In 1989 economists in North and South America developed a formula to rescue Latin America from the "lost decade" of the 1980s. At the time, a huge foreign debt crisis coupled with triple-digit inflation had driven living standards back to the levels of the 1970s. The formula, a loose set of market-oriented reforms, became known as the "Washington Consensus."

During the 1990s, prompted by international financial institutions based in this city, Latin American politicians diligently began implementing the reforms: deregulating the private sector, lowering trade barriers, privatizing publicly owned industries and adopting austerity plans to stop deficit spending and reduce inflation.

And did the Washington Consensus pay off? Not quite.

Inflation is under control and has been in single digits for five of the past six years. Latin America's economy has started to grow -- last year at 5.7 percent, more than double the rate of the European Union or Japan. Yet economic growth has barely kept pace with the population. In fact, today more people live in poverty in Latin America than did eight years ago. Income per capita, which 50 years ago was higher than that of Spain, Portugal, and most Eastern European and East Asian countries, is now lower. Chile, the region's big success story, was nearly twice as rich per capita as South Korea in 1980. Today it is around one-third as rich.

It's clear that the situation in Latin America is not where reformers expected it would be. But where do we go from here? Not many policymakers agree. Indeed, 15 years after the Washington Consensus there is very little consensus on what to do next.

Enrique Iglesias, the Inter-American Development Bank's president of 17 years and one of the most respected experts on Latin America in this city, argues that governments in the region are just too weak. Moreover, he contends, it was the prescribed economic reforms of the Washington Consensus that helped weaken them.

In Bolivia, for instance, a population outraged by Washington Consensus-inspired reforms has toppled two presidents in the past two years. Recent polls in the Bolivian media show that nearly 70 percent of the populace wants to renationalize the country's oil industry, which has been mostly in the hands of multinationals since the 1990s.

That is the most obvious example, but elsewhere, democracies and institutions must be strengthened and become "better states" or, Iglesias fears, their modest economic advances won't stick. Brazil, for example, is embroiled in a corruption scandal that some say typifies weak democratic institutions in Latin America and scares off foreign investors.

While Iglesias and a growing number of observers argue that the state is too weak, others say that the problem is more economic than political and that the Washington Consensus didn't go far enough. This week the Inter-American Dialogue, one of Washington's most prominent forums for Latin America policy, issued a report concluding that a strict economic focus is needed.

The report, "A Break in the Clouds," argues that without economic progress, there is little hope for even the strongest of governments to accomplish the fundamental changes that are now required. Key among those changes are increasing exports and foreign investment, boosting savings and tax revenues, investing more in education and infrastructure and directly addressing pervasive inequality.

For Peter Hakim, the Inter-American Dialogue's president, weak states are not necessarily obstacles to putting any of those essential economic measures in place. Former World Bank economist John Williamson agrees. India "did not make any sudden breakthroughs on the political front," he noted, but it has still seen its economy grow nearly threefold since the early 1990s.

What's more, said Hakim, to hear economists say that the problem is political is "a bit tautological." It is a kind of convenient way to wash your hands of the issue. "Many of the decisions we complain about are economic policy decisions," Hakim added. "And many of them were promoted by economists and (in that sense) economists become part of the political equation."

So, does a bright future for Latin America lie in strengthening the state or in increasing economic growth? In the search for the answer, it may be useful to draw one obvious lesson from the Washington Consensus experience in Latin America: that it was too narrow. For some, it did not encompass crucial reforms to strengthen the state. For others it ignored economic reforms that would have ensured more equitable social development. Latin America urgently needs a new consensus. But whatever shape it takes, it cannot be as limiting as the now-discredited one.

desdewash@washpost.com