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The panel at the World Economic Forum concluded that talk of the death of the Washington Consensus was exaggerated, although parts of it would need revision in light of the global economic crisis. ¡§ The core principles of consensus ¡V good economic governance, trade liberalisation and fiscal discipline ¡V remain valid as governments struggle to find a way out of the world¡¦s economic woes. But, given the controversy surrounding it, the Consensus may need a new name,¡¨ a report of the WEF concluded .

John Williamson, an economist at the International Economics Institute, coined the term Washington Consensus in 1989 to describe a set of policy prescriptions widely adopted by the International Monetary Fund, the World Bank and the US Treasury . The Washington Consensus is characterised by fiscal policy discipline, redirecting public spending from subsidies to pro-growth areas such as education, healthcare and infrastructure investment, tax reform, market-determined interest rates and positive in real terms, liberalisation, privatisation of state enterprises, deregulation, environmental and consumer protection, oversight of financial institutions and legal security for property rights.

At the World Economic Forum, the panel concluded the Washington Consensus was not dead ¡V it would need to be more flexible, adapted to the needs of individual countries.

The Consensus, the World Economic Forum panel said, underestimated the importance of sound political and financial institutions, for example, which are a prerequisite for a country to follow its prescriptions successfully. When domestic institutions are not strong, the principles of the Consensus are difficult to apply and can even be harmful. The following were their key points:

ƒÜƒnA revised Consensus would need to put more emphasis on equity and fairness. Some of its prescriptions must be defined more precisely and they would have to take account of what worked and what did not, as countries sought to overcome the current crisis.

ƒÜƒnAll countries were facing recession and this required that they sought to boost aggregate demand by relaxing monetary and fiscal disciplines. But, to be effective, these policies required international cooperation.

ƒÜƒnSome panellists expressed concern the crisis had triggered a sharp rise in state involvement in the economy, which may not be easy to reverse once economic conditions improve. There could be an increase in such measures, which contravened the spirit of the Consensus, over the coming months. Some countries, such as Russia, had a long experience of the inefficiencies that heavy state involvement in the economy could bring.

ƒÜƒnUS governments, which had been strong proponents of the Consensus, had not always applied its prescriptions at home.

ƒÜƒnThe Consensus had been an important factor in the improved economic performance of many countries in Asia and Latin America. However, there were countries, notably in Asia, that have experienced economic success without following it.

Thailand came to know the Washington Consensus in practice in 1997 when the financial crisis forced the country to seek a bail-out from the International Monetary Fund. The IMF, backed by the US Treasury Department, prescribed a rigid economic formula surrounding the Washington Consensus to cure the Thai economic ills. The policy prescriptions included economic stabilisation through high interest rates to protect the baht and fiscal surplus to clean up the bubbles and pay for the cost of financial sector restructuring, shut-down of any weak financial institutions, further bank liberalisation to bring in newcomers, selling off or privatising the state enterprises to improve their management and services, and freeing up capital controls to let the market to determine the exchange rates.

Some of these policy measures were revised in a subsequent letter of intent with the IMF after they were proved to further aggravate Thai economic ills. The fiscal surplus was reverted, interest rates were brought down, financial institutions were restructured rather than outright closed down. Yet the Washington Consensus formula was still in content and spirit hovering above the mind of the IMF and the Thai policy-makers and private sector, although its basic formula had been proved disastrous.

In the US, the Washington Consensus principles are now losing ground. Milton Friedman (1912-2006), the champion of the free market, was dead. His idea that the market should be left to look after itself is no longer in vogue. Alan Greenspan, former chairman of the US Federal Reserve, was also one of the advocates of the free market principle. He believed the market could look after itself. Through liberalisation and deregulation, the free market would create prosperity to the economy. The US went on to deregulate the financial services until the financial sector accounted for 40 per cent of corporate profits.

But events have proved otherwise. The market does not know best. Banks, which are in the business of taking deposits and lending money for profit margins, have broadened their services to involve complicated financial services that even the management have little understanding of. AIG was on the verge of collapsing last year had it not been for government intervention. So were most of the major US financial institutions. Greenspan came to admit he had thought the banks¡¦ or Wall Street firms¡¦ management would look after the interest of their shareholders. As it turned out, everybody was going after his or her own interests and nobody knew exactly what was going on. George Soros, the hedge fund financier and Joseph Stiglitz, the Nobel laureate in economics, have been against the Washington Consensus.

During the Thaksin era, Thailand adopted the Washington Consensus with a stronger dose, with free trade agreements, privatisations and further liberalisations. With the military coup in 2006, capital controls in that year and poor government performance, Thailand has escaped from the financial crisis by default. Otherwise, the Thai banks would have got involved in silly transactions or toxic instruments that would have become a burden for the government.

The jury is still out over how Thailand should pursue its economic policy in the face of the collapse of global financial capitalism and to what extent it would continue to stick to or fine-tune the Washington Consensus. But it is really time Thailand pursued an economic policy of its own, based on a sufficiency economic model, which emphasises its strength rather than its weakness.