Monday, May 19, 2014

Abstract of the day: biased IMF lending policies, 1980-2000

Sometimes an article's value lies in providing evidence for something one might have assumed but couldn't be sure about in the absence of evidence. As in this:
International organizations (IOs) suffuse world politics, but the International Monetary Fund (IMF) stands out as an unusually important IO. My research suggests that IMF lending is systematically biased. Preferential treatment is largely driven by the degree of similarity between beliefs held by IMF officials and key economic policy-makers in the borrowing country. This article describes the IMF's ideational culture as “neoliberal,” and assumes it to be stable during the observation window (1980–2000). The beliefs of top economic policy-makers in borrowing countries, however, vary in terms of their distance from IMF officials' beliefs. When fellow neoliberals control the top economic policy posts the distance between the means of the policy team's beliefs and the IMF narrows; consequently, IMF loans become less onerous, more generous, and less rigorously enforced. I gathered data on the number of conditions and the relative size of loans for 486 programs in the years between 1980 and 2000. I collected data on waivers, which allow countries that have missed binding conditions to continue to access funds, as an indicator for enforcement. I rely on indirect indicators, gleaned from a new data set that contains biographical details of more than 2,000 policy-makers in ninety developing countries, to construct a measure of the proportion of the top policy officials that are fellow neoliberals. The evidence from a battery of statistical tests reveals that as the proportion of neoliberals in the borrowing government increases, IMF deals get comparatively sweeter.
--abstract from Stephen C. Nelson, "Playing Favorites: How Shared Beliefs Shape the IMF's Lending Decisions," Intl. Org. 68:2 (May 2014)


hank_F_M said...


The IMF works
to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
From their web site.

I would hope that the IMF has a very strong systematic bias in favor of countries whose leadership is agrees with with the IMF on how to accomplish these goals. We certainly would not want them knowingly supporting polices that are antithetical to these goals.

(Granted a different issue than does the IMF support the correct policies.)

I know the quote is an abstract, so I might be missing something, but the tone seems to suggest that Nelson discovered a great scandal, the IMF is doing what is supposed to do.

LFC said...

Yes, one might expect the IMF to lend more generously to countries "whose leadership agrees with
the IMF on how to accomplish" certain goals. But the abstract also indicates that the IMF is more likely to grant waivers, "which allow countries that have missed binding conditions to continue to access funds," to countries w neoliberals in top policy positions.

In other words, the IMF gives a loan w certain conditions attached (relating, say, to fiscal or monetary policy: the borrowing country has to take such-and-such steps to reduce subsidies or inflation or whatever). Then when the recipient country does not comply w the conditions or fails to meet them, the question is: does it get a waiver? And apparently the IMF grants waivers more often to countries w neoliberals in top policy posts -- presumably on the theory that they will be more likely to eventually comply w/ the conditions, I suppose, or maybe on other grounds. Not surprising, but interesting. I think this prob. falls somewhere in between 'great scandal' and what the IMF "is supposed to do," though I'm not positive. Maybe it is, on some level, what the IMF "is supposed to do."

I haven't read the article, I shd say, just the abstract. Wd want to read the whole article in order to make more confident statements about this.

LFC said...

p.s. In case it's not clear, in general I'm not a fan of the IMF (but I also can't claim to have done any serious research on it, certainly not in recent years).