Gould, Erica R. (2003). "Money Talks: Supplementary Financiers and International Monetary Fund Conditionality". International Organization, 57(03), 551-586.
This article examines IMF conditionality. The IMF was originally created to monitor and offer short-term loans to support and stabilize the international exchange rate regime. In 1952, it started to place conditionalities with their loans, things that countries had to do in order to meet the requirements of the loan. Gould would like to examine why conditionalities are the way that they are. What factors and variables have contributed to their current state of being.
She argues that, “…Fund conditionality is influenced by the private and official financiers who supplement the Fund’s loan to borrowers” (552). These supplementary financiers are the agents who provide additional capital to countries when they are going through a short-term liquidity problem. These financiers can be grouped into three categories: creditor states, private financial institutions (PFIs) and multilateral organizations. Gould focuses on PFIs.
She then examines the historical arguments for IO influence. She looks at liberal theory and generalizes that IOs help, “…facilitate mutually beneficial exchange between international actors” (554). IOs are seen as being Pareto improving because they change the incentive structure between states. Much previous literature on this subject has focused on the state-as-an-actor assumption. Looking at PFIs provides a different perspective.
“Supplementary financiers and the IMF are locked in a mutually dependent relationship. The Fund depends on supplementary financiers to help ensure the success of its loan programs and its future bargaining leverage with borrowers. In turn, supplementary financiers depend on the Fund to help facilitate their financing transactions and make borrowers’ commitments more credible. As a result, supplementary financiers are both able and willing to influence the Fund’s activities” (555). “The empirical section focuses on one element of the design of Fund programs that best isolates the influence of PFIs: a certain class of binding conditions, labeled ‘bank-friendly’ conditions, which specify that the country must pay back a commercial bank creditor as a condition of its Fund loan” (560). “In short, the supplementary financier suggests that PFIs will be able to influence the terms of Fund conditionality arrangements when they can generat3e a credible threat to withhold necessary supplementary financing if their demands are not met. The PFIs’ threat will only be credible under certain conditions: if they are organized and if the threat is ex post incentive-compatible” (562).
The method involves using 249 cases from 20 countries, which she claims are generally representative. Table 1 lists different examples of bank friendly conditions that may be attached to loans. Figure 1 graphs the rise of conditionality verses the rise of conditions that involve bank-friendly measures, and is quite telling. The dependent variable is binary: “whether or not a given conditionality agreement includes a bank-friendly binding condition” (565). The IVs are private influence, US influence, salary increase for IMF workers, reserve size, tranche, constant GSP, and year.
The results: “…these results lend support to the supplementary financier argument, and cast doubt on the realist and bureaucratic alternative arguments. There is a strong relationship between the PRIVATE INFLUENCE variable and the bank-friendly dependent variable. The next section clarifies how that relationship works” (573). Private influence is significant and positively correlated in three models, where overall r-squared is about 50% and the n is relatively low (76 in model 2). No other IV is relatively as significant and influential.
Gould then attempts to casually map this linkage. She examines
