COMPARATIVE INSTITUTIONAL ANALYSIS: The Politics of International Finance

1. COMPARATIVE INSTITUTIONAL ANALYSIS:The Politics of International Finance James Raymond Vreeland School of Foreign Service Georgetown University

2. What did we learn so far? • Trilemma • Bretton Woods: its causes & its collapse • Politicians care about survival • Economic growth important • What is the IMF? • Like an inter-governmental credit union • Members deposit • IMF lends to countries in trouble •  moral hazard • Solution? • Conditionality • Let’s you lose • Governments may not want to sacrifice sovereignty

3. This session: • Domestic politics and IMF conditionality

4. So you’ve learned which democracies will survive (developed) Which will have the most stable policies?

5. Unpacking democracy

6. Pick out the pair: • Italy • United Kingdom • United States • Suggestions??

7. What is a “veto player”? • Individual or collective actors whose agreement (by majority rule for collective actors) is required for a change of the status quo.

8. It may be misleading to examine institutional features in isolation. • “VETO PLAYER” approach offers a consistent framework for comparing across regimes, legislature types, and party systems.

9. Consider US, UK, & Italy. • Culturalists group US & UK together as different from Italy (Anglo Saxon v. Latin). • Party theorists also group US & UK together (2 party v. multiparty). • But parliamentary theorists group UK & Italy as different from the US. • Who would group US and Italy together?

11. On the veto player dimension: • UK: Almost always 1. • US: Up to 3. • Italy: Usually about 4. • US and Italy are predicted to be more similar with respect to policy stability than UK.

13. How does the # of veto players affect policy stability? By definition of “veto player,” unanimity between such players is required for policy change.

14. Straightforward prediction: • Increasing # of veto players  • Increases policy stability.

15. Enter the IMFhttp://www.youtube.com/watch?v=GVytOtfPZe8&feature=relatedhttp://www.youtube.com/watch?v=iHufrsP9XMA&feature=related

16. Domestic politics of IMF programs • IMF programs do not just consist of loans. There are policy conditions attached. • We often hear that governments want to avoid “conditionality.” • But sometimes governments actually want conditions to be imposed.

17. How does bringing in the IMF help push through economic reform? Figure 1: The logic of bringing in the IMF Payoff to veto player -1 (change policy) Accept Veto player Without the IMF Reject 0 (maintain the status quo) Executive With the IMF -1 (change policy) + loan Accept Veto player Reject -r (reject the IMF)

18. The argument requires there to be at least one veto player who prefers less “reform” than the executive. • In the aggregate, the probability that at least one veto player prefers less reform than the executive increases with the # of veto players. • As the number of veto players increases, • the probability that the agreement is helpful to the executive also increases • (probably at a diminishing rate). • Hypothesis: # veto players has a positive effect on entering into IMF programs. • But what about the International Politics?

19. The International Relations Problem: • Veto players story requires a credible commitment • The IMF must punish noncompliance. • We have seen from the IR literature that this commitment is not always credible. • So the effect of veto players should depend on country-US relations.

20. Thank youWE ARE GLOBAL GEORGETOWN!