By Randall W. Stone
With the tip of the chilly warfare, the overseas financial Fund emerged because the strongest overseas establishment in historical past. yet how a lot impression can the IMF exert over fiercely contested matters in household politics that have an effect on the lives of hundreds of thousands? In Lending Credibility, Randall Stone develops the 1st systematic method of answering this question. Deploying an arsenal of tools from more than a few social sciences hardly ever mixed, he mounts a forceful problem to traditional knowledge. concentrating on the previous Soviet bloc, Stone reveals that the IMF is neither as strong as a few critics worry, nor as susceptible as others think, yet that the reply hinges at the complicated issue of the way a lot credibility it could actually muster from nation to country.Stone starts by means of construction a proper, game-theoretic version of lending credibility, which he then topics to classy quantitative checking out on unique info from twenty-six international locations over the Nineties. subsequent come certain, interview-based case stories on negotiations among the IMF and Russia, Ukraine, Poland, and Bulgaria. Stone asserts that the IMF has exerted startling impact over monetary coverage in smaller international locations, corresponding to Poland and Bulgaria. even if, the place U.S. international coverage pursuits come extra seriously into play, as in Russia, the IMF can't credibly decide to implementing the loans-for-policy agreement. This erodes its skill to facilitate enduring industry reforms. Stone's context is the postcommunist transition in Europe and Asia, yet his findings hold implications for IMF actions internationally.
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Additional info for Lending Credibility: The International Monetary Fund and the Post-Communist Transition (Princeton Studies in International History and Politics)
15 Since governments cannot keep a promise not to defect, investors will never believe such a promise and will only invest if they are compensated for the risk of doing business in a country whose government may choose inflationary policies. I assume that, in the long run, real returns on investment adjust so that investors are indifferent as to where they invest. In practice, this means that the return is set precisely to offset the risk that a country that has not defected in the previous period defects in the current one.
The Governments. Each country’s government has negotiated a macroeconomic stabilization program with the IMF, which commits it to abstain from a particular inflationary policy. The government is tempted to violate the agreement: It receives a lump-sum benefit each time it chooses to defect, and the size of this benefit varies from period to period. This reflects the fact that a government can never know, when it signs an agreement, exactly what political constraints it will face in the future. On the other hand, the inflation that results from these policies is costly, and the government benefits from foreign investment and IMF financing.
In order to capture this effect, I model the interaction as an infinitely repeated game. 6. Precedent. As a commitment device, the IMF attempts to assure that countries are treated according to standard procedures, which minimizes its discretion in particular cases. 7 Consequently, I model the Fund’s simultaneous in6 Killick and Malik 1992, p. 629. 7 Interviews with Ernesto Hernandez-Cata, February 17, 1999; Yosuke Horiguchi, November 8, 1999; Mark Allen, February 19, 1999; Mohammed Shadman-Valavi, May 4, 2000; Anne McGuirk, May 3, 2000; Marcus Rodlauer, June 23, 1997; and Peter Stella, May 12, 1999.