11 Oct Find a news report from a reputable media source about a recent development (i.e., occurred within the last three years) regarding the International Monetary Fund (i.e., the IMF’s practic
Find a news report from a reputable media source about a recent development (i.e., occurred within the last three years) regarding the International Monetary Fund (i.e., the IMF's practices and/or governance). Indicate the name of the story and where it can be found. Summarize the key contents of the report. Make the case for whether the story demonstrates that the IMF is substantively changing, or whether the story shows consistence with previous patterns. Describe what those previous patterns are based on Module 3 class readings. Explain that continuity or that change by reference to relevant theories from class readings. Identify at least one theory that can, and at least one that cannot, explain those recent developments well. When referring to the readings, clearly identify the author and the relevant page number(s).
Your first post should be 3-4 paragraphs long and must be submitted before October 9 at 11:59 pm
Module 3: International Institutions
Global Perspectives
Prof. Nikola Mirilovic
UCF
1
Part II of the Class
Module 2: economics
Part II of the class: international relations
International institutions
Rising powers
2
International Institutions: Key Theories and Debates
Key international relations theories
Realism
Liberal institutionalism
What role do international institutions play in international relations, and how much do they matter?
If international institutions matter, why do they matter?
Mechanisms: e.g., information, coordination, punish cheating/defection
3
Globalization and Institutions
E.g., World Trade Organization (WTO)
Set and enforce rules of international trade
Identify violators
4
John Mearsheimer
Realist
Defining institutions: a set of rules that stipulate the ways in which states should cooperate and compete with each other
Those rules are negotiated by states, typically formalized in international agreements, usually embodied in organizations
International institutions do not play an important role
No independent effect on state behavior
International institutions are a reflection of the distribution of power in the world
Tools of great powers
5
Realism: 5 Assumptions
International system is anarchic
The system comprises independent political units (states) that have no central authority above them
States inherently possess some offensive military capability
States can never be certain about intentions of other states
Furthermore, intentions can change quickly
The most basic motive driving states is survival
Maintain sovereignty
States think strategically about how to survive in the international system
States are instrumentally rational
6
Mearsheimer – Realism: How do States Behave?
States in the international system fear each other
Horrible consequences of war
Each state in the international system aims to guarantee its own survival
Self-help system
Alliances: temporary marriages of convenience, where today's alliance partner might be tomorrow's enemy, and today's enemy might be tomorrow's alliance partner
States aim to maximize their relative power positions over other states
7
Liberal Institutionalism: What do Institutions Do?
Increase the number of transactions
Institutionalized iteration; “the shadow of the future”
Tie together interactions between states in different issue areas
Issue-linkage aims to create greater interdependence between states
Increase the amount of information
Increases the likelihood that cheaters will be caught
Reduce the transaction costs of individual agreements
8
Realism on Cooperation between States
Cooperation between states does occur, but is always difficult to sustain
Two factors inhibit cooperation: relative-gains considerations, and concern about cheating
Concern about cheating: in the military realm, there can be a window of opportunity for the cheating state to inflict a decisive defeat on the victim state
Iteration and issue linkage may be irrelevant
9
Mearsheimer: Relative Gains
Absolute gains: each side focuses on maximizing its own profit, and cares little about how much the other side gains or loses in the deal
Relative gains: each side not only considers its individual gain, but also how well it does compared to the other side
Because states are concerned about the balance of power, they must be motivated primarily by relative gains
The causal logic of liberal institutionalism is flawed because it does not sufficiently account for relative gains
Dealing with cheating is not the only relevant problem
10
Robert Keohane and Lisa Martin (K&M)
Liberal institutionalists
Institutions make a significant difference in conjunction with power realities
Role of institutions: provide information, reduce transaction costs, make commitments more credible, establish focal points for coordination, and in general facilitate the operation of reciprocity
Institutions do not only deal with problems of cheating, but also with problems of coordination
11
K&M: Areas of Agreement with Mearsheimer
Institutionalists only expect interstate cooperation to occur if states have significant common interests
Like realism, institutionalist theory is utilitarian and rational
12
K&M: Scope Conditions
Realism: its scope conditions are typically not well-specified
Institutionalism, in contrast, seeks to specify the conditions under which its propositions apply
By specifying conditions under which institutions can have an impact and cooperation can occur, institutionalism shows under what conditions realist propositions are valid (or not)
It is in this sense that institutionalism claims to subsume realism
When do relative gains matter?
