HEEDING THE SIRENS: The Politics of IMF Program Participation

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1 HEEDING THE SIRENS: The Politics of IMF Program Participation Nooruddin-Woo Department of Political Science The Ohio State University Presentation for IPES 2009

2 Research Question Why do some states enter into IMF agreements while others do not? What explains the variation in timing to enter an IMF program?

3 Economic Explanations Previous studies suggest: Balance of Payments Foreign reserves National debts Statistical models based solely on economic variables have limited explanatory power. Some participate in IMF programs with little financial need while others refuse to participate in spite of serious balance of payments problems.

5 No Participation Low Reserves High Reserves Argentina 1980, Botswana Columbia , Iran 1980 Jordan 1971, Malta Nepal 1974, Nigeria 1975 Portugal , 1976 Trinidad & Tobago , 1982 Uruguay 1974 Venezuela , 1986 Participation Benin 1989, Congo , 1990 Cote d Ivoire Gabon Guinea-Bissau 1987, Guyana 1982 Liberia 1981, 1983, Madagascar Panama Senegal 1982, Somalia 1985, Sudan Uganda 1981 Data from Vreeland (2003)

6 No Participation Low Reserves Central African Republic 1972 Chad 1974 Congo , 1989 Guyana 1989 Senegal 1975 Sudan 1986 Tanzania 1983 Participation Benin 1989, Congo , 1990 Cote d Ivoire Gabon Guinea-Bissau 1987, Guyana 1982 Liberia 1981, 1983, Madagascar Panama Senegal 1982, Somalia 1985, Sudan Uganda 1981 High Reserves Argentina 1980, Botswana Columbia , Iran 1980 Jordan 1971, Malta Nepal 1974, Nigeria 1975 Portugal , 1976 Trinidad & Tobago , 1982 Uruguay 1974 Venezuela , 1986 Myanmar 1975 Portugal 1977, 1979, Turkey Uruguay 1973, , , 1990 Data from Vreeland (2003)

7 Political Accounts IMF s Decision IMF s bureaucratic interests IMF wants to protect its resources Principals of the IMF The influence of powerful states Borrower s Decision Sovereignty cost/recidivism Borrowing from the IMF is politically unpopular Tipping the balance Borrowing from the IMF allows a government to push reforms forward

8 Model 1 L max Approve IMF Program Nature r G L IMF 0 L min Status Quo Reject No Program Status Quo IMF Program No IMF Program IMF 0 Benefit+cost (Br-Lβ) Government 0 Loan+sovereignty cost (L-Cγ) 0 incompetence cost -rγ

9 Hypotheses H1: When the economic crisis gets more serious, an IMF program is more likely to be agreed. H2-1: When the economic crisis is mild, the more democratic a country is, the less it is likely to participate in an IMF program. H2-2: However, when the economic crisis is more serious, the more democratic a country is, the more it is likely to participate in an IMF program. H3: Countries with higher sovereignty cost are less likely to participate in an IMF program.

10 Empirical Analysis Country-year data of all IMF programs signed between 1946 and 2006 DV: IMF program / no IMF program Methods Variable Mean S.D. Min Max N Signed an IMF Program Under an IMF Program Dynamic Logit Models Two different models with and without previous year IMF participation Economic variables, international and domestic political variables

11 Findings Domestic Politics Without an IMF program in a previous year: Prior IMF experience increases probability of participation. Democracy reduces probability of participation. YET, IF ECONOMY FARES WORSE, DEMOCRACIES ARE MORE LIKELY TO PARTICIPATE THAN NON-DEMOCRACIES. With an IMF program in a previous year Economic Variables Foreign reserves, total debt service, negative growth year International Politics Affinity to US

12 Substantive Effects Pr. 0.5 Pr Positive Growth 0.4 Negative Growth Pr Reserve in Months of Imports 0.5 Pr Reserve in Months of Imports Positive Growth 0.4 Negative Growth Debt Service Non Democracy in Red Democracy in Blue Debt Service

15 Conclusion and Future Direction Democratic governments prefer not to pay the high costs of IMF programs because these are politically unpalatable. However, when economic conditions are dire, democracies are more likely to sign IMF programs than their non-democratic counterparts.

16 Thank you! We appreciate your comments. Nooruddin: Woo:

17 Descriptive Statistics Variable Mean S.D. Min Max N Signed an IMF Program Under an IMF Program Current Account Balance (% GDP) Reserves (in Months of Imports) Budget Balance (% GDP) Debt Service Burden (% Exports) Negative Growth Year GDP (Log) Affinity to US N of Countries Under IMF Program Previous IMF Program Democracy

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