Reforming the Reforms: Why and How

Latin America lived through a period of deep economic reforms during the 1990s, framed by the so-called “Washington Consensus.” Dramatic changes affected the relative importance of the State, which saw its sphere of action diminished amidst deregulation, massive privatization, the reduction of public investment and expenditure, giving broader space for the working of private agents. One of the crucial objectives of reforms has been to improve the environment for productive activities and to achieve a sustainable higher GDP growth. Two purposes commonly stated by neo-liberals have been the achievement of a “market friendly” environment and “right prices.” Throughout this text it will become evident that reforms have failed in both aspirations: productive activities — firms, entrepreneurs, labor — have faced, frequently, an unfriendly domestic scenario, with wrong outlier macro prices such as exchange and interest rates. It is evident that there is need to be market-friendly and to have right prices for a market economy to achieve development. The crucial point is that priority must be granted to productive activities and employment; it is impossible to have, in general, good consumers that are bad producers. In contrast, frequently, priority to purely financial activities has resulted in outlier exchange and interest rates and volatile aggregate demand, all providing a most unfriendly environment for productive activities.