What changes more often, the fashion designs coming from Paris and Milan or the economic policy designs Washington and Wall Street prescribe to countries that are less developed or that are emerging from decades of communism? While this comparison may seem frivolous, a review of the ideas that have guided thinking and action about economic reforms in this decade shows that they are as faddish as skirt lengths and tie widths. The difference, of course, is that economic policy fashions affect the way millions of people live and define their children's chances for a better future.

Ideas about what makes a country prosperous have always been fickle. This decade has been no different in terms of the variety and volatility of the policy prescriptions that became dominant among academics, policy makers and the better-informed segments of the world's population. The 1990s, however, have been different in one significant respect: During this decade, the world has been under the impression that there was a clear and robust consensus about what a poor country should do to become more prosperous. This misimpression clearly owes a lot to the surprising popularity of the term "Washington Consensus," the name that economist John Williamson gave in 1989 to a list of ten policy recommendations for countries willing to reform their economies.¹

The general ideas derived from the Washington Consensus had a huge influence on the economic reforms of many countries. Yet, the way these countries interpreted such ideas varied substantially and their actual implementation even more so. Moreover, the original ten policy prescriptions of the Washington Consensus reigned unchallenged only for a short time. Changes in the international economic and political environment and new domestic realities in the reforming countries created problems the Consensus did not envision or encompass, thus forcing the search for new answers. The newfound answers often complemented the recommendations originally offered by the Washington Consensus, but some also ran counter to them. The wildly gyrating ideas about controls on foreign capital or about exchange rate regimes that have been offered at different times are good examples of the lack of consensus or indeed the confusion that prevailed among the experts.

Moreover, throughout the decade, both the general media and expert commentators often characterized the reforms implemented in countries as different as Russia, Argentina, Rumania or South Korea, as following the prescription of the Washington Consensus. In practice, however, the differences in the reforms of these countries often clearly exceeded their similarities and, in some cases, the only thing they had in common was their designation by proponents and detractors as "Washington Consensus policies."

When John Williamson summarized what he saw as the consensus that had emerged among the "political" Washington of the US Congress, the Administration and the "technocratic" Washington of the IMF, World Bank, and the think tanks, he did not suspect that he was fathering one of the brand names that would come to characterize the decade. Nor could he imagine that the popularity of the term would obscure profound disagreements among the experts in Washington and elsewhere beneath the facade of "the Consensus," or that the same label disguised what, in effect, were a multitude of very different reforms. The point is not that a Washington Consensus did not exist or did not embody an influential set of ideas. The point is that throughout the decade the core of the Consensus has experienced extraordinary mutations and shrinkage: Reforming governments everywhere saw how the policy goals that just a few years, or even months, earlier had been specified as the final frontier of the reform process became just a mere precondition for success. New, more complex, and more difficult goals were constantly added to the list of requirements for an acceptable performance.

The impression that the Washington Consensus was, in fact, a set of rigid, almost unalterable, set of theoretical propositions about which the powerful and the knowledgeable had no doubt was widespread. Moreover, the often-implicit corollary espoused by the more politically motivated of the Consensus' proponents was that most dissent with its policies was often inspired by anti-market ideologies, nationalism, anti-Americanism and other forms of the modern-day equivalents of obscurantism. In 1993, Williamson explained that "we can now develop far more consensus . . . [because] we now know much more about what types of economic policy work."²

Really? Perhaps that was the case a few years back or what the world needed to believe at the time. But an objective assessment of the situation shows that, while some convergence did emerge, confusion rather than consensus characterized then and now the intellectual climate among experts in the field of economic development and market reforms. In the last few years, this confusion among the leading lights of development thinking has even spilled over from scholarly seminars to television shows and from the pages of technical journals to those of daily newspapers.

A few examples may serve to illustrate the intellectual texture of the debate.

Since the beginning, advocates of the Washington Consensus have been greatly divided about the pace and sequence of the reforms. Profound differences quickly emerged about the need or desirability of what came to be known as the application of a "shock therapy" [or alternatively "the big bang"] approach to policy reforms. This approach implied the implementation of as many reforms as quickly as possible.³ Others argued for a slower, more sequenced pace. This is not a debate just between experts in Washington and others elsewhere. It also rages among insiders. This is illustrated by Strobe Talbott's now famous remark during a 1993 trip to Moscow when he told an anxious Russian media that "what Russia needs is less shock and more therapy". The statement, warmly welcomed by many, was, however, clearly at odds with the line espoused by his colleagues at the US Treasury and by the IMF and World Bank with the active backing of the US government.⁴ That debate of course continues today and is far from resolved, with both sides declaring victory using the same facts to back their cases.⁵

A few years later, Joseph Stiglitz, the Chief Economist of the World Bank and former Chairman of President Clinton's Counsel of Economic Advisors, publicly denounced the IMF's handling of the financial crises in Asia and Russia. This led Anders Aslund, a Russian expert at the Carnegie Endowment in Washington to tell The Economist that "without knowing anything [Stiglitz] mouths any stupidity that comes to his head"⁶. Ricardo Hausmann, the Chief Economist of the Interamerican Development Bank [IDB] enthusiastically recommends that countries shed their currencies in favor of the US dollar, a policy that would shield them from the ills brought about by international financial volatility. Harvard's Jeffrey Sachs thinks that this is a reckless recommendation and Enrique Iglesias, the President of the IDB, emphasizes that Hausmann's opinions are his own and that the Bank does not endorse them.⁷ The Asian crisis prompted MIT's Paul Krugman to call for the governments beset by the crisis to impose controls on capital flows, a solution that, at the time, was immediately rejected by then—Secretary of the US Treasury Robert Rubin, the IMF's Michel Camdessus, his deputy Stanley Fisher, and Rubin's then—deputy Lawrence Summers, among many others.

