Lending Credibility: The International Monetary Fund and the Post-Communist Transition

Lending Credibility: The International Monetary Fund and the Post-Communist Transition

Lending Credibility: The International Monetary Fund and the Post-Communist Transition

Lending Credibility: The International Monetary Fund and the Post-Communist Transition

Synopsis

With the end of the Cold War, the International Monetary Fund emerged as the most powerful international institution in history. But how much influence can the IMF exert over fiercely contested issues in domestic politics that affect the lives of millions? In Lending Credibility, Randall Stone develops the first systematic approach to answering this question. Deploying an arsenal of methods from a range of social sciences rarely combined, he mounts a forceful challenge to conventional wisdom. Focusing on the former Soviet bloc, Stone finds that the IMF is neither as powerful as some critics fear, nor as weak as others believe, but that the answer hinges on the complex factor of how much credibility it can muster from country to country.Stone begins by building a formal, game-theoretic model of lending credibility, which he then subjects to sophisticated quantitative testing on original data from twenty-six countries over the 1990s. Next come detailed, interview-based case studies on negotiations between the IMF and Russia, Ukraine, Poland, and Bulgaria. Stone asserts that the IMF has exerted startling influence over economic policy in smaller countries, such as Poland and Bulgaria. However, where U.S. foreign policy interests come more heavily into play, as in Russia, the IMF cannot credibly commit to enforcing the loans-for-policy contract. This erodes its ability to facilitate enduring market reforms. Stone's context is the postcommunist transition in Europe and Asia, but his findings carry implications for IMF activities the world over.

Excerpt

With the end of the Cold War, the International Monetary Fund (IMF) emerged as the most powerful international institution in history. the Western countries designated the imf as their primary vehicle for funneling aid to the countries that had emerged from the ruins of the Soviet empire and made it responsible for creating a strategy for interacting with them. That strategy, as it gradually unfolded, was ambitious: nothing less than the economic transformation of every society in the region. the early years after the collapse of the Soviet bloc were heady ones for the IMF: a vast new territory was becoming integrated with the world economy, international capital movements were rising to the top of the political agenda in Central Europe and Eurasia, and multilateral lending agencies were beginning to figure prominently in cabinet meetings and parliamentary debates. the Fund eventually signed loan and conditionality agreements with every country of the former Soviet Union and Eastern Europe except Serbia and Turkmenistan. Even as this ambitious institutional strategy took shape, however, questions were raised about whether the instrument was equal to the task. Can an international institution really hope to exercise influence in a nation's domestic affairs? If it does so, will that influence be beneficial?

Formal international institutions are the peculiar innovation of the advanced industrial democracies, which have relied on these institutions since World War II as a central pillar of their effort to impose order on the anarchy of international politics. in the aftermath of the worst war the world has ever known, the United States and its allies had sought to promote international cooperation by creating an impressive architecture of international institutions: the United Nations, the International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade, the European Economic Community, and numerous specialized agencies. the Cold War between the United States and the Soviet Union quickly became the focus of attention in the international system, and it redefined many of the purposes of these institutions. Still, whenever the United States and its allies tried to foster cooperation after World War II, they created international institutions. International institutions became an essential part of . . .

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