Beyond the»Washington Consensus«: Macroeconomic Policies for Development HANSJÖRG HERR/ JAN PRIEWE I n this paper, we argue that a high rate of capital accumulation is vital for economic development 1 and poverty reduction and that improving the efficiency of markets on the micro level(improved allocation of re­sources) does not necessarily trigger growth. Instead, a stable monetary system with a high»quality« local currency and, in particular, a sustain­able balance of payments constellation are key factors. This stands in con­trast to the so-called»Washington Consensus«. Along these lines, in the first part of this article we analyse a scenario of underdevelopment and development. We show that the rapid economic growth in China over the last 25 years fits very well in this positive scenario of development. Generally speaking, most East and South Asian developing economies have in recent decades exhibited strong growth, whereas Latin America and Sub-Saharan Africa have stagnated in terms of growth per capita. 2 The expression»Washington Consensus« was coined to capture the vision of the Washington-based institutions – especially the International Monetary Fund( imf ), the World Bank and the us Treasury – designed to bring about development in Latin America, but later applied to all de­veloping and transition countries. In part two we discuss the Washington Consensus and its later modification. Here, we identify some macroeco­nomic shortcomings and a lack of clarity. We conclude that macroeco­nomic policies must play an important and comprehensive role, espe­cially in developing the domestic financial sector, whereas the Washing­1. Here the term»development« is used in the sense of sustained growth, high enough to contribute to reducing poverty. We are well aware, of course, that development is more than just a matter of growth. 2. From 1980 to 2002 average annual per capita gdp growth(in 1995 us -Dollar) was –0.6 percent in Sub-Saharan Africa, 0.2 percent in Latin America, 3.2 percent in South Asia(India contributes about 75 percent to the region’s gdp ), and 5.9 percent in East Asia and the Pacific(China being the biggest contributor with 61 percent) (own calculations with World Bank 2004; the figures include only developing countries). 72 Herr/Priewe, Macroeconomic Policies for Development ipg 2/2005