Global finance and the political economy of IMF lending

How and why does the IMF make lending decisions, and why do its policies vary so widely over time and across cases? In this book, I have challenged existing explanations of the political economy of IMF lending and developed a new analytical framework for understanding and explaining variation in Fund lending policies. Drawing on principal–agent theories of international institutions, I developed a “common agency” theory of IMF policymaking, in which two key actors – the Fund's largest member states (the “collective principal”) and the IMF staff (the “agent”) – jointly determine lending decisions. This framework emphasizes that states and Fund bureaucrats both exercise partial, but incomplete, authority over IMF decision-making. Therefore, we must account for variation in both actors' preferences in order to explain differences in the size and terms of IMF loans. Furthermore, the common agency approach highlights the importance of preference heterogeneity among the Fund's largest shareholders, the “G-5” countries (the United States, the United Kingdom, Germany, Japan, and France), which collectively exercise de facto political control over the IMF.

Drawing on this common agency framework, chapter 2 developed the core logic underlying the book's central claim: that changes in patterns of financial globalization are the key determinant of variation in the IMF's lending policies. By shaping the preferences of G-5 governments and the IMF staff alike, shifts in the composition of private international capital flows have led to substantial variation in Fund loan size and conditionality.