The Review of International Organizations

, Volume 3, Issue 2, pp 105–121 | Cite as

IMF conditionality: An approach based on the theory of special interest politics

Article

Abstract

Financial assistance provided by the International Monetary Fund (IMF) and other International Financial Institutions (IFIs) aims to help member countries reduce their economic policy distortions. Because these distortions are endogenously generated, it is important to understand how IFI assistance interacts with the domestic political economy. In this paper, we review recent models of IFI conditional assistance that are based on the theory of special interest politics (Grossman and Helpman 2001). In these models, governments adopt inefficient economic policies and instruments because of lobbying by interest groups. IFI assistance helps reduce these inefficiencies, at least under perfect and symmetric information, and provided IFIs are representative of the general public in creditor and debtor countries. Factors limiting the effectiveness of conditional assistance as an incentive system are also identified. These are related to information asymmetries, the potential for political instability in debtor countries, and the IFIs’ own financial solvency.

Keywords

Special interest politics Political economy Policy reforms Models of the IMF Conditionality 

JEL Classification Numbers

E61 F33 F34 

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Copyright information

© Springer Science + Business Media, LLC 2007

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CincinnatiCincinnatiUSA
  2. 2.European DivisionIMF InstituteWashingtonUSA

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