Regionalizing Multilateralism: Estimating the Power of Potential Regional Voting Blocs in the IMF

This paper explores the voting power of hypothetical regional voting blocs in the Executive Board of the International Monetary Fund. We first discuss the prospect of regionally defined groups becoming more significant in the Fund’s decision-making process. After briefly outlining the IMF’s formal decision procedures, including its weighted voting system, use of special majorities, and the function of voting groups in the Fund’s Executive Board we define three indices of a priori voting power — the Banzhaf, Johnston, and Shapley-Shubik indices — which are then applied to existing voting groups. Following this we simulate several regionally defined a priori coalitions and their potential to influence outcomes in passing resolutions in the Fund using a simple majority. The coalitions we specify are based on the assumption that members of the IMF will form into voting blocs based on regionally-defined preferences. The procedures employed use existing voting weights to project the relative strengths of alternative regional blocs that could emerge within the IMF. Our results indicate that the United States would have the greatest voting power in almost all scenarios. A voting bloc comprised of European countries, however, would be able to dominate the United States unless the U.S. formed an Asia-Pacific bloc. Japan, the PRC, and other Asian countries appear to be unable to form voting blocs that would provide them with more voting power than the United States.     

Is East Asia under-represented in the International Monetary Fund?

East Asian countries perceive that their individual and collectivepositions in the world political economy are not fairly representedin existing international institutions, which have yet to fullyadjust to the region's rapid economic ascent over the last severaldecades. This problem seems especially acute in the InternationalMonetary Fund (IMF), wherein each country's participation inthe organization's weighted voting scheme is supposed to reflectthe following logic: relative weight in world economy sizeof quotas number of votes. Are Asian countries' IMF quotasincommensurate with their relative economic weight and, if so,by what margin? And if Asian countries are indeed under-representedin the IMF, which other country, group of countries or regionis correspondingly over-represented? This paper examines thesequestions from several perspectives. It first discusses thepurpose of quotas and how they are determined. It then turnsto the question of whether Asian perceptions concerning under-representationare empirically corroborated. The first data analysis sectioncompares current quotas to relative measures of economic weightin the world economy. The following section compares four quotavalues: past quotas, current quotas, calculated quotas and quotascalculated using the method of the IMF's external quota reviewboard. In short, the data demonstrate that Asia does have astrong claim for a greater share of IMF quotas. We concludewith a brief consideration of possible alternatives to the IMF'scurrent use of quota to determine voting weights, and arguethat the problem of Asian under-representation will probablynot be corrected unless the IMF's quota-determination processis overhauled.     

The effects of the IMF on expropriation of foreign firms

This paper seeks to explain the determinants of foreign expropriation in the developing world. We argue that the International Monetary Fund (IMF) helps to reduce the likelihood of nationalization because of the direct leverage the Fund holds over borrowers, especially as expropriation is a blatant violation of international property rights. Using expropriation data from 1961 to 2006, and several different measures for the Fund, we find that countries under IMF agreements are less likely to nationalize foreign firms. We also show that the Fund’s influence is greatest when the IMF loan represents a larger share of the borrower country’s gross domestic product (GDP) as well as in countries with weaker political institutions. The takeaway is that IMF continues to influence policy choices in the developing world.     

The United States Congress and IMF financing, 1944�C2009

Since 1944, United States financing of the International Monetary Fund (IMF) has been appropriated and approved in Congress by roll-call vote. If voting to increase funds to the IMF is viewed as an observable signal of ??support?? for the IMF, these votes provide a historical record of legislative support for the IMF in the United States. I analyze roll-call voting on IMF financing from 1944 to 2009 at both the aggregate (congressional) and the micro (legislator) levels. At the aggregate level, I show that support for the IMF has fallen over time in the House of Representatives but not in the Senate. In the micro-analysis, I use a ??natural experiment?? to establish that this intercameral difference is the result of the Senate??s larger and more heterogeneous constituencies, as opposed to other modeled and unmodeled factors. I also find that legislator support for the IMF is shaped strongly by ideology: regardless of chamber, left-wing legislators are as much as 31 percentage points more likely to support the IMF than right-wing legislators. Yet controlling for ideology, senators are more likely to support the IMF than representatives, and representatives are more sensitive to constituency pressures than senators. I attribute these differences to chamber-specific rules governing the size of constituencies.     