Nobel laureate James Tobin calls for a tax on currency transactions to "put sand in the wheels of international finance" and tame volatility while Nobel laureate Milton Friedman thinks that the problem is perhaps too much sand in the wheels of global finance and calls for, among other measures, the abolition of the IMF. Not so fast, say financier George Soros, Yale's Dean Jeffrey Garten as well as a blue ribbon commission sponsored by the New York-based Council on Foreign Relations. The world is in dire need of a new financial architecture, they claim. Some of them even urge the establishment of new multilateral institutions like an international debt insurance agency, a global central bank or an international bankruptcy court. Others, however, like Barry Eichengreen and Robert Rubin, insist that while the international financial system does require some maintenance and modernization what is really needed is not a general overhaul or new institutions, but better "plumbing", meaning the detailed reexamination and redesign of existing institutions and practices. James Wolfensohn, the President of the World Bank and Stiglitz, his Chief Economist, extol a new approach, the "comprehensive development framework", that the Bank officially adopted in 1999 to guide its lending and advice to its client countries. This leads Columbia University's Jagdish Bhagwati to puzzle in the pages of the Financial Times about what could explain the mistaken assumptions and outright fallacies on which Wolfensohn and Stiglitz's framework is surely based. He generously concluded that perhaps it was just the result of "plain ignorance". A day later, in the same pages, T. N. Srinivasan, another prestigious development economist at Yale, also fumed about Wolfensohn and Stiglitz's, arguments dismissing them as "cliché ridden and banal".⁸

If this sample represents the Washington Consensus, then just imagine what a Washington Confusion would be like. A point worth reiterating is that these are not the debates between say, French deconstructionist sociologists and American mathematical economists. These are disagreements among some of the most respected and influential individuals in the field and ones that share favorable ideological pre-dispositions towards markets, private capital and free trade and investment, while harboring a deep distrust of socialist ideas, central planning and government intervention. The size of the rifts and the even bigger confusion that ensues when the opinions and policy prescriptions of less market-friendly experts are brought into the fray is hard to fathom.

It would be a mistake, however, to assume that these differences emerged only recently. Early in the decade, Williamson acknowledged that not all of the assertions he included in his original "ten-best" policy recommendations enjoyed the same degree of consensus. According to his assessment at the time, in five of the ten policy prescriptions "consensus has been established". Three of the prescriptions [financial and trade liberalization and deregulation] were still controversial " in a non ideological way" meaning that, in his judgement, the emergence of a consensus was just a matter of time and depended only on finding the technical solution that would reconcile the differences that still existed among the experts. The remaining two, changing public budget priorities and according the same treatment to foreign and domestic firms, were, in Williamson's view, always bound to be controversial due to their inherent political nature⁹. Six years later Williamson went even further and noted that in some of his assertions about the Consensus he "was a bad reporter of the Washington scene".¹⁰

In fairness to Williamson, however, it is important to stress that he was an innocent victim of the success of his very useful summary. Williamson went to great lengths to qualify very carefully what he really meant when he framed the Washington Consensus. He often sought to correct those who misinterpreted the approach and made repeated attempts at clarifying the nuances of his conceptual framework. Williamson's efforts at clarifying the meaning and implication of the Washington Consensus were not enough to compensate for the distortions resulting from the term's global popularity and its frequent misuse.¹¹ Very soon, even the ten prescriptions were not that well known and the term Washington Consensus acquired a life of its own, becoming a brand name known worldwide and used quite independently of its original intent and even of its content.

How could such a wonkish moniker become so popular? Because, at the time, it filled an ideological vacuum and it was relatively simple for politicians to understand and use in speeches. It also gave ministers a practical action plan with specific goals; it had the endorsement of prestigious institutions and individuals and, last but not least, it had the ring of money. The adoption of the Washington Consensus, it was promised (and expected), would bring tons of foreign money. The IMF and the World Bank would open their coffers. Foreign investors, eager to benefit from the prosperity that the new policies would bring to reforming countries would also contribute to the financial bonanza.

The timing of the formulation of the Washington Consensus in the late 1980s, was also fortunate. It coincided with the sudden collapse of the Soviet system and its ideological apparatus. The disenchantment with socialist ideas and central planning, which had also pervaded many developing countries outside the Soviet block, created an urgent and widespread need for an alternative set of ideas about how to organize economic and political life.

An important function of any ideology is to serve as a thought—economizing device that simplifies and organizes what often is an overwhelmingly confusing reality. In a strange way, the Washington Consensus became an ill-suited and temporary substitute for the all—encompassing ideological frameworks on which millions of people had come to depend to guide their opinions about affairs at home and abroad, judge public policies and even to steer some aspects of their daily lives. Suddenly they had no rail to guide their thinking and the Washington Consensus was what everyone talked about. Its appeal was surely helped by its self-assured tone ("the Consensus"), its prescriptive orientation, its directional message, and its origin in Washington, the capital of the victorious empire. The need of newly-elected, market-oriented administrations to downplay the costs and hype the virtues of the economic reforms they were implementing, as well as the lack of credible alternatives offered by an opposition that was often disreputable also boosted the Washington Consensus attractive elan. Had all this not been enough, what finally made the product really irresistible was the strong pressure from the IMF and the World Bank to make their loans conditional on the adoption of Consensus-inspired policy reforms.

Unfortunately, the relative simplicity and presumed reliability of the Washington Consensus was not reflected by the experience with market reforms in this decade. What was implemented was usually an incomplete version of the model and its results were quite different from what politicians promised, the people expected, and the IMF and the World Bank's econometric models had predicted.

Alfred Marshall once said that short words are usually bad economics. By that measure the decade of the 1990s was probably not one he would have admired: international financial contagion, sequencing, bailouts, and bail-ins. The tequila effect. Moral hazard. Crony Capitalism, Mafia capitalism, and voucher privatization. Currency boards, dollarization, crawling pegs, and capital controls. Savings rates, pension reform, and capital flight. Transparency and governance. Globalization. Each of these terms became, at some point during the 1990s, the focus of sustained attention and heated debate among the experts, politicians, and commentators interested in market reforms. None of these terms figured in the original formulation of the Washington Consensus.

These concepts and names, and the realities they tried to encapsulate, gained salience as a result of the many surprises that impaired and, in some countries, even derailed the implementation of market reforms. While this jargon-filled list of terms may sound like a cacophony of jumbled words, they can in fact be profitably used as the signposts marking the road through which common wisdom about market reforms evolved in the last ten years.

This evolution had a pattern. It usually began with the increase in popularity of a general set of policy recommendations. For a while, these recommendations embodied if not a consensus, at least the views of an influential majority of academics and high level staff of the IMF, the World Bank and the US Treasury, think tanks, and assorted editorialists. Very soon, sometimes just a few months after a certain degree of comfort was attained with respect to the new set of ideas, a surprising event would cast doubts on their adequacy, and with the benefit of hindsight, some times even make them look outright silly. The new data would usually show that the main "lessons" derived from the previous crises missed some important element [usually summarized in one catchy term like "weak institutions", "corruption" etc.] whose critical importance had now been clearly illuminated by the most recent crisis. It would also show that the policy goals that had become fashionable were necessary but insufficient to ensure policy stability and economic success. More reforms would be needed.

