Tuesday, December 20, 2011

The IMF Isn't Technocratic Either

. Tuesday, December 20, 2011

The title of a recent post at The New Republic is "How the IMF Got It's Keynesian Groove Back". I don't want to pick on author, Jared Vary, too much as he appears to be an intern at TNR, but I see this line of reasoning proffered from more credentialed folks all the time and it drives me crazy. It basically goes like this: originally, the IMF was a fairly kind, generous, technocratic "Keynesian" institution, which was corrupted over time by a "Chicago school" ideology that made crises worse rather than better by insisting on harsh austerity. After the IMF botched up 1990s crises, they started to return to their postwar Keynesian roots.

This type of narrative relies on a view of the IMF that is, I think, inherently flawed. IMF actions have varied along with the geopolitical issues of the time. More specifically, it has always taken actions that the major Western powers, particularly the U.S., wanted. (The U.S. is the only single country with an effective veto, since it has always controlled over 15% of the voting rights and actions must be approved with an 85% majority.) These preferences were not consistent across countries or time, and there is no reason to expect that they would be. During the Bretton Woods period, the IMF was used to used to balance the fixed exchange rate system that embedded the U.S. at the center of the international economic system. In the 1970s and 1980s, the IMF was used as a sort of bailout device for commercial banks in the U.S. and Europe, which owned too much emerging market debt. Harsh conditionality was tied to these loans because the purpose of them was to help the banks, not the indebted countries. In the 1990s the IMF behaved differently depending on the geopolitical context. Loans to countries undergoing post-communist traditions had fewer conditionalities attached to them than loans to East Asian countries or the Latin American countries in the 1980s.

The above paragraph draws from a fairly long string of research on these questions. While the ideational view has some support from folks like Chwieroth, materialist explanations of the IMF's behavior are more prevalent in the literature. Strom Thacker wrote about the "high politics" of IMF lending, and showed how countries that "move toward the political space of the U.S." -- for example by voting with the U.S. in the U.N. -- have a greater chance of receiving loans. Oatley and Yackee extend this further, showing that countries with a lot of indebtedness to U.S. financial firms receive larger IMF loans, as do countries that are allied with the U.S. Randall Stone finds that conditionality is enforced less on countries that are important to the U.S., and can offer the U.S. something valuable in return. Finally, Grigore Pop-Eleches argues that the size of IMF loans and type of conditionalities attached to them varies according to geopolitical, rather than economic, concerns. Indebted Latin American countries in the 1980s had more strings attached than transitioning Eastern European countries, because the major Western powers had an interest in a smooth transition away from communism towards capitalism, and towards greater integration of the European continent.

The point of all of this is to say keep reiterating that there is no technocracy. Institutions like the IMF are inherently political, and act accordingly. The constituent members of these institutions are also political, and will use the institution to suit their ends when they are capable of doing so. Often this will involve issue-linkages and quid pro quo arrangements, so it may not always be transparent, but that doesn't mean it isn't happening.

Update: See also this previous post from Thomas.


matto said...

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The IMF Isn't Technocratic Either




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