The Effect of IMF Programs on Women’s Economic and Political Rights

Though much research has been devoted to the socioeconomic and political consequences of International Monetary Fund (IMF) programs for recipient countries, little is known about the impacts of these programs on the level of respect for women’s rights. We postulate that IMF-induced policy reforms of privatization and public spending cuts, and the growing political repression and instability following the implementation of IMF programs, undermine the government’s ability and willingness to protect women’s economic and political rights. To substantiate the theoretical claims, we combine data on women’s political and economic rights with data on IMF programs for the years 1981–2004. Our findings suggest that IMF involvement is likely to deteriorate the level of respect for women’s economic rights while having no discernible effect on women’s political rights. The results further indicate that the effect of these programs is not conditioned by political regime type and economic wealth of recipient countries. One major policy implication of our findings is that the IMF should start to recognize that the conditions attached to lending programs might be implemented at the expense of women’s economic rights and that more explicit protections of women’s rights need to be included in program negotiations.     

The political economy of labor market deregulation during IMF interventions

This study examines the relationship between policy interventions by the International Monetary Fund (IMF) and de jure labor rights. Combining two novel data sets with unprecedented country-year coverage – leximetric data on labor laws and disaggregated data on IMF conditionality – our analysis of up to 70 developing countries from 1980 to 2014 demonstrates that IMF-mandated labor market policy measures significantly reduce both individual and collective labor rights. Once we control for the effect of labor market policy measures, however, we find that collective labor rights increase in the wake of IMF programs. We argue that this result is explained by the impact of union pressure on governments which, in such a context, are imbued with the policy space to respond to domestic interest groups. The study has broader theoretical implications as to when international organizations are effective in constraining governments’ choices.     

“The silent revolution:” How the staff exercise informal governance over IMF lending

This paper examines how the staff exercise informal governance over lending decisions of the International Monetary Fund (IMF or Fund). The essential component of designing any IMF program, assessing the extent to which a borrowing country is likely to fulfill its policy commitments, is based partly on informal staff judgments subject to informal incentives and normative orientations not dictated by formal rules and procedures. Moreover, when country officials are unable to commit to policy goals of the IMF, the IMF staff may bypass the formal channel of policy dialogue through informal contacts and negotiations with more like-minded actors outside the policymaking process. Exercising informal governance in these ways, the staff are motived by informal career advancement incentives and normative orientations associated with the organization’s culture to provide favorable treatment to borrowers composed of policy teams sympathetic toward their policy goals. The presence of these sympathetic interlocutors provides the staff both with greater confidence a lending program will achieve success and an opportunity to support officials who share their policy beliefs. I assess these arguments using a new dataset that proxies shared policy beliefs based on the professional characteristics of IMF staff and developing country officials. The evidence supports these arguments: larger loan commitments are extended to countries where government officials and the Fund staff share similar professional training. The analysis implies informal governance operates in IOs not just via state influence but also through the evolving makeup, incentive structure, and normative orientations of their staffs.     

Beyond citizenship and residence? Exploring the extension of voting rights in the age of globalization

The introductory article to the special issue discusses how the extension of voting rights beyond citizenship (that is, to non-national immigrants) and residence (that is, to expatriates) can be interpreted in the light of democratization processes in both Western countries and in developing regions. It does so by inserting the globalization-specific extension of voting rights to immigrants and expatriates within the long-term series of historical waves of democratization. Does the current extension enhance democracy by granting de facto disenfranchised immigrants and emigrants political rights or does it jeopardize the very functioning of democracy by undermining its legitimacy through the removal of territorial and national boundaries? The article offers a synthesis of the findings of the volume's contributions in a broad comparative perspective covering both alien and external voting rights in Europe, sub-Saharan Africa, and Latin America. It shows that reforms toward more expansive electorates vary considerably and that their effects on the inclusion of migrants largely depend on the specific regulations and the socio-political context in which they operate.     

Congressional voting on funding the international financial institutions

The United States is the largest contributor to the International Monetary Fund (IMF) and the World Bank, providing resources in exchange for voting power in these international financial institutions (IFIs). While the Treasury Department manages the day-to-day aspects of US participation in these institutions, Congress retains authority on funding. With the aim of understanding the microincentives of US support for the IFIs, I analyze congressional voting on bills to fund the IFIs. I argue that members of congress are more likely to support a funding increase (1) the more “liberal” their ideology, (2) the larger the share of campaign contributions they get from banks that specialize in international lending, and (3) the larger the share of voters that gain from economic globalization that reside in their districts. Statistical analyses of voting on five IFI funding bills since 1977 provide support for these arguments.

