CREATING CREDIBILITY: THE INTERNATIONAL MONETARY FUND AND THE NEOLIBERAL REVOLUTION IN THE DEVELOPING WORLD A Dissertation Presented to the Faculty of the Graduate School of Cornell University in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy by Stephen Craig Nelson August 2009 © 2009 Stephen Craig Nelson CREATING CREDIBILITY: THE INTERNATIONAL MONETARY FUND AND THE NEOLIBERAL REVOLUTION IN THE DEVELOPING WORLD Stephen Craig Nelson, Ph.D. Cornell University 2009 The International Monetary Fund (IMF) has been deeply involved in economic governance in developing countries through its conditional lending since the late 1970s. Despite the importance of the IMF in the economic and political life of its borrowers, we have, at best, an incomplete understanding of the roots of the institution’s behavior. This dissertation attempts to answer some important questions about the IMF’s lending activities, namely: why is there so much variation in the IMF’s treatment of its borrowers? I argue that the IMF is best viewed as a purposive actor driven by a set of economic ideas. These ideas shape the way the institution’s staff and management make decisions about the use of its resource in complex and unsettled political and economic circumstances. The IMF has political preference for policy teams composed of likeminded officials. I use new data to test the argument on three aspects of IMF treatment; the cross-national evidence shows that governments with a higher proportion of neoliberal policymakers receive larger loans with fewer binding conditions and are more likely to receive waivers for missed policy targets. Further, I show that the ability of top neoliberal economic officials to deliver better treatment from the IMF enables them to extend their time in office. Since the presence of the IMF confers political advantages to the policymakers that share the Fund’s economic worldview, I argue that neoliberals have greater political influence in countries that have spent many years under the institution’s conditional lending programs. The claims are tested using both quantitative analyses and a qualitative case study of Argentina’s relationship with the IMF over a quarter century (1976-2001). BIOGRAPHICAL SKETCH Stephen Craig Nelson was born on January 13, 1980 in Grand Forks, North Dakota. He was raised by his parents, Rick and Jan Nelson, along with his sister, Kelsey, in Eden Prairie, Minnesota. From 1998 to 2002 Steve attended Carleton College, where he developed an interest in politics and, specifically, political economy. At Carleton he received honors for his undergraduate thesis, written on the topic of the challenges posed by globalization to the welfare states of Norway and Sweden. In 2003 Steve began graduate studies in the Department of Government at Cornell University. In 2007 he received an MA from Cornell, and in the summer of 2009 he completed the requirements for the PhD. Steve joined the Department of Political Science at Northwestern University as an assistant professor in September 2009. iii For Kate, who makes me smile iv ACKNOWLEDGMENTS Six years have passed between the day I drove into Ithaca and today, which I spend typing on an aged laptop in an apartment in Chicago. So many individuals have provided intellectual, emotional, and financial support in that period that it is impossible to demonstrate the depth of my gratitude to each. This is intended to express in some small way my thanks to those who gave valuable time and energy on my behalf. I first became interested in studying politics as a vocation as an undergraduate at Carleton College in Northfield, Minnesota. At Carleton, Al Montero and Norman Vig deserve thanks for pushing me to pursue further studies in the field and for continuing to take an interest in my progress. I had the very good fortune of finding my way to Cornell’s Government Department for graduate school. There I joined an unmatched intellectual environment: tough-minded but fair, demanding but also tolerant of the flights of fancy to which aspiring academics are prone. I thank the members of my dissertation committee for their help in shepherding this project from a vague idea about how the IMF works to a final draft. Peter Katzenstein, who was the chair of the committee, meets and, in fact, exceeds his justifiably legendary reputation. As a teacher, scholar, and opponent on the squash court, Peter sets an incredibly high standard to which his students can only hope to aspire. He knew when to push me to tighten the arguments in the dissertation and when to let me grapple with difficult issues. Writing a dissertation is exhausting, and there were times when I thought the sheer scale of the task might consume me. I always left conversations with Peter with a