12 Liberalization on the external front may have been attractive for many countries because of the region’s low domestic savings, despite its potential effects on exchange rates and financial systems. (Fukuyama and Birdsall, (eds.), forthcoming 2010). Private domestic savings were low while public savings were constrained by high public debt service (see Figure 7, comparing Latin American and East Asian savings). Perhaps this is why Williamson included taxing “flight capital” as a priority in the medium term. The reliance on foreign capital inflows was in turn associated with constant appreciation pressures on the exchange rates, which undermined competitiveness in non-commodity exports. Again the comparison with East Asia is apt. And while it is well known that the reform and modernization of the regulatory and supervisory arrangements for financial markets lagged their liberalization—which, as noted later on, constituted a source of systemic vulnerability—the 1990s did see important, if insufficient, improvements in legal, regulatory, trading and informational infrastructures that are germane to financial markets. These included the revamping or upgrading of banking and capital markets legislation (Figure 8).

The 1990s also registered a wave of privatizations (of public banks and enterprises) and significant, albeit one-dimensional, pension reforms. More than 800 public enterprises were privatized between 1988 and 1997 (Birdsall, de la Torre and Menezes, 2001) and the cumulative amount of funds raised through privatizations during the 1990s was on the order of US$200 billion (Figure 9).<sup>17</sup> In pensions, Chile’s pioneering reform of 1981 had a major demonstration effect throughout the region. Similar systems were adopted during the 1990s by Argentina, Bolivia, Colombia, Costa Rica, El Salvador, Mexico, Peru and Uruguay.<sup>18</sup> These reforms consisted basically of a shift away from government-administered, pay-as-you-go, definedbenefit pension systems for private sector employees to systems that rely mainly on a so-called “second pillar” of mandatory, defined and privately-administered pension funds. The market orientation herein is clear, as these pension reforms shifted from the state to the capital markets the dominant role in administering retirement-related savings.

Lastly, structural reform intensity was more modest in tax reform and virtually nonexistent in labor markets (Figure 10). Lora’s index of labor market reforms barely rose during the 1990s (progress was actually negative by 1994 and only slightly positive by 1999). Williamson’s inclusion of “public expenditure reprioritization” has usually not been viewed by students of the Consensus as a structural reform and is not even included in the reform indices— which is itself a commentary on the tendency even in scholarly work to overlook aspects of the Consensus that are not associated with market liberalization.<sup>19</sup>

> 17 The actual motives for privatization ranged from the search for efficiency gains to the need for fiscal revenues or pure rent-seeking.

> 18 Brazil did not carry out a Chilean-style pension reform but pension funds account for a significant portion of Brazil’s institutional investor base.  At the end of 2004, Brazilian pension funds assets represented about 19 percent of GDP.

> 19 There were also other important reforms implemented during the 1990s which lie outside the scope of the Consensus but are of importance in assessing subsequent economic performance in the region.  Several countries, for instance, adopted new constitutions and moved decidedly towards fiscal decentralization.