In the early 1990s, most of Latin America enthusiastically embraced the pro-market reforms associated with the “Washington Consensus”: market liberalization, deregulation, and privatization.* Much was expected from these reforms, but now we are keenly aware that, relative to their outcome, those expectations often suffered from excess optimism. Views differ widely, however, on the extent and nature of the excess and reasons behind it. For some analysts, the initial optimism was groundless because the reforms themselves were the problem. The pro-market reforms of the early 1990s, they would say, were based on faulty theory and hypotheses and, hence, they did little to alleviate (and may have even helped accentuate) the Latin American problems of low growth, high volatility, and high inequality. In the view of such analysts, countries would have been better off with less reforms of the Washington Consensus type. At the opposite extreme are those who contend that there was nothing wrong with the direction of the reform process itself and that the problem was likely in the poor and incomplete implementation of reforms. In their view, Washington Consensus-type reforms were part of the solution and countries would have been clearly better off with more and better-implemented reforms, particularly if the initial reforms that focused on liberalization and privatization were complemented to a greater extent with the building of market-supportive institutions.
This book is a timely and important contribution to such policy debates. While it focuses on capital markets in emerging economies, particularly Latin America, its empirical results and policy insights are also pertinent to the broader debate on economic development and pro-market reforms.
As for its specific focus, the book is a unique and thorough “stock taking” of securities markets in Latin America. It takes the reader on a grand
* The term “Washington Consensus” was coined by Williamson (1990). See World Bank
(2005) for a review of the reforms during the 1990s and a discussion of their policy lessons.