IMF Program Design and Implementation in Argentina, 1991–2002

201 Pages·2015·1.9 MB·English

International Institutions and State Leverage:
IMF Program Design and Implementation in Argentina, 1991–2002

by
GUO JIN DARYL ENG

PRIMARY THESIS ADVISOR: PROFESSOR JONATHAN EATON
Department of Economics and The Watson Institute for International Studies

SECONDARY THESIS ADVISOR: PROFESSOR MARK BLYTH
Department of Political Science and The Watson Institute for International Studies

HONORS SEMINAR INSTRUCTOR: PROFESSOR CLAUDIA J. ELLIOTT
The Watson Institute for International Studies

SENIOR THESIS

Submitted in partial fulfillment of the requirements for the Degree of Bachelor of Arts
with Honors in International Relations

BROWN UNIVERSITY
PROVIDENCE, RI

MAY 2015
© Copyright 2015 by Guo Jin Daryl Eng
This thesis by Guo Jin Daryl Eng is accepted in its present form
by the International Relations Program as partial fulfillment
of the requirements for the degree of Bachelor of Arts with Honors.

Date
Jonathan Eaton, Thesis Advisor

Date
Mark Blyth, Second Reader

Approved by the International Relations Program

Date
Dr. Claudia J. Elliott
Director/Associate Director,
International Relations Program

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ABSTRACT

What factors determine IMF program design and implementation in borrower countries?
Scholars tend to focus on the ex post effects of programs, while comparatively little
attention is paid to the design and implementation of program conditionality.
Understanding the problems programs are designed to address and the circumstances
behind their interruption or completion, however, is essential for an accurate evaluation
of their effects. In contrast to existing explanations that dichotomize factors influencing
the IMF and those influencing borrower countries, I argue that a more nuanced approach
which incorporates the interaction between these factors is required. Synthesizing
theories of functionalism, structuralism, and principal-agent relationships with a domestic
political economy approach, I offer a dynamic framework that evaluates the importance
of political, institutional, and economic variables under varying circumstances. Applying
this framework to the case of Argentina (1991-2002), I find that the IMF’s institutional
priorities gave Argentina enormous leverage over the IMF. Therefore it maintained
support for Argentina despite non-compliance until deteriorating economic conditions
indicated a collapse was inevitable. This thesis sheds new light on the IMF’s decision-
making process, and has wider implications for the future study of conditionality as well
as policy-making at the national and international level.

Keywords: International Monetary Fund, conditionality, compliance, Argentina, crisis

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ACKNOWLEDGMENTS

I would first like to thank my advisors for sharing their time and knowledge throughout
the year. Jonathan Eaton’s background in international economics was invaluable in
guiding my work and his careful attention to detail drove me to clarify every word I put
to paper. Despite his busy schedule, Mark Blyth dispensed advice throughout the year
with characteristic wit and his incisive questions made sure that I did not lose myself to a
vertigo of information overload. Claudia Elliott was singularly responsible for teaching
me the value of research and how to (finally) conduct it properly. I never failed to leave
our weekly seminars inspired by her tireless enthusiasm and commitment to rigor.

I am grateful to the Watson Institute for providing me with the funds to travel to Buenos
Aires to carry out preliminary research on my topic. I am also immensely grateful to
Walter Molano, Maria Casullo, and Pablo Nemiña for their patient advice, whether at
Brown or in Argentina.

I would like to extend a special thanks to Javier, Marcela, Julian, and Martin, my adopted
family in Argentina, for their warm hospitality during my semester abroad and again over
the summer. The conversations I had with them as well as with Juan and Jake, my main
men in Buenos Aires, were the inspiration for this thesis.

Last but not least, I am so lucky to have the support of some incredible friends and
family. Thank you to my parents and my sister for their unwavering love from 10,000
miles away. Yelena, Sona, and my fellow honors students, thank you for the
commiserations and reassurances. Colin and Omar, thank you for keeping me going with
your humor, your blunt advice, and the song.
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There was a certain irony in the stance of the IMF. It tried to pretend that
it was above politics, yet it was clear that its lending program was, in part,
driven by politics.

—Joseph Stiglitz, Globalization and its Discontents

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CONTENTS

Abstract iv

Acknowledgements v

Tables viii

Figures ix

CHAPTER ONE: WHITHER CONDITIONALITY? 1

CHAPTER TWO: THE STATE OF THE ART ON
IMF CONDITIONALITY 23

CHAPTER THREE: THE POLITICAL ECONOMY OF ARGENTINA
UNTIL 1991 55

CHAPTER FOUR: THE MIRACLE OF CONVERTIBILITY 88

CHAPTER FIVE: THE SPOILED CHILD OF THE WASHINGTON
CONSENSUS 123

CHAPTER SIX: THE FUTURE OF IMF CONDITIONALITY 159

APPENDIX A: ARGENTINA’S ARRANGEMENTS WITH THE
IMF, 1991 – 2002 171

APPENDIX B: TIMELINE OF EVENTS, 1991 – 2002 172

Works Cited 176

vii
TABLES

Table Page

4.1 — Rate of Inflation in Argentina, 1990-2000 101

4.2 — Real GDP Growth in Argentina, 1988-1994 101

4.3 — Unemployment and Poverty Indicators for Argentina, 1991-1995 108

5.1 — Argentina’s Public Sector Debt, 1991-2000 127

5.2 — Unemployment and Poverty Indicators for Argentina, 1996-2000 129

viii
FIGURES

Figure Page

1.1 — Gaps in the Literature on IMF Conditionality 6

1.2 — The Life-Cycle of an IMF Program 8

1.3 — Filled Gaps in the Literature on IMF Conditionality 13

2.1 — My Critical Framework for IMF Program Design and Implementation 51
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CHAPTER ONE
WHITHER CONDITIONALITY?

We need to stick to conditionality in our lending operations but at the same time
work to enhance real ownership of programs. We have learned that the
effectiveness of members in confronting their economic difficulties depends
critically on the vigorous implementation of appropriate stabilization and reform
measures. This comes only when the country’s authorities are seeking to
implement measures that they see as responsive to their needs and capable of
securing domestic support.
—Horst Köhler, Annual IMF Meeting, 2000

The International Monetary Fund (IMF, also known as the Fund) is one of the
most established and powerful international institutions, having expanded from 29
founding countries in 1945 to its current 188 member states, as of end 2013.1 It has $362
billion in quotas2 and an additional $1 trillion in pledged funds,3 and these resources are
expected to double after the next quota review in order to increase emerging market

1 International Monetary Fund, IMF Annual Report 2013 (Washington, D. C.: International Monetary Fund,
2013), http://www.imf.org/external/pubs/ft/ar/2013/eng/pdf/ar13_eng.pdf.
2 International Monetary Fund, “Factsheet: IMF Quotas,” International Monetary Fund, October 3, 2014,
http://www.imf.org/external/np/exr/facts/quotas.htm. Quota subscriptions form the central component of
the IMF’s financial resources. When a country joins the IMF, it is assigned a quota based on its GDP,
openness, economic variability, and international reserves. Quotas are denominated in Special Drawing
Rights (SDRs) and determine a country’s financial commitment to the IMF, its voting power and its access
to financing.
3 International Monetary Fund, “The IMF at a Glance,” September 18, 2014,
http://www.imf.org/external/np/exr/facts/glance.htm.
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