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Adverse selection and growth under IMF programs

The dominant approach to studying the effects of IMF programs has emphasized moral hazard, but we find that adverse selection has more impressive effects. We propose a novel strategic selection model to study the growth effects of IMF programs, which allows for the possibility of adverse selection. We find that adverse selection occurs: the countries that are most interested in participating in IMF programs are the least likely to have favorable growth outcomes. Controlling for this selection effect, we find that countries benefit from IMF programs on average in terms of higher growth rates, but that some countries benefit from participation, while others are harmed. Moral hazard predicts that long-term users of Fund resources benefit least from participating in programs, while adverse selection predicts the opposite. Contrary to previous findings, we find that IMF programs have more successful growth performance among long-term users than among short-term users.     

Global governance behind closed doors: The IMF boardroom, the Enhanced Structural Adjustment Facility, and the intersection of material power and norm stabilisation in global politics

Up on the 12th floor of its 19th Street Headquarters, the IMF Board sits in active session for an average of 7 hours per week. Although key matters of policy are decided on in the venue, the rules governing Boardroom interactions remain opaque, resting on an uneasy combination of consensual decision-making and weighted voting. Through a detailed analysis of IMF Board discussions surrounding the Enhanced Structural Adjustment Facility (ESAF), this article sheds light on the mechanics of power in this often overlooked venue of global economic governance. By exploring the key issues of default liability and loan conditionality, I demonstrate that whilst the Boardroom is a more active site of contestation than has hitherto been recognized, material power is a prime determinant of both Executive Directors?? preferences and outcomes reached from discussions. And as the decisions reached form the backbone of the ??instruction sheet?? used by Fund staff to guide their everyday operational decisions, these outcomes??and the processes through which they were reached??were factors of primary importance in stabilizing the operational norms at the heart of a controversial phase in the contemporary history of IMF concessional lending.     

IMF programs and human rights, 1981–2003

We examined the effects of International Monetary Fund (IMF) supervised programs on changes in government respect for physical integrity rights in developing countries between 1981 and 2003. A longer period under an IMF program increased government use of torture and extra judicial killing and also worsened the overall human rights conditions in developing countries. The use of a two-stage model ruled out the possibility that human rights practices would have worsened even if IMF programs had not been in effect. Previous studies of the impacts of IMF programs also found that they had worsened government respect for human rights. However, those studies did not control for the effects of selection. We found preliminary evidence that the worsened human rights conditions persisted even after the reforms in program lending of the late 1990s.

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Conditional on Conditionality: IMF Program Design and Foreign Direct Investment

The article explores how International Monetary Fund (IMF) program design influences foreign direct investment inflows. The author argues that stricter IMF conditionality signals a program-participating government's commitment to economic reforms, as it incurs larger ex ante political cost and risks greater ex post political cost. Thus, the catalytic effect of an IMF program is conditional on conditionality: programs with stricter conditions catalyze more foreign direct investment than those with less stringent conditions. Empirical analysis of the IMF conditionality dataset supports the argument and shows that after accounting for IMF program participation, the more structural conditions included in an IMF program, the more foreign direct investment flows into the country.     

Evaluating the impact of IMF programs: A comparison of matching and instrumental-variable estimators

We examine the impact of IMF programs on economic performance in 95 developing countries over the period 1993–2002. Three macroeconomic measures of economic performance are considered: the real per capita economic growth rate, the ratio of the fiscal surplus to GDP, and the ratio of the current account surplus to GDP. Three estimation techniques are used: censored-sample, full-sample instrumental-variable, and matching. Substantively, we find little statistical support that IMF programs contemporaneously improve real economic growth in participating countries, but stronger evidence of an improvement in economic growth in years following a program. We find that both the fiscal ratio and the current-account ratio improve contemporaneously with IMF participation relative to the counterfactual, with effects in succeeding years differing little from the impact effects. We conclude that the program-effect estimates of matching and other estimators will differ largely because of the sample included in estimation. Matching by its nature excludes country episodes associated with extreme values of the propensity score, while the instrumental-variable estimator includes those. If there is heterogeneity of performance response in extreme vs. moderate cases, the estimates differ systematically between the two techniques. JEL codes F33 · F34 · C34     

The Catalytic Effect of IMF Lending: Evidence from Sectoral FDI Data

Our study contributes to the search for the elusive catalytic effect of International Monetary Fund (IMF) lending on inflows of foreign direct investment (FDI). Recent scholarship has found that the catalytic effect is conditional on political regime and program stringency. We contribute to this literature by developing and testing a theory which describes how the catalytic effect also varies by economic sector. This is a departure from existing studies, which have tended to focus on aggregate FDI flows after crises. Our findings corroborate previous research, which finds that in general IMF lending has a substantial and negative effect on FDI. However, we find that the negative effect is concentrated in sectors that are highly dependent on external capital and have low sunk costs in the host country. Our findings are robust to several alternative explanations common in IMF literature, namely the importance of IMF program design and the ability of governments to make credible commitments to reform. Substantively, our findings suggest that investors are more likely to use IMF lending as an escape hatch in countries where FDI is dependent on external capital and has low sunk costs.     

