The economic experiences of the Latin America nations in the past decade have raised a numerous questions about appropriate policies in a more open, globalized world economy. In different ways the papers presented here address some of the most important of these issues.

• Bannister's examination of the exchange rate policies that might work for different Latin American economies, set in the context of review of Colombia's inflation targeting approach, provides a number of insights into the consequences of exchange rate setting subject to a variety of macroeconomic and political constraints.
• Braga's review of Brazil's experience with export processing zones extends our understanding of the ways in which trade policy might operate to support specific economic development goals.
• Finally, Canova's wide-ranging and critical look at the apparent consequences of the adoption of neo-liberal economic policies by the Latin American economies helps us comprehend why these policies have been led to so much economic stress and even conflict in a number of the region's economies, most recently and notably in Argentina.

Currency regimes and exchange rate policies in Latin America are the focus of Geoffrey Bannister's paper. At one extreme are the examples of Ecuador and El Salvador, which have followed this approach since 2000 and 2001 respectively. To them we might also add Panama, whose balboa is for many purposes as much a dollar as any Latin American currency. As Bannister notes, the price paid for this extreme degree of linkage to the U.S. currency is the surrender of monetary sovereignty, with decisions about the amount of money available, credit conditions and other monetary variables effectively relegated to the Federal Reserve. While this may be appropriate for small open economies with a high degree of trade and investment orientation to the U.S., as may be the case for Ecuador and El Salvador, it is questionable whether such a policy is appropriate for larger and more diversified economies.

Argentina is treated by Bannister as something of an intermediate policy regime, as indeed appears to be the case. In many ways Argentina's currency board and one-to-one parity may have secured the worst of both worlds for its citizens, as it progressively narrowed the country's macroeconomic options in the name of price stability. One might extend Bannister's criticism of the Argentine case by explicit consideration of the way in which the fixed peg worked when the prices of some goods and services were much more linked to world markets than were others. In my view, the Achilles heel of the Argentine policy was this failure to recognize that mere exchange rate pegging, without attention to its relative price effects, will create an increasingly untenable set of distortions which eventually tear apart of the price and financial system of a semi-developed economy like that of Argentina. There are, of course, many other dimensions to the Argentine disaster, but this relative price effect is of central importance. A fixed exchange rate ties the prices of goods and services in the economy that are reasonably "tradeable" to those of world markets. For commodities such as wheat or petroleum, for example, a fixed nominal rate might indeed bring price stability, provided the rate itself can be sustained over the long run. But it does not automatically stabilize the price of labor services, apartment rents, or many other "non-tradeables". The resulting distortion, with tradeable prices stabilized or even falling, while non-tradeables rise, is a strong and eventually crippling blow against current account equilibrium, since it discourages exports and encourages imports. The consequent external account imbalance must be financed. In Argentina this accomplished for some time by simply trumpeting to the world that inflation had ceased-as it temporarily did-and by the subsequent selling off of many state assets to foreign investors. But financing a current account imbalance is not the same as eliminating its underlying causes, which were never adequately addressed.

Colombia's more pragmatic approach, using a flexible nominal exchange rate and publicly known inflation goals, is clearly a less dangerous policy course. Banister traces the gradual evolution of the system, which permits a degree of discretion for monetary authorities while simultaneously committing them to understandable policy targets. One interesting issue that the Colombian experience raises is whether or not increasing public understanding of the rules permits rational private agents to partially undo the effects of policy, along the lines of the well-known "Lucas critique". Alternatively, it may lead the authorities themselves to go back on those rules and exploit the discretion that is still open to them. Only time will tell, but the Colombian experience is certainly an instructive one for other Latin American economic policy makers.

Trade policy, and more specifically, Brazilian experience with export processing zones, is the focus of Helson Braga's paper. In reality, the "free trade zone" concept may be a somewhat misleading generalization of a variety of policy instruments, as Braga shows. Latin American free trade or preferential trade zones and special arrangements range from the "maquiladoras" of Mexico and the Central American countries to the regional trade groupings like those of MERCOSUR or the Andean community, with Brazil's export processing zones ("Zonas de Processamento de Exportações" - ZPE's) constituting an intermediate case.

In evaluating the arguments for such geographically defined trade policies, it is important to go beyond traditional trade theory arguments to look at the political, development, and administrative consequences of such policies, as does Braga. Traditional trade theory is quite clear, but possibly unhelpful on this point. For a small country unable to influence the prices that it faces in world markets, the best trade zone to which to belong is that of the whole world. But in the real world in which Latin American countries must live many other considerations come into play. Brazil has used its ZPEs more as a regional development policy instrument than as a conventional trade policy tool. For this reason, Brazilian zones have been created in areas of lower per capita income, especially in regions in which contacts and experience with international markets is relatively limited.

Despite their promise, Braga identifies a number of reasons why we should not expect export processing zones like those of Brazil or Argentina to play the role that comparable ones have played in China and other Asian nations. First, labor costs are considerably higher, implying that firms seeking the lowest cost labor inputs would be unlikely to invest in the Latin American zones when even cheaper ones are available. On the positive side, a more abundant natural resource base make Brazilian and Argentine zones relatively more attractive to a different group of foreign investors.

Tim Canova provides us with a wide-ranging and critical look at what appears to have gone wrong with the policy prescriptions of the "Washington Consensus" in a Latin American context. At the center of the policy prescribers is the International Monetary Fund, with close involvement by the World Bank and the U.S. Department of the Treasury. Canova's assessment of their role in recent Latin American experience is almost uniformly damning, and one searches in vain for much, if anything, that the Washington policy makers might have gotten right.

There is surely much to be criticized. The traditional IMF prescription-monetary tightening-has in recent years been superseded by a more sophisticated approach that places much more weight on the fiscal imbalances that lead to monetization of the public sector fiscal imbalance. But even this approach has some obvious limits. Latin American nations have been told to privatize activities almost without regard to the public interest, as Canova demonstrates with numerous examples. There is a severe long-term problem with selling off assets (a stock adjustment) to finance a flow imbalance, and few of the vocal proponents of privatization have faced up to this obvious constraint.

Canova places some of the blame for the Washington Consensus policy prescriptions on its embrace of the simple "Ricardian" model of comparative advantage. But this criticism is probably somewhat wide of the mark. Few economists, even those in socialist countries, would quarrel with the basic model, which shows that under its simple assumptions, participants in trade can both do better than they would without trade. This point is almost a mathematical truism, but it may not provide any really useful guide to policy. There are a number of reasons for this. First, the simple model recognizes only one factor of production-labor-so that discussions of the income distribution in a Ricardian context are vacuous. Second, it is a simple-even ridiculously simple model in today's world-in which trade is balanced. This is in effect removes it so far from the concerns of both the IMF and its critics. There is thus little to be gained from injecting the theory into the real world of monetary and payments imbalances, exchange rate crises, and all the macroeconomic features of Latin America's current economic stresses. One can agree with the basic Ricardian argument for the gains from trade without concluding that all of the policy prescriptions of the IMF are appropriate.