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The High Politics of Imf Lending THE HIGH POLITICS OF IMF LENDING By STROM C. THACKER* Introduction the degree of scrutiny given to the role of the In CONSIDERINGternational Monetary Fund (IMF,or Fund) in the international we causes economy, know little about the underlying of the IMF's be IMF a havior.1 During the 1980s, the became "lender of last resort" for cut many developing country governments that had been off from pri vate credit markets and faced destabilizing imbalances of payments. After to return to were private capital began voluntarily what called the in emerging markets the early 1990s, the anticipated erosion of the role in the not re Fund's developing world did materialize. Faced with current payments' imbalances, pressures for currency devaluation, and the macroeconomic crises in instability associated with Latin America, Asia, and Russia, the developing nations have turned with increasing to IMF credits and frequency stabilization plans. Despite the growing on we body of research the IMF's critical role in international finance, still have few explanations of and only patchy empirical data on why the IMF approves loans to some countries but not others. As the Fund delves further into the management of balance of payments and cur crises around rency the world, both theoretical and practical impera tives dictate that we more test more specify fully and systematically was at *A preliminary version of this paper presented the 1997 annual meeting of the American Po litical Science Association inWashington, D.C. I would like to thank Tim McKeown, Patrick Con way, William Bernhard, Mary Matthews, Dane Rowlands, the participants in the faculty research seminar in the Department of International Relations at Boston University, and the anonymous World comments Politics referees for their insightful and suggestions. Yvonne Ochoa and Jaya Badiga pro vided able research assistance. The usual disclaimers 1 apply. The literature on the IMF is extensive. For useful surveys, see Graham Bird, "The International Monetary Fund and the Developing Countries: A Review of the Evidence and Policy Options," Inter national no. IMF to Organization 50, 3 (1996); idem, Lending Developing Countries: Issues and Evidence (London: Roudedge, 1995); Sebastian Edwards, "The International Monetary Fund and the Devel NBER no. IMF oping Countries: A Critical Evaluation," Working Paper, 2909 (1989); Tony Killick, Pro in grams Developing Countries: Design and Impact (London: Roudedge, 1995); John Williamson, ed., The Lending Practices of the InternationalMonetary FundXWashington, D.C: Institute for International IMF Economics, 1982); and idem, Conditionality (Washington, D.C: Institute for International Eco nomics, 1983). WorldPolitics 52 (October 1999), 38-75 HIGH POLITICS OF IMF LENDING 39 competing explanations of IMFbehavior. What factors influence the IMF's decisions to lend? Are these decisions based on technical eco nomic or do criteria, they reflect the political preferences of the Fund's more members? are powerful What those preferences, and how do they affect the IMF's relationship with its developing country clients? In other does matter? words, politics More importantly, how does politics matter? The literature on international institutions and multilateralism suggests that the operation of multilateral economic organizations like the IMF will assume in a growing importance posthegemonic international order.2 This body of theory raises several important ques tions: To what extent do multilateral institutions modify the interests or constrain the behavior of their member states? Can the more power states use as fill these organizations effective instruments of national or are or foreign policy, such pressures diluted transformed in passing through multilateral channels? Finally, what underlying political inter ests drive the behavior of the large powers within the multilateral in stitutions, and how do they do so?On the practical side,Gallarotti has shown not can that poorly managed international organization only can be ineffective but also destabilize the international system.3 The resources recent debates surrounding proposed increases in Fund and loan packages negotiated with South Korea, Indonesia, Russia, and Brazil demonstrate the growing popular recognition of these kinds of to problems, but scholarly research has yet address these questions adequately. Economists have made inroads in isolating the economic bases of IMF are to out lending, but they the first point that their models remain incomplete. Researchers have found statistically significant results for 2 see For effective treatments of these and related issues, Robert O. Keohane, After Hegemony: Co and in operation Discord the World Political Economy (Princeton: Princeton