Stone, RW. 2008. The Scope of IMF Conditionality. International Organization 62, no. 04: 589-620.
Is the IMF autonomous, controlled by the hegemon, or something else?
Two models are tested regarding IMF conditionality: A public-choice model and an informal governance model. "Public-choice critics argue that the Fund is an out-of-control agency that seeks to maximize its importance by imposing the highest levels of conditionality the market will bear. To the contrary, we find that the Fund has refrained from exploiting the vulnerability of particular countries to maximize the scope of conditionality. Alternatively, critics of major-power influence in the IMF claim that conditionality reflects the interests of the major shareholders rather than the needs of borrowing countries. We find evidence of US influence, which operates to constrain conditionality, but only in vulnerable countries that are important recipients of US aid. In ordinary countries under ordinary circumstances, broad authority is delegated to the Fund, which adjusts conditionality to accommodate local circumstances and domestic political opposition" (from abstract).
Some of the standard critiques of the IMF is that it is either a rogue institution imposing its will on sovereign states, or it is a tool of the most powerful states. Which of these is true, as they are mutually exclusive?
They don't find evidence for the rogue IO explanation, which are, "...derived from a public choice perspective" (1). "The puzzle that the power politics school is unable to explain is why weaker states participate in international organizations, if their policies simply reflect the preferences of the powerful. In order for institutions to be useful to powerful states, they must elicit voluntary participation, which means that there must be sufficient agreement about common purposes that weaker states can expect to benefit from cooperation" (1-2).
"We develop an alternative view, which we call informal governance. International organizations operate according to two parallel sets of rules: formal rules, which embody consensual procedures, and informal rules, which allow exceptional access for powerful countries. In this view, the danger embodies in delegation is not that the agency will run out of control, but that it will be captured by the most powerful state in the system" (2).
A history of IMF autonomy is covered.
"Our conclusions support our model of informal governance and are inconsistent with the public-choice inspired model of bureaucratic rent seeking" (41). The US is a major impact on IMF policies, especially when correlated with US aid giving.
Showing posts with label Conditionality Agreements. Show all posts
Showing posts with label Conditionality Agreements. Show all posts
Tuesday, March 10, 2009
Friday, January 30, 2009
Babb and Buria: Mission Creep, Mission Push and Discretion in Sociological Perspective: The Case of IMF Conditionality
Babb, S, and A Buira. 2004. Mission Creep, Mission Push and Discretion in Sociological Perspective: The Case of IMF Conditionality. In , 24:8-9.
"A term that has gained popularity among World Bank and IMF critics is 'mission creep,' or the systematic shifting of organizational activities away from original mandates" (2).
"The IMF's original purpose as it was conceived in 1944 was to establish a code of conduct that would enhance economic cooperation, and avoid the 'beggar-the-neighbor' policies that led to the economic turbulence of the thirties. This code of conduct required members to establish par values...and to work toward lifting restrictions on past payments...Over time, however, the functions and activities of the Fund changed along with the introduction and expansion of 'conditionality'--the policy measures member countries must adopt in order to have access to the IMF's resources" (2).
Critics of the IMF point to this mission creep as being fundamentally problematic. However, these authors argue that it is not unique to the IMF. In fact, institutional sociologists have experienced the creeping kind of nature within institutions for some time. While institutions are created for a certain purpose, they certainly morph into their own entities that pursue their own ends irrespective of the reasons for their initial creation. In fact, these institutions become much more keenly interested in their own survival than anything that may tie them to their original mandate.
"This paper examines historical evidence of mission creep at the IMF, and explores the organizational dynamics that may have contributed to this process...Synthesizing this evidence, we describe and account for three separate phases in the expansion of conditionality: the establishment of fiscal and monetary conditions in the 1950s; the introduction o debt-related conditions in the 1970s; and the introduction of liberalizing, governance, and a host of other reforms since the 1980s.
"In contrast to these two first phases, we argue that the most recent phase has marked a significant break with the past. Whereas the first period in the Fund's evolution was associated with the development of standardized rules, this latest stage is linked to the rise of 'discretional conditionality:' the increased dependence of disbursements and lending arrangements on the judgments of Management and Staff, rather than on clear rules determined at the outset. We conclude that this reversal cannot be attributed primarily to internal bureaucratic factors, but rather responded to the demands of the Fund's most powerful organizational constituent: the US Treasury. Thus, 'mission push' seems to be the most accurate way of describing recent developments in IMF conditionality" (4).
