D
CHAPTER 14
Developing Countries and
International Finance I: The Latin
American Debt Crisis
eveloping countries have had a difficult relationship with the
international financial system. At the center of these difficulties
lies a seemingly inexorable boom-and-bust cycle. The cycle
typically starts with changes in international capital markets that create
new opportunities for developing countries to attract foreign capital.
Wanting to tap into foreign capital to speed economic development,
developing countries exploit this opportunity with energy. Eventually,
developing countries accumulate large foreign debt burdens and are
pushed toward default. Looming default frightens foreign lenders, who
refuse to provide new loans and attempt to recover many of the loans they
had made previously. As foreign capital flees, developing countries are
pushed into severe economic crises. Governments then turn to the
International Monetary Fund (IMF) and the World Bank for assistance and
are required to implement far-reaching economic reforms in order to gain
those organizations’ aid. This cycle has repeated itself twice in the last 25
years, once in Latin America during the 1970s and 1980s, and once in Asia
during the 1990s. A similar, though distinct, cycle occurred in sub-Saharan
Africa. The political economy of North–South financial relations focuses
on this three-phase cycle of overborrowing, crisis, and adjustment.
Each phase of the cycle is shaped by developments in the international
financial system and inside developing societies. Developments in the
international financial system, including changes in international financial
markets, in the activities of the IMF and the World Bank, and in
government policies in the advanced industrialized countries, powerfully
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affect North–South financial relations. They shape the ability of
developing countries to borrow foreign capital, their ability to repay the
debt they accumulate, and the economic reforms they must adopt when
crises strike. Events that unfold within developing countries determine the
amount of foreign capital that developing societies accumulate and
influence how governments and economic actors in those countries use
their foreign debt. These decisions in turn shape the ability of governments
to service their foreign debt and therefore influence the likelihood that the
country will experience a debt crisis.
This chapter and the next examine the evolution of this cycle in North–
South financial relations. We begin with a short overview of international
capital flows in order to understand why they are important for developing
societies and how developing societies gain access to foreign capital. We
then briefly examine the relatively stable immediate postwar period during
which capital flows to developing countries were dominated by foreign aid
and foreign direct investment (FDI). The rest of the chapter focuses on the
first major financial crisis of the postwar period: the Latin American debt
crisis of the 1980s. We examine how it originated, how it was managed,
and its consequences, political and economic, for Latin America.
FOREIGN CAPITAL AND ECONOMIC
DEVELOPMENT
If a cycle of overborrowing, crisis, and adjustment has characterized the
history of capital flows from the advanced industrialized countries to the
developing world, why do developing countries continue to draw on
foreign capital? Why do they not simply refrain from borrowing that
capital, thus bringing the cycle to an end? Developing countries continue
to draw on foreign capital because of the potentially large benefits that
accompany its apparent dangers. These benefits arise from the ability to
draw on foreign savings to finance economic development.
Investment is one of the most important factors determining the ability
of any society to raise per capita incomes (Cypher and Dietz 1997, 239).
Yet, investment in developing societies is constrained by a shortage of
domestic savings (Bruton 1969; McKinnon 1964). Table 14.1 illustrates
average savings rates during the last 40 years throughout the world. The
most striking difference that the table highlights is between the highincome
Organization for Economic Co-operation and Development
(OECD) countries and the world’s poorest countries. On average, the highincome
countries saved slightly more than one-fifth of their national
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income each year between 1970 and 2006. In contrast, the least developed
countries have saved less than 15 percent of their national income per year.
Even when a developing country has a high savings rate, as in East Asia
and the Pacific and in Latin America, the low incomes characteristic of a
developing society mean that the total pool of savings is small. The
scarcity of savings limits the amount, and raises the cost, of investment in
these societies.
TABLE 14.1
Average Savings Rates as a Percent of Gross Domestic
Product, 1970–2006
High-Income OECD Countries 21.7
Least Developed Countries 13.4
East Asia and the Pacific 34.5
Latin America and the Caribbean 19.9
Sub-Saharan Africa 16.9
South Asia 21.2
Note: OECD = Organisation for Economic Co-operation and Development.
Source: World Bank, World Development Indicators 2008 CD-ROM (Washington,
DC: World Bank Publications, 2008).
Foreign capital adds to the pool of savings available to finance
investment. Many studies have found a one-to-one relationship between
foreign capital inflows and investment: one dollar of additional foreign
capital in a developing country produces one dollar of additional
investment (see, e.g., Bosworth and Collins 1999; World Bank 2001a).
Higher investment in turn promotes economic development. Indeed, a
considerable body of research suggests that developing countries that have
participated in international financial markets during the last 30 years have
experienced faster economic growth rates than economies that remain
insulated from international finance (see IMF 2001; World Bank 2001a).
Although foreign capital does not always yield higher growth (see, for
example, Rodrik 1998), a country that draws on foreign capital has the
opportunity to reach a higher development trajectory. Many other factors,
some of which lie inside developing countries and others that inhere in the
international financial system, shape the extent to which a developing
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country can take advantage of this opportunity.
Foreign capital can be supplied to developing countries through a
number of channels. The broadest distinction is between foreign aid and
private capital flows. Foreign aid, or official development assistance, is
foreign capital provided by governments and by multilateral financial
institutions such as the International Bank for Reconstruction and
Development (IBRD), known more commonly as the World Bank. In
addition to the World Bank, a number of regional development banks,
including the Inter-American Development Bank, the African
Development Bank, and the Asian Development Bank provide
concessional loans to support development. These more established
institutions were joined in 2016 by the Asian Infrastructure Investment
Bank (AIIB). The AIIB is an initiative of the Chinese government intended
to foster the construction of transportation, energy, and
telecommunciations infrastructure in Asia. The U.S. did not join the AIIB
and tried (unsuccessfully) to convince its European allies to remain outside
as well. The AIIB thus may be yet another manifestation of the shift in
economic power from North America to Asia.
The largest share of foreign aid is provided as bilateral development
assistance—that is, foreign aid granted by one government directly to
another government. In 2016, the advanced industrialized countries
together provided $143 billion of bilateral assistance to developing
countries. The World Bank and other multilateral development agencies
provided an additional $61 billion. The United States provided the most
aid in absolute terms in 2016, about $33.6 billion (Figure 14.1). Japan,
France, Germany, and Great Britain were the four next largest donors in
absolute terms. China has emerged as an important source of aid,
providing slightly less than $9 billion per year. The rankings change
considerably when we measure aid as a share of the donor country’s
national income (Figure 14.2). By this measure, the smaller northern
European countries are the most generous, dedicating between 0.6 and 1
percent of their total national incomes to foreign aid. The United States
emerges as one of the least generous of the high-income countries,
dedicating only 0.2 percent of its national income to foreign aid.