The Mexican crash of 1994 vividly illustrates this pattern. The almost universal lesson drawn from this crash was that a low domestic savings rate made Mexico overly vulnerable to the vagaries of foreign capital markets by making it too dependent on foreign funds. Therefore, a higher rate of domestic savings complemented with "sound macroeconomic fundamentals" would serve to inoculate a country from a crash induced by the volatility of short-term international capital flows.¹² The "miracle economies" of East Asia, their enviably high savings rates, and their robust macroeconomic equilibria were commonly paraded as an illustration of the validity of the conclusion and as the model for the low-saving Latin American countries. This "lesson" lost a bit of its edge when, two years later, high-saving Thailand, Indonesia, Malaysia, and even South Korea crashed. Soon thereafter, another wave of reports highlighting the new "lessons" was issued by many of the same authors that had analyzed the origins and implications of the Mexican crisis. This new wave of reports found a new culprit and a new word was thus introduced into the vocabulary of reform forensics: "crony capitalism", meaning the reliance on a private sector highly distorted by the dominance of a few, large "economic groups" closely associated with those in government. The moral of this example is not that sound macroeconomics and increasing the savings rate should not be worthy policy goals. It means that achieving such goals was now seen as insufficient and that a new—and additional—precondition for success was discovered thanks to the Asian crisis.

Throughout the decade, policy makers in reforming countries saw how the bar defining success kept being lifted and how the changes they were expected to make became increasingly complex and, sometimes, politically impossible. Presidents and finance ministers also saw how their apprehensions were denounced as evidence of their lack of "political will", while the changing requirements coming from Washington and Wall Street were presented as reasonable changes resulting from the incorporation of "the lessons of experience". Common wisdom was simply "evolving".

This evolution of the common wisdom about market reforms can be divided into four general sets of discoveries that roughly followed a chronological sequence during the 1990s: the discovery of economic orthodoxy, the discovery of institutions, the discovery of globalization and the re-discovery of underdevelopment.

The Discovery of Economic Orthodoxy

One of the undoubted historical contributions of the Washington Consensus is that it marked the end of the de-coupling between development economics and mainstream economics that had gathered steam since the 1970s.

It may now seem obvious, for example, that large public deficits and loose monetary policies fuel inflation. However, for a long time, in many developing countries, especially in Latin America, South Asia, and Africa these ideas were dismissed as a rather myopic form of "monetarism". Inflation, it was widely believed, was the result of "structural" conditions such as, for example, the highly concentrated nature of the private sector, the unequal pattern of distribution of income and wealth, or the country's structure of imports and exports.¹³ These views informed many of the failed attempts at economic stabilization, notably in Argentina and Brazil, that were usually characterized as "heterodox plans".¹⁴

Similarly, it is also worth remembering that the belief that a less developed country could not really benefit from freer international trade and investment was, and to a certain extent continues to be, widely held in these countries. Therefore, the Washington Consensus' prescription that government-imposed barriers to imports and exports, to foreign investment, and to foreign currency transactions had to be lifted was sharply at odds with the long-held conviction that developing countries had to protect their economies from an unfair and exploitative international system rigged against them. This belief, of course, flowed from the core proposition of "Dependency Theory", a set of ideas that gained much currency in the developing word and which had few if any conceptual points of contact with the economic profession as it was practiced in most industrialized, capitalist countries.¹⁵

Variations on these themes were Tanzania's Julius Nyerere's "autonomous development", Samir Amin's "de-linking", the "basic-needs" approach, Francois Perroux's "development poles", ECLA's "comprehensive social development", the UN's "new international economic order," and a myriad of nuanced variants of Dependency Theory. All of these proposals had a modicum of success in attracting the attention of academics, politicians, and policy makers, mostly in developing countries.¹⁷

Yet, the reliance on a large and fiscally expensive public sector and the disdain for foreign investment and macroeconomic orthodoxy implicit in most of these frameworks soon became an unaffordable luxury. The debt crisis and the end of the Cold War made it impossible for governments to sustain economic policies that were not anchored in sound macroeconomic principles or that were based on an adversarial posture towards foreign investment.

This convergence of factors left many developing countries with no other choice but to fall into the welcoming but stern arms of the Washington Consensus. This, in turn, meant the discovery of orthodox macroeconomic policies and the dismantling of the protectionist structures that had been put in place. This was especially true of highly indebted countries desperate to seek some form of respite from the weight of their massive foreign financial obligations; a respite that was offered in exchange for the adoption of economic reforms.

National economic debates thus had to shift their foci. In many countries, politicians and media leaders had to focus with a new urgency on how to reduce fiscal deficits or current account deficits rather than discussing which new industrial sector was going to become "a national priority" [and therefore subsidized and protected]. The debates also had to shift their attention away from the expansion plans of state-owned enterprises, which the newfound fiscal restraint made impossible to fund, to the debate about which of them would be privatized. The links between a recently acquired and floating exchange rate and an interest rate that had been deregulated only recently as well were also themes that began to occupy more space in the media and in the minds of policy makers than ever before. Policy makers who had hitherto never heard of the long bond suddenly had to scramble to understand the impact of debt-equity swaps on their country's fiscal account and their link to foreign portfolio flows. In bookstores from Caracas to Warsaw, books on government planning were replaced by the textbooks authored by the likes of Paul Samuelson, Stanley Fisher and Rudiger Dornbush.

The Washington Consensus also nurtured an implicit but very important change in attitudes about the extent to which a country's economic destiny could be shaped by national policy makers. For years, external factors, foreign conspiracies, foreign aid, the externally-determined price of the main export commodity [cotton, copper, coffee, oil, etc.] or an impenetrable international economy were seen as the main drivers of a developing country's poor economic performance. Naturally, this view fed the attitude that domestic policies had far less impact than decisions taken abroad. In contrast, the message of the Washington Consensus was that good domestic policies could make a difference even if international economic conditions were not favorable—ironically, a message of national economic self-determination that was often imposed from abroad.

By then, several countries, especially in Latin America and Africa, had experienced prolonged bouts of hyper-inflation, their economic growth had been stunted throughout the "lost decade" of the 1980's, and poverty levels had increased dramatically. Newly elected governments were eager to take advantage of the promises and opportunities offered first by the Baker Plan and then even more concretely by the Brady Plan. These US-led debt-reduction initiatives offered significant incentives to indebted countries on the condition that they reform their economies according to the principles embodied in the Washington Consensus. Similarly, the countries in Central and Eastern Europe that were just emerging from communism also saw in the Washington Consensus a hopeful recipe to inject the best of Western economic thought into their national policies.

