Promises Made, Promises Broken: A Model of IMF Program Implementation

Abstract

This paper presents a model of the implementation of IMF programs, which is empirically tested with data from the period 1975-1999. The IMF and the borrowing country are shown to have asymmetric evaluations of a program's discounted benefits, due to differences in the measurement of the benefits, the relevant time frame and appropriate discount rate. The model also distinguishes between a government that seeks to maximize national welfare and an autocracy that seeks only to benefit the ruling group. The results of the empirical analysis demonstrate that program implementation is affected by a country's trade openness, the ideological cohesion of the government, the duration of the political regime, and the degree of political openness.Promises and pie-crust are made to be broken.

How soon is now? The effects of the IMF on economic reforms in Latin America

“…Short-term debt is also a proxy for the severity of the crisis, which may forestall reforms (see also Killick 1995). Others contend that inflation rates, development levels, and GDP growth rates are key economic indicators to explain reform initiation by IMF borrowers (Joyce 2003;Jensen 2004;Vreeland 2003a). Countries with higher growth and development levels are less likely to carry out reforms as the costs of imposing reforms are high economically and politically.…”

“…7 Others (North 1990;Olson 1993) claim the opposite, suggesting that democratic institutions hold credibility and legitimacy advantages that enable them to carry out reforms. 8 In contrast to regime type proponents, some argue that issues related to political stability and ideological cohesion explain the adoption of policies mandated by the Fund (Ivanova et al 2003;Joyce 2003). Lastly, other authors maintain that the electoral cycle affects program interruption.…”

“…For ideology, the expectation is that rightist governments are more inclined to accept economic austerity policies (Pop-Eleches 2009) while there is no consensus about whether democracies are useful for initiating reforms (see Steinwand and Stone 2008). Political stability also may affect whether the government is in a position to institute economic reforms or if it could collapse under the weight of an IMF-mandated program (Ivanova et al 2003;Joyce 2003). The honeymoon hypothesis (i.e., the number of years since the most recent election) is predicted to influence reform implementation as governments find it easier to introduce reforms at the beginning of their administrations following the immediate success of an electoral victory and the benefits of blaming the outgoing government (Dreher 2003;Biglaiser and Brown 2003).…”

The implementation of IMF programs: A conceptual framework

“…While Ivanova et al (2003) find no statistical link, in another study of IMF program interruptions Thomas (2002) discovers that autocratic regimes have a better record of implementation. On the other hand, Joyce (2006) finds that democracy helps and that politically more open regimes have a superior record of implementation. Using various measures of special interests within government, and unlike Ivanova et al, Joyce finds no statistically significant connection between them and implementation, nor does he find a link between the cohesion of the executive and legislative branches of government, and implementation.…”

“…Other studies were therefore critical of the lack of precision and attempted to analyze why governments might sign an agreement but then fail to implement it (Bird 1998(Bird , 2002. See also Joyce 2006). They did this by examining the evolution of the costs and benefits involved.…”