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FIGURE 14.1
Foreign Aid Expenditures, 2016
Source: Official and private flows, OECD International Development Statistics (database).
Private capital flows transfer savings to the developing world through
the activities of private individuals and businesses. Private capital can be
transferred to developing countries in a number of ways. Commercial
banks transfer capital by lending to private agents or governments in
developing societies. Private capital is also transferred when individuals
and large institutional investors purchase stocks traded in developingcountry
stock markets. Private capital can also be transferred through
bonds sold by developing-country governments and businesses to
individuals and private financial institutions in advanced industrialized
societies. Finally, multinational corporations (MNCs) transfer capital each
time they build a new or purchase an existing factory or other productive
facility in a developing country. The relative importance of each type of
private capital flow has varied across time, as we shall see as we move
through this chapter and the next.
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FIGURE 14.2
Foreign Aid Expenditures as a share of National Income, 2016
Throughout the postwar period, private capital flows have been larger
than foreign aid flows. In general, private capital flows typically constitute
somewhere between two-thirds and three-quarters of all capital flows to
the developing world. Yet, developing countries vary substantially in their
ability to attract private capital inflows; thus, some countries rely much
more heavily than others on foreign aid. These different abilities to attract
private capital reflect private lenders’ need to balance return against risk
when investing in developing societies. On the one hand, because savings
are scarce, the return on an investment should be substantially higher in
developing societies than in the advanced industrialized world.
Consequently, private lenders should earn a higher return on an investment
in a developing country than on an equivalent investment in an advanced
industrialized country. This pulls in private capital. On the other hand,
foreign investment is risky. Private lenders face the risk of default—the
chance that a particular borrower will be unwilling or unable to repay a
debt. Private lenders also face political risk—the chance that political
developments in a particular country will reduce the value of an
investment. Political risk arises from political instability—coups,
revolution, or civil war—and, less dramatically, from the absence of strong
legal systems that protect foreign investment. Large risks substantially
reduce an investment’s expected return. This risk acts to push private
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capital away from a country. Indeed, such risks are one of, if not the
principal reason why sub-Saharan Africa attracts so little private capital.
More recently, remittances have emerged as an increasingly important
third source of capital for developing countries. Remittances are transfers
of income earned by migrant workers from jobs in their host countries
back to family and friends in their country of origin. Migrant workers
typically transfer money back home in small amounts—a couple hundred
dollars a month—using international money transfer companies such as
MoneyGram, Western Union, and Ria. The countries that receive the
largest remittance inflows are those that have the largest number of
workers living overseas. Not surprisingly, China and India receive the
largest volume of remittances (roughly $65 billion in 2016), and they each
receive more than twice as much as each of the next largest recipient
countries (the Philippines, Mexico, and Pakistan). The overall volume of
remittances has increased dramatically during the last 30 years. The World
Bank estimates that total remittances rose from less than $50 billion in
1990 to almost $600 billion by 2017 (World Bank 2017b). This level is
four times as large as combined foreign aid flows from the Development
Assistance Committee (DAC) countries—the major donor countries.
Existing research indicates that remittances are a less volatile source of
foreign capital than private capital flows, are often pro-cyclical rather than
counter-cyclical, and because remittances flow to individuals rather than to
governments or private firms, they have a greater impact on households
than other types of capital flow (see, e.g., Grabel 2009).
Developing societies import foreign capital, therefore, because it makes
it possible to finance more investment at a lower cost than they could
finance if they were forced to rely solely on their domestic savings. And
although developing countries can import some capital through foreign aid
programs, such programs are limited. Thus, if a developing society is to
import foreign savings, it must rely on private capital. The desire to import
foreign savings and the need to rely on private capital flows to do so
creates difficulties for developing societies, for private capital never flows
to developing societies in a steady stream. Instead, financial markets shift
from excessive concern about the risk of lending to developing societies to
exuberance about the opportunities available in those societies and then
back to excessive concern about the risk. As a consequence, a country that
is unable to attract private capital one year is suddenly inundated with
private capital the next, and then, just as suddenly, is shut out of global
financial markets as private investors cease lending. The consequences are
often devastating. We turn now to look at the first revolution of this cycle.
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COMMERCIAL BANK LENDING AND THE
LATIN AMERICAN DEBT CRISIS
The composition and scale of foreign capital flows to the developing world
changed fundamentally during the 1970s. In the 1950s and 1960s, foreign
aid and FDI were the principal sources of foreign capital for developing
countries, and neither was abundant. Only the United States had resources
for foreign aid, and these flows were quite limited. World Bank lending
was also limited. It perceived its mission as providing loans at “close-tocommercial
rates of interest to cover the foreign exchange costs of
productive projects” (Mason and Asher 1973, 381). And most of its
lending in this period also financed postwar reconstruction in Europe
(Mason and Asher 1973).
Development aid increased a little beginning in the late 1950s. The
World Bank created the International Development Association (IDA)
and began to provide concessional loans to many of its member
governments. At the same time, a number of regional development
banks, such as the Inter-American Development Bank, the Asian
Development Bank, and the African Development Bank, were created to
provide concessional lending on the model of the IDA. Advanced
industrialized countries also expanded their bilateral aid programs during
the 1960s. As a consequence, the amount of aid provided through
multilateral development agencies increased fourfold between 1956 and
1970, whereas bilateral development assistance more than doubled during
the same period (see Table 14.2). By the end of the 1960s, official
development assistance to developing countries was almost twice as large
as private capital flows.
The expansion of foreign aid programs during the 1960s reflected
changing attitudes in advanced industrialized countries. These changing
attitudes were in turn largely a product of the dynamics of decolonization.
World Bank officials recognized that governments in the newly
independent countries would have great difficulty borrowing on private
capital markets and would be unlikely to qualify for lending under the
World Bank’s normal terms. The World Bank therefore began to
reconsider its resistance to concessional lending. American attitudes
toward foreign aid changed in response to political consequences of
decolonization. American policymakers believed that the rising influence
of developing countries in the United Nations would eventually lead to the
creation of an agency that offered development loans at concessional rates.
The creation of such a UN agency could undermine the World Bank and
406
weaken American influence over development lending. U.S. officials
began to support a concessional lending agency within the World Bank,
therefore, in order to prevent the creation of a rival within the United
Nations, where developing countries had greater influence.