Thus, at the beginning of the decade an inordinate number of countries in different continents, each with a different development experience and with wildly varying economic structures and political systems, embarked on experiments with market reforms, all guided by their also wildly varying interpretations of the Washington Consensus.

Most countries advanced quite rapidly in the implementation of the "easy" prescriptions of the Consensus. Typically, these were the ones that were hard to decide but comparatively easy to implement. These reforms often required just a change in the macroeconomic rules of the game that could be accomplished by issuing a decree or some form of executive order. Dismantling currency controls and adopting a single exchange rate, eliminating price controls, lowering import tariffs, easing restrictions to foreign investment, or deregulating the financial sector are decisions with formidable consequences that many governments found relatively easy to implement in the early 1990s. This was especially true in the first stages of newly elected administrations that had to deal with disastrous legacies left by their predecessors in government. It became quite common under such circumstances for administrations to secure some form of extraordinary legal authority that enabled them to enact measures that, under normal circumstances, would have required congressional approval¹⁸.

But the first stage of reforms did not only benefit from an exceptional political climate or from relatively simpler administrative requirements. Its implementation also coincided with an extraordinarily auspicious international financial environment. The debt crisis had been defused. With the advent of new, non-traditional financial instruments, unprecedented volumes of private capital in the developed countries had become available for investment in the developing world and in the economies in transition from communism. Thanks to the Thatcher and Reagan deregulation of financial markets and the technological and institutional innovations that took place almost at the same time, global financial markets were also undergoing dramatic changes. Commercial banks were being supplemented by investment banks, international portfolio capital was complementing bank loans, individuals and families in the United States and Europe were increasingly taking their money away from their traditional savings accounts in banks and investing it instead in mutual funds that offered the lure of higher returns and diversification, often internationally. The new category of "emerging markets" was thus born as an attractive investment possibility for investors wanting to benefit from the opportunities opened by countries that were dismantling their protectionist past, freeing their economies and privatizing government-owned companies. The fact that in the early 1990s investment returns in the industrialized countries were not as high as they became later in the decade pushed a wave of money overseas, some of it towards the countries that had enacted reforms to pull private foreign capital in. Not surprisingly, private financial flows to the newly renamed "emerging markets" boomed. In 1990 private capital flows to these countries accounted for a meager .75 per cent of their GDP. By 1993 it had reached almost 4 percent of GDP.¹⁹

In many countries the market reforms paid off rapidly and handsomely, especially when measured in terms of the restoration of macroeconomic equilibrium, the lowering of inflation and, in some, even the re-appearance of economic growth after almost a decade of stagnation and decline.

Soon, however, it became apparent that the magic of macroeconomic orthodoxy had limits in terms of how far it could take reforming countries on the path toward sustainable and equitable growth.

The Discovery of Institutions

January 1, 1994 marked the day that the North American Free Trade Agreement [NAFTA], signed the year before by Canada, Mexico, and the United States officially entered into effect. It also marked the day in which the EZLN [Zapatista National Liberation Army] staged an uprising in Chiapas against the Mexican government, catching both the Administration of President Carlos Salinas de Gortari and an admiring world that had been marveling at Mexico's market reforms by surprise.

Perhaps this date should also come to symbolize the day when the message that macroeconomic reforms, while necessary, are not enough to propel countries in the road toward prosperity, began to be taken seriously by politicians, policy makers, reform experts, and journalists around the world. After all, Mexico had been the example used by proponents of the Washington Consensus everywhere to support their case. NAFTA was just final confirmation that market reforms work and had enabled a poor country to be well on its way to joining the richest countries on earth. The armed revolt of the peasants in Chiapas undermined that assumption.

That same message had been sent two years before in Venezuela by then Colonel Hugo Chavez, who also staged a military uprising against the government of Carlos Andres Perez, which at the time was implementing market reforms that were much admired around the world. While Chavez's 1992 coup failed, its initiative was so popular that it unleashed a process that led to the ousting of President Perez a year later and the inauguration of Chavez as Venezuela's democratically elected President in 1999. Just prior to Chavez's 1992 coup, Venezuela had been, thanks to its reforms, the fastest growing economy in the world²⁰. Venezuela's travails should have served as an early wake up call about the fact that record macroeconomic performance does not buy political stability if it is not accompanied by many other conditions. Two years later the events in Chiapas and Mexico's financial crash at the end of 1994 made that message impossible to ignore.

Reforming countries were discovering that economic growth did not matter much to people if hospitals did not have medicines, and that a booming stock market could be very dangerous if the domestic equivalent of the Securities and Exchange Commission was ineffectual. A competitive exchange rate could not do much to bolster exports if inefficiency and corruption paralyzed the ports, and fiscal reform did not matter much if taxes could not be collected. The elimination of restrictions on foreign investment, while indispensable to attract foreign capital, was far from sufficient to make a country internationally competitive in the race to attract long-term foreign investment. A reliable justice system, a well-educated work force, and an efficient telecommunications infrastructure were some of the additional factors, among many others, that would give a country an edge in its effort to attract foreign investors. In short, it became apparent that stronger, more effective institutions were urgently needed to complement macroeconomic policy changes.

While the role of institutions in economic life has long been acknowledged, it was not until recently that mainstream economists systematically and significantly incorporated it into the analysis.²¹ In the late 1980's and early 1990s, the justified preoccupation to restore macroeconomic balances, crush inflation, and restore growth in developing countries, as well as the need to stabilize the transition economies, created an almost obsessive interest in macroeconomic analysis—almost to the exclusion of everything else. Thus, crucial insights about the importance of institutional factors in economic development that had been at the center of thinking and research about the obstacles to development were forgotten, or at least temporarily ignored.²²

But not for long. In most reforming countries around the world progress in the implementation of what I dubbed in 1993 "the second stage of reforms" had slowed down considerably or altogether stopped.²³ A combination of reform fatigue, the exhaustion of the "sneak attack" approach to reforms based on quick actions taken by the executive acting alone, the growing role of parliaments, the courts, and NGO's in resisting the reform initiatives made progress more difficult and slower than that of the initial macroeconomic reforms. What in many instances brought progress to a complete halt was the combination of the political difficulties with the formidable bureaucratic complexity of the second stage reforms. Politically, second stage reforms are more demanding because their impact is less immediate and visible while their costs tend to be borne by specific groups that have therefore more incentives to organize in order to resist the reforms. The effects of a currency devaluation or a wholesale tariff reduction are immediate and their costs are relatively widespread throughout society. In contrast, reforming the health care sector takes longer and its costs are permanent and borne by the specific groups that will lose the benefits of working in public hospitals, supplying to them or having them as an inefficient competitor [See Chart in Appendix 1].

