The Political Economy of the International Monetary Fund: A Public Choice Analysis

Abstract

This chapter attempts to apply the theory of public choice to the most important international organization in the field of international money and finance: the International Monetary Fund (IMF). The public choice approach is most powerful as a critical tool where political decisions are far removed from the attention and control of voters. Economic policymakers always claim to be guided by the public interest. Almost all IMF credits contain open or hidden subsidies. The IMF is said to enjoy a comparative advantage in identifying, negotiating, and enforcing the economic policy changes that would reestablish the creditworthiness of the debtor governments. Almost all public choice analyses of international economic policy have been concerned with international trade policy or development aid. The fact that IMF lending, despite the collapse of the Bretton Woods System, is largely conditional on a balance-of-payments crisis creates an incentive for a country to let itself slip into such a crisis whenever IMF lending is desired.

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