Why governments enter into IMF programs: the effects of presidentialism

This paper argues that reform-minded governments often use the leverage of the IMF to push through unpopular policies. There may be actors in the political system – ‘veto players’ – whose approval is required for policy change but not for the executive to enter into an IMF arrangement. Once the IMF is involved, the veto players can no longer reject policy change without risking the adverse consequences of rejecting the IMF.

The paper hypothesises that when there are more veto players, it is more likely that at least one of them will represent the losers from the policy change, making it more likely that an executive wishing to push through reform will bring in the IMF to help it do this. It conducts regression analysis on data from 179 countries between 1975 and 1996 to test this hypothesis, using a composite measure of the number of veto players based on a previous study and controlling for other relevant conditions, such as economic crises and the amount spent servicing debt.

The results reveal that governments are indeed more likely to enter into IMF arrangements under presidential systems when there are more veto players in the political system, and that this finding holds even after controlling for other conditions such as economic crises.

The paper also finds that the effect is much stronger under presidential than parliamentary systems, and is not significant at all in dictatorships. It argues that the effect is weaker in parliamentary systems because veto players in parliamentary systems are usually coalition partners and can directly influence the survival of the executive. This leaves less scope for the executive to bring in the IMF to help it push through unpopular policies.

The paper concludes by asking why governments might wish to pursue the unpopular policies of the IMF in the first place. It cites previous studies suggesting that IMF policies have little effect on economic growth or stability, but do consistently redistribute income away from workers and towards the owners of capital. It argues that the redistributive impact of IMF policies means that some groups stand to gain from them and others stand to lose. Consequently it is unsurprising that an executive representing the winners from these changes is more likely to bring in the IMF if there are a larger number of veto players, some of whom probably represent the losers.