Governing global markets: Private debt and the politics of International Monetary Fund lending
This dissertation seeks to explain the lending behavior of the International Monetary Fund (IMF) over the last two decades. During this period, the IMF provided over $400 billion in short-term loans to developing countries, ranging in size from less than $10 million to over $30 billion. Many of these loans far exceeded the amount the borrower countries were eligible to receive under the Fund's quota system, while others were significantly smaller than the borrower's allotted quota. Similarly, the policy reforms ("conditionality") mandated by the IMF in exchange for its loans also varied widely: in some cases, IMF lending arrangements included a large number of conditions, while in others the Fund provided financing with few strings attached.
What explains this variation in IMF policies? More broadly, how do international organizations (IOs) make decisions and set policies at the global level? To address these empirical and theoretical questions, I develop a principal-agent framework in which IMF policies are jointly determined by two key actors: the Fund's five largest shareholders, the G-5 countries, which exercise de facto control over the IMF Executive Board (EB) and utilize IMF loans to protect their domestic financial interests; and the IMF staff, whose expectations about market actors' responses to Fund policies influence the size and terms of the lending arrangements they propose to the EB for approval. Using this framework, I argue that these actors' preferences over the size and terms of IMF programs depend on the composition of international capital flows to developing countries. As both domestic interests within the G-5 countries and independent actors in world markets, private creditors shape the views of the Fund staff and G-5 governments over the core tradeoff between liquidity and moral hazard confronting the IMF as it decides how much and on what terms to lend. As a result, IMF policies vary over time and across cases in accordance with changes in the amount, instruments, and maturity of IMF borrowers' private external debt.
Using both statistical and case study analyses, I find clear support for my argument. Differences in the amount and concentration of the G-5 countries' commercial bank exposure, along with changes in the instruments and maturity of a borrower country's private external debt, have significant and substantive effects on the size and terms of short-term IMF loans. In addition to explaining an important empirical puzzle, this dissertation sheds light on broader issues in international political economy. Although IMF lending represents only a single case of IO policymaking, the results of this project suggest the need to move beyond one-dimensional theories of international institutions that privilege a single actor or variable in favor of a more complex and dynamic understanding of global governance. My findings also shed light on the relative merits of recent proposals to reform the "international financial architecture."
0616: International relations
0615: Political science