What is the role of institutions when relative gains do matter?
13
K&M: When do Relative Gains Matter?
Importance of relative gains is conditional on the number of major actors in the system and whether military advantage favors offense or defense
Robert Powell: when defensive technology dominates, the cost of initiating aggression is high and the relative gains problem is subdued, which allows institutions to cause cooperation
Duncan Snidal: relative gains are unlikely to have much impact on cooperation in any context involving more than two states
Mearsheimer’s response:
the number of great powers is usually small
it is very difficult to distinguish between offensive and defensive weapons
14
K&M: Evidence of the Importance of Institutions
States invest material and reputational resources into institution building
Why would rational actors do so if institutions do not matter?
Institutions that matter: European Court of Justice, North Atlantic Treaty Organization (NATO)
15
Mearsheimer: Why is Institutionalism Influential?
Although the world does not work the way institutionalist theories say it does or should, those theories remain highly influential in academic and policy worlds
Mearsheimer: policies not based on realism are bound to fail
Realism is pessimistic, treats war as inevitable, does not distinguish between “good” and “bad” states, & America has a long tradition of anti-realist rhetoric
Given that realism is largely alien to American culture, there is a powerful demand in the US for alternative perspectives
16
International Economic Institutions
Politics of Globalization
Prof. Nikola Mirilovic
UCF
17
The International Monetary Fund (IMF)
The IMF and the World Bank: Bretton Woods institutions created toward the end of WWII
Agreements between US and Western Europeans
IMF: historically headed by a European; World Bank by an American
18
James Vreeland: The IMF
IMF can be thought of as an international credit union
Developing countries borrow from the IMF
However, recently so did Greece
IMF loans: a form of insurance against the possibility of an economic crisis
Countries get IMF loans if they comply with policy conditions
IMF policy conditions address gov’t expenditures, interest rates, and the value of the national currency
19
Structure of the IMF
IMF headquarters: Washington, DC
Membership: nearly every country in the world
2020: 190 member countries
Source: https://www.imf.org/external/np/sec/memdir/memdate.htm
The developed world is the source of the bulk of IMF’s resources
Votes at the IMF are pegged to a country’s economic size
Economically powerful countries have more say at the IMF than other countries
Powerful members sometimes use their influence at the IMF to pursue political goals
US allies sometimes receive preferential treatment from the IMF
20
Vreeland: IMF and the Balance of Payments (BOP)
Vreeland: the IMF has been effective in addressing BOP problems
IMF provides a loan so that foreign debts can continue to be serviced and necessary imports can be purchased
Countries make adjustments to cut the demand for imports and foreign financing
Devaluation: demand for imports cut by effectively raising their domestic price
Raising interest rates
Fiscal austerity: gov’ts raise taxes and spend less
21
Vreeland: IMF, Economic Growth, and Income Inequality
IMF has not been effective at promoting economic growth
IMF programs exacerbate economic inequality
22
Stiglitz: Criticism of the IMF and other International Financial Institutions
They promote market fundamentalism
Lack of democracy and transparency
Interests of developed countries and their financial sectors are overrepresented
23
Stiglitz: Criticism of Financial Market Liberalization
Capital markets are fickle
Investor sentiment can change suddenly, leaving economic devastation in its wake
Major disturbances can come from influences outside of the country
E.g., investors flee Argentina because of what happened in Russia
24
Volatility
Person A’s income: $30,000 a year
Person B’s income: $55,000 one year, $5,000 the next year, etc.
25
Stiglitz: Costs of Volatility
Investors demand a risk premium
The poor are particularly vulnerable to downturns
Social safety net is needed
IMF structural adjustments: cuts in the social safety net
26
Stiglitz: Lack of Democracy and Transparency
The decision making structure of international financial organizations
Lack of transparency
Rich countries overrepresented
The claim that international capital markets provide discipline implies that democracy by itself does not provide sufficient discipline
27
Stiglitz: Unfair Trade
US and Europe restrict agricultural imports
Intellectual property rights overemphasized
Looser standards: more diffusion and beneficial effects on living standards
28
Stiglitz: IMF Overemphasizes Fighting Inflation
Stiglitz: IMF treats fighting inflation as its main goal
Tradeoff between inflation and unemployment
29
Stiglitz: IMF Lacks Local, Detailed Knowledge
IMF staff: economists educated in Western universities
Economic models: functioning, competitive markets assumed
Developing countries: conditions are different
Opinions of locally based experts needed
30
Stiglitz: Conditionality of IMF Loans is Counterproductive
Cutting social welfare programs leads to political instability
Conditionality is resented by client country governments
Accusations of neo-colonialism
31
Sources of IMF Leverage
If IMF loans are bad for developing countries, why do developing countries accept them?