The evidence for this is presented systematically. I will not document it here.
"A term that has gained popularity among World Bank and IMF critics is 'mission creep,' or the systematic shifting of organizational activities away from original mandates" (2).
"The IMF's original purpose as it was conceived in 1944 was to establish a code of conduct that would enhance economic cooperation, and avoid the 'beggar-the-neighbor' policies that led to the economic turbulence of the thirties. This code of conduct required members to establish par values...and to work toward lifting restrictions on past payments...Over time, however, the functions and activities of the Fund changed along with the introduction and expansion of 'conditionality'--the policy measures member countries must adopt in order to have access to the IMF's resources" (2).
Critics of the IMF point to this mission creep as being fundamentally problematic. However, these authors argue that it is not unique to the IMF. In fact, institutional sociologists have experienced the creeping kind of nature within institutions for some time. While institutions are created for a certain purpose, they certainly morph into their own entities that pursue their own ends irrespective of the reasons for their initial creation. In fact, these institutions become much more keenly interested in their own survival than anything that may tie them to their original mandate.
"This paper examines historical evidence of mission creep at the IMF, and explores the organizational dynamics that may have contributed to this process...Synthesizing this evidence, we describe and account for three separate phases in the expansion of conditionality: the establishment of fiscal and monetary conditions in the 1950s; the introduction o debt-related conditions in the 1970s; and the introduction of liberalizing, governance, and a host of other reforms since the 1980s.
"In contrast to these two first phases, we argue that the most recent phase has marked a significant break with the past. Whereas the first period in the Fund's evolution was associated with the development of standardized rules, this latest stage is linked to the rise of 'discretional conditionality:' the increased dependence of disbursements and lending arrangements on the judgments of Management and Staff, rather than on clear rules determined at the outset. We conclude that this reversal cannot be attributed primarily to internal bureaucratic factors, but rather responded to the demands of the Fund's most powerful organizational constituent: the US Treasury. Thus, 'mission push' seems to be the most accurate way of describing recent developments in IMF conditionality" (4).
The evidence for this is presented systematically. I will not document it here.
Saturday, January 17, 2009
Buira: An Analysis of IMF Conditionality
A Buira et al., An Analysis of IMF Conditionality (United Nations, 2003).
“IMF conditionality was introduced in the 1950s as a means to restore members’ balance-of-payments viability, to ensure that Fund resources would not be wasted and to ensure that the institution would be able to recover the loans it extended to member countries. For several decades, until the early eighties, Fund Conditionality centered on the monetary, fiscal and exchange policies of members. Over the last 20 years, while the resources of the Fund declined as a proportion of world trade, the number of Fund programmes increased steadily, and conditi8onality underwent substantial changes, expanding the scope of conditionality into fields that previously had been largely outside its purview. As the number of conditions increased, the rate of member country’s compliance with Fund supported programmes declined, and reviewing and streamlining conditionality became inevitable” (iii).
“Conditionality is perhaps the most controversial aspect of IMF policies. Among the traditional criticisms of Fund conditionality are that it is too short-run oriented, too focused on demand management and does not pay adequate attention to its impact on growth and the effects of programmes on social spending and on income distribution” (1).
The author explores some of the literature critical of IMF conditionality. This literature is specific in its criticism of the IMF’s overreaching through the imposition of structural modifying conditions that must be met in order to secure loans. Some have argued that the model of providing short-term stabilizing funding with conditions is fundamentally flawed, and that the IMF should approach countries with recommendations as to the changes that must be made structurally to their economy only when they are approached by said countries. The history of conditionality extends back to the US’ involvement in supplying much credit to The Fund after WWII. Initially, there was no conditionality. However, the Articles of the organization were amended.
“Conditionality may be defined as a means by which one offers support and attempts to influence the policies of another in order to secure compliance with a programme of measures. It is a tool by which a country is made to adopt specific policies or to undertake certain reforms that it would not otherwise have undertaken for support. Within the context of the IMF, conditionality refers to policies a member must adopt to secure access to Fund resources. These policies are intended to help the member country overcome its external payments problem and thus be in a position to repay the Fund in a timely manner, thereby ultimately assuring the ‘revolving character’ of Fund resources” (3).
