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The International and Domestic Politics of IMF Programs

1. Introduction

How do politics influence International Monetary Fund (IMF or Fund) programs of economic reform? IMF programs consist of a loan of foreign currency and policy conditions attached to the loan. The policy conditions are intended to correct the economic problems that led the country to the Fund in the first place and thus should be guided only by technocratic considerations.

On the international face, scholars have addressed how powerful international actors, mainly the United States, use the IMF to reward their friends and punish their enemies. On the domestic face, scholars have focused on how purchaser governments use IMF conditionality to push unpopular policies past domestic opposition. Both the international and the domestic literatures have been developed in recent years, but the two have not been studied together to see what they imply for one another and for IMF conditionality.

The domestic politics story requires that the Fund be willing to punish a country for failing to comply with imposed terms. If the Fund cannot commit to punishing noncompliance, then the government does not gain any leverage over the opposition to policy change. Yet, if the IMF is used as a tool of US foreign policy, where IMF loans are extended to US allies, punishment for noncompliance is not credible. If all IMF programs were with US allies, there would be no reason to expect the domestic politics story of IMF programs to hold. But not all programs are with US allies, and governments who are not particularly favored by the US face severe punishments for noncompliance. When private financial institutions are involved, the IMF has even stronger encouragements to implement conditionality. Thus, the domestic politics story of IMF participation may hold, but only for countries where the threat of potential IMF punishment is reliable. In this way, the international literature informs the domestic literature that IMF programs can be used to push through unpopular policies only in certain situations – where the US has not taken an interest in protecting the country. The domestic literature informs the international literature, however, that not all countries seek out IMF support just for the loan – sometimes governments want specific situations to be imposed. 2. Who controls the IMF?

A country’s influence at the IMF is supposed to be pegged to the country’s economic dimension. But officials contention that voting is rare at the Fund. Well, the Fund operates by consensus. Many trust this “consensus” is controlled by the United States. New proof suggests that non-governmental actors, such as international financiers, also have an important voice in the shaping of IMF programs. To the degree that international actors use the IMF to further their own ends, the Fund may be settled on as a technocratic institution. Before considering these aspects, however, consider the bureaucratic view of the IMF – that the IMF is hardly controlled by its guidelines and simply pursues aims to maximize its resources.

A Power Unto Itself?
The IMF can be thought of as a series of principal-agent relationships. Roland Vaubel (1986, 1991, 1996) has made the case that the principal-agent problems at the IMF are sosevere that there is very little accountability at the IMF. The objectives of the IMF staff, he contends, are the same as those in any bureaucracy: “international bureaucracies…try to maximize their power in terms of budget size, staff and freedom of discretion and appreciate some leisure on the job” (1986: 52). Because principal-agent problems are severe, the IMF can pursue these goals quite effectively.

To the extent that the IMF is unaccountable, IMF programs may simply exist to pad the IMF budget. The staff has an interest in extending loans, but not in enforcing conditions. Indeed, Vaubel contends that the reason the IMF kept (until recently) the details of program...
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