22 closed by “pushing further in the direction of the reforms that have already been implemented.” A more recent study by the IMF (2005) blames the poor post-reform outcomes on uneven and incomplete reform implementation.<sup>27</sup> Hence, supporters of this view argue that the shortfall in the outcomes relative to expectations was not due to flaws with the Consensus reform package itself but to the deficient manner in which it was executed. Reforms were unevenly implemented, hence the uneven outcomes. Where reforms were implemented more deeply and consistently (i.e., Chile) they were associated with impressive growth and poverty reduction outcomes. In the majority of countries, however, reforms, even when initiated, were insufficiently implemented or suffered reversals. In many cases, when laws were passed they were not adequately enforced or regulatory changes, institutional adaptations and capacity building did not follow. In other cases, key reforms were not even initiated (as in the labor field).

Moreover—this view contends—reformers were too impatient, unreasonably expecting results to materialize sooner than warranted. While the expectation of a rapid payoff was justified with respect to some types of first-generation reforms—especially in the macroeconomic stabilization arena—it was unrealistic for the more complex structural reforms that typically require long implementation and gestation periods. Looking back from 2010, a case can be made that the payoff of sustained reform did come for Latin America, when the global crisis of 2008-2009 hit. Countries such as Brazil, Chile, Colombia, Mexico, and Peru that persevered in implementing sound macroeconomic policies over the past fifteen years and that reacted with appropriate reforms to the crises of the late-1990s—by introducing greater exchange rate flexibility, developing local-currency debt markets, reducing currency mismatches and modernizing financial regulation and supervision—came out of the recent global crisis bruised to be sure, but without systemic damage. Those reforms helped reduce systemic vulnerability, prepared the countries to better face financial globalization, and enabled them to undertake countercyclical policies to cushion the effects of the external shock and avoid a systemic crises at home (Porzecanski, 2009; Rojas-Suarez, ed., 2009, and World Bank 2010a). This illustrates that patience and sustained implementation of Consensus-style reforms pays off in the long run.

This view does not ignore the costs of reforms, including those arising from transitory instability. But it notes that this is as it should be, since teething pains and even crises are part and parcel of the market-oriented development process.<sup>28</sup> The opening and competition that result from liberalization may increase instability in the short run but also help expose weaknesses and foster a cleansing process that ultimately strengthens defenses and stimulates further reform.<sup>29</sup> Over time, through pain and success, learning takes place and incentives are eventually set right, yielding durable results. Chile’s strengths owe in no small part to a constructive reaction to the painful crises of the late 1970s and early 1980s. The message that

> 27 Additional renditions of this sort of message can be found in Krueger (2004) and World Bank (1997).

> 28 Aghion, Bacchetta, and Banerjee (2004) show theoretically that countries undergoing intermediate stages of financial development are likely to experience greater instability that countries in either advanced or early stages of financial development.

> 29 Consistent with this hypothesis, Kaminsky and Schmukler (2003) find that financial liberalization is associated with more pronounced boom-bust cycles in the short run but leads to more stable financial markets in the long run.