What is the nature of conditionality? Is it possibly coercive? Probably. It depends mostly on the relationship between the Fund and the country that is seeking funding. For example, a country that has much access to global financial markets will be in a relatively stronger position vis-à-vis the fund than a country that has no ready access to global finance. Additionally, if a country is facing a balance of payments crisis, it may have to rely heavily on the Fund for liquidity, and that kind of a position would put countries in a compromising position, potentially. In another way, the Fund moves well beyond its mandate as a short-term financial stability institution and becomes an organization that imposes policies that directly affect development. That is clearly the mandate of The Bank. If Fund conditionality is not coercive, at its very least it has the potential of being overly paternalistic .
In another vein: is Fund resources assured through the practice of conditionality? Other institutions who are in the business of loaning sovereigns money do not provide conditions. In addition, the size of the Fund’s reserves has not grown apace with the economy at large. The “revolving character” of the resources is thus brought into question.
On September 20, 2002, The Fund agreed to four guidelines that were designed to overhaul the process of conditionality: “national ownership of programs…parsimony in the application of conditions…tailoring the programme to the member’s circumstances… clarity as to what essential aspect of the programme must be complied with, and what additional measures are contemplated whose non-observance will not constitute a breach of the agreement and impair the country’s ability to draw Fund resources” (10).
“IMF conditionality was introduced in the 1950s as a means to restore members’ balance-of-payments viability, to ensure that Fund resources would not be wasted and to ensure that the institution would be able to recover the loans it extended to member countries. For several decades, until the early eighties, Fund Conditionality centered on the monetary, fiscal and exchange policies of members. Over the last 20 years, while the resources of the Fund declined as a proportion of world trade, the number of Fund programmes increased steadily, and conditi8onality underwent substantial changes, expanding the scope of conditionality into fields that previously had been largely outside its purview. As the number of conditions increased, the rate of member country’s compliance with Fund supported programmes declined, and reviewing and streamlining conditionality became inevitable” (iii).
“Conditionality is perhaps the most controversial aspect of IMF policies. Among the traditional criticisms of Fund conditionality are that it is too short-run oriented, too focused on demand management and does not pay adequate attention to its impact on growth and the effects of programmes on social spending and on income distribution” (1).
The author explores some of the literature critical of IMF conditionality. This literature is specific in its criticism of the IMF’s overreaching through the imposition of structural modifying conditions that must be met in order to secure loans. Some have argued that the model of providing short-term stabilizing funding with conditions is fundamentally flawed, and that the IMF should approach countries with recommendations as to the changes that must be made structurally to their economy only when they are approached by said countries. The history of conditionality extends back to the US’ involvement in supplying much credit to The Fund after WWII. Initially, there was no conditionality. However, the Articles of the organization were amended.
“Conditionality may be defined as a means by which one offers support and attempts to influence the policies of another in order to secure compliance with a programme of measures. It is a tool by which a country is made to adopt specific policies or to undertake certain reforms that it would not otherwise have undertaken for support. Within the context of the IMF, conditionality refers to policies a member must adopt to secure access to Fund resources. These policies are intended to help the member country overcome its external payments problem and thus be in a position to repay the Fund in a timely manner, thereby ultimately assuring the ‘revolving character’ of Fund resources” (3).
What is the nature of conditionality? Is it possibly coercive? Probably. It depends mostly on the relationship between the Fund and the country that is seeking funding. For example, a country that has much access to global financial markets will be in a relatively stronger position vis-à-vis the fund than a country that has no ready access to global finance. Additionally, if a country is facing a balance of payments crisis, it may have to rely heavily on the Fund for liquidity, and that kind of a position would put countries in a compromising position, potentially. In another way, the Fund moves well beyond its mandate as a short-term financial stability institution and becomes an organization that imposes policies that directly affect development. That is clearly the mandate of The Bank. If Fund conditionality is not coercive, at its very least it has the potential of being overly paternalistic .
In another vein: is Fund resources assured through the practice of conditionality? Other institutions who are in the business of loaning sovereigns money do not provide conditions. In addition, the size of the Fund’s reserves has not grown apace with the economy at large. The “revolving character” of the resources is thus brought into question.
On September 20, 2002, The Fund agreed to four guidelines that were designed to overhaul the process of conditionality: “national ownership of programs…parsimony in the application of conditions…tailoring the programme to the member’s circumstances… clarity as to what essential aspect of the programme must be complied with, and what additional measures are contemplated whose non-observance will not constitute a breach of the agreement and impair the country’s ability to draw Fund resources” (10).
