Cooperation & Change 1

COMPARATIVE INSTITUTIONAL ANALYSIS: The Politics of International Finance James Raymond Vreeland School of Foreign Service Georgetown University 2

The Political Economy of the UN Security Council Presentation by James Raymond Vreeland Georgetown University Co-authors: Axel Dreher & Jan-Egbert Sturm (ETH) 3

UNSC IMFWorld Bank IMF/WB project in Ghana 4

The question: To gain leverage over one international institution can a country use its power in another international institution? 5

Yes. Why? The US and other powerful countries, who virtually control the IMF & World Bank, care about how the UNSC votes. 6

Plan What is the UN Security Council? What are the IMF & World Bank? Why are they used to influence the UNSC & how? Evidence –Anecdotes –Large-n So what? 7

What is the UNSC (United Nations Security Council) ? 8

What is the UNSC? 5 permanent members with veto power 10 elected members (2 year term - limited) –Nominated by regional caucus, elected by GA –Africa (3), Asia (2), Latin America (2), Eastern Europe (1), Western Europe+ (2) Decisions (open ballot) require 9 votes (5+4) UNSC votes on –UN military action against aggressors –Economic sanctions & arms embargoes Elected members of the UNSC potentially will vote on matters of extreme international importance. 9

Why bribe/reward votes? Voting power? Legitimacy –There is a premium for getting (near) unanimous votes to win domestic public support (Voeten). –UNSC support increases the “rally behind the president” by as many as 9 points in presidential approval. 10

Enter the IMF & the World Bank 11

What are the International Monetary Fund (IMF) and the World Bank? 12

Two Key points about the IMF & World Bank Involved with developing countries through “programs”: loans + conditions. Influence over decisions pegged to economic size. 13

Why use the IMF and the World Bank to influence the UNSC? –Political benefits (for both actors) “DIRTY WORK” (Vaubel) –Leverage benefits Conditionality & loan disbursements –Cost benefits 14

The goal of the major shareholders of the IMF: –Get countries under a program – in case important votes come up. Godfather-esque: “Some day, and that day may never come, I'll call upon you to do a service for me. But uh, until that day, accept this justice as a gift on my daughter’s wedding day.” 15

Evidence Some anecdotes*** Systematic evidence 16

Gulf War Examples Zimbabwe – UNSC member –1992 – 1 st IMF arrangement in a decade –Votes for 2 resolutions against Iraq –Then abstains… –And Zimbabwe was threatened with new IMF conditions –Subsequently votes for 11 resolutions condemning Iraq. 17

Counter examples? 18

Gulf War Examples Cuba – UNSC member –C–Consistently opposed Iraq resolutions –I–IMF arrangement? –L–Left the IMF in 1964 – not an IMF member –(–(Why? Claimed the IMF was a tool of the US) 19

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Gulf War Examples Yemen – UNSC member –Voted against Desert Storm – a U.S. representative was overheard declaring to the Yemeni ambassador that it was “the most expensive vote you have ever cast.” –The US cut hundreds of millions of dollars in aid –(No IMF arrangement) 23

A more historical example? Tanzania: no IMF, no UNSC –1975 UNSC member First IMF arrangement – exceedingly weak conditionality (credit ceiling) 24

IMF reply in the Washington Post (November 1, 2006): An IMF spokesman said “the [Tanzania] evidence is anecdotal and circumstantial.” To convince people, we need –many more anecdotes –statistical evidence (it’s not just luck) 25

