What Washington Means by Policy Reform

Abstract

This chapter aims to set out what would be regarded in Washington as constituting a desirable set of economic policy reforms. It identifies and discusses ten policy instruments about whose proper deployment Washington can muster a reasonable degree of consensus. The policy instruments include fiscal deficits, public expenditure priorities, tax reform, interest rates, exchange rates, trade policy, foreign direct investment, privatization, deregulation, and property rights. When a fiscal deficit needs to be cut, there are three major expenditure categories on which views are strongly held: subsidies, education and health, and public investment. There is very broad agreement in Washington that large and sustained fiscal deficits are a primary source of macroeconomic dislocation in the forms of inflation, payments deficits, and capital flight. The economic policies that Washington urges on the rest of the world may be summarized as prudent macroeconomic policies, outward orientation, and free-market capitalism.