Thursday, March 6, 2008
Epstein: The Social Context in Conditionality
Epstein, Rachel. (2008). "The Social Context in Conditionality: Internationalizing Finance in Postcommunist Europe". Journal of European Public Policy.
Eastern European countries have been more effective than their Western European counter-parts in building the framework for the united European financial markets system. This paper asks why this is the case. It builds a framework of international institutional influence that requires a certain societal milieu in order to be effective.
“…I argue that CEE (Central and Eastern European) susceptibility to international institutions’ pressure, including conditionality, hinged on a particular social context. Where domestic actors viewed international institutions as authoritative sources of information and potential imprimaturs of their political platforms, post communist countries were likely to heed their advice and fulfill the terms of their conditionality…By contrast, where international institutions were unable to displace domestic sources of authority, namely nationalist striving and the desire for autonomy, international institutions’ recommendations and conditionality wielded much less power, resulting in lower levels of foreign ownership in CEE banks” (2).
The dependent variable being explained is why there is such high levels of foreign ownership of banks and other moves that are in line with the financial standardization promoted by the EU. The independent variables are the forces applied by the international institutions that are mediated by the specific social milieu that the author puts forth. This social context is claimed to be a “new mechanism” of understanding the influence of international organizations and institutions.
The social context in that the IV is mediated are described. Three features are highlighted: “the discontinuity of sectors and regimes, domestic actors’ perceived subordinated status vis-à-vis international institutions and the normative consistency underpinning the policies in question” (6). These three variables are all operationalized (6), and, where they are congruently high, it is expected that a country’s openness to advice from international institutions will also be great.
Four rival approaches for explaining the variation in the adoption of influence from international institutions are then explored. The first is domestic preferences (8). The second is economic constraints or opportunities (9). The third is external demand for foreign owned banks (10). The fourth is conditionality (10-1). The main drivers are then examined for various transitioning CEE countries with an eye to social context.
Eastern European countries have been more effective than their Western European counter-parts in building the framework for the united European financial markets system. This paper asks why this is the case. It builds a framework of international institutional influence that requires a certain societal milieu in order to be effective.
“…I argue that CEE (Central and Eastern European) susceptibility to international institutions’ pressure, including conditionality, hinged on a particular social context. Where domestic actors viewed international institutions as authoritative sources of information and potential imprimaturs of their political platforms, post communist countries were likely to heed their advice and fulfill the terms of their conditionality…By contrast, where international institutions were unable to displace domestic sources of authority, namely nationalist striving and the desire for autonomy, international institutions’ recommendations and conditionality wielded much less power, resulting in lower levels of foreign ownership in CEE banks” (2).
The dependent variable being explained is why there is such high levels of foreign ownership of banks and other moves that are in line with the financial standardization promoted by the EU. The independent variables are the forces applied by the international institutions that are mediated by the specific social milieu that the author puts forth. This social context is claimed to be a “new mechanism” of understanding the influence of international organizations and institutions.
The social context in that the IV is mediated are described. Three features are highlighted: “the discontinuity of sectors and regimes, domestic actors’ perceived subordinated status vis-à-vis international institutions and the normative consistency underpinning the policies in question” (6). These three variables are all operationalized (6), and, where they are congruently high, it is expected that a country’s openness to advice from international institutions will also be great.
Four rival approaches for explaining the variation in the adoption of influence from international institutions are then explored. The first is domestic preferences (8). The second is economic constraints or opportunities (9). The third is external demand for foreign owned banks (10). The fourth is conditionality (10-1). The main drivers are then examined for various transitioning CEE countries with an eye to social context.