Administratively, second stage reforms are more complex because the involvement of a larger number of government agencies and social actors is required, and therefore the informational and coordination demands are more intense. Also, the steps required for their implementation tend to be more numerous and more geographically dispersed. Again, liberalizing the financial sector is a reform that can be implemented with a few administrative steps concentrated in one or two government agencies. But reforming the educational system takes a myriad of additional steps and entails modifying the basic operations of a widely dispersed system of educators and administrators.

Finally, institutional reform or institutional strengthening is a field with much action and little theory. As Carol Graham and I demonstrated elsewhere, what passes for knowledge about institutional reforms is often nothing more than a series of partial findings with little capacity to provide universal prescriptions to guide efforts aimed at improving institutional performance in reforming countries.²⁴ In fact, institutional weakness is not one specific illness but, like cancer, includes a variety of maladies, each requiring different treatment. [Appendix 2 offers a taxonomy of different institutional illnesses].

Strengthening the rule of law entails a different approach than ensuring that telecommunications are well regulated, children are properly immunized, or bankers adequately supervised. Unfortunately, the available knowledge to guide the efforts to improve the institutions in charge of performing such tasks is rather poor. Advice on these issues is often based on limited experience or specific case studies that are not easily transferred across countries and cultures.²⁵

Ignorance, however, has never stopped an issue from becoming a priority to which ample attention and resources are allocated even though clear ideas about how to use them are scarce. Once the economic reform establishment discovered "institutions", no speech or policy paper could be written about market reforms without including a fashionable reference to the need to strengthen institutions. In particular, it has now become obligatory to refer to the need to develop the institutions that are relevant for the establishment of the rule of law, for effective regulatory frameworks, and, of course, for the provision of health and education to the poor. Unfortunately, far fewer of these speeches and papers include useful ideas of how to implement these needed institutional reforms.

The Discovery of Globalization

In what surely is a great irony, the Washington Consensus missed globalization. It is indeed ironic because the elimination of obstacles to international trade and investment that fueled much of the economic integration the world has witnessed in this decade certainly owes a lot to the influence of the Washington Consensus on many liberalizing countries.

What the Washington Consensus did not provide was a set of policies that would enable reforming countries to better cope with the consequences of globalization, especially in the financial sphere. While the 1990s will be remembered for the large number of countries that experimented with market reforms, they will surely also be remembered for the periodic financial crashes that rocked these countries and spread across borders in quick and unpredictable ways. In just five years, between 1994 and 1999, ten middle-income developing countries had a major financial crisis.²⁶ These "accidents" wrought havoc in these countries' financial systems, bankrupted their banks, set back some of the economic gains they had accumulated through years of painstaking reforms and, in some cases, unleashed a severe political turmoil. They also created the demand for reform in the rules and institutions that govern the international financial system.

What these crashes mostly created, however, was confusion. Was financial opening a good idea? Trade liberalization? Should currencies float freely or are countries better off with a currency board or some sort of pegged rate? Is the combination of hiking interest rates and tightening the fiscal belt as the IMF often prescribes in these situations good medicine or a poison that debilitates the patient and makes the illness more acute and harder to cure? Should the IMF be abolished or strengthened? Are the bailouts of countries in financial crisis a source of global stability or instability? These dilemmas are just a few examples from a long list of disagreements among the experts about how to approach and cement economic reforms in a global economy. These disagreements can be grouped into four general categories. The fix or float debate, the capital account liberalization debate, the inflate versus deflate debate, and the global financial architecture debate.

The fix or float debate is about the nature of the exchange rate regime a country should have and it is a testament to the still primitive nature of economics as a science. After all, the fact that at the end of the century economists are still unable to agree about exchange rate regimes would be akin to engineers disagreeing about the principles of how to design the structure of a building. Yet, while a certain convergence has emerged in favor of floating exchange rates [or, perhaps more accurately, against fixing the rate too rigidly], the debate is still far from reaching the kind of expert consensus that would make policy makers in emerging markets cross out this one from their long list of difficult policy dilemmas. After their respective crises, leaders in Mexico, Asia, Brazil, and Russia received a barrage of contradictory advice.²⁷ For at least a few years into the next decade, leaders of countries facing financial difficulties should expect to get highly conflicting advice on what to do with their exchange rate regimes. Even the experts who favor floating rate regimes will offer different prescriptions as to what specific kind of floating regime is the most desirable.

The debate about exchange rate regimes is closely related to the debate on the liberalization of a country's capital account. In the words of Alan Binder, a former Vice-Chairman of the US Federal Reserve Board, "the hard-core Washington Consensus—which holds that international capital mobility is a blessing, full stop—needs to be tempered by a little common sense."²⁸ Proponents of capital controls, however, do not share the same common sense about what kind of measures are the best. Some of the most radical proponents, like Paul Krugman, recognize that "there is virtually unanimous consensus among economists that exchange controls work badly".²⁹ Yet, in Krugman's judgement, the kind of impending disaster facing Asia at the time was of such magnitude that the only way out was to impose currency controls. For him, the costs of a system that made most foreign currency transactions not directly handled by the government illegal were tolerable given the alternatives facing the region. We now know, of course, that Asian countries are recovering and that, fortunately, the debacle envisioned by Krugman and others did not happen.

More moderate proponents like Blinder or the Council on Foreign Relations' Task Force on the Global Financial System, qualify their recommendations, stressing that they are not recommending the imposition of heavy-handed controls the protection of the local financial sector from foreign competition. Rather, the suggestion is to find mechanisms that just "slow down the flow of hot money".³⁰ The country most commonly used as the model to emulate is Chile. While open to foreign banks and allowing capital outflows, Chile in effect taxed the inflows of short-term capital.

This, however, is not a good idea, according to Sebastian Edwards, himself a Chilean, who is the former chief economist for Latin America at the World Bank. He writes: "Supporters of capital restrictions have misread Chile's history, and have heavily oversold the effectiveness of this policy. In fact, there are good reasons to believe that capital controls in Chile have not worked as expected and that they have largely failed to reduce macroeconomic instability."³¹ In fact, Chile eliminated its controls roughly at the same time that concerns about the volatility of the flows of portfolio capital led many commentators to recommend "Chile-type" controls.