Stiglitz: they are in desperate need
Stiglitz: IMF has a bully pulpit
If the IMF expresses doubts about a foreign economy, private investors are less likely to make loans to that country
Donors (e.g., World Bank, the European Union) make access to their funds contingent on IMF approval
32
Stiglitz: IMF and Globalization
Countries that managed globalization on their own have by and large reaped huge benefits that were equitably shared
Countries in East Asia:
Growth based on exports
Gov’t took an active role in managing the economy
Countries that have had globalization managed for them by the IMF have not done so well
The problem is not with globalization but with how it was managed
33
Rogoff: The IMF Strikes Back
The world is better off with the IMF than it would be without it
Responds to four critiques of the IMF:
IMF imposes harsh austerity
IMF loans encourage reckless investments by private investors
IMF advice aggravates bad economic conditions
IMF has irresponsibly pushed for openness to volatile international capital
34
Rogoff: IMF Programs Lighten Austerity
Developing countries come to the IMF when they are already facing economic difficulties
Why the difficulties? Bad management and/or bad luck
Market forces would impose stricter discipline in IMF’s absence
35
Rogoff: IMF Conditionality is not Counterproductive
Developing countries would face austerity during economic downturns anyway
Private investors are reluctant to make risky investments
Developing country citizens lose confidence in their country’s currency during a crisis and demand a larger premium to keep their deposits in domestic banks
In the long run, raising taxes and/or cutting spending is necessary in order to pay down debt
36
Rogoff: Why the Misperception of the IMF?
Critics of the IMF confuse correlation with causation
The IMF is a convenient whipping boy when politicians confront their populations
37
Moral Hazard
If investors know they will be bailed out if their investments fail, they will invest recklessly
Criticism of the IMF: investors who picked wrong countries to invest in should not be bailed out
Rogoff: in practice, client countries usually pay the IMF back, while private investors do suffer loses from bad investments
38
Rogoff: IMF and Capital Controls
Opening up to international capital flows can lead to volatility and instability
Example: Asian financial crisis (late 1990s)
However, complete closure is not an option
Compromise is best: openness when the domestic financial institutions can handle it
39
Rogoff: IMF, Information and Local Knowledge
IMF’s routine work involves ongoing dialogue with its member countries
IMF staffers regularly visit member states and meet with policymakers
IMF provides a global forum for an exchange of ideas and best practices
40
World Trade Organization’s (WTO) Predecessor: GATT
General Agreement on Tariffs and Trade (GATT)
Established in 1947
No formal organizational status
41
McBride and Chatzky (M&C): WTO
Established in 1995
Headquarters: Geneva, Switzerland
164 members
Non-members: e.g., Iran
Date of membership: e.g., Brazil (1948), China (2001), India (1948), Russia (2012)
Source: https://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm
42
WTO: Agreements and Enforcement
Ministerial Conferences generally held every two years
Agreements at those conferences generally made by consensus
WTO: trade dispute mechanism
WTO appointed trade experts can render binding judgments
WTO rules are enforced by individual members who can impose retaliatory sanctions on states that break them
43
M&C: Key Principles of the WTO
Key principle: openness
Reducing tariffs as well as limiting quotas, subsidies, and other barriers to trade
Key principle: nondiscrimination
Any advantage given to one contracting party has to be given to all other contracting parties
44
M&C: WTO’s Impact
WTO has helped reduce barriers on trade in goods and services
45
M&C: Criticism of the WTO
Intellectual property: developing countries claim that WTO drug patents rules limit access to medicines in developing countries
Sovereignty and Regulation: critics say WTO rules override national sovereignty and erode environmental and labor protections
Import competition: critics claim that lower tariffs hurt US jobs and wages
Response to China: Trump administration claims that the WTO failed to curb China’s alleged unfair trade practices
46
Doha Round
Ministerial conference in Doha, Qatar, in 2001
Goals: put developing countries at the center; liberalize agricultural trade
By 2008 negotiations collapse due to disagreement over agricultural subsidies
Members fail to reach an agreement at the 2017 ministerial in Buenos Aires
47
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