Over the last two decades, the International Monetary Fund has provided developing countries with over $400 billion in conditional loans, ranging in size from less than $10 million to over $30 billion. What explains the significant variation in the amount and terms (conditionality) of these loans? Why do some countries get a better deal from the IMF, while others receive less Fund credit on more stringent terms? I argue that IMF lending behavior is driven by the interests of and interaction between three key actors: the IMF?s professional staff, the Fund?s five largest member-states (the "G-5"), and private international creditors. Each of these actors influences the IMF policymaking process, but none exercises complete control. Furthermore, these actors? preferences are not constant; rather, they vary over time and across cases based on the composition of a prospective Fund borrower?s private international debt. Changes in debt composition – specifically, differences in the instruments (commercial bank loans vs. bonds) and maturity (short– vs. long–term) of a borrower country?s external debt – shape the preferences of all three key actors over the size and terms of IMF lending packages. Using a new time–series cross–sectional dataset developed for this project, I find that differences in the amount and concentration of G–5 bank exposure, along with changes in the instruments and maturity of a borrower country?s private external debt, have had significant and substantive effects on the size and terms of short–term IMF loans from 1984–2003. Moreover, these effects are at least as large as those of other economic and political factors identified in the literature as important determinants of IMF lending. Ultimately, these results suggest the need to move beyond one–dimensional explanations of Fund policymaking that privilege a single economic or political variable in favor of a more complex and dynamic understanding of the political economy of IMF lending.
Working Paper 04–05, Weatherhead Center for International Affairs, Harvard University, October 2004.