, where after eight years of rule by a government that embraced
economic orthodoxy, a leftist presidential candidate, Luiz Inacio da Silva,
a former factory worker, has taken a commanding lead in polls on the October
election.
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But perhaps most telling is the letdown expressed by a chorus of voices from
within the economic establishment - specialists who once championed the
Washington consensus. A particularly rude shock for them was the recent
economic collapse in Argentina, because the Argentine government was once
viewed as a star pupil of the IMF and the World Bank.
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Although mainstream economists still believe in the general wisdom of the
policies they espoused, many contend that at the very least, U.S.
prescriptions ought to be pushed less aggressively. This view has caused the
IMF and the World Bank to change their approaches in some significant ways.
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"It's disingenuous to negate the magnitude of the disappointment," said
Ricardo Hausman, a Harvard University professor who recalled that as chief
economist of the Inter-American Development Bank from 1994 to 2000 he helped
to convince countries that they stood to reap enormous gains by reducing the
role of government in their economies and lowering barriers to trade and
investment.
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"I fully participated in the hope, so I'm fully a participant in the
disappointment," he said.
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Consider some numbers for Latin America, Hausman said: Despite the adoption
of extensive free-market reforms in many Latin nations, gross domestic
product per average working-age person in the region has fallen 5 percent
since 1998, while during the same period the comparable figure for the
United States has risen 5.2 percent.
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"Even our star reformer, Chile, is up only 3 percent," Hausman said, which
shows that instead of catching up with the United States, "we are further
and further behind."
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Such criticism of economic orthodoxy heartens anti-globalization activists.
Although the movement has long enjoyed support from a handful of dissident
economists, its leaders are now seizing upon evidence that the weight of
respectable opinion is shifting toward their position.
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It would be grossly misleading to suggest that mainstream economists are
abandoning their long-held beliefs and turning in favor of heavy-handed
state intervention and trade protectionism. Little controversy exists among
economists and policymakers over the necessity of taming inflation to foster
healthy economic growth, for example, or the long-term benefits of free
markets for spurring job creation.
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In some ways, the consensus on the benefits of free trade is stronger than
ever; many African governments and the aid group Oxfam have taken up the
rallying cry that the most pressing need for developing countries is to
secure unfettered access for their products in the markets of rich
countries, which are often blocked or distorted by import barriers and
subsidies for farm products.
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But much doubt has arisen over whether governments in the developing world
are being prodded to move too hastily on the free-market path, because so
many countries that have taken the plunge have ended up battered by
speculative attacks in financial markets, or disappointed by the absence of
foreign investors, or mired in corruption scandals over privatization plans
that enriched insiders.
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Staunch defenders of globalization point to evidence that countries are well
advised to open their markets. Studies by two World Bank researchers, David
Dollar and Art Kraay, show that the developing world's "globalizers" -
defined as countries that have increased trade the most relative to their
national income - have enjoyed much faster growth in recent years than
non-globalizers.
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But many economists find this argument unpersuasive, because it relies on
including two giant, fast-growing countries, China and India, in the ranks
of the globalizers, even though the governments of both keep their economies
closed in many important respects, and India's growth spurt began several
years before it started opening up.
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Other defenders of the Washington consensus contend that countries such as
Argentina have run into trouble because they failed to carry out sound
policies rigorously enough, or because additional reforms are needed, most
notably the establishment of a decent legal and judiciary system that
protects property rights.
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Wherever the blame belongs for past failings, the IMF and World Bank say
they have learned important lessons and have been altering their advice and
lending practices accordingly.
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The crises in Asia's "tiger" economies, for example, showed how developing
countries that allow an inflow of foreign money into their financial markets
are vulnerable to disastrous, panicky withdrawals, especially if they have
not developed sound banking systems first. So instead of pressing
governments to open their financial systems as it used to, the IMF now
counsels that "there is no need to rush," said Horst Koehler, the Fund's
managing director.
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As for the World Bank, "We went beyond the Washington consensus long ago,"
said the bank's chief economist, Nicholas Stern. The bank, he noted, puts
much more emphasis than it used to on helping countries develop
institutions, and it is encouraging governments that borrow its money to
draft their own, comprehensive "poverty reduction strategies," so that they
establish "ownership" over their policies instead of grudgingly accepting
recipes dictated from Washington.