The IMF and AGOA: A Comparative Analysis of Conditionality

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INTRODUCTION

The International Monetary Fund (IMF or the Fund) and the Africa Growth and Opportunity Act (AGOA) are fundamentally dissimilar regimes with different purposes and goals. The mission of the IMF is to monitor and stabilize the global economic currency system. (1) It is a member-based organization of nation-states that provides loans to countries in financial difficulties. AGOA, on the other hand, is a unilateral trade preference regime offered by the U.S. government to benefit countries in sub-Saharan Africa. Its purpose is to provide increased trade opportunities as an incentive for countries to undertake political and economic reforms. (2)

A common feature of the IMF and AGOA is, however, that both institutions impose conditions on their beneficiaries. "Conditionality" in relations between developed and developing countries, specifically with regard to financial assistance and trade benefits, has long been a highly controversial topic. Condemnation of IMF conditionality has become something of an ethos among critics of the Fund. (3) Along those lines, there have also been numerous complaints regarding the conditionality engrained in AGOA. (4)

This note analyzes the manner in which conditions are applied in the IMF and AGOA regimes. While the substance of the conditions is naturally dissimilar, we explicitly accept the premise that conditions have the potential to be an important tool in effecting positive change by influencing recipient country policies. Thus, affirming the theoretical legitimacy of conditionality, the paper undertakes an analysis of how the IMF and AGOA use the conditions at their disposal, and whether such use is consistent with their missions and purposes.

I. DECONSTRUCTING ARGENTINA'S FAILURE

If success has a thousand fathers, then Argentina has lately been an orphan. Merely six years ago, Argentina was the darling of the IMF, (5) and the country's leaders bragged of the macroeconomic "miracle" that had transpired following the "lost decade" of the 1980s. (6) Since its default in December of 2001, the struggling nation has seen massive capital flight, followed by an inevitable influx of critics . (7)

Given its history of providing significant financial and political support for Argentina's economic policies during the 1990s, the IMF has unsurprisingly found itself to be the object of much of the criticism. Left-wing commentators assail the IMF for focusing on neoliberal economics while ignoring the increasingly stratified distribution of wealth between rich and poor. (8) Predictably, conservatives take the opposite approach, blaming the IMF for allowing Argentina's leaders to delay the implementation of "sound money, low tax rates and freer trade policy." (9) Critics on both sides of the political spectrum have called for the IMF to "shut down." (10)

Of course, the collapse of an entire economy is unlikely to stem from a single factor, meaning that all of the above commentators are at least partially correct. But much of the literature emerging over the past two years has overemphasized Argentina's fiscal, monetary, and exchange policy instead of addressing the fundamental problems that have led Argentina from one financial crisis to another for decades. In particular, we believe that Argentina will never achieve long-term growth and financial stability until it effectively reduces its rampant and infamous corruption. Furthermore, we assert that IMF conditionality can be used as an effective tool in aiding Argentina in its struggle to clean up its government.

A. Why Should Corruption Be Important to the IMF?

It may seem odd to call for greater use of conditionality at the IMF, given the flood of criticism that IMF conditions, especially those that touch on "structural" considerations, have already received." Some bemoan the fact that IMF conditions unduly infringe on the borrower-nation's sovereignty, and urge the Fund to avoid conditionality wherever possible. …