For Immediate Release: March 13, 2001
Contact: Carmen MacDougall, 202-939-2319, cmacdougall@ceip.org

In a report released today, a blue ribbon commission of the Carnegie Endowment for International Peace and the Inter-American Dialogue urged Latin American governments to redirect their economic policies toward an all-out battle against the region's problems of inequity and social injustice. The commission also called on the United States and other rich nations to help by eliminating their protection of agriculture and textiles, which reduces job and income opportunities in developing countries, especially for the poor.

Authored by Nancy Birdsall, senior associate at the Carnegie Endowment, and Augusto de la Torre, former head of Ecuador's Central Bank, the new report discusses the failure of the so-called Washington Consensus economic reforms to make headway against Latin America's massive poverty and sharp inequality, or to relieve the widespread personal insecurity of ordinary people. The report-entitled Washington Contentious: Economic Policies for Social Equity in Latin America-sets forth a menu of economic policy alternatives for governments that want a better future for all their citizens. Eleven policy instruments-10 domestic and one international-are discussed in detail.

According to Brazilian President Fernando Henrique Cardoso, the report "clarifies the central challenge for our region in this new century: to end social injustice at the same time we sustain macroeconomic discipline and rapid economic growth." Nobel Peace Laureate Oscar Arias said the study "contains ideas whose time has come," ideas that for former U.S. Treasury Secretary Larry Summers could transform into reality the "high tide of good rhetoric about reducing poverty and increasing equity in Latin America."

The report's "ten-plus-one" menu of economic alternatives is:

1) Rule-based fiscal discipline. Fiscal indiscipline has high costs for the poor and the emerging middle class. Commitment to fiscal discipline must go beyond idiosyncratic efforts to a healthy budget grounded in transparent rules and procedures.

2) Smoothing booms and busts. Booms are better for the rich, busts worse for the poor. Fiscal and monetary policies and tough banking and other financial standards to manage volatility and minimize crisis cannot be improvised. They should be locked in when times are good. (more)

3) Social safety nets that trigger automatically. A modern system provides an income floor for working and middle class households as well as the poor. During slumps, spending should kick in automatically for emergency public works employment and subsidies to families to keep their children in school.

4) Schools for the poor, too. Today's centralized systems reinforce inequality. Critical reforms include more school autonomy, lower subsidies to the better-off for higher education, and more public spending on preschool programs. Education policy must embrace the Internet, with public subsidies to ensure that every school and every community benefits from this revolution in access to knowledge.

5) Taxing the rich and spending more on the rest. The region relies heavily on consumption taxes that are regressive. Closing income-tax loopholes and reducing evasion would increase revenues without adding to the tax burden of working and middle-income households.

6) Giving small businesses a chance. Weak financial and judicial systems and onerous red tape block small entrepreneurs from expanding their businesses. Improved enforcement of credit contracts and shareholder rights, the end of insider credit from state-owned banks, and access to information and professional services would help create more small firms and more jobs.

7) Protecting workers' rights. The poor bear the cost of a job-contracting environment that has too little worker protection and too many legal rules. Latin America needs more aggressive protection of workers' rights of association and collective bargaining, more independent and democratic unions, and more social protection to replace inflexible rules that discourage job mobility and growth.

8) Dealing openly with discrimination. A serious attack on poverty and inequality has to include a visible attack on discrimination. Political leadership can help break down the social and political barriers that hurt blacks and members of indigenous groups-and, in some arenas, women.

9) Repairing land markets. A new generation of land reform programs can make rural land markets truly competitive-finally giving the rural poor a fair chance. The new approach emphasizes credit and community involvement and relies less on centralized bureaucracy.

10) Consumer-driven public services. Shortcomings in infrastructure, public health, and such regulatory services as consumer protection have cost the poor and the near-poor dearly. Poor and other low-income consumers must now be at the heart of a new culture of service delivery.

Plus 1. Reducing rich-country protectionism. Rich countries' barriers to agriculture and textile imports aggravate poverty and reinforce inequality in Latin America. Lowering them will do the reverse.

Nancy Birdsall and Augusto de la Torre jointly wrote the report with the help of Rachel Menezes of the Inter-American Dialogue.

To request a copy of the report, please send an e-mail to: pubs@ceip.org or rmenezes@thedialogue.org. The report, including the list of commission members, can also be downloaded at http://www.ceip.org/publications. A transcript of the March 13 press conference at the Carnegie Endowment will be available on its web site.

Click here for full report.