INTERNATIONAL LINKAGES AND MULTILATERAL LENDING IN THE POST- COMMUNIST REGION BY JENNIFER ELAINE ROMINE DISSERTATION Submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Political Science in the Graduate College of the University of Illinois at Urbana-Champaign, 2011 Urbana, Illinois Doctoral Committee: Associate Professor Carol Leff, Chair and Director of Research Professor William Bernhard Professor Robert Pahre Assistant Professor Matthew Winters ABSTRACT The focus of the dissertation is the influence of international linkages on the lending decisions from the International Monetary Fund (IMF), International Bank for Reconstruction and Development (World Bank) and European Bank for Reconstruction and Development (EBRD) to the post-communist states between 1992 and 2007. The central question is to analyze the role of international linkages in aid allocation. Most cross-national studies do not make a clear distinction between aid to developing countries and aid to the post-communist states – states that are considerably more developed than the standard aid recipient but states that also face distinctive challenges of political and economic transition from a command economy and a one-party authoritarian regime. Moreover, the newly emergent post-communist states, and particularly Russia as the Soviet successor state, represent a novel geopolitical challenge. The geopolitical considerations attached to post-communist stability by the United States and Western Europe is an additional factor that may affect aid allocation. Thus it should not be assumed without empirical investigation that these distinctive cases present the lending institutions with the same considerations in aid allocation that would apply to the developing world. While the IMF and World Bank have been extensively studied, the EBRD – a regional bank explicitly established as a “transition bank” rather than a “development bank” – has not. Thus a primary concern of this study is how EBRD aid allocation may differ from that of the IMF and World Bank in the post-communist region. Using a multi-method research design, I employ a regression analysis along with qualitative case studies. I start with a regression analysis in which I use the log transformations of the outcome variable lending from the IMF, World Bank and EBRD and the continuous explanatory variables to identify explanatory variables hypothesized to predict aid levels. The explanatory variables are: economic need, western connections, past relations with the Bretton Woods institutions, European Union or Commonwealth of Independent States membership, level of democracy, government stability and ethnic conflict. I find that international linkages, particularly as measured by trade ties, are influential in aid allocation from the IMF, World Bank and EBRD in the post-communist region. In addition, I chose Poland, Turkmenistan and Russia as the three case studies to understand the temporal dynamics of aid allocation and the role of international linkages in the relationship between domestic policy-makers and the international ii financial institutions. I chose Poland and Russia as high-level aid recipients while Turkmenistan is a low-level aid recipient. The three case studies also have varying degree of integration with the international community with Poland as a high level integration case, Turkmenistan as a low level integration case and Russia in an intermediate position. Within the case study analysis, I found that government stability and policy continuity are important determinants of Polish, Turkmen and Russian relations with the international financial institutions. iii ACKNOWLEDGMENTS The time and commitment I have put into this project would not have been possible without the support and encouragement from my family, professors and friends. First, I want to thank my committee at the University of Illinois – Professors Carol Leff, Bill Bernhard, Bob Pahre and Matthew Winters – for their willingness to serve on my dissertation committee. I would especially like to thank Professor Leff for her dedication and patience to my project. She helped advice, direct and prod me to the finish. Without her, this project would not have been successful. I also want to thank Professor Winters for his advice and feedback on the statistics section of this project. He carefully weighed the pros and cons of the strategy I employed and provided excellent feedback. Finally, I want to thank Professor Bernhard and Professor Pahre for their feedback on the different sections of the project. Finally, I want to thank Brenda Stamm for answering questions, making sure all the paperwork was filed, and walking me through the dissertation deposit process. I would not have gotten to this point in my academic career without the support of several professors at Louisiana State University and the University of Alabama. I want to thank Professor James Garand because without having taken his Introduction to American Politics class as an undergraduate at LSU, I might not have gone into political science. I also want to thank Professor Wayne Parent at LSU for piquing my interest in research during his Southern Politics class and planting the seed for graduate school. I was mentored by the late Professor Daniel Pound at the University of Alabama who guided me through the master‟s program and made the suggestion that I apply to the University of Illinois. But without Professor Barbara Chotiner‟s democratization class, I might not have chosen the comparative politics field and devoted myself to understanding the dynamics of regime change. My family and friends have been extremely supportive during the long process of finishing my graduate work. My parents provided me with the love of education and the encouragement to be successful. They allowed me to attend LSU where I discovered my interest in political science and encouraged me to go to graduate school if that was what I wanted to do. My sister, Terry Romine, has been one of my greatest cheerleaders and has been a great role model for me. And, of course, I would have not succeeded without the support of my husband, Clint Ourso, who has been with me every step of the way through graduate school. He supported iv my decision to start graduate school at the University of Alabama and willingly moved to Champaign so that I could attend the University of Illinois. He put up with the long hours, the frustrations and the anxieties, and he celebrated the triumphs with me. He was always available to bounce ideas off of and helped me understand statistics. He made sure I had a working computer and printer. He helped me relax when necessary and pushed me to work harder when I felt like giving up. For everything he has done, I dedicate my dissertation to him. v TABLE OF CONTENTS CHAPTER 1: INTRODUCTION…………………………………………………………………1 CHAPTER 2: THE ROLE OF INTERNATIONAL FACTORS AND AID ALLOCATION……7 CHAPTER 3: INTERNATIONAL LENDING INSTITUTIONS – RESPONSES TO THE TRANSITION IN THE POST-COMMUNIST REGION……………………………………….29 CHAPTER 4: INTERNATIONAL LINKAGES AND AID ALLOCATION – METHODOLOGY AND STATISTICAL ANALYSIS…………………………………………56 CHAPTER 5: POLAND – EMBRACING WESTERN LINKAGES…………………………...79 CHAPTER 6: TURKMENISTAN – INSULATING ITSELF FROM INTERNATIONAL INFLUENCES………………………………………………………………………………….107 CHAPTER 7: RUSSIA – INTERNATIONAL INFLUENCE OR INFLUENCED BY THE INTERNATIONAL COMMUNITY…………………………………………………………...135 CHAPTER 8: CONCLUSION…………………………………………………………………168 BIBLIOGRAPHY………………………………………………………………………………175 vi CHAPTER 1 INTRODUCTION The intention of this study is to understand the role international linkages play in the distribution of aid from the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (the World Bank) and the European Bank for Reconstruction and Development (EBRD) to the post-communist states between 1992 and 2007. Not only do I want to understand the role of international linkages in aid distribution but also I want to analyze how the lending of the international financial organizations interacts with the domestic political environment. I use a multi-method research design for analysis of the role of international linkages. I first use a regression analysis to understand the correlations between my outcome variable of lending from the international financial organizations before analyzing the interaction of the international financial organizations in my three case studies of Poland, Turkmenistan and Russia. Generally speaking, the cross-national literature on international financial institutions aid allocation and effectiveness tends, in its inclusiveness, to blend together the patterns of disparate regions and circumstances. Grigore Pop-Eleches recently noted that, “Somewhat surprisingly, the more recent literature dealing with IMF programs and the neo-liberal reforms of the last twenty-five years has largely ignored the role of changing temporal dynamics due to systemic transformations. Similarly, despite the ongoing theoretical debates about the importance of regions for political science…regional differences have generally been ignored.” (Pop-Eleches 2009: 7) The post-communist states under study here represent both a systemic transformation at the national and international level, and a distinctive regional configuration of chronologically synchronous economic and political regime transitions from communism. Michel Camdessus, Managing Director of the IMF from 1987 to 1999, said, “Helping these countries