ABSTRACT
Considering the degree of scrutiny given to the role of the International Monetary Fund (IMF, or Fund) in the international economy, we know little about the underlying causes of the IMF’s behavior.1 During the 1980s, the IMF became a “lender of last resort” for many developing country governments that had been cut off from private credit markets and faced destabilizing imbalances of payments. After private capital began to return voluntarily to what were called the emerging markets in the early 1990s, the anticipated erosion of the Fund’s role in the developing world did not materialize. Faced with recurrent payments’ imbalances, pressures for currency devaluation, and the macroeconomic instability associated with crises in Latin America, Asia, and Russia, the developing nations have turned with increasing frequency to IMF credits and stabilization plans. Despite the growing body of research on the IMF’s critical role in international finance, we still have few explanations of and only patchy empirical data on why the IMF approves loans to some countries but not others. As the Fund delves further into the management of balance-ofpayments and currency crises around the world, both theoretical and practical imperatives dictate that we specify more fully and test more systematically competing explanations of IMF behavior. What factors influence the IMF’s decisions to lend? Are these decisions based on technical economic criteria, or do they reflect the political preferences of the Fund’s more powerful members? What are those preferences, and how do they affect the IMF’s relationship with its developing country clients? In other words, does politics matter? More importantly, how does politics matter?
