WASHINGTON CONSENSUS

WASHINGTON CONSENSUS

Subject : Economics

Context : The Budget  marks an important departure from one of the key tenets of the Washington Consensus, the framework for market-oriented economics which has dominated policy making in most parts of the world

Concept :

• The Washington Consensus is a set of 10 economic policy prescriptions by Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank and United States Department of the Treasury.
• It constitutes the “standard” reform package promoted for crisis-stricken developing countries.
• The prescriptions encompassed policies in such areas as macroeconomic stabilization, economic opening with respect to both trade and investment, and expansion of market forces within the domestic economy.

10 Policy prescriptions:

• Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP.
• Redirection of public spending from subsidies (especially indiscriminate subsidies) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment.
• Tax reform, broadening the tax base and adopting moderate marginal tax rates.
• Interest rates that are market determined and positive (but moderate) in real terms.
• Competitive exchange rates.
• Trade liberalization: Liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs.
• Liberalization of inward foreign direct investment.
• Privatization of state enterprises.
• Deregulation: Abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions.
• Legal security for property rights.