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Table 3: Controlling for Additional Predictors of IMF Participation Pooled Logit Country Fixed Effects Regional Fixed Effects Year Fixed Effects Temporal Splines UNSC 0.59**0.83**0.56**0.51**0.64** (Robust std error)(0.24)(0.29)(0.26)(0.22)(0.29) Foreign Reserves -0.15** ** (Robust std error)(0.03)(0.07)(0.03) (0.08) Debt Service 0.02** ** 0.02** (Robust std error)(0.01) Investment -0.06**-0.08*-0.05**-0.04**-0.05 (Robust std error)(0.01)(0.05)(0.01) (0.04) Past Participation 2.47**2.42**2.45**2.27**2.00* (Robust std error)(0.26)(0.45)(0.27)(0.34)(1.13) Lagged Election (Robust std error)(0.16)(0.18)(0.16)(0.17)(0.21) Budget Surplus ** ** (Robust std error)(0.02)(0.03)(0.02) (0.03) Inflation ** * ** (Robust std error)(0.0001)(0.0002)(0.0001) (0.0002) Current Account (Robust std error)(0.01)(0.02)(0.01) (0.02) BOP -3.89* (Robust std error)(2.07)(3.17)(2.09)(2.07)(3.22) GDP/capita (1995 PPP) ** * **-0.001** (Robust std error)( )(0.0002)( ) (0.0002) Growth (Robust std error)(0.005)(0.02)(0.004) (0.02) Regime (Robust std error)(0.19)(0.39)(0.20)(0.18)(0.41) log(checks) (Robust std error)(0.14)(0.25)(0.14)(0.10)(0.24) 27

With 95% confidence, we can say UNSC membership increases rates of IMF participation between 7% and 52%. 28

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Conditionality? 30

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World Bank evidence “It is true that during the Cold War years aid was politically motivated.” “Now however, aid is being delivered to countries most in need and to those who show they are determined to use it well.” (World Bank, FAQ, 32

Average # of World Bank projects by UNSC membership avg=1.29 std=1.95 avg=2.13 std=2.93 avg=1.28avg=1.30 std=1.96std=1.93 avg=2.15avg=2.10 std=2.96std=2.92 avg=2.06avg=2.19 std=2.75std=3.11 n=176n=181 Non- n=5333n=357 member Member Total sample avg=1.29 std=1.95 n=5333 Non- member 1st.year member 2nd year member Over time n=2638n=183n=2695n=174 Non- member Member Non- member Member During the cold warAfter the cold war If politics mattered during the Cold War, but not after, this bar should be above the line, and this one should be at/below the line… UNSC members continue to get more World Bank programs 33

Observation by Russian Student Bribes – no surprise –Trade money for votes But the US bribes… –with a loan –must be repaid! Impressive! 34

Is this a US-thing? Regional Organizations Regional Hegemons 35

Allocation of ADB lending by UNSC membership over time Daniel Yew Mao Lim, Class of

Summary International institutions do represent the interests of their most powerful members UN Security Council members are about 20% more likely to receive IMF programs than non-members We find similar results with respect to the World Bank and the Asian Development Bank 37

How can we tell which countries are important to the IMF? US foreign aid Voting at the UN General Assembly US Bank Exposure Important to other important shareholders? –(Japan, Germany, France, UK) Strategic geo-political position International position –United Nations Security Council Others? ***THIS SLIDE IS USEFUL FOR YOUR ASSIGNMENT*** 38

Cooperation & Change 39

Putting the domestic and international stories together… 40

The International Relations Problem: Veto players story requires a credible commitment The IMF must punish noncompliance. We have seen from the IR literature that this commitment is not always credible. So the effect of veto players should depend on country-US relations. 41

Favorable US interest in the country Effect of domestic institutions Entering into IMF Programs: The effect of domestic politics depends on international politics 42

Thank you WE ARE GLOBAL GEORGETOWN! 43

So what? Q # 1: Is this a bad thing? Q # 2: Is it in the US interest to change things? Perhaps not – Short-run political gains. Long-run economic development? Elected to the UNSC 6 times Elected to the UNSC 6 times 15 IMF arrangements since IMF arrangements since out of 48 years (66% of the time) 32 out of 48 years (66% of the time) 44

Going Multipolar? Political power & international institutions No one at the global level? –Politics go to regional level By granting China more the IMF, keeps their government the international level US & China the IMF 45