renewed sense of purpose, knowing that I hadn’t quite figured things out but that I was onto something. Christopher Way is among the most clear-thinking and rigorous scholars that I v have met and I have him to thank for many hours of useful discussion and many, many pages of insightful comments. Chris pointed me in productive directions and steered me away from more than a few dead-ends in the process of researching and writing this dissertation. The other members of my committee, Jonathan Kirshner and Nicolas van de Walle, played very important roles in shaping this project and, more broadly, my thinking about the way the world works. Jonathan’s ability to cut to the core of an argument helped me see what this dissertation was really about, and his exceptionally clear prose was a model for me. Nic always made time to comment on last-minute drafts and to meet when I was in Ithaca; he does not agree with some of what I have written here, but the final product is much better for his skeptical and incisive comments. Tom Pepinsky joined as an outside reader and asked the kinds of questions that give graduate students nightmares. The final draft is much improved thanks to Tom’s close reading. I thank the many participants who offered trenchant criticism and helpful suggestions on this project during visits to Boston College, Dartmouth College, the Ford School of Public Policy at the University of Michigan, Georgetown University, Harvard Business School, the Institute for the Social Sciences, the New School for Social Research, and Northwestern University. Mark Blyth, Steve Brooks, Kate McNamara, and Andrew Yeo also offered very helpful comments on aspects of the project. The research and writing was done in Washington, DC. I am grateful to Thomas Banchoff for sponsoring me during my time as a visitor to Georgetown University and to Marc Busch for allowing me to join his political economy discussion group. This project would not have been completed without the patient help of the IMF’s archivists, particularly Premela Isaac. Many present and former IMF vi officials and outside observers in Washington spent time explaining the institution’s activities to me: Paul Blustein, James Boughton, Christian Brachet, Desmond Lachman, and a number of Executive Directors deserve thanks for their willingness to engage with me about the Fund. Support for portions of this research from the Einaudi Center for International Studies at Cornell University is gratefully acknowledged. Many friends at Cornell provided close readings, good conversation, and pep talks. I thank Julie Ajinkya, Ameya Balsekar, Jaimie Bleck, Ben Brake, Jennifer Erickson, Jai Kwan Jung, Tariq Thachil, and Andrew Yeo for each, in their own way, helping make the dissertation writing process more rewarding and, occasionally, fun. Completing this project has been a team effort. My family was always supportive and helped me see that the long days and nights of coding IMF agreements and the background of policymakers was worth it. My in-laws, Gregg and Betsey, provided a place in Maine to escape to during the hot Washington summers. My grandfather, Alton Waage, helped make the PhD possible through his support for me during my time at Carleton. I will always be indebted to him; think of this as one way of paying him back. My parents, Rick and Jan, were there for me through thick and thin with an encouraging word and a sympathetic ear. They have supported me with love from grade 1 to grade 22. I thank my sister, Kelsey, for reminding me that there is more to life than political science. I am not sure how to begin to thank my beautiful wife, Kate. She was there every step of the way. Kate has an unusual combination of attributes: seemingly endless patience, tireless work ethic, a sharp and inquisitive mind, and a wacky sense of humor. I love her very much, and I am lucky to have her on my side. vii TABLE OF CONTENTS Biographical Sketch iii Dedication iv Acknowledgments v Table of Contents viii List of Figures ix List of Tables x Chapter 1: Introduction, Research Puzzle, and Overview 1 Chapter 2: Theoretical Frameworks for Understanding the IMF 18 Chapter 3: The Determinants of IMF Treatment 56 Chapter 4: The IMF and the Political Survival of Economic Policymakers 113 Chapter 5: The IMF and Argentina, 1976-2001 158 Chapter 6: Conclusions – the Future of the Fund 262 Appendix A: Description of Variables and Data Sources in Chapter 2 284 Appendix B: Robustness Checks for Influential Observations 289 Appendix C: Sensitivity of Chapter 4 Results to Outliers 302 References 307 viii LIST OF FIGURES Figure 2.1: Training of Upper-Level Staff Appointees at the IMF 43 Figure 2.2: Proportion of Anglo-American Upper-Level Staff Appointees 43 Figure 3.1: Avg. Number of Binding