Latin American countries need to implement wide-ranging reforms to heal their ailing economies and stimulate growth. That's the assessment of Washington's Institute for International Economics, which issued a study Monday on economic policy in Latin America.
Banker and economist Pedro-Pablo Kuczynski, co-author of the study, says the failure of free market policies, since 1996, have produced not growth, but crises in Argentina and Brazil.
Mr. Kuczynski, who in 2001 and 2002, was finance minister in Peru, says it is a mistake to blame the region's poor performance on the market opening and trade liberalization policies known as the Washington consensus. He suggests the title of the new study -- After the Washington Consensus, Restarting Growth and Reform in Latin America -- is misleading. "I was not very much in favor of repeating the title Washington Consensus [in this book], because it is interpreted in Latin America as a diktat from Washington, which it is not," he says. "It is instead a series of fairly common sense, humdrum home truths. You know, don't spend more than you've got, etcetera."
Mr. Kuczynski and co-author John Williamson say Latin America is prone to economic crises. Its collective economy is relatively small, with a gross domestic product one fifth the size of that of the United States.
Unlike East Asia, Latin America has low savings rates, and has been unable to achieve sustained high economic growth rates. In fact, over the past two years, the Latin American economy has shrunk, as Brazil and Argentina -- two of the continent's biggest economies -- sank into recession.
Mr. Kuczynski believes that, without far-reaching policy reform, the Latin America economy is unable to expand by more than five percent annually. "Once we're back at a five percent long-term [growth] track, which is what we had from 1945 to 1980, then you can look at the additional things you need," he says. "And the additional things you need are innovation, education and infrastructure." The authors argue that flexible exchange rates are vital to crisis-proofing Latin American economies. Credit, they say, must be made more accessible, particularly in rural areas. And governments must take steps to remedy the very unequal distribution of incomes.