26 sound money, fiscal viability and contestable markets (Growth Commission 2008 and RojasSuarez, ed., 2009). Although the mapping of first principles to specific reform packages is elusive and country-specific, it can be adequately served by diverse policy packages.

Moreover, growth strategies must be informed by the critical distinction between _igniting_ and _sustaining_ growth (Hausmann, Pritchett and Rodrik, 2005). Igniting growth in a particular country typically requires a few (often unconventional) reforms that need not unduly tax the country’s limited institutional capacity. But the exact composition of these few reforms and how they can successfully be combined with “first principles” cannot be predicted easily—it varies from country to country. Sustaining growth is a different matter—it requires the cumulative building of functional institutions to maintain productive dynamism and endow the economy with resilience to shocks over the long term. A sensible growth strategy would search for the tailor-made agenda of few reforms that can ignite a growth process. Once ignited, growth itself can help align incentives in the political economy in favor of reforms that strengthen the growth foundations, thus setting in motion a virtuous circle that sustains growth over the long haul.

Putting together growth-oriented reform programs that are adequately adapted to a given country is then a much more difficult and complex task than the Washington Consensus led people to believe. But it is not an impossible task. To avoid getting things wrong, there is no substitute for deep country knowledge and experience. To use an analogy often mentioned by the late Rudy Dornbusch, good reformers are like good “country doctors” than can develop good diagnoses and suitable cures for individual patients whom they know well. Adequately designed and appropriately implemented reforms are more likely to be developed by well-trained, practically-minded, and experienced economists that collectively have not only a good grasp of international reform practices but also experience in and strong knowledge of the circumstances of the country in question. These packages will, by definition, stay away from the mechanical application of ‘best practices’ and from un-prioritized laundry list-type reform agendas. They will also stay away from the pessimistic belief that nothing can be done where institutions are weak. Much help can be obtained in this process from a finer “growth diagnostics” method, one that focuses on the binding constraints to growth, rather than on the distance to “best practices,” along the lines of the method proposed by Hausmann, Rodrik and Velasco (2008).<sup>36</sup> While not a silver bullet, this method can greatly complement the task of reform prioritization and design.

# **6.3. Incomplete Agenda**

This third view agrees with the first one in stating that the Consensus reform program was not wrong in what it included. But it differs from it in claiming that the Consensus was patently incomplete, that it did not include all the relevant reforms needed to achieve sustainable

> 36 The authors couch their argument in a second-best framework.  They focus not only on the direct (negative) effect of the specific distortion, but on the additional interactions of this distortion with the other inefficiencies in the economy.  Given the impossibility of reaching the first best, the authors suggest focusing on the country’s most binding constraints, as this increases the chances that the benefits of relaxing a binging constraint will not offset by indirect adverse effects.  For a discussion of the growth diagnostics method along with applications to a number of Latin American countries see IDB (2009).  On the limitations of the method see De la Torre (2007).