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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
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
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