TABLE 14.2
Financial Flows to Developing Countries, Millions of
U.S. Dollars, 1956–1970
Official Development
Assistance 1956 1960 1965 1970
Official Government Aid 2,900.0 4,236.4 5,773.1 6,587.4
Multilateral Organizations 272.5 368.5 312.9 1,176.0
Organization of the Petroleum
Exporting Countries (OPEC)
443.5
Private Finance 1956 1960 1965 1970
Foreign Direct Investment 2,500.0 1,847.9 2,207.4 3,557.2
Portfolio Flows 0.0 408.2 836.0 777.0
Source: Wood 1986, 83.
At the same time, during the late 1950s and early 1960s, American
policy-makers increasingly came to view foreign aid as a weapon in the
battle against the spread of Communism throughout the developing world.
Nowhere was this more evident than in the Kennedy administration’s
“Alliance for Progress,” which was designed to use U.S. government aid to
promote socioeconomic reform in Latin America in order to prevent the
spread of Cuban-style socialist revolutions throughout the region (Rabe
1999). These changes in attitude contributed to the tremendous growth of
foreign aid programs during the 1960s.
The paucity of private lending to developing countries changed
fundamentally during the 1970s. On the one hand, commercial banks
found themselves awash with deposits in the wake of the 1973 oil shock.
The oil shock generated large current-account surpluses in the oilexporting
countries. Saudi Arabia’s current-account surplus jumped from
$2.5 billion in 1973 to $23 billion in 1974 and then averaged about $14
billion during the next 3 years. These surpluses, called petrodollars,
provided the financial resources that developing countries needed to cover
407
their greater demand for foreign capital. Commercial banks intermediated
the flows, accepting deposits from oil exporters and finding places to lend
them. The process came to be called petrodollar recycling.
It turned out that the growing supply of loanable funds was matched by
a growing demand for foreign capital in developing countries. Higher oil
prices cost developing countries about $260 billion during the 1970s
(Cline 1984). Because most developing countries were oil importers,
higher prices for their energy imports required them to reduce other
imports, to raise their exports, or to borrow from foreign lenders to finance
the larger current-account deficits they faced. Cutting imports was
unattractive for governments deeply committed to ISI strategies.
Increasing exports was also difficult, as import substitution had brought
about a decline in the export sector in most countries. Consequently, the
higher cost of oil widened current-account deficits throughout the
developing world.
ISI also generated a growing demand for foreign capital. In Latin
America, governments were responsible for between one-third and onehalf
of total capital formation (Thorp 1999, 169). Governments created
state-owned enterprises to drive industrialization, and they provided
subsidized credit to targeted sectors. These strategies led to an expansion
of government expenditures in connection with the initial investment and
then in connection with continued subsidies to the unprofitable stateowned
enterprises they created (Frieden 1981, 420). Government revenues
failed to grow in line with these rising expenditures. As a consequence,
budget deficits widened, reaching on average in Latin America 6.7 percent
of gross domestic products (GDP) by the end of the 1970s. In some
countries, deficits were even larger. Argentina’s budget deficit rose to over
10 percent of GDP in the mid-1970s and remained above 7 percent of
GDP until the early 1980s. Mexico’s budget deficit increased in the early
1970s and then exploded—to more than 10 percent of GDP—in the early
1980s. Governments needed to finance these deficits, which generated a
demand for foreign capital.
Commercial banks looking for places to lend and developing-country
governments looking for additional funds found each other in the mid-
1970s. Commercial banks loaned directly to governments, to state-owned
enterprises, and to government-owned development banks. The result was
rapid accumulation of foreign debt (see Table 14.3). In 1970, the
developing world as a whole owed only $72.7 billion to foreign lenders.
By 1980, total foreign debt had ballooned to $586.7 billion. Most was
owed by a small number of countries. The 40 most heavily indebted
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developing countries owed a total of $461 billion in 1980, close to 80
percent of the total. Latin American countries were among the largest
borrowers. The foreign debt of the seven most heavily indebted Latin
American countries—Argentina, Brazil, Chile, Colombia, Mexico, Peru,
and Venezuela—increased by a factor of ten between 1970 and 1982. By
the early 1980s, these seven countries accounted for about 80 percent of all
Latin American debt and for about one-third of all developing-world
foreign debt.
Initially, foreign debt fueled economic growth. The positive impact of
commercial bank lending is quite clear in aggregate statistics for the
period. In Latin America as a whole, economic growth averaged 5.6
percent per year between 1973 and 1980. Some Latin American countries
grew even more rapidly. In Brazil, one of the largest borrowers, the
economy grew by 7.8 percent per year between 1973 and 1980; Mexico
realized average growth of 6.7 percent over the same period.
Behind this robust economic growth, however, lay some worrying
trends. Debt problems emerge when foreign debt grows more rapidly than
the country’s ability to service its debt. A country’s debt-service capacity
—its ability to make the payments of interest and principal required by the
terms of the loan—is a function of how much it needs to pay relative to its
export earnings. Thus, as a country increases its foreign debt, it must also
expand its export earnings to service the debt comfortably. Exports failed
to keep pace with debt service throughout Latin America. Governments
invested foreign capital in nontraded-goods. Mexico, Argentina, and
Venezuela, for example, created massive hydroelectric projects that added
nothing to export revenues (Thorp 1999, 209). Governments borrowed to
buy military equipment, to pay for more expensive oil, and to subsidize
consumer goods. Even when foreign capital was invested in the tradedgoods
sector, ISI’s focus on capital-intensive projects failed to generate
exports. As a consequence, debt service grew faster than export revenues,
causing debt-service ratios to rise sharply (Table 14.4). By 1978, debt
service was consuming 38 percent of Latin America’s export revenues.
Debt-service ratios were even higher in Brazil, Chile, Mexico, and Peru.
Rising debt-service ratios rendered Latin American countries vulnerable
to international shocks. Three major shocks hit Latin America in 1979 and
the early 1980s. First, interest rates began to rise in the United States as the
U.S. sought to reduce inflation. Rising American interest rates were
transmitted directly to Latin America, because two-thirds of Latin
American debt carried variable interest rates. Higher interest rates thus
increased debt-service costs. Second, recession in the advanced
409
industrialized world reduced the demand for Latin American exports and
reduced their terms of trade (Cline 1984). Latin America’s export revenues
thus declined. By 1980, therefore, Latin American governments were
facing larger debt-service payments and declining export earnings. As if
this wasn’t enough, oil prices rose sharply again in 1979, imposing a third
shock.
