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

2. UNSC IMFWorld Bank IMF/WB project in Ghana

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

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

5. Plan What is the UNSC? What is the IMF/World Bank? Why are they used to influence the UNSC & how? Evidence –Anecdotes –Large-n The book project

6. 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.

7. Accountability, the UNSC, & the Paradox of Stability Probability of reelection Accountability Criteria are too high! Criteria are too low!

8. Importance of UNSC temporary members to the US Kuziemko & Werker 2006: –average US aid increases 54% –average UNDP aid increases 7% Particularly through UNICEF where the US provides their largest-share contributions

9. Why bribe/reward votes? Voting power? –Unlikely- O’Neill (1996) shows total voting power of non-permanent members is <2%. Supermajority? –Vote-buying literature shows that over-sized coalitions tend to be established. –Pursuing unilateral action is more expensive than buying insurance votes. Legitimacy –There is a premium for getting (near) unanimous votes to win domestic public support (Voeten). –Chapman & Reiter (2004) find UNSC support significantly increases the rally behind the president by as many as 9 points in presidential approval & the effect is unique among international institutions other actions by the UN or regional security organizations do not significantly affect rallies. Regional influence –Informational role of committees –Legitimacy in the region may come from access

10. Enter the IMF & the World Bank

11. Key point about the IMF & World Bank Involved with developing countries through “programs”: loans+conditions. Influence over decisions pegged to economic size. Growing evidence that the major shareholders use their influence for political reasons (e.g. Stone, Reynaud, Momani, Kilby). Especially when they agree (Copelovitch).

12. IFI arrangements are a joint decision Recipient governments negotiate with the IFIs – business as usual – but when on the UNSC can negotiate for better terms. Why use IFIs to influence the UNSC? –Political benefits (for both actors) “DIRTY WORK” (Vaubel) –Leverage benefits (conditionality & loan disbursements) –Cost benefits

13. 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.” http://www.youtube.com/watch?v=BIMx_giMeNA Mechanism

14. Evidence Some anecdotes*** Systematic evidence

15. Gulf War Examples Zimbabwe – UNSC member 1991-92 –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.

16. Gulf War Examples Ecuador – UNSC member 1991-92 –IMF arrangement in 1991 –Of course Ecuador is a regular IMF customer: 1961, 1962, 1963, 1964, 1965, 1966, 1969, 1970, 1972, 1983, 1985, 1986, 1988, 1991, 1994, 2000 –Voted for all but 2 Iraq resolutions Note Ecuador’s IMF participation pattern above Countries participate in IMF programs about 25% of the time (including ALL countries). Typical pattern: 5 years in, 5 years out, 5 years in, etc…

17. Counter examples?

18. Gulf War Examples Cuba – UNSC member 1990-1 –C–C–C–Consistently opposed Iraq resolutions –I–I–I–IMF arrangement? –L–L–L–Left the IMF in 1964 – not an IMF member –(–(–(–(Why? Claimed the IMF was a tool of the US)

20. Yemen – UNSC member 1990-1 –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)

21. A more historical example? Tanzania: 1961-1974 no IMF, no UNSC –1975 UNSC member First IMF arrangement – exceedingly weak conditionality (credit ceiling)

22. 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 showing that the anecdotes are not just coincidence (luck, idiosyncratic)

23. What do we observe systematically? 191 countries* (“World” minus the 5 permanent UNSC members) Years: 1951 or Independence –through– 2004 A total of 7,606 country-year observations Dependent variable: –IMF participation (SBA, EFF, SAF, ESAF/PRGF) –26.7% Principal independent variable: –UNSC member –6.3%

26. A potential endogeneity problem? If selection onto the UNSC is non-random, some outside factor could cause both UNSC membership & participation in IMF/World Bank programs Election to the UNSC is idiosyncratic with respect to most determinants of IMF participation –The most robust predictor: Past experience (negative effect) –Also: Country size – population, GDP (positive effect) –Contributions to the UN also matter (positive effect) –Largely a normative story!

27. Estimated effect

28. Systematic evidence 1. Five statistical models: 1.Pooled Logit 2.Fixed country effects 3.Fixed regional effects 4.Fixed country & year effects 5.Fixed regional & year effects 6.Conditional Logit with regional dummies and temporal splines 7.Simultaneously cluster the covariance matrix by country and by year Control variables: –Selection of variables follows Sturm, Berger, de Haan (2005) –Additional variables following previous literature

