Jeffrey M. Chwieroth

Capital Ideas: The IMF and the Rise of Financial Liberalization

The right of governments to employ capital controls has always been the official orthodoxy of the International Monetary Fund, and the organizations formal rules providing this right have not changed significantly since the IMF was founded in 1945. But informally, among the staff inside the IMF, these controls became heresy in the 1980s and 1990s, prompting critics to accuse the IMF of indiscriminately encouraging the liberalization of controls and precipitating a wave of financial crises in emerging markets in the late 1990s. In Capital Ideas, Jeffrey Chwieroth explores the inner workings of the IMF to understand how its staffs thinking about capital controls changed so radically. In doing so, he also provides an important case study of how international organizations work and evolve. Drawing on original survey and archival research, extensive interviews, and scholarship from economics, politics, and sociology, Chwieroth traces the evolution of the IMFs approach to capital controls from the 1940s through spring 2009 and the first stages of the subprime credit crisis. He shows that IMF staff vigorously debated the legitimacy of capital controls and that these internal debates eventually changed the organizations behavior--despite the lack of major rule changes. He also shows that the IMF exercised a significant amount of autonomy despite the influence of member states. Normative and behavioral changes in international organizations, Chwieroth concludes, are driven not just by new rules but also by the evolving makeup, beliefs, debates, and strategic agency of their staffs.

Neoliberal Economists and Capital Account Liberalization in Emerging Markets

One of the most important developments in the world economy during the past three decades has been the willingness of governments in emerging markets to liberalize controls over international capital movements—a process known as capital account liberalization. What accounts for this trend? While existing research highlights a number of important factors, it neglects the role played by the rise and spread of neoliberal ideas that prioritized liberalization as a policy choice. Extending the literature on epistemic communities, I argue one critical mechanism shaping policy decisions is the formation of a coherent team of neoliberal economists. Using a new data set that codes the professional training of more than 1500 policymakers in emerging markets, I assess the relative importance of this argument quantitatively on a sample of twenty-nine emerging markets from 1977 to 1999. In order to assess the independent effect of neoliberal economists, I also take into account the endogeneity of the appointment process, assessing whether appointments are driven by credibility concerns, political interests, or economic conditions. I also stress that a fuller understanding of the appointment process necessitates a focus on the social environment in which appointments are situated.Earlier versions of this article were presented at the Program on International Politics, Economics and Security (PIPES), University of Chicago, 28 April 2005; the 99th Annual Meeting of the American Political Science Association, Philadelphia, 28–31 August 2003; and the Meeting of the Working Group on Political Economy, European University Institute (EUI), San Domenico di Fiesole, Italy, 29 October 2003. The author is grateful for helpful comments on earlier drafts provided by David Andrews, Benjamin J. Cohen, Scott Cooper, Garrett Glasgow, Lloyd Gruber, Emilie Hafner-Burton, Bob Hancke, Joseph Jupille, Ralf Leiteritz, Charles Lipson, Layna Mosley, Lou Pauly, Andy Sobel, Duncan Snidal, Lora Viola, and participants in the PIPES workshop. The author would also like to thank Lisa Martin and the anonymous reviewers for their many suggestions and insightful comments on previous versions of this manuscript. Research support provided by the Department of Political Science at Syracuse University and a Jean Monnet Fellowship from the Robert Schuman Centre for Advanced Studies at the EUI is also gratefully acknowledged.

Organizational change ‘from within’: Exploring the World Bank's early lending practices

ABSTRACT The World Bank is delegated the authority to provide long-term stabilization and general purpose balance of payments loans, what the Bank once described as ‘program loans’. Yet after a brief period in its early years, the Bank stopped disbursing these loans for an extended period. Why? This paper shows that changes to the Banks early lending practices can be understood largely as a product of intra-organizational dynamics and change that facilitated the construction of a ‘project-oriented culture’ that delegitimized the disbursement of program loans. Though providing a number of compelling reasons to expect autonomous behavior from international organizations (IOs), such dynamics present a blind spot for rationalist approaches, which offer little insight into the processes that shape preference formation ‘from within’ IOs. The paper augments constructivist approaches by going beyond structuralist and static conceptions of IO staff as simply reacting to initiatives ‘from above’ or ‘from below’ and offering a more dynamic explanation of organizational change that describes how internal norm entrepreneurs emerge and proactively and strategically reconstruct an IOs culture. Emphasis is placed on the role of personnel and internal institutional configurations.

How Do Crises Lead to Change?: Liberalizing Capital Controls in the Early Years of New Order Indonesia

How do crises lead to change? Rationalist approaches to the question that emphasize inexorable structural responses and the pursuit of distributive preferences by newly dominant coalitions are inadequate because they obscure the social mediation of material events and the pervasive uncertainty that follows destabilization of the precrisis status quo. The latter constrains actors from fully grasping their distributive preferences. Until uncertainty is reduced, persuasion emerges as a key mechanism of change. Although constructivist approaches emphasize persuasive practices, they have yet to adequately specify the scope conditions underpinning the selection of new ideas. This article goes beyond much of the constructivist focus on domestic legitimacy and static notions of resonance by emphasizing external credibility and dynamic processes of resonance-building by norm entrepreneurs. The author specifies four features—what he calls the four Cs of crisis resolution—that shape the process of idea selection: carriers, composition, crossover appeal, and credibility. Developing these arguments in the case of the early years of New Order Indonesia, the article suggests that whenever a prominent and cohesive group of advocates promotes an idea that has sufficient ideational and distributive appeal and the endorsement of external actors whose seal of approval is perceived as important, intersubjective belief change, and thus institutional and policy change, is more likely.