TABLE 14.3
Developing-Country Foreign Debt, Billions of U.S.
Dollars, 1970–1984
Source: World Bank, World Development Indicators 2001 CD-ROM (Washington,
DC: World Bank Publications, 2001).
TABLE 14.4
Debt-Service Ratios in Latin America [(Payments of
Principal plus Interest)/Export Earnings], 1970–1984
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Source: World Bank, World Development Indicators 2001 CD-ROM (Washington,
DC: World Bank Publications, 2001).
Many governments responded to these shocks by borrowing more. As a
result, foreign debt jumped after 1979, rising to $810 billion by 1982.
Debt-service ratios also rose sharply (see Table 14.4). For Latin America
as a whole, debt service consumed almost 50 percent of all export earnings
in 1982. Brazil’s position was the most precarious, as debt service
consumed more than 80 percent of its export revenues in 1982. These debt
problems became an active debt crisis in August of 1982, when Mexico
informed the United States government that it could not make a scheduled
debt payment (see Kraft 1984). Commercial banks immediately ceased
lending to Mexico. Fearing that Mexico’s problems were not unique, they
stopped lending to other developing countries as well.
The abrupt cessation of commercial bank lending forced governments to
eliminate the macroeconomic imbalances that their commercial bank loans
had financed. Current-account deficits had to be eliminated because
governments could not attract the capital inflows required to finance them.
Budget deficits had to be reduced because governments could no longer
borrow from commercial banks to pay for them. Rapid adjustment in turn
caused economic activity to fall sharply throughout Latin America (Table
14.5). The most heavily indebted countries suffered the worst. Argentina’s
economy shrank by 6 percent in 1981 and then by another 5 percent in
1982. Brazil’s economy shrank by 4 percent in 1981 and then by another 3
percent in 1983. Mexico’s economy shrank by 1 percent in 1982 and by
another 3 percent in 1983. The end of capital inflows, therefore, ended the
economic boom of the 1970s abruptly.
TABLE 14.5
Economic Growth Rates (Percent) in Latin America,
1979–1983
411
Source: World Bank, World Development Indicators 2009 CD-ROM (Washington,
DC: World Bank Publications, 2001).
Commercial bank lending therefore proved a mixed blessing. On the
one hand, it allowed many developing countries to finance the large
current-account deficits generated by the oil shock. In the absence of these
loans, governments would have been forced to reduce consumption
sharply to pay for energy imports. Commercial bank loans also allowed
developing countries to invest more than they could have otherwise.
Private capital flows therefore relaxed many of the constraints that had
characterized the foreign-aid-dominated system of the 1950s and 1960s.
On the other hand, the rapid accumulation of commercial bank debt
rendered developing countries vulnerable to shocks imposed by
developments in the U.S. and Europe. The management of this debt crisis
dominated North–South financial relations throughout the 1980s.
MANAGING THE DEBT CRISIS
By 1982, the 30 most heavily indebted developing countries owed more
than $600 billion to foreign lenders. Few could service that debt. As they
defaulted, they turned to governments in the creditor countries for help. As
a result, the Latin American debt crisis came to be managed within a
framework that reflected the interests of the creditors. This regime was
based on a simple, if somewhat unbalanced, exchange between the creditor
and debtor governments. Creditor governments offered new loans and
rescheduled the terms of existing loans in exchange for policy reform in
the indebted countries.
The debt regime was based on the creditors’ strongly held belief that
developing countries eventually could repay their debt. Creditors initially
diagnosed the debt crisis as a short-term liquidity problem. The creditors
believed that high interest rates and falling export earnings had raised debt
service above the debtor governments’ current capacity to pay. Once
interest rates fell and growth resumed in the advanced industrialized
world, developing countries could resume debt service.
This diagnosis shaped the creditors’ initial response to the crisis.
Because they believed that the crisis was a short-term liquidity problem,
they prescribed short-term remedies. They required the debtor countries to
implement macroeconomic stabilization programs. Macroeconomic
stabilization was intended to eliminate the large current-account deficits
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in order to reduce the demand for external financing. The centerpiece of
the typical stabilization program was the reduction of the budget deficit.
Balancing the budget has a powerful effect on domestic economic activity,
reducing domestic consumption and investment, and thereby the demand
for imports. Moreover, the resulting unemployment would reduce wages,
making exports more competitive. Exchange-rate devaluation would
further improve the balance of trade. The smaller current-account deficits
that would follow would require smaller capital inflows. In the ideal
world, stabilization would produce current-account surpluses.
In exchange for macroeconomic stabilization, creditor governments
provided new loans and rescheduled existing debt to offset the liquidity
shortage. New loans were made available by the IMF and by commercial
banks through a process called concerted lending. In 1983 and 1984, the
IMF and commercial banks provided a total of $28.8 billion to the
indebted governments (Cline 1995, 207). Developing countries were also
allowed to reschedule existing debt payments. Debt owed to commercial
banks was rescheduled in the London Club, a private association
established and run by the large commercial banks. Rescheduling
agreements neither forgave debt nor reduced the interest payments
attached to the debt. They merely rescheduled the payments that debtor
governments had to make, usually offering a grace period and extending
the maturity of the debt. Access to both, however, was conditional on prior
agreement with the IMF on the content of a stabilization package.
A Closer Look
The International Monetary Fund
The IMF is based in Washington, DC. It has a staff of about 2,690,
most of whom are professional economists, and a membership of 184
countries. The IMF controls $311 billion that it can lend to member
governments facing balance-of-payments deficits. Two ruling bodies
—the Board of Governors and the Executive Board—make decisions
within the IMF. The Board of Governors sits at the top of the IMF
decision-making process. Each country that is a member of the IMF
appoints one official to the Board of Governors. Typically, the
country’s central-bank president or finance minister will serve in this
capacity. However, the Board of Governors meets only once a year;
therefore, almost all IMF decisions are actually made by the Executive
Board, which is composed of 24 executive directors, each of whom is
appointed by IMF member governments. Each of eight countries (the
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United States, Great Britain, France, Germany, Japan, China, Russia,
and Saudi Arabia) appoints an executive director to represent its
interests directly. The other 16 executive directors represent groups of
IMF member countries. For example, Pier Carlo Padoan (an Italian) is
currently the executive director representing Albania, Greece, Italy,
Malta, Portugal, and Spain, whereas B. P. Misra (from India) is
currently the executive director representing Bangladesh, Bhutan,
India, and Sri Lanka. The countries belonging to each group jointly
select the executive director who represents them. A managing director
appointed by the Executive Board chairs the Board. Traditionally, the
managing director has been a European (or at least non-American).
