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From Economic Crisis to Reform

From Economic Crisis to Reform: IMF Programs in Latin America and Eastern Europe

Grigore Pop-Eleches
Copyright Date: 2009
Pages: 344
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  • Book Info
    From Economic Crisis to Reform
    Book Description:

    The wave of neoliberal economic reforms in the developing world since the 1980s has been regarded as the result of both severe economic crises and policy pressures from global financial institutions such as the International Monetary Fund (IMF). Using comparative evidence from the initiation and implementation of IMF programs in Latin America and Eastern Europe,From Economic Crisis to Reformshows that economic crises do not necessarily persuade governments to adopt IMF-style economic policies. Instead, ideology, interests, and institutions, at both the international and domestic levels, mediate responses to such crises.

    Grigore Pop-Eleches explains that the IMF's response to economic crises reflects the changing priorities of large IMF member countries. He argues that the IMF gives greater attention and favorable treatment to economic crises when they occur in economically or politically important countries. The book also shows how during the neoliberal consensus of the 1990s, economic crises triggered IMF-style reforms from governments across the ideological spectrum and how these reforms were broadly compatible with democratic politics. By contrast, during the Latin American debt crisis, the contentious politics of IMF programs reflected the ideological rivalries of the Cold War. Economic crises triggered ideologically divergent domestic policy responses and democracy was often at odds with economic adjustment. The author demonstrates that an economic crisis triggers neoliberal economic reforms only when the government and the IMF agree about the roots and severity of the crisis.

    eISBN: 978-1-4008-3554-6
    Subjects: Economics, Political Science, Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Illustrations and Tables
    (pp. ix-xii)
    (pp. xiii-xiv)
    (pp. xv-xix)
  6. 1 Introduction
    (pp. 1-26)

    In the summer of 1985, in the midst of the debt crisis, two newly elected Latin American presidents set out to transform the domestic and international political economy trajectories of their respective countries. Despite the shared economic and political challenges facing the neighboring countries of Bolivia and Peru as poor, highly indebted new democracies, the two new leaders moved their countries in opposite directions: in Bolivia Victor Paz Estenssoro ended the country’s prolonged economic and political paralysis, and instituted a radical program of orthodox economic reforms, which transformed the country from a regional basket case into an unexpected showcase example...

  7. 2 A Theoretical Approach to IMF Program Initiation and Implementation
    (pp. 27-52)

    At first glance, the dynamics of IMF program initiation and implementation are deceptively simple. To set the process in motion, a government facing balance-of-payments difficulties has to approach the IMF with a request for a loan. To get access to funding, the borrowing country government, in close consultation with IMF staff, drafts a letter of intent, which specifies a set of policies designed to redress the country’s financial imbalance. The letter includes a series of specific quantifiable goals, a timetable for achieving these goals, and the amount of IMF financial assistance that is tied to the achievement of program targets....

  8. APPENDIX to CHAPTER 2 Statistical Indicators and Methods
    (pp. 53-65)
  9. 3 Changing Crisis “Recipes”: The International Drivers of IMF Programs
    (pp. 66-104)

    Since IMF programs occur at the intersection between domestic and international politics, the logical starting point for understanding their political dynamics is the broader international political economy context in which these programs occur. Building on the analytical framework developed in the preceding chapter, I focus on the role of external crises as IMF program drivers and on the international political and economic interests that mediate the effects of these crises. Drawing on statistical evidence from two of the most prominent episodes of crisis-driven economic adjustment in recent history—the Latin American debt crisis and the post-communist transition—the chapter shows...

  10. 4 Navigating External Crises: Case Study Evidence
    (pp. 105-134)

    To complement the statistical findings about the international drivers of IMF programs, this chapter provides a more detailed account of the role of external financial need and economic/geopolitical importance in shaping the interactions between the IMF and individual Latin American and Eastern European countries. Among the Latin American countries, the chapter traces the trajectories of Argentina, Peru, Bolivia, and Chile, four cases that illustrate a variety of IMF interactions, ranging from showcase cooperation in Chile and post-1985 Bolivia, to frequent involvement and patchy compliance in Argentina, and outright rebellion in post-1985 Peru. In Eastern Europe, the surprisingly close IMF relations...

  11. 5 Domestic Political Responses to Economic Crises
    (pp. 135-173)

    The preceding two chapters have illustrated the importance of international political and economic considerations in driving IMF program dynamics. Nonetheless, IMF programs cannot be simply viewed as outside impositions on powerless and compliant Third World governments. As the cases of Bolivia (1982–85), Peru (1985–89), and Slovakia (1993–95) have shown, even extremely vulnerable countries do not automatically subject themselves to IMF conditionality in response to external crises. Moreover, governments occasionally sign and implement IMF agreements even though their international finances hardly require IMF support.¹ To understand these deviations from the traditional logic of program initiation and implementation, chapters...

  12. 6 Domestic Crisis Politics: Case Study Evidence
    (pp. 174-237)

    The preceding chapter revealed several crucial cross-regional differences in the domestic political dynamics of IMF programs during the Latin American debt crisis and the post-communist transition in Eastern Europe and the former Soviet Union. This chapter revisits the economic reform trajectories of the four Latin American and two Eastern European countries discussed in chapter 4 (Argentina, Bolivia, Chile, Peru, Moldova, and Slovakia) and introduces two additional post-communist cases (Bulgaria and Romania) to illustrate some of the main theoretical predictions and cross-national statistical findings about the domestic politics of economic crises in the context of IMF conditionality. In addition, these brief...

  13. 7 The Great Reconciliation? Latin America and the IMF in the 1990s
    (pp. 238-283)

    In december 1998 the argentine president, Carlos Menem, addressed the joint meeting of the International Monetary Fund and the World Bank in the wake of the East Asian financial crisis, during which the Fund’s policy prescriptions had attracted sharp and widespread criticism from a wide range of observers. Menem recounted Argentina’s remarkable turnaround following the hyperinflationary chaos of the 1989–91 period, and ascribed this success to his government having “worked side by side with the IMF, the World Bank, and the IDB to achieve macroeconomic stability, deepen structural reforms, and adopt policies aimed at improving the economic fortunes of...

  14. 8 Theoretical Conclusions and Policy Implications
    (pp. 284-305)

    This book has analyzed the political dynamics of IMF programs in the developing world. Given their location at the intersection of multiple domestic and global interests, IMF programs are shaped by actors as diverse as the U.S. State Department, technocrats within the IMF and the finance ministries of developing countries, government and opposition political parties, labor and business organizations, and guerrilla movements. Therefore, it is hardly surprising that despite the relative uniformity of the Fund’s theoretical approach to conditionality, the actual trajectories of IMF programs are as diverse as the political and economic environments in which they unfold.

    While acknowledging...

  15. APPENDIX A Formal Model of IMF Program Initiation and Implementation
    (pp. 306-320)
    (pp. 321-332)
  17. INDEX
    (pp. 333-339)