Sunday, April 22, 2007

1. Washington Concensus???

Just like many words thrown around they soon lose any defined term that conveys from one person to another what it means. Much as Neocons, Neoliberalism and Globalization have all lost meanings of what they convey from one person to another. Maybe I am trying to be too technical but I think that each theory is made up of a set of assumptions or beliefs that frame the mindset. But many people start attributing ideas that have nothing to do with the core beliefs are, like in 'Neocon Economic Theories'.

When I first came across the phrase "Washington Consensus" all I could see that could possibly be related was the work done by Jacques J. Polak in the 1950s. One of his most recent articles was the working paper for the IMF entitled: The IMF Monetary Model at Forty (registration required for an original PDF here).
As you will see when you come to study this approach, the financial programming methodology of the IMF is in fact based on a simple model, first developed by the Dutch economist Jean Jacques Polak. Polak was a staff member of the IMF at the time he developed his model, almost a half century ago. Notwithstanding the fact that the model was developed many years ago, you will see that the basic assumptions contained in the Polak model remain as applicable today to the approach that the IMF takes in establishing a financial programme with its member countries as the model was when it was first proposed.

I also covered some of his theories in my assignment for FE201, and if anyone wants me to post more about his theories from class notes, let me know.

After reviewing my notes again preparing for my tests I ran across the following passage in regard to alternatives to the Financial Programming Approach:
3.3.1 What are those different theories?
One example is the ‘financial liberalisation’ model developed by Ronald McKinnon, Edward Shaw and their followers. It provides a theoretical framework for policies of high interest rates and the abolition of credit controls, the policies that both the IMF and World Bank have promoted vigorously since the early 1980s.

Another of the theories underlying major IMF and World Bank policies is the theory of ‘rent-seeking’ developed by Ann Krueger (1974). This models the incentives to ‘wasteful’ activity, which the existence of quotas and controls may stimulate by encouraging unproductive activities that seek monopoly profits. It has provided a theoretical justification for World Bank policies to abolish controls and quotas.

Similarly, the theory of ‘comparative advantage’ provides a logic for IMF and World Bank attempts to abolish barriers to international trade.

The point is that the financial programming and growth programming frameworks (which can be classified as ‘macroeconomic’) do not include these (‘microeconomic’) theories as integral parts, but the latter are important elements in the theoretical discourse of the IMF and Bank underlying their key policies.
3.3.2 Structuralist models of stabilisation policy
In the earlier sections of Unit 3, you met some of the key challenges that characterise the IMF’s approach to stabilisation. These issues revealed that although
the IMF approach to stabilisation policy has clearly become the dominant approach since the 1990s, it is by no means considered to be either the only or the best approach to stabilisation. In fact, the financial programming approach represents one of several alternate approaches that policy makers can apply Unit 3 Alternate Approaches to Stabilisation when trying to stabilise their economies. One of the most powerful of these alternative approaches is the structuralist approach.

The "Structuralist Model" was covered in much more depth but was of great interest to myself, and hopefully will be covered in other posts. But know we have name for it as well as a couple of names that correspond to what others say is the Washington Consensus.

I know that my posts can be pretty boring with just some cut and pastes, but this is a process of building a library of the different theories. This luckily now has tied in with my "Development Process: Principles and Experience". So this now leads to re-exploring "The Two Gap Model" and the "Financial Repression Model" that Shaw and McKinnon developed in the early 1970s.

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