Voting in the Board of Governors and the Executive Board is based
on a weighted voting scheme. The number of votes each country has
reflects the size of its quota in the stabilization fund. The United
States, which has the largest quota, currently has 371,743 votes (17.14
percent of the total votes). Palau, which has the smallest quota,
currently has only 281 votes (0.01 percent of the total votes). Many
important decisions require an 85 percent majority. As a result, both
the United States, with 17 percent of the total votes, and the EU (when
its member governments can act jointly), with more than 16 percent of
the total vote, can veto important IMF decisions. As a block,
developing countries also control sufficient votes to veto IMF
decisions. Exercising this developing-country veto requires a level of
collective action that is not easily achieved, however. In contrast with
other international organizations, therefore, the IMF is not based on
the principle of “one country, one vote.” Instead, it is based on the
principle that the countries that contribute more to the stabilization
fund have a greater say over how that fund is used. In practice, this
means that the advanced industrialized countries have much greater
influence over IMF decisions than developing countries.
The IMF lends to its members under a number of different
programs, each of which is designed to address different problems and
carries different terms for repayments:
Standby arrangements are used to address short-term balance-ofpayments
problems. This is the most widely used IMF program.
The typical standby arrangement lasts 12 to 18 months.
Governments have up to 5 years to repay loans under the
program, but are expected to repay these credits within 2 to 4
years.
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The Extended Fund Facility was created in 1974 to help countries
address balance-of-payments problems caused by structural
weaknesses. The typical arrangement under this program is twice
as long as a standby arrangement (3 years). Moreover,
governments have up to 10 years to repay loans under the
program, but the expectation is that the loan will be repaid within
4.5 to 7 years.
The Poverty Reduction and Growth Facility (PRGF) was
established in 1999. Prior to that year, the IMF had provided
financial assistance to low-income countries through its Enhanced
Structural Adjustment Facility (ESAF), a program that financed
many of the structural adjustment packages during the 1980s and
1990s. In 1999, the PRGF replaced the ESAF. Loans under the
PRGF are based on a Poverty Reduction Strategy Paper, which is
prepared by the borrowing government with input from civil
society and other development partners, including the World
Bank. The interest rate on PRGF loans is only 0.5 percent, and
governments have up to 10 years to repay loans.
Two new programs were established in the late 1990s in response
to financial crises that arose in emerging markets. The
Supplemental Reserve Facility and the Contingent Credit Line
provide additional financing for governments that are in the midst
of or are threatened by a crisis and thus require substantial shortterm
financing. Countries have up to 2.5 years to repay loans
under both programs, but are expected to repay within 1.5 years.
To discourage the use of these programs, except in a crisis, both
programs carry a substantial charge on top of the normal interest
rate. [H17039]
By 1985, the creditor coalition was revising its initial diagnosis. Latin
American economies failed to recover as growth resumed in the advanced
industrialized world. Although creditors still believed that countries could
repay their debt, they concluded that their ability to do so would require
more substantial changes to their economies. Stabilization would not be
sufficient. This new diagnosis generated a second, more invasive, set of
policy reforms known as structural adjustment. Structural adjustment
rested on the belief that the economic structures developed under ISI
provided too little capacity for export expansion. Governments were too
heavily involved in economic activity, economic production was too
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heavily oriented toward the domestic market, and locally produced
manufactured goods were uncompetitive in world markets. This economic
structure stifled entrepreneurship, reduced the capacity for economic
growth, and limited the potential for exporting. Structural adjustment
programs sought to reshape the indebted economies by reducing the
government’s role and increasing that of the market. Reforms sought
substantial market liberalization in four areas: trade liberalization,
liberalization of FDI, privatization of state-owned enterprises, and broader
deregulation to promote economic competition.
Structural adjustment programs were accompanied by additional lending
by the World Bank, new IMF programs, and commercial banks.
Commercial banks were asked to provide $20 billion of new loans over a
3-year period to refinance one-third of the total interest coming due in the
period. Multilateral financial institutions, particularly the World Bank,
were asked to provide an additional $10 billion over the same period. In all
cases, fresh loans from commercial banks hinged upon the ability of debtor
governments to gain financial assistance from the IMF, and loans from the
IMF and World Bank were contingent upon the willingness of
governments to agree to structural adjustment programs.
This debt regime pushed the costs of adjustment onto the heavily
indebted economies. Table 14.6 illustrates the economic consequences of
the crisis for Latin America as a whole. Investment, consumption, and
economic growth in the region all fell sharply after 1982. Indeed, by the
end of the decade most still had not recovered to their 1980 levels. The
economic crisis hit labor markets particularly hard; unemployment rose
and real wages fell by 30 percent over the course of the decade. Real
exchange rates were devalued by 23 percent, on average, and by more
substantial amounts in Chile (96 percent), Uruguay (70 percent), and a few
other countries (Edwards 1995, 29–30). This adjustment brought a small
increase in exports, a sharp reduction in imports, and an overall
improvement in trade balances. From an aggregate $2 billion deficit in
1981, Latin America as a whole moved to a $39 billion trade surplus in
1984 (Edwards 1995, 23).
TABLE 14.6
Economic Conditions in Latin America, 1980–1990
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Sources: Thorp 1999; Edwards 1995, 24; Edwards 1989, 171.
Latin American governments used these current-account surpluses for
debt service. Net transfers, which measure new loans minus interest-rate
payments, provide a measure of the scale of this debt service. In 1976, net
transfers for the 17 most heavily indebted countries totaled $12.8 billion,
reflecting the fact that these countries were net importers of capital.
Between 1982 and 1986, net transfers for these same 17 countries
averaged negative $26.4 billion per year, reflecting the substantial flow of
funds from the debtor countries to banks based in the advanced
industrialized countries (Edwards 1995, 24). Thus, domestic economic
adjustment generated the resources needed to service foreign debt.
The puzzle in the management of this crisis concerns the ability of
creditors to push such a large share of the adjustment costs onto the debtor
governments. That is, why were creditors so much more powerful than
debtors? The short answer is that creditors were better able to solve the
free-rider problem than debtors. As a result, creditors could maintain a
common front that pushed the costs onto the debtor governments.
Creditor power lay in the ability to condition lending to policy reform.
In order to exploit this power, the creditors had to solve a key free-rider
problem (see Lipson 1985). Each individual creditor recognized that debt
service in the short run required additional financing and in the long run
depended on structural reforms that governments would not implement
without additional financing. But each individual creditor also preferred
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that other creditors provide these new loans. Thus, each creditor had an
incentive to free ride on the contributions of the other members of the
coalition.