Thursday, February 14, 2008
Hunter, et. al.: World Bank Directives, Domestic Interests, and the Politics of Human Capital Investmenet in Latin America
Hunter, Wendy, & Brown, David S. (2000). "World Bank Directives, Domestic Interests, and the Politics of Human Capital Investment in Latin America". Comparative Political Studies, 33(1), 113-143. http://www.csa.com/ids70/gateway.php?mode=pdf&doi=10.1177%2F0010414000033001005&db=sagepol-set-c&s1=80ee883868977a98ef5390896262f864&s2=33b0a246702c8a4b341473fa4c93e069
“Do international financial institutions significantly affect the development strategies their borrowers pursue over do domestic forces prevail over IFI influence?” (113). IOs are teachers, tutors, etc., but are the countries learning? This study focuses on the learning end of the relationship. “Our findings suggest that the World Bank has not had a significant impact on human capital investment in
This article then turns its focus to the varying returns on investment in different areas of human capital development. It states that the empirical work of Schultz (1959, 1963) show that, “social returns on investments in human capital are greater than those on physical capital in the developing world, and…investments in basic education yield higher returns than those in higher education” (115). The argument is extended casually, and our authors posit that most of the beneficiaries of higher education investment are those who are already well off and who do not need the investment. “…an integral tenet of neoliberal social reform is that public resources [must] not be allocated to those who can afford to pay for private social services” (116). And, “…IMF officials are particularly determined to eliminate market distorting mechanisms like price supports and subsidies as well as nonessential social items. Cutting out free university education is consistent with this approach” (118).
The study then deploys an analytical approach to answering its hypothesis. They want to see whether or not significant investment in a country by BWIs will be answered with adequate change in social programs on the ground. It should be shown that as WB investment in countries increases, government subsidies to higher education decrease. This will happen partially by a virtue of the influence of technicos, or technocrats who are trained in the West and who carry western values.
Their dependent variables are central bank, “expenditures on both education and health,” expressed as a relation to GDP (122). There are four DVs. The independent variables are as follows: concentration of world bank project lending, lagged DVs, gross domestic product per capita, economic growth, debt service ratio, domestic political institutions and population (122-5).
The results: “The consistent finding across such a wide array of indicators offers strong evidence that the concentration of World Bank funding exerts little influence on social policy…it appears that the World Bank’s efforts to persuade its clients to shift spending toward programs that invest in human capital have met with little success” (127). The statistically significant variables are the lagged DV and GDP growth with an overall r-squared of over 95%. Further results show that World Bank lending to education doesn’t match up with government spending (or rather, how governments should be spending according to World Bank assumptions).
The author then draws on examples from
They conclude that their, “…field research suggests that domestic political forces prevail over international technocratic linkages when it comes to redistributive social policy making” (138). One explanation for this in relation to earlier periods is that, “early stabilization measures and market reforms were launched by a small number of high-level officials in an atmosphere of secrecy and crisis. Current reforms, by contrast, are taking place during a longer time frame and in a relatively open political atmosphere, inviting politicians and interest groups to intervene” (139).
Gould: Money Talks
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
Friday, February 8, 2008
Killick: Principals, Agents and the Limitations of BWI Conditionality
Killick, Tony. (1996). Principals, Agents and the Limitations of BWI Conditionality (Vol. 19, 211-229).
Killick identifies a paradox in BWI conditionality: "the evidence on the specific economic consequences of SAPs…does not point to strong results. Assessment of the impact of SAPs is fraught with difficulty, particularly because we can do no more than simulate the counterfactual" (212). "The following generalizations are among the principal results of the empirical literature on the consequences of BWI adjustment programmes [sic]" (212): Programmes [sic] have limited revealed ability to achieve their own objectives; Programmes [sic] have high mortality or interruption rates; There is little evidence of a strong connection between SAPs and implementation of policy reforms; Programmes [sic] have only modest impact on key policy variables and even less on institutions (213-4).
He then points out that the relatively weak interaction between SAPs and their chances of achieving their goals: "the BWI's over-reliance on conditionality as a means of inducing policy change" (215). "As practiced by the BWIs, the conditionality attached to SAPs is of three different levels of obligation. In diminishing order of commitment, these are (a) preconditions…reforms that must be taken before a BWI is willing to approve a negotiated loan; (b) performance criteria…actions that must be undertaken for governments to be allowed to continue to draw down the agreed loan; and (c) other actions which are less binding in nature" (215).
Recipients of BWI action and conditionality agreements tend to not feel a sense of ownership in the prescriptions that are put forth. Additionally, the punitive measures that are advanced by BWI interests are not always credibly followed. “To sum up, while a good many factors contribute to the paradox of good policies producing weak effects, the BWIs’ over-reliance on conditionality is surely one of the most important” (225).
The future of these programs depend on much, though Killick promotes a few ways in which they may be able to produce more robust results. One thing that can happen, is that BWIs can refuse to help countries who do not appear to be sufficiently interested. Additionally, recipient governments could draft letters of intent that would allow them to show to the BWIs that they are sufficiently interested in making macro-economic policy changes. Also, through the drafting of letters of intent, recipient countries could also begin to
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