Controlling Capital: The International Monetary Fund and Transformative Incremental Change from Within International Organisations

As a result of a long-running internal debate there have been notable incremental changes to how the International Monetary Fund (IMF) treats capital controls, particularly those directed at inflows. These changes combine new acceptance of these policy instruments with an older emphasis on their negative consequences and on the desirability of free movement of capital. Policy change of this sort is puzzling from the standpoint of the existing literature on international organisations (IOs), which has thus far paid little attention to transformative incremental change associated with long-term contestation. This article departs from this tendency by drawing on insights from principal–agent theory, constructivism and historical institutionalism to identify the conditions under which such change may originate. I argue that actors within IOs are likely to pursue incremental change by layering new policies on to old ones as a way to build coalitions and to respond to external organisational insecurity imperatives and diverse member state preferences and to internal path-dependent organisational cultural features. Over time the incremental shifts brought by layering can induce transformative rather than reproductive change because they fit with consequentialist and appropriateness behavioural logics. I illustrate this argument by investigating recent changes in IMF policy on capital controls.

Professional ties that bind: how normative orientations shape IMF conditionality

ABSTRACT Staff play a key part in designing IMF conditionality, and yet the literature provides a narrow view of their motivations. This article shows how the design of IMF conditionality is linked to the normative orientations of the staff and their common professional training. Professional ties from similar training help to bind the staff together around a shared set of normative orientations that inform the IMFs policy goals. When borrowing-country officials do not share these orientations, the staff are motivated to tighten conditionality. This behaviour also fits with staff concerns about time-inconsistency and moral hazard. I find robust statistical support for this argument using a dataset based on the professional ties that exist between the IMF staff and borrowing-country officials. Yet conditionality is not found to be more lenient when country officials share the normative orientations of the IMF staff. Staff concerns about time-inconsistent preferences and moral hazard likely weigh against more lenient treatment where normative adherence is stronger.

Managing and transforming policy stigmas in international finance: Emerging markets and controlling capital inflows after the crisis

ABSTRACT The past three decades have shown the increasing importance of the efforts of the international financial community to socialize emerging markets to accept norms of financial governance. Social sanctions often have been used to mark non-compliant states and their policies as deviant. Yet, we know little about how deviant states strategically manage such policy stigmas in international finance and how this management shapes the international normative order. Recent scholarship in international relations suggests that stigma management strategies tend to either reinforce or fracture the international normative order. This article, by contrast, contends that such strategies also have the potential to transform the international normative order so that it resembles more closely the preferences of the deviant. This argument is illustrated using evidence drawn from Brazil and South Koreas management of the policy stigma associated with controls on capital inflows.

How you stand depends on how we see: International capital mobility as social fact

ABSTRACT A rich literature has emerged on the causes and consequences of international capital mobility (ICM). Yet much of this literature typically depicts ICM as a brute fact – one which possesses an unproblematic logic to which actors respond automatically across time and space. We challenge this depiction and argue that in large part, how you stand on ICM depends on how it is collectively seen as a consequence of empirically and contextually variable intersubjectively shared beliefs, or social facts. We therefore argue that researchers that fail to take social facts seriously run the risk of making unwarranted causal inferences and less effective policy recommendations. We advance the literature by specifying how the ontological novelty of a social facts perspective generates unique insights into key political economy questions concerning the causes and consequences of ICM. We develop an agent-centered perspective that stresses ideational contestation as a key area of analysis for those that take social facts seriously. We push forward this agent-centered perspective by outlining a set of features that winning ideas are likely to display. We then conclude by specifying an agenda for future research and opportunities for bridge-building among various perspectives on ICM.

From Low to Great Expectations: Banking Crises and Partisan Survival Over the Long Run

How have banking crises affected the survival prospects of political incumbents over the long run? Unlike existing studies, we explore how changing societal expectations concerning how incumbent governments should prevent and respond to crises have reshaped the relationship between crises, institutions, globalization, and politics. We argue that the emergence after 1945 of citizens’ “great expectations” concerning crisis mitigation sharply raised the stakes for incumbent governments in many countries. We test this argument by utilizing a new dataset of 20 developed and developing countries since the early nineteenth century, and show that the survival of political incumbents after crises became increasingly dependent on the perceived ability of governments to respond effectively to them. We also show that the emergence of great expectations was a precondition for the emergence of other factors commonly held to intermediate the political impact of banking crises, including “clarity of political responsibility” and economic openness.

Do international non-governmental organizations inhibit globalization? The case of capital account liberalization in developing countries

Why do countries liberalize capital controls? The literature identifies a range of possible reasons. Yet, despite considerable advances, the impact of international non-governmental organizations has yet to be considered. In fact, surprisingly, systematic analysis of the role of international non-governmental organizations in the diffusion of economic openness, financial or otherwise, has not been pursued previously. We offer the first such analysis by advancing the idea of ‘climatic mimesis,’ which refers to the cultural climate for policymaking that results from country ties to international non-governmental organizations. International non-governmental organizations shape capital account regulation by altering the cultural climate in a country such that liberalization becomes a more problematic policy choice. Our statistical analysis of data from developing countries reveals that international non-governmental organization ties inhibited liberalization, as did relatively high public debt and concentrated domestic banking sectors. The presence of an International Monetary Fund program and liberalization by economic competitors encouraged it. We suggest that these findings have important implications for understanding the potential for convergence and divergence in an era of globalization.