Research by Barry Eichengreen and Michael Mussa confirms that countries with freer regimes on foreign capital had higher rates of economic growth. They also found that financial crises have more to do with inadequate banking supervision than with the opening of the country's capital account.³²

For many emerging markets the idea of imposing limits on how much foreign capital is flowing in must have the ring of past battles rather than those of the present, or even those of the future. Not many emerging markets are ending the decade with foreign money, hot, warm, or cold, overflowing into their economies. On the contrary, the decade is ending with a boom in Wall Street that makes investors wary of sending their hot money abroad. Internet stocks are providing the high risk and high rewards once supplied by the allure of emerging markets, only they do it with a higher credit rating. Moreover, investors' appetites for emerging markets have, at least temporarily, abated as a result of the many crashes that have affected these countries.

Many are still mired in the recessions induced by the stringent fiscal and monetary policies they had to adopt in response to their financial crises. Why a financial crash has to be cured with a recession is the crux of the deflate versus reflate debate.

Essentially, some economists argue that the unequivocal priority after a country suffers a financial crash is to stabilize its exchange rate even at the cost of plunging the economy into a recession. Protecting the currency from spinning out of control requires cutting public budgets, raising taxes and hiking interest rates. Naturally, this combination of measures slows down the economy and boosts unemployment. Moreover, in countries where banks had not been competently supervised and are not adequately capitalized, the recession may also create a costly banking crisis. This is, no doubt, bitter medicine, but to many experts there is no other solution. Stanley Fisher, the IMF's second-in-command, noted in the context of discussing the IMF's reliance on this approach in Asia, "I can't believe that serious people believe that without temporarily increasing interest rates, we could have contained the problems."³³

It turns out that there are plenty of "serious people" who believe that hiking interest rates is the wrong medicine. Some of them even sit across the street from Fisher's offices at the IMF: Joseph Stiglitz writes that "research by the World Bank . . . has identified pivotal factors contributing to financial crises, including sharp rises in interest rates" and that " a standard `one-size-fits-all' response to a financial crisis such as East Asia's clearly did not work and imposed a heavy cost for many in the region"³⁴ Harvard's Jeffrey Sachs is somewhat less diplomatic:"The IMF worked mightily and wrong-headedly to make the world safe for . . . short-term money managers. [It] bought into the investment-bankers mantra: exchange rate stability above all else . . . [and] encouraged central banks from Jakarta to Moscow to Brasilia to raise interest rates to stratospheric levels to protect their currencies".³⁵

MIT's Krugman shares this view and notes that "instead of trying to prevent or even alleviate the looming slumps in their economies [Asian countries] were told to follow policies that would actually dampen those slumps". He is also perplexed as to "why did the high-powered economists near the top of the IMF and the Treasury, as soon as they encountered a crisis, throw away the textbooks—indeed, do almost the opposite of what the textbooks would have suggested?³⁶ Across the corridor at MIT his colleague, Rudiger Dornbusch, who is also the author of one of such textbooks, sharply disagrees: "Many, including World Bank chief economist Joe Stiglitz, have been preaching liberation theology. The IMF is wrong they say . . . [but] It is not quite clear what stabilization is all about if not tighter money and sounder public finances . . . A successful stabilization without a hike in rates is like Hamlet without the Prince or Denmark . . . The World Bank's liberation theology is a very bad idea which only makes stabilization even harder. If one institution is guilty of malpractice it would be the World Bank³⁷.

Disagreements between the IMF and the World Bank are not new. Never before, however, have they been this profound and this public. These differences are also reflected in the debate about the global financial architecture.

This debate was heightened by the Asian crisis that began in Thailand in 1997. To many observers, the fact that the countries that were crashing were among some of the world's stellar economic performers meant that the problem lay less with the countries themselves than with the international financial system in which they operated. Thus, proposals to create a less accident-prone global financial system proliferated. In general, the proposals ranged from the sweeping, radical, and politically naive to the minimalist, technocratic, and practical. At one point, the British government proposed the merger the IMF, the World Bank and the Bank for International Settlements, while George Shultz, the former US Secretary of Treasury and State, demanded the abolishment of the IMF. At the other extreme, the IMF recently centered its efforts on understanding the workings of private credit rating agencies, with an eye to identifying ways to reduce the role that they may have in exacerbating international financial volatility.³⁸

In between these two extremes many complementary and contradictory proposals to increase the stability of the global financial system have been made. In general, these proposals fall into five general categories: 1] proposals that seek to increase the efficiency of international capital markets [improve transparency, prudential regulation, reduce moral hazard, improve IMF surveillance, improve risk management]; 2] initiatives to slow down the flows of short term international capital; 3] proposals to reform existing multilateral financial institutions and \or create new ones; 4] proposals to use exchange rate regimes to minimize currency fluctuations; and 5] initiatives aimed at improving international macroeconomic policy coordination.³⁹

Each of these categories includes proposals that complement others in the same categories and in the other four, as well as some that are mutually exclusive. In any case, the only consensus that seems apparent is that no sweeping redesigns of the global financial architecture are imminent and that the system today is only marginally better prepared to deal with large-scale, highly contagious financial crashes. This means that in the next crisis we should expect that, again, policy responses will be largely improvised and the institutional arrangements to deal with it will essentially be ad-hoc. This will be especially true if the next financial crisis is not in an emerging market but in a large industrial country deeply integrated into the global economy.

The Rediscovery of Underdevelopment

Early in the 1990s, the fashionable code words commonly used by politicians, experts, and journalists commenting on economic reforms were "macroeconomic stabilization" and "structural reforms". "Governance", "transparency," and "institutions" have now replaced these terms. Concerns about states that were too strong has now given way to concerns about states that are too weak. The obsession about crushing inflation, common in the late 1980s and early 1990s, has been substituted by the obsession about the need to curb corruption. Leaders of multilateral institutions today spend as much time stressing the importance of strengthening the rule of law in some of the problem countries as their predecessors did ten years ago about the need for their client governments to "get the prices right". Investing in physical infrastructure used to be the focus of the efforts of most multilateral development institutions. Today, investing in "social capital" and developing the organizational infrastructure of civil society is seen as an obvious, albeit formidably difficult, goal.

