The West’s Teeth: IMF Conditionality During the Cold War

Abstract

Was the International Monetary Fund (IMF) susceptible to political pressure from the United States and its Western allies during the Cold War? To answer this question, we construct a new database containing the number of conditions applied to over 500 IMF loans since 1970 and analyze how the distance from a borrowing country to its closet communist neighbor affected the IMF conditionality. We show that the fund imposed fewer conditions on loans to countries geographically closer to the communist bloc. Results are stronger when neighboring communist countries were not part of the Warsaw Pact. This pattern persisted during the 1990s, when the fund helped former communist countries in their transition to market economies. However, we find no strong evidence of such discretionary treatment by the IMF after 2001, when thecontainment of communism had ceased to be the West’s top priority.

The determinants of IMF fiscal conditionality: Economics or politics?

“…Akerman et al. (2020) finds that proximity to communist countries during the cold war implies a smaller number of conditions in an IMF agreement and illustrates this finding with the case of Zaire. In 1975, Zairian president Mobutu Sese Seko was struggling to finance his military.…”