Commercial banks had an incentive to free ride on IMF lending. Loans
from the IMF would allow the debtor governments to service their
commercial bank debt. If the IMF carried the full burden of new lending,
commercial banks would be repaid without having to put more of their
own funds at risk. Within the group of commercial banks involved in the
loan syndicates, smaller banks had an incentive to free ride on the large
banks. Smaller banks had much less at stake in Latin America than the
large commercial banks had, because the smaller banks had lent
proportionately less as a share of their capital. Consequently, default by
Latin American governments would not necessarily imperil the smaller
banks’ survival. Thus, whereas the large commercial banks could not walk
away from the debt crisis, the smaller banks could (Devlin 1989, 200–
201). Smaller banks could refuse to put up additional funds knowing that
the large banks had to do so. Once the large banks provided new loans, the
small banks would benefit from the resulting debt service.
The IMF helped creditors overcome this free-riding problem. To prevent
large commercial banks from free riding on IMF loans, the IMF refused to
advance credit to a particular government until commercial banks pledged
new loans to the same government. This linkage between IMF and private
lending in turn encouraged the large commercial banks to prevent free
riding by the small commercial banks. Because the large commercial
banks were unable to free ride on the IMF, they sought to compel the small
banks to provide their share of the new private loans. Large banks
threatened to exclude smaller banks from participation in future syndicated
loans—a potentially lucrative activity for the smaller banks—and
threatened to make it difficult for the smaller banks to operate in the
interbank market. American and European central-bank officials also
pressured the small banks. Free riding thus became costly for the small
banks.
Policy Analysis and Debate
International Monetary Fund Conditionality
Question
Should the IMF attach conditions to the credits it extends to
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developing countries?
Overview
IMF conditionality has long been a source of controversy. Critics of
the practice argue that the economic policy reforms embodied in IMF
conditionality agreements force governments to accept harsh austerity
measures that reduce economic growth, raise unemployment, and push
vulnerable segments of society deeper into poverty. Moreover, the
IMF has been accused of adopting a “one size fits all” approach when
designing conditionality agreements. It relies on the same economic
model in analyzing each country, and it recommends the same set of
policy changes for each country that comes to it for assistance.
Consequently, critics allege, IMF policy reforms are often
inappropriate, given a particular country’s unique characteristics.
The IMF defends itself by arguing that most developing-country
crises share a common cause: large budget deficits, usually financed
by the central bank. Such policies generate current-account deficits
larger than private foreign lenders are willing to finance. Governments
turn to the IMF only when they are already deep in crisis. Because
most crises are so similar, the solution to them should also be similar
in broad outline: governments must bring spending in line with
revenues, and they must establish a stable base for participation in the
international economy. And though the short-term costs can be high,
the economy in crisis must be returned to a sustainable path, whether
the IMF intervenes or not. Should the IMF require governments to
implement policy reforms as a condition for drawing from the fund?
Policy Options
Continue to require conditionality agreements in connection with
IMF credits.
Abandon conditionality and allow governments to draw on the
IMF without implementing stabilization or structural adjustment
measures.
Policy Analysis
To what extent are the economic crises that strike countries that
turn to the IMF solely a product of IMF conditionality
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agreements?
To what extend does conditionality protect IMF’s resources?
What would happen to these resources if conditionality were
eliminated?
Take A Position
Which option do you prefer? Justify your choice.
What criticisms of your position should you anticipate? How
would you defend your recommendation against these criticisms?
Resources
Online: Do an online search for “IMF conditionality.” Follow the links
to some sites that defend conditionality and to some that criticize the
practice. The Hoover Institution maintains a useful website that
examines IMF-related issues. Search for “Meltzer Commission” to
find some strong criticisms of the IMF’s activities. The IMF
explains and defends conditionality in a fact sheet. (Search “IMF
facts conditionality.”)
In Print: Joseph Stiglitz, “What I Learned at the World Economic
Crisis,” The New Republic, April 17, 2000, and Globalization and
Its Discontents (New York: W.W. Norton and Company, 2002);
Kenneth Rogoff, “The IMF Strikes Back,” Foreign Policy (January–
February 2003): 38–46; Graham R. Bird, IMF Lending to
Developing Countries: Issues and Evidence (London: Routledge,
1995); Tony Killick, IMF Programmes in Developing Countries:
Design and Impact (New York: Routledge, 1995).
The ability to solve the free-riding problems produced a united front that
effectively controlled financial flows to Latin America. The IMF and the
commercial banks advanced new loans to Latin American governments
(although the commercial banks did so quite reluctantly), and all accepted
a share of the risks of doing so. This united front allowed the creditors to
reward governments that adopted a cooperative approach to the crisis with
new financing, and to deny additional financing to governments that were
unwilling to play by the creditors’ rules.
Governments in the debtor countries were unable to exploit their
potential power. Debtor power lay in the threat of collective default.
Although each of the large debtors owed substantial funds to American
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banks—in 1982, for example, Mexico’s debt to the 9 largest American
commercial banks equaled 44.4 percent of those banks’ combined capital
—no single government owed so much that a unilateral default would
severely damage American banks or the American economy (Cline 1995,
74–75). Collective action could provide power, however. If all debtor
governments defaulted, the capital of the largest American commercial
banks would be eliminated, creating potentially severe consequences for
the American economy. A credible threat to impose such a crisis might
have compelled the creditors to provide more finance on easier terms, to
demand less austerity, and perhaps to forgive a portion of the debt.
Yet, debtor governments never threatened a collective default (Tussie
1988). Latin American governments held a series of conferences early in
the crisis to discuss a coordinated response. Governments used these
conferences to demand that the creditors “share responsibility in the search
for a solution,” and they demanded “equity in the distribution of the costs
of adjustment,” but they never threatened a collective default (Tussie 1988,
291). Argentina was the only country to adopt a non-cooperative stance
toward the creditors’ coalition, and it tried to convince other Latin
American governments to follow suit. Those governments, however, were
unwilling to take a hard line; in fact, they encouraged Argentina to adopt a
more cooperative stance (Tussie 1988, 288). Thus, instead of threatening
collective default, debtor governments played by the creditors’ rules.
Debtor governments never threatened collective default because they
were caught in a prisoner’s dilemma. Even though the threat of collective
default could yield collective benefits, each government had an incentive
to defect from a collective threat in order to seek a better deal on its own.