For much of this last decade, the sustainability of market reforms was a main concern. Now the concern is about the sustainability of democracy in many reforming countries, from Russia to Peru and from Indonesia to Venezuela. During the golden years of the "stage one" reforms, attention to international constraints was mostly concentrated on the protectionism of the richer countries that could slow down the export-led growth of the reforming countries. The decade is ending with a heightened awareness about the dangers of an international economic environment that periodically unleashes financial shocks that obliterate almost overnight the results of years of reform efforts. Poverty alleviation continues to be a paramount goal, but it now has to share the limelight with mounting concerns about the increase in inequality and its consequences. Inequality is now seen not only as a threat to political stability but also as a major drag on international competitiveness.⁴⁰

The reform agenda has become broader and infinitely more complex. World Bank President James Wolfensohn has become a vocal proponent of a broader agenda: "The Comprehensive Development Framework I am proposing highlights a more inclusive picture of development. We cannot adopt a system in which the macroeconomic and financial is considered apart from the structural, social and human aspects, and vice versa . . . What is new [in this proposal] is an attempt to view our efforts within a long-term, holistic and strategic approach where all the component parts are brought together . . . [through] a participatory process, as transparent and as accountable as possible within the political climate prevailing in each country."⁴¹

Some of the concerns that seem to inform Wolfensohn's concerns are similar to those first advanced in the 1940s and 1950s in what was then called "development economics".⁴² Underdevelopment could not be tackled, it was argued, without a broad based, all-inclusive approach that stressed the importance of institutions, inequality, "structural factors", cultural specificities, and the constraints imposed by the international economic environment. These earlier approaches also paid great attention to power relations, both inside the poor countries and within the international system, as well as the way these shaped development prospects.

An important difference in the current revival of these classic ideas of development economics is that, nowadays, almost all statements about reform priorities, economic agendas, or "new development frameworks," seem to require a strong preface clarifying that sound macroeconomic fundamentals are indispensable. After that clarification, however, the lists offered then proceed to outline an overwhelming set of societal transformations. For example: "The end of the Cold War . . . [offers] an unprecedented opportunity to make development work. To do this we need a consolidated package of specific requirements that include honest governments, open legislative and transparent regulatory systems, properly trained and remunerated officials and a vigorous commitment by leaders to fight corruption at all levels. We also need an effective and impartial legal justice system . . . " and the list goes on.⁴³ This quote is very useful because it not only illustrates how far the current agenda has drifted from orthodox economics of the early 1990s, but also how what used to be goals are now seen as "specific requirements".

The difficult paradox, of course, is that any country that is capable of meeting such stringent requirements is already a developed country. The means to attain utopia are themselves utopic goals for most countries.⁴⁴ This does not imply, of course, that these are not valid aspirations. They are valid but, mostly, they are overwhelming. The challenge, therefore, is to use the many lessons accumulated throughout decades of development efforts to create agendas that include intermediate stepping stones and more manageable goals.

While the 1989 Washington Consensus might have been too reductionist, it had the virtue of being concrete and action-oriented. Also, politicians adopted it because its goals looked achievable within the time horizon that most elected officials use to decide what their real priorities will be. Development prescriptions for the next decade ought to incorporate the many useful lessons in political marketing that can be derived from studying the reasons for the popularity of the Washington Consensus early in the decade.

The 1990s began with the widespread expectation that achieving sound market-oriented, macroeconomic fundamentals was the ticket for the prosperity that had long eluded poor countries. The decade is ending with the more frustrating but also more realistic understanding that sound macroeconomics is not a goal but just a precondition. It is also clearer now that the recipe for prosperity has many ingredients, that their exact quantities, mix, and the sequence in which they should be introduced are not well known. We have also rediscovered the fact that prosperity is harder to achieve and takes much longer than what was easy to believe in the triumphal few years following the fall of the Berlin Wall, The End of History, and the worldwide movement towards freer market economies.

The search to find widely acceptable syntheses of the public policies that should be used to move countries forward on the path toward prosperity will of course continue. As these pages have demonstrated, consensus on this subject is still elusive when the discussion moves from general goals to the means to achieve them. However, this decade has left a rich legacy in terms of the areas where action is needed and the search for policy ideas that attract a significant level of consensus. They can be grouped in five general categories. These five I's are: International economic stability, investment, inequality, institutions, and ideology. No matter what shape the future of economic reform takes, any new consensus that may emerge will surely include these elements.

International Economic Stability: As long as the evolution of the reforming economies is periodically derailed by powerful international shocks, it will be difficult to cement whatever gains are produced by the policies now in place. The solution is not to wait for a new "global financial architecture" that would eliminate the effects of the international economic cycle. Nor it is to impose a set of quasi-protectionist obstacles to trade and investment flows that would isolate reforming economies from external shocks. Rather, countries will have to develop a set of institutions and policies that mitigate the impact of the shocks when they come, and come they will. Examples of such measures are the commitment to strong and well supervised banking systems, the establishment of a network of contingent international lines of credit and other such arrangements that would kick in automatically in case of a sudden eruption of international credit crunches, the establishment of public budgeting processes and institutions that counter the effects of external shocks instead of amplifying them as has often been the case in recent years and, last but not least, an exchange rate regime that diffuses the impact of external shocks. Many countries have already began to move in this direction and some have made significant progress in accepting that international financial volatility is here to stay and thus they must prepare for it before the next shock hits their shores. As discussed above however, there are profound disagreements among economists about how to achieve these goals. The development of ideas that reduce the area of disagreements is certainly a priority.

Investment: Without investment there is no economic growth and without it no economic policy is sustainable. Economic growth is not always sufficient to alleviate poverty. Nonetheless, we know that without growth, all other poverty alleviation efforts fall short.

From this perspective, both savings rates and foreign investment become critical variables. Most recent research shows that higher savings rates are better approached as an outcome resulting from the successful implementation of a variety of other policies rather than as a target.

Even if, as the Asian crisis has shown, a high rate of savings does not protect a country's economy from crashing, a higher savings rate is needed to develop a stronger financial system that helps to buffer the economy from external shocks. Mostly, however, higher domestic savings and foreign capital are needed to cover the costs of the huge investments that most reforming countries require to catch up with their high demand for infrastructure and social services.

Therefore, given the magnitude of the demand for investment in most countries, dependence on foreign capital will remain significant for many years to come. Countries with the combination of conditions and policies that are attractive to private investors in general (and foreign investors in particular) are going to find that it is easier to fund their social programs and build public support for the policies they are pursuing. The capacity to attract and retain private investment will be a crucial defining factor in the economic stability of a country and the sustainability of policies that can, over time, improve the living conditions of the poor.

