7 The Washington Consensus was a Latin version of what had in fact become a worldwide consensus by the 1990s. It had in common with the international version the conviction that economic prosperity could only be obtained by _harnessing the power of markets_ . This was associated with a view of government interventionism as a fountainhead of distortions that represses creativity and causes resources to be misallocated. The new paradigm called for allowing the free play of market forces to coordinate through price signals myriads of decentralized decisions of firms and individuals, thus enabling efficient resource allocation and fostering creative entrepreneurship. In sharp contrast with the old paradigm, the new one proclaimed that economic development was too important to be left in the hands of government planners and bureaucrats. Development policy, therefore, had to focus on freeing and enabling markets to “get prices right.” Official World Bank and Inter-American Development Bank (IDB) documents that appeared during the 1980s heralded the coming of this new age for development thinking, clearly signaling that the view had left academic circles and was being mainstreamed into practical policy.<sup>10</sup> But there were two other defining features in the Latin version of the new paradigm that were duly captured in the Washington Consensus. The first was the _quest for macroeconomic stabilization_ . The second entailed a _marked shift towards an outward oriented growth strategy_ . Given that chronic macroeconomic maladies had become a Latin trademark, it is not at all surprising that the need to introduce macroeconomic policy rectitude would be high in LAC’s development agenda. The shift towards sound macro management was understood as a precondition for market-based development. The shift towards an outwardly orientated growth strategy was propelled by the exhaustion of import substitution and the success of East Asian export-led growth, which had put these economies on a frank path towards per capita income convergence with the industrialized countries.<sup>11</sup> A careful review of Table 1 shows clearly that Williamson’s actual formulation of the Consensus emphasized the technical dimensions of economic policy and is measured and balanced in its overall prescriptions. Its Latin American flavor comes through policy prescriptions geared to addressing Latin-specific maladies: macroeconomic stabilization (e.g., fiscal discipline to avoid high inflation, tax reform to broaden the tax base and positive real interest rates to overcome financial repression) and outward orientation (e.g., the elimination of import quotas and low and uniform import tariffs and a competitive exchange rate to induce nontraditional export growth and the removal of barriers to FDI). The pro-market agenda was embodied in policies aimed at: removing the entrepreneurial function of the state (e.g., privatization of state enterprises); freeing and enabling markets (via deregulation, the strengthening of property rights, moderate marginal tax rates, low and uniform import tariffs and

> 10 See, for instance, the World Bank’s World Development Reports _International Capital and Economic Development_ (1985); _Trade and Pricing Policies in World Agriculture_ (1986); and _Industrialization and Foreign Trade_ (1987) as well as the Inter-American Development Bank’s Economic and Social Progress Reports _Economic Integration_ (1984); _External Debt: Crisis and Adjustment_ (1985); and _Agricultural Development_ (1986).

> 11 During the 1970s and 1980s, the East Asian Tigers took off while LAC stagnated and lost ground.  The ratio of per capita income (nominal dollars) of the East Asian Tigers to that of the United States rose from less than 20 percent in the late 1960s to around 40 percent by the late 1980s.   By contrast, the same ratio for LAC hovered around 30 percent during the 1970s and fell to less than 25 percent by the late 1980s (see again, Figure 1).