IMF Conditionality and the Local Ownership of Structural Reforms

• In Event: Domestic Politics and the International Monetary Fund

Abstract

The shifting emphasis on performance evaluation and accountability in the context of external conditionality programs has brought to the fore the question of local ownership of reforms. On the demand side of conditionality, a standard argument in the literature is that contracting governments often resort to external assistance in order to deflect the political costs of painful liberalization reforms and also to restore the country’s international image and credibility. On the supply side, the design of conditionality programs is either dictated by the foreign policy interests of the major donor countries (especially the US) or the policy agenda of international bureaucrats. However, the scope of conditionality, both with respect to the level of specificity, pace, and sequence of required reforms, conveys an informational content to the target government and thus influences the level of local ownership. In this paper, I apply a principal-agent signaling game that gives rise to a "crowding-out" hypothesis with regard to the level of local ownership. I test the argument against current databases on the design of IMF conditionality and aggregate measures of structural reforms using the synthetic control method (SCM).

Authors

• Nikitas Konstantinidis, IE University

• Bernhard Reinsberg, University of Cambridge