20 robust effect of the reforms taken as a whole. Stallings and Peres (2000) conclude that a 10 percent increase in the overall reform index boosted growth by a meager 0.2 of a percentage point and that the effects of individual reforms were ambiguous. While import liberalization, privatization and capital account opening had a positive effect, the same is not true for the tax or the financial reforms. In a review article, Ocampo (2004) notes that the positive post-reform performance in the first part of the 1990s stands in contrast with the low growth of the “lost-half decade” of 1998-2002, stressing that growth during the decade was sluggish and volatile.

Studies on the effects of Consensus-style reforms on poverty and inequality, independent of their growth effects, are rarer, with the notable exceptions of Székely and Londoño (1998) Morley (2000), and Behrman, Birdsall and Székely (2007). Most studies conclude that financial sector liberalization was associated with an increase in income inequality, though with diminishing effects over time. Other reforms, including privatization, seem to have reduced inequality. The privatization of water and other services actually improved access for the poor and reduced the prices they paid (see studies in Nellis and Birdsall, 2005). But the overall effect of the reforms was at best neutral and at worst harmful in terms of income inequality outcomes.

# **5.3. Bottom Line**

The conclusion is inescapable that, with the exception of Chile, outcomes during the 1990s generally fell significantly short of the reformers’ expectations. Even if inequality is not considered, growth and poverty reduction outcomes were disheartening when compared to the intensity of the reform effort. There is reasonable support for the technical counterfactual argument that growth in the first part of the 1990s would have been lower and poverty higher in the absence of Consensus-type reforms. But even this view loses force when: the years beyond 1997 are taken into account, individual reforms are examined separately and growth volatility (not just the growth rate) is also considered. Moreover, the counterfactual reasoning—that without reforms things would have been worse—provides little consolation to the region’s many poor and unemployed citizens.

The sense of disenchantment with the Washington Consensus deepened dramatically in the late-1990s and early-2000s when the region was hit by a wave of financial turbulence that pushed several countries into crippling twin (banking and currency) crises, including Ecuador (1999–2000), Argentina (2001–2002), Uruguay (2002) and the Dominican Republic (2003). Not surprisingly, during 2001–2003 per capita income growth in the region was negative even as other regions in the world enjoyed positive growth.

As the region entered the new millennium not only did the Washington Consensus lose support but it also generated vibrant opposition in many quarters. With societies disappointed by the outcomes, policy makers found little or no ground to mobilize the political coalitions needed for additional doses of Consensus-style reforms.<sup>26</sup> Not surprisingly, the region entered into a period of structural reform fatigue, as economic reforms stalled in most Latin American countries around 1997 (Lora 2001 and Lora et al. 2004).

> 26 Public opinion polls (Latinobarómetro) of the early 2000 found Latin Americans resentful of market-oriented reforms, especially privatization and tired of high unemployment and stagnant wages.