University Press, 1984); idem, International Institutions and State Power: Essays in International Relations Theory (Boulder, Colo.: no. Westview, 1989); idem, "Multilateralism: An Agenda for Research," International Journal 45, 1 an (1990); John Gerard Ruggie, ed.,Multilateralism Matters: The Theory and Praxis of Institutional Form (New York: Columbia University Press, 1993); Stephen D. Krasner, ed., International Regimes (Ithaca, N.Y.: Cornell University Press, 1983); and Kenneth A. Oye, ed., Cooperation under Anarchy (Princeton: Princeton University Press, 1986). are not IMF s International institutions and multilateralism necessarily equivalent. The fits Ruggie as definition inMultilateralism Matters of multilateral organization "defined by such generalized deci as or consensus IMF see sion-making rules voting procedures" (p. 14). On decision-making procedures, Frank Southard, "The Evolution of the International Monetary Fund," Princeton Essays in Interna no. tional Finance, 135 (1979); and Frederick K. Lister, Decision-Making Strategies for International Uni Organizations, vol. 20, World Affairs (Denver, Colo.: Graduate School of International Studies, versity of Denver, 1984). 3 Giulio M. Gallarotti, "The Limits of International Organization: Systematic Failure in the Man no. agement of International Relations," International Organization 45, 2 (1991). 40 WORLD POLITICS a on IMF the impact of number of economic variables lending, but the low overall econometric models reviewed explanatory power of the by are a Bird suggests that "there probably range of other non-economic to source noneco factors which still need be delineated."4 One likely of not to nomic factors is politics, but political scientists have yet been able on IMF demonstrate the systematic impact of political variables lend case not ing.5 Several studies offer suggestive, but generalizable, evi dence of the political bases of IMF lending. Fewer studies have to construct a of attempted systematic political explanation Fund be some havior. This paper attempts to fill of those gaps in the literature answers to sta and proposes those questions by developing and testing a IMF tistically political explanation of lending patterns. The IMF^s stated decision-making procedures prohibit the consider are on ation of political factors. Loans made strictly the basis of the monetarist a "Financial Programming" model and "Doctrine of Eco nomic is to such as Neutrality" that blind factors international politics and the nature of developing country regimes.6 The Fund may impose strict it to lending requirements, but applies them fairly all countries. IMF The meetings of the executive board, which approves all Fund pro are grams, highly secretive.7 The specific considerations that determine the board's deliberations and decisions are therefore not available in the public domain. For its part, the Fund staff publicly maintains the posi tion economic numerous case of neutrality, but evidence presented in an studies leaves open the possibility that political factors play impor tant role. There are at reasons to matters least three suspect that politics in the IMF. rates First, several studies have found extremely low of borrower IMF to to compliance with Fund conditionally, yet the continues lend even many of these problem debtors after earlier programs have been canceled for a IMF noncompliance.8 Finch, former staff member, sug in not gested the late 1980s that economic factors could explain these 4 Bird (fn. 1,1995), 124. 5 IMF Dane Rowlands, "Political and Economic Determinants of Conditional Credit Arrangements: 1973-1989" (Manuscript, Norman Paterson School of International Affairs, Carleton University, Ot tawa, Ont., 1995). 6 Jacques J. Polak, "Monetary Analysis of Income Formation and Payments Problems," IMF Staff no. 6 Papers, (1957), cited in Edwards (fn. 1); and idem, "The Changing Nature of IMFConditional no. ity," Princeton Essays in International Finance, 184 (1991); and Richard Swedberg, "The Doctrine of Economic of the IMF and theWorld Bank," Journal Peace Research 23 no. 4 (1986). 7 Neutrality of R. S. Eckaus, "How the IMF Lives with Its Sciences 19 (October 1986). 8 Conditionality," Policy Southard IMF: (fn. 2), 13; Edwards (fn. 1);C David Finch, "The The Record and the Prospects," no. Princeton Essays in International Finance, 175 (1989); and John Spraos, "IMFConditionality: In effectual, Inefficient, Mistargeted," Princeton Essays in International Finance, no. 166 (1986). HIGH POLITICS OF IMF LENDING 41 were no on patterns: "Because decisions longer based compatibility with repayment terms, lending was guided increasingly by the political preferences of the leading industrial countries."9 Second, each country's on or representative the Fund's executive board is
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