The Scope of IMF Conditionality

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The Scope of IMF Conditionality

• Randall W. Stone
• University of Rochester

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Why study IMF autonomy?

• IMF conditionality has a poor track record
• Is the problem too much or too little autonomy?
• How much autonomy does the IMF enjoy?

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Public choice models

• IMF pushes loans
• IMF maximizes conditionality

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Puzzle

• If the agents preferences diverge from the
  principals, and the principals are unwilling to
  monitor, why do they delegate so much authority?

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Conditional autonomy

• Long-term vs. short-term interests
• IMF principals control important cases
• Intervention relaxes conditionality
• Intervention occurs when important borrowers cash
  in their chips
• Credibility problem conditionality is least
  effective in the most important cases

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Formal and Informal Governance

• Formal procedure
• MD has proposal power
• Weighted voting
• Universal representation
• Corporate oversight by the Executive Board

• Informal procedure
• U.S. agenda control
• Norm of consensus
• Participation determines influence
• Oversight by individual shareholders

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Research design

• Footprints in bargaining outcomes
• Bivariate probit (Przeworski Vreeland,
  Vreeland)
• Predicted values measure latent bargaining power

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Data

• Monitoring of Agreements Database (MONA)
• 99 borrowers, 189 countries, 1992-2002
• IFS, WDI, GDF, COW, DPI, DAC, etc.
• DV Scope of conditionality, 0-19 categories

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Scope of Conditionality
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Results Selection stage

• IMF organizational interests domestic politics
  play little role
• U.S. aid recipients are 39 more likely to be
  offered programs
• Borrowers turn to the Fund when they are in
  macroeconomic trouble

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Results Explaining conditionality

• Countries to which the IMF wants to extend loans
  are offered narrower conditions
• Countries that want IMF loans are offered
  narrower conditions

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Results Explaining conditionality

• U.S. aid reduces conditionality
• only if the borrower is vulnerable (debt
  service, roll-over risk, openness)
• Effect of U.S. aid is reduced by low capacity
• Vulnerability has no effect on conditionality
  independent of U.S. aid

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Substantive effects U.S. aid conditional on
vulnerability capacity
Insignificant
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Substantive effects vulnerability conditional
on U.S. aid
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Conclusions

• IMF has broad discretion to design conditionality
  in most cases
• IMF does not maximize conditionality
• Selective U.S. interference reduces
  conditionality
• Governance reform that reduced U.S. influence
  would increase IMF credibility