Recruiting and diversifying IMF technocrats

This article examines the International Monetary Fund's recruitment policies and reveals internal debates on diversifying the organisation. It has often been argued that the IMF economist staff are technocrats proposing common policy solutions to economic adjustment because of their shared knowledge and training. These ‘econocrats’ are argued to be monolithic in their thinking and background and a part of the ‘Washington Consensus’ on economic policy reform. Consequently, the Fund has often been viewed as an insular and inbred organisation that lacks diversity. But how has the IMF approached diversity? Are the IMF ‘econocrats’ really similar? These questions are answered by examining 15 years of IMF documents on staff recruitment newly released upon request from the IMF archives. In addition, numerous personal interviews with IMF staff members and executive directors give insight into this powerful institution's organisational dynamics.     

Renewing IMF surveillance: Transparency, accountability, and independence

In this paper, we present a vision for IMF surveillance that seeks to produce a more accountable, transparent, and independent surveillance process. First, to make surveillance more focused, the IMF’s assessment should be principles-based; that is, the Fund should assess the overall coherence of exchange rate, monetary, fiscal and financial policies, with a view to analyzing their effects on external stability. Second, the IMF should have a governance structure that increases incentives to support candid, transparent assessments of surveillance. In practice, this entails a different role for the Executive Board: the Board will set out the Fund’s strategic framework for surveillance; the Managing Director and the staff will conduct surveillance. These reforms clarify the roles and responsibilities of the IMF and its member countries in the surveillance process. Also, our proposed reforms aim at making surveillance more even-handed and objective. We believe that this principles-based approach can bolster the credibility and legitimacy of surveillance, giving the Fund greater influence on the economic policies of members.

IMF program compliance: Aggregate index versus policy specific research strategies

Consensus has grown that the economic reform programs of the International Monetary Fund (IMF) have failed to promote economic development. There is little consensus about how IMF programs should be reformed, however, because we do not understand why IMF programs have failed. Some critics contend that the IMF’s austere policy conditions are inappropriate for most program-countries and cause economic crises to deepen. Other critics argue that the policy conditions are actually ignored, and the IMF program loan ends up subsidizing the bad policies that caused the economic crises in the first place. This debate begs the compliance question. Unfortunately, the study of IMF compliance is not straightforward. IMF agreements span many dimensions, and the dimensions vary from agreement to agreement. Even along one dimension, governments are not held to the same standard. Rather than look at aggregate measures of compliance, this article proposes a return to studying specific conditions as was done in the earliest studies on IMF compliance.      

IAI annual report, 1972

The International Monetary Fund (IMF) plays a substantial regulatory role in the international monetary and financial system. It has been assigned a formal regulatory role in a limited number of areas, such as obligations covering exchange rate policies. Yet the Fund has a broader informal regulatory role derived from the voluntary consent of its members, such as in surveillance over members’ financial sector policies and international payments imbalances. This regulatory role is unlike that of its member governments within their own jurisdictions. In order to guide the global economy in the wake of the 2007–09 crisis, the Fund's formal and informal regulation will have to be constantly nurtured and renewed via peer-review processes.     

The Path of Least Resistance: Mainstreaming “Social Issues” in the International Monetary Fund

This article traces efforts to mainstream social issues in the institutional architecture of the IMF, attributing the lack of progress in this area mainly to the Fund's organisational culture, which steers the IMF towards the path of least resistance when it comes to policy innovation. Whereas the IMF is frequently portrayed as a puppet of powerful member states, this article identifies the Fund's organisational culture as the central factor explaining the slow pace of mainstreaming social issues in the Fund’s architecture. In the absence of member state leadership on this issue, and in light of committed management’s limited room for manoeuvre, IMF staff enjoyed much leeway to pursue an approach that was most suited to their skill set, ideological orientations and the Fund's core mandate. Due to the Fund's strictly hierarchical structure, its recruitment policies, insufficient self-evaluation and reluctance to seriously engage with reform initiatives emanating from civil society, social issues are far from being mainstreamed in the Fund's daily operations.