29. Table 1: The effect of UNSC on IMF participation Pooled Logit Pooled Logit with Regional Effects Year Fixed Effects Country Fixed Effects Conditional Logit with Temporal Splines UNSC0.34**0.50**0.57**0.24**0.30** Robust SE (0.10)(0.11)(0.10)(0.12)(0.15) Africa 0.19**0.18 Robust SE (0.09) 0.13 Asia -0.59**-0.55** Robust SE (0.10) 0.15 M.E./N.Af -1.17**-1.10** Robust SE (0.12) 0.16 LA 0.35**0.47** Robust SE (0.09) 0.19 Industrial -2.67**-2.59** Robust SE (0.18) 0.29 Constant-1.03**-0.74** Robust SE (0.03)(0.08) # of obs.7,606 7,5325,694 # of groups 53137

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

31. 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**-0.005-0.13** -0.04 (Robust std error)(0.03)(0.07)(0.03) (0.08) Debt Service 0.02**0.020.03** 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 -0.02-0.06-0.07-0.11 (Robust std error)(0.16)(0.18)(0.16)(0.17)(0.21) Budget Surplus 0.010.06**0.01-0.0030.06** (Robust std error)(0.02)(0.03)(0.02) (0.03) Inflation -0.0002**-0.0003-0.0002*-0.0003**-0.0001 (Robust std error)(0.0001)(0.0002)(0.0001) (0.0002) Current Account -0.01-0.0010.01 -0.002 (Robust std error)(0.01)(0.02)(0.01) (0.02) BOP -3.89*0.19-2.89-2.090.05 (Robust std error)(2.07)(3.17)(2.09)(2.07)(3.22) GDP/capita (1995 PPP) -0.00003-0.001**-0.0001*-0.0001**-0.001** (Robust std error)(0.00003)(0.0002)(0.00004) (0.0002) Growth -0.001-0.003 -0.002-0.004 (Robust std error)(0.005)(0.02)(0.004) (0.02) Regime 0.040.320.18 0.26 (Robust std error)(0.19)(0.39)(0.20)(0.18)(0.41) log(checks) 0.080.130.160.070.06 (Robust std error)(0.14)(0.25)(0.14)(0.10)(0.24)

32. See page 19 of Dreher, Axel, Jan-Egbert Sturm, and James Raymond Vreeland, 2006, Does membership on the UN Security Council influence IMF decisions? Evidence from panel data, KOF Working Paper 151, ETH Zurich.

33. Further checks: Trends over time  Pre/Post Cold War Extreme Bounds Analysis Number of policy conditions Public wages & salaries –(with Irfan Nooruddin – Ohio State) (Loan size)

35. World Bank evidence

36. Average # of World Bank projects 0.0 0.5 1.0 1.5 2.0 2.5 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

37. Regional differences? 0 1 2 3 4 5 6 7 8 n=263n=23n=602n=14n=1010n=75n=411n=30n=1503n=93n=490n=22n=1054n=100 Non- member Member Non- member Member Non- member Member Non- member Member Non- member Member Non- member Member Non- member Member South AsiaEast AsiaLatin America Caribbean Middle East /North Africa. Sub-Saharan Africa Eastern EuropeWestern Europe

38. Summary International institutions do represent their most powerful members & to see the extent of control one must look across institutions. UNSC members are about 20% more likely to receive IMF programs than non-members. Fewer conditions. Loan size appears unaffected. We find similar results with respect to the World Bank. –Non-members receive about 1.5 new Bank projects per year, UNSC members get almost 3. –Using a battery of different statistical models and control variables, we find UNSC membership robustly increases the number of new Bank projects by about 10%.

39. Implications for governance reform of the IMF: 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 1958 15 IMF arrangements since 1958 32 out of 48 years (66% of the time) 32 out of 48 years (66% of the time)

40. A Solution Insulate the IMF Executive Board from politics Like independent central banks The IMF directors should be appointed for long terms Represent the long-run interests of their home countries. Recall Keynes: Appoint Cautious (Independent) Central Bankers

41. In the meantime: The actual governance reform of the IMF Increase the voting power of: –China, South Korea, Brazil, Mexico and Turkey How will this address the political manipulation of the IMF? It won’t. “It is the correct thing to do, but probably won’t make much difference.” [personal conversation with Pres. Henrique Cardoso, Brazil & Pres. Ernesto Zedillo, Mexico]

42. Snapshot of the book project: The Political Economy of the UN Security Council Chapter 1: Who gets elected? Chapter 2: Is there favoritism? – –IMF – –World Bank – –International trade – –Foreign aid Chapter 3: Buying votes – –Do loan disbursements follow voting patterns? – –What happens when great powers disagree? Chapter 4: The effectiveness of UNSC action – –Cases – –Generating counterfactuals: UNGA voting patterns Chapter 5: The effectiveness of aid to UNSC members – –Does aid foster growth or prop up rent-seeking governments Chapter 6: Reforming international institutions?

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