'Washington consensus' author warns Brazil of risk Thursday August 28, 5:29 pm ET By Andrew Hay
BRASILIA, Brazil, Aug 28 (Reuters) - John Williamson, who drew up the "Washington consensus" of economic policies, on Thursday said Brazil had learned a lot from recent economic crises but was still vulnerable to financial shocks.
The British economist said Brazil's high interest rates and high level of public debt exposed it to the same crises that made the 1990s a "decade of disappointment" for Latin America.
"If there was a new international crisis, Brazil really doesn't have any alternative policies to limit its effects," said Williamson, in Brazil to promote an updated version of his 14-year-old set of policies.
What partially protects Brazil from such crises today is its shift from a pegged currency to a floating currency which took place in 1999 due to investor fears of a crisis like the one that shook Asian economies, Williamson said.
To build on that protection, he suggested Brazil follow his new proposals which urge nations to focus on sustainable growth, programs to lower wealth inequalities and institutional reforms -- policies missing from the original consensus.
Created in 1989, the "Washington consensus" urged developing nations to undertake privatizations and promote free trade to open their closed economies to world trade.
A series of financial shocks in the 1990s, combined with low global commodity prices and poor or incomplete implementation of consensus policies meant most Latin American nations that adopted them failed to see their full results.
The term "Washington consensus" has lately been used by politicians and media commentators to criticize pro-market policies that have inflicted economic pain but failed to improve the lives of most Latin Americans.
Williamson said it was too early to say if Brazil's eight-month-old government had adopted the new "Washington consensus" but it was clear President Luiz Inacio Lula da Silva was "no Communist", as some investors had feared.
He praised Brazil's Central Bank for attacking interest rates at four-year highs and called for more rate cuts to make debts easier to pay, especially in the event of a crisis.
He urged the government attack its high debt, which stands at more than 50 percent of gross domestic product.
Central Bank President Henrique Meirelles, sitting alongside Williamson, said Lula had shown he intended to balance economic and social development.
"This government is trying to show that it's possible to have sustainable development with social inclusion, with the prerequisites of macroeconomic stability and fiscal balance," said Meirelles.
Lula spent his first six months in power focused on fighting inflation and balancing public accounts as unemployment hit a 20-month high and the economy entered recession. He has promised to concentrate on social programs once Brazil is on a path toward sustainable growth.
"Brazil has changed a lot," said Williamson, who is himself married to a Brazilian and speaks fluent Portuguese.