“Selective Friendship at the Fund”: United States Allies, Labor Conditions, and the International Monetary Fund’s Legitimacy

Abstract

This article discusses the International Monetary Fund’s recent effort to garner legitimacy by incorporating the reduction of economic inequality in its lending programs. It argues that the impact of the US as a major shareholder on conditionality and geopolitical considerations beyond objective and measurable economic necessities detract from these efforts to expand legitimacy. Using a panel data analysis of International Monetary Fund programs between 1980 and 2013, the article shows that US-allied left-wing governments receive a larger number of labor conditions in their programs compared to non-allied and right-wing governments. The article argues that this is part of left-wing governments’ strategy of maintaining their alliance with the US and demonstrating ideological proximity. In exchange, the US uses its influence to secure fewer conditions in total for its allied governments. This not only shifts the burden of adjustment on labor groups but also harms the Fund’s procedural legitimacy, as conditions are not objectively determined. It also has adverse implications for outcome legitimacy by distorting economic policies and outcomes and increasing income inequality.

Current Challenges to the