In this sense, it is also worth remembering that the many episodes of massive capital flight tend to transform most domestic investors into international investors. Therefore, the conditions needed to attract them and motivate some degree of capital repatriation are not that different from the set of incentives that all other foreign investors usually require to put their money in a given country.

Inequality: Inequality is not a new phenomenon. In recent years, however, globalization, democracy, and the information revolution have brought it to the center of political debates. While poverty continues to be a focus of political attention, nowadays it has to share the stage with inequality. This is because worldwide inequality is increasing. But the increased importance of inequality also results from heightened awareness about it. As Rene de Chateaubriand had already noted in 1841, "The too great disproportion of conditions and fortunes could be sustained as long as it was hidden; but as soon as this disproportion has been generally noticed, the death blow has been dealt.⁴⁵"

This means that in the years to come we will see renewed efforts to fight inequality. In some countries these efforts will amount only to populist rantings and the adoption of policies that sound good but that in practice increase inequality and retard development. Examples of these are the adoption of protectionist trade and investment policies, taxes that scare investors away while not really distributing wealth, social protection policies that cannot be funded without generating inflationary deficits, labor laws that overly benefit those already employed while reducing opportunities and income for unemployed workers that need it the most, or the support for demands of public sector unions that in effect cripple the capacity of the state to deliver social services. The central message is that inequality will increasingly become a political lightning rod, pressuring governments to take swift actions against it and show tangible results in reducing income gaps. In some countries, this is likely to lead to the adoption of policies that will delay growth, increase poverty, and retard any significant progress towards a more just distribution of income. In others, it may lead to a healthy focus on the urgent need to improve the performance of public institutions, especially those in charge of providing education and health to the poor.

Institutions: Public sector institutions are the black hole of economic reforms. In most countries they absorb efforts and investment that yield obscenely low returns to society, their personnel practices distort labor markets, reduce countries' overall productivity, impair international competitiveness, and are easy prey to vested interests that steer the implementation of policies away from the general public good. Public institutions are often at the center of the corruption that impairs and discredits reform initiatives.

Malfunctioning institutions are not a new phenomenon and have been, since time immemorial, at the core of most developing countries' incapacity to achieve higher living standards.

The privatizations of the 1990s, the elimination of government controls, and the deregulation of many sectors of economic activity together with more prudent public spending, have done wonders to alleviate some of the problems that plague these countries' institutional landscape.

Yet, in most poor countries public sector institutions do not function properly or simply don't work at all. Many, like schools, hospitals, or police departments, are overwhelmed by a booming demand for which they don't have, and have never had, the adequate personnel or equipment to respond. Others are paralyzed by labor laws and various regulations that stifle any attempts at efficiency. And still others like customs, jails, or agricultural subsidies' boards, are often corrupt to their core.

Revamping institutions obviously requires a long-term commitment and the capacity to tackle difficult political and technical challenges that have no preordained solutions. Moreover, institution-building is also very vulnerable to political discontinuities and economic volatility. A change of minister or a sudden budget cut can do away with years of efforts aimed at building competent teams or modernizing the organizational culture of a public agency.

Sound macroeconomics and a competitive private sector are necessary. But stability and market reforms are bound to be periodically derailed without a strong and efficient public sector. Yet, the real challenge ahead is to make sure that the urgency of the need to strengthen institutions and therefore the political will to allocate massive resources to these initiatives do not get too much ahead of the limited existing knowledge about how to do this right.

Ideology: "In much of the world, the search [is] under way for an alternative to what has come to be called neoliberalism, an alternative that would make the market shift—the global turn to markets—more people-friendly than it has been so far. . . . The neoliberal version of the market economy may favor the interests of big international business. . . . However the neoliberal program suits almost no one else.⁴⁶" The co-author of this February 1999 article containing a scathing criticism of neoliberalism and calling for a profound revision of its main tenets is none other than Carlos Salinas de Gortari, who until the Mexican crash of 1994 was the poster boy for the neoliberal approach.

Similar criticisms and calls for an alternative model have become quite common all over the world. In fact, Salinas's text is more interesting because of its author than because of the originality of its criticisms or the practical usefulness of its proposals.

The point is that the debate about the right economic approach is, thankfully, far from over. In some countries this debate may lead to experiments that diverge drastically with some of the basic ideas of the 1990s that we now know are necessary but not sufficient. These departures are likely to end in major economic and political catastrophes and an eventual return to the basic features of the approach now en vogue. In others, the debate may lead to innovations and refinements that, while respecting the need for macroeconomic balances and avoiding the over-reliance on the state may in fact accelerate development.

As usual, the most important ingredient for the cure of a sick country will be also the most elusive and random: the quality of its leadership.

Table 1: Two Stages of Economic Liberalization
	Stage I	Stage II
Priorities	Reduce inflation Restore growth	Improve social conditions Increase international competitiveness Maintain macroeconomic stability
Reform Strategy	Change macroeconomic rules Reduce size and scope of the state Dismantle institutions of protectionism and statism	Create and rehabilitate institutions Boost competitiveness of the private sector Reform production, financing, and delivery of health care, education, and other public services Create "economic institutions of capitalism" Build new "international economic insertion"
Typical Instruments	Drastic budget cuts and tax reform Price liberalization Trade and foreign investment liberalization Private sector deregulation Creation of social "emergency funds" bypassing social ministries "Easier" privatizations	Reform of labor legislation and practices Civil service reform Restructuring of government, especially social ministries Overhaul of administration of justice Upgrade of regulatory capacities Improvement of tax collection capabilities Sectoral conversion and restructuring "Complex" privatizations Building of export promotion capacities Restructuring relations between states and federal government
I. Principal Actors	Presidency Economic cabinet Central Banks World Bank and IMF Private financial groups and foreign portfolio investment	Presidency and cabinet Congress Public bureaucracy Judiciary Unions Political parties Media State and local governments Private sector
Public Impact of Reforms	Immediate High visibility	Medium and long term Low public visibility
Administrative Complexity of Reforms	Moderate to low	Very high
Nature of Political Costs	"Temporary corrections" widely distributed among population	Permanent elimination of special advantages for specific groups
Main Governmental Challenge	Macroeconomic management by insulated technocratic elites	Institutional development highly dependent on midlevel public sector management
Source: Moises Naim:Latin America's Road to the Market: From Macroeconomic Shocks to Institutional Therapy (San Francisco; ICEG, 1994)