The incentive to seek the best deal possible through unilateral action,
rather than a reasonably good deal through collective action, arose because
each debtor government believed that it possessed unique characteristics
that enabled it to negotiate more favorable terms than would be available
to the group as a whole. Mexico, for example, believed that it could exploit
its proximity to the United States and its close ties with the U.S.
government to gain more favorable terms. Brazil, which by 1984 was
running a current-account surplus, believed that it could use this stronger
position to its advantage in negotiations with its creditors (Tussie 1988,
288).
The bilateral approach that the creditors adopted reinforced these fears
of defection. Because creditors negotiated with each debtor independently,
they could adopt a “divide and conquer” strategy. They could offer
“special deals” to induce particular governments to defect from any debtor
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coalition that might form. If one government did defect, it would gain
favorable treatment, whereas the others would be punished for their
uncooperative strategy. Punishment could include fewer new loans, higher
interest rates and larger fees on rescheduled loans, and perhaps morestringent
stabilization agreements. Thus, even though coordinated action
among the debtor countries could yield collective gains, each individual
government’s incentive to seek a unilateral agreement dominated the
strategy of a collective threat of default.
The debt regime pushed the adjustment costs onto debtor governments,
therefore, because creditors were able to overcome free-riding problems
and develop a coordinated approach to the debt crisis, and debtors were
not. The creditors used their power to create a regime that pushed the costs
of the debt crisis onto the heavily indebted countries. The regime was
based on the dual premises that all debt would be repaid in the long run,
but debt service would require the indebted governments to implement farreaching
economic policy reforms. Conditionality thus provided a
powerful lever to induce developing countries to adopt economic reforms:
few developing countries could afford to cut themselves off completely
from external financial flows. After 1982, these governments found that
the price of continued access to international finance was far-reaching
economic reform.
THE DOMESTIC POLITICS OF ECONOMIC
REFORM
Although the creditors established the structure for managing the debt
crisis, used conditionality to promote economic reform, and set the
parameters on the range of acceptable policies that could emerge from the
reform process, the pace at which debtor governments adopted
stabilization and structural adjustment programs was determined by
domestic politics. Domestic politics caused most governments to delay
implementing stabilization and structural adjustment programs.
Economic reform required governments to impose costs on powerful
domestic interest groups. The need to impose these costs generated
distributive conflict that delayed economic stabilization. Distributive
conflict revolved around which domestic groups would bear the costs
associated with balancing the budget. Governments had to choose which
programs would be cut. Would the government reduce subsidies of food or
energy, or would it reduce credit subsidies to industry? In addition,
governments had to decide which taxes to raise and who would pay them.
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The need to make these decisions generated a war of attrition between
veto players. Each veto player pressured to reduce expenditures on
programs from which it did not benefit and to tax other groups. Each
blocked efforts to cut its preferred programs or tax it at a higher rate
(Alesina and Drazen 1991). This war of attrition drove the politics of
stabilization throughout the early 1980s. The interest groups that had
gained most from import substitution stood to lose the most from
stabilization and structural adjustment. Import-competing firms that had
benefited from government credit subsidies would be hit hard by fiscal
retrenchment. State-owned enterprises would be particularly hard hit, as
they would lose the government infusions that had covered their operating
deficits during the 1970s. Workers in the urbanized nontraded-goods
sector who had benefited from government subsidies of basic services,
such as utilities and transportation, and essential food items would also be
hit hard by budget cuts. Public-sector employees would suffer as well, as
budget cuts brought an end to wage increases and forced large reductions
in the number of government employees.
Unwilling to accept the reduction in income implied by fiscal austerity,
interest groups blocked large cuts in government expenditures. In Brazil,
for example, the military government attempted to implement an orthodox
stabilization program in the early 1980s, but “both capitalists and labor in
modern industry … demanded relief from austerity. So too did much of the
urban middle class including government functionaries whose livelihood
was imperiled by attacks on public spending” (Frieden 1991b, 134). These
groups shifted their support to the civilian political opposition, which took
power from the military. Once in office, the new civilian government
abandoned austerity measures. The Brazilian case was not unique: the
import-substitution coalition was well positioned to block substantial cuts
in government programs in most heavily indebted countries.
The inability to reduce government expenditures resulted in high
inflation throughout Latin America. Many governments financed budget
deficits by selling bonds to their central banks. Printing money to pay for
government expenditures sparked inflation. Annual average inflation in
Latin America rose from about 50 percent in the years immediately
preceding the crisis to over 115 percent in 1984 and 1985 (Table 14.6).
Worse, these regional averages hide the most extreme cases. In Argentina,
inflation averaged 787 percent per year during the 1980s. Brazil fared a
little better, enduring average rates of inflation of 605 percent throughout
the decade (Thorp 1999, 332). Bolivia’s experience was the most extreme,
with inflation rising above 20,000 percent in late 1985.
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Even rapid inflation was insufficient to induce governments to cut
expenditures. In Argentina, Brazil, and Peru, governments responded to
high inflation with heterodox strategies (see Edwards 1995, 33–37).
Advanced as an alternative to standard IMF stabilization plans, heterodox
strategies attacked inflation with government controls on wages and prices.
The Argentinean and Brazilian plans illustrate the approach. In both
programs, the government froze prices and wages in the public sector.
Each government also introduced new currencies and established a fixed
exchange rate. Initially, the programs appeared to work, as inflation
dropped sharply in the first 6 months. Early successes were reversed,
however, because neither government was willing to reduce government
expenditures. In less than a year, inflation rates rose again and the
programs were scrapped (Edwards 1995, 37).
It wasn’t until the late 1980s that Latin America governments began to
make painful economic adjustments. Governments reduced fiscal deficits
and brought inflation under control. Macroeconomic stabilization provided
a base upon which to begin structural reforms. Governments began to
liberalize trade and privatize state-owned industries. Many governments
also began to reduce their role in domestic financial systems and to
liberalize capital accounts as well (Edwards 1995, 212).
Three factors induced governments to embark on economic reform.
First, the economic crisis altered interest-group politics. Key members of
the import-substitution coalition lost strength and faced higher costs from
opposing reform. As a result, groups that had once been willing and able to
block reform increasingly lost the capacity to do so. The economic crisis
also caused “individuals and groups to accept [the fact] that their special
interests need[ed] to be sacrificed … on the altar of the general good”
(Williamson 1994, 19). Economic crisis thus created a new political
consensus that the old order had failed and that reform was necessary. By
weakening key interest groups and by forcing many of these same groups
to redefine their interests, the severity of the economic crisis itself
removed the political obstacles to reform.
Second, the United States initiated a new approach to the debt crisis in
1989. In March 1989, the United States encouraged commercial banks to
negotiate debt-reduction agreements with debtor governments. Under this
Brady Plan (named after Nicholas J. Brady, the secretary of the U.S.
Treasury), debtor governments could convert existing commercial bank
debt into bond-based debt with a lower face value. The precise amount of
debt reduction that each government realized would be determined by
negotiations between the debtor government and its commercial bank
424
creditors. To make the proposal attractive to commercial banks, the
advanced industrialized countries and the multilateral financial institutions
advanced $30 billion with which to guarantee the principal of these Brady
bonds. This guarantee allowed commercial banks to exchange the
uncertain repayment of a large bank debt for guaranteed repayment of a
smaller amount of bond debt.
The Brady Plan strengthened the incentive to embark on reform by
increasing the domestic benefits of reform. Large debt burdens reduced the
incentive to adopt structural reforms because a significant share of the
gains from reform would be dedicated to debt service. Commercial banks
would thus be the primary beneficiary of reform. It is not hard to see why
domestic groups would be reluctant to accept costly reforms. Reducing the
debt burden ensured that a larger share of the gains from reform would
accrue to domestic groups. As a result, the short-run costs of reform would
be offset by long-run gains. This plan created a greater incentive to accept
the short-term costs that stabilization and structural adjustment entailed.
Mexico was the first to take advantage of the Brady Plan, concluding an
agreement in July 1989 (see Cline 1995, 220–221). The deal reduced
Mexico’s net transfers by about $4 billion, an amount equal to about 2
percent of Mexico’s GDP. Reducing debt service allowed the Mexican
economy to grow by 2 percentage points more than would have been
possible without debt reduction (Edwards 1995, 81). By 1994, Brady Plan
agreements covered about 80 percent of commercial bank debt and
reduced debt-service payments by about one-third (Cline 1995, 232).
Finally, as the economic crisis deepened, governments became more
willing to recognize that the East Asian model offered lessons for Latin
America. The Economic Commission on Latin America (ECLA) played an
important role in prompting this recognition (see Economic Commission
for Latin America and the Caribbean 1985). The ECLA had begun to look
closely at East Asia in the mid-1980s and was able to create a new
consensus among Latin American governments that the East Asian model
was relevant to Latin American development. As an ECLA study
recommended in the late 1980s, “[T]he debt problem requires a structural
transformation of the economy in at least two senses: the growth strategy
needs to be outward oriented and largely based on a domestic effort to
raise savings and productivity” (cited in Edwards 1995, 148). The ECLA’s
transformation
was like “Nixon in China.” When the institution that had for decades
defended import substitution expressed doubts about its validity and
425
recognized that there were lessons to be learned from the East Asian
experience with outward-oriented policies, it was difficult to dismiss those
doubts as purely neo-liberal propaganda.
(Edwards 1995, 52)
The Latin American debt crisis was declared over in the mid-1990s
(Cline 1995, 39). In hindsight, it is clear that the crisis was more than a
financial one: it was a crisis of economic development. The accumulation
of foreign debt during the 1970s reflected efforts to rejuvenate the waning
energies of ISI. Moreover, the crisis itself, and the debt regime through
which it was managed, transformed developing countries’ development
strategies. Governments abandoned state-led ISI in favor of a marketbased
and export-oriented strategy. As a consequence, developing
countries fundamentally altered their relationship with the international
economy.
CONCLUSION
The Latin American debt crisis illustrates the tragic cycle at the center of
North–South financial relations. A growing demand for foreign capital
generated in part by international events and in part by domestic
developments combined with a growing willingness of commercial banks
to lend to developing societies in order to generate large capital flows to
Latin American countries during the 1970s. The resulting accumulation of
foreign debt rendered Latin American societies extremely vulnerable to
exogenous shocks. When such shocks hit in the late 1970s and early
1980s, governments found that they could no longer service their
commercial bank debt, and commercial banks quickly ceased lending fresh
funds. As the supply of foreign capital dried up, Latin American
economies were pushed into crisis.
The Latin American debt crisis also forced governments in the advanced
industrialized world to establish an international regime to manage the
crisis. In the resulting debt regime, the IMF, the World Bank, and
commercial banks provided additional financial assistance to the heavily
indebted countries on the condition that governments implement
stabilization and structural adjustment packages. This approach pushed
most of the costs of the crisis onto Latin America. Moreover, the reforms it
encouraged provoked far-reaching changes in Latin American political and
economic systems. With a few changes that we will examine in the next
chapter, this debt regime remains central to the management of
developing-country financial crises.
426
Although the Latin American debt crisis is unique in many respects, in
others it is all too typical. And though this crisis was the first of the
postwar period, it would not be the last. In fact, crises have become
increasingly common during the last 20 years, and the more recent ones
share many of the central characteristics of the Latin American crisis and
have been managed in much the same way. They have also generated
much discussion about whether and how the international financial system
should be reformed in order to reduce the number and severity of such
crises. We examine these issues in Chapter 15.
KEY TERMS
Brady Plan
Debt-Service Capacity
Foreign Aid
Heterodox Strategies
International Bank for Reconstruction and Development
International Development Association
Liquidity Problem
London Club
Macroeconomic Stabilization
Petrodollar Recycling
Petrodollars
Regional Development Banks
Structural Adjustment
World Bank
SUGGESTIONS FOR FURTHER READING
For a detailed treatment of the relationship between development and the
international financial institutions, see Eric Helleiner, Forgotten Foundations
of Bretton Woods: International Development and the Making of the Postwar
Order (Ithaca: Cornell University Press, 2016).
On the 1980s debt crisis, see Robert Devlin, Debt and Crisis in Latin America: The
Supply Side of the Story (Princeton, NJ: Princeton University Press, 2016).
For the politics of IMF lending, see James Vreeland, The International Monetary
Fund: Politics of Conditional Lending (New York: Routledge, 2007), and Erica
Gould, Money Talks: the International Monetary Fund, Conditionality, and
Supplementary Financiers (Palo Alto: Stanford University Press, 2006).
On the IMF and neoliberalism, see Sarah Babb and Alexander Kentikelenis, 2018.
“International Financial Institutions as Agents of Neoliberalism,” in D. Cahill,
M. Cooper, M. Konings, and D. Primrose (eds.), The SAGE Handbook of
Neoliberalism (Thousand Oaks, CA: SAGE Publications, 2018: 16–27).
427