1. Juan Carlos Echeverry Universidad de los Andes Madrid, October 9, 2002 Structural reforms and Growth Comments

2. Currently there are problems with what economists held as the basic truths during the 1990s, both for developed economies and for emerging ones.

3. How was the 1990s mainstream? Developed economies -Globalization -Power of Information technology and New economy -Financial liberalization -Monetary policy and the fight against inflation The Economist (Oct. 4, 2002) -Global integration reinforces downturns more than dampens them -IT intensified business cycle instead of smoothing it out -FL: two edged sword, promotes borrowing bubbles -MP: low inflation is no guarantee for stability; credit cycles were unattended by central banks

4. How was the 1990s mainstream? Emerging Markets -Structural reforms: trade, financial, tax, labor and privatization (The Washington Consensus) -Access to international capital markets (financial liberal.) -Focus on institutions: crucial for long term growth -Democracy Current situation (Lora and others) -SR: necessary (they promote growth), but not sufficient -FL: promotes borrowing bubbles and speculative attacks -Institutions: the multilateral banks to-do-list is affordable only for countries already developed Birdsall-de la Torre -Democracy: discontent and risk of anti-reform sentiment

5. How was the 1990s mainstream? In sum, both in developed economies and emerging markets there is discontent with the 1990s mainstream New ways of thinking about development and stability are needed.

6. Is the 1990s mainstream here to stay? Challenging political views are back-firing -Venezuela -Argentina -Brazil -Peru Apparently there are 3 views to choose from: -Washington: the institutional reform to-do-list -Santiago/CEPAL: new equilibrium btw. State & the market -Porto Alegre/anti-globalizers: rich mans responsibility on poor mans burden

7. Is the 1990s mainstream here to stay? Can the emerging economies choose between -Washington -Santiago and -Porto Allegre ? The markets punish such trial and error and they represent non-coherent views of the role of the market and the state.

8. Where to go from here? Political constraints Democratic elections -It is a process of (painful) learning from mistakes -Not for choosing the right guy, but for getting rid of the wrong one under accepted rules Congress Constitutional courts The lobbying process of powerful players However, consistency is necessary between them: we know little about it

9. Where to go from here? The regenerative power of our capitalism Can we keep the faith that consolidated reformed economies will respond better to positive opportunities and recover faster from back-slashes? Should we stick to The fads of economic development? Capital per capita in 1960s Macroeconomics in 1970s Microeconomics in 1980s Institutions in 1990s

10. Where to go from here? The fiscal problem: 1. The constitution and some Contracts: pension liabilities, transfers to the regions, interest payments and part of the wage bill 2. Discretionary elements: government revenues, consumption and investment Elements of 1. Have to be modified for fiscal stability.

11. Where to go from here? The role of the multilaterals: The Board: US$ 400 m.for a pension reform The type of lending: there is a time for small targeted loans, and there is a time for large sectoral loans.

12. Where to go from here? The structural reforms: the labels and the content Normally there is consensus on the broad picture and details are left to practitioners specialized lawyers and congressmen. However, lobbyists and the congress know how to add small details that mean a lot

13. Concluding remarks 1. The consistency between economics, politics, the judiciary system and lobbying 2. The to-do-list: capital per capita, macro and micro reforms, and institutions 3. The discretion of fiscal policy 4. The role of the multilaterals 5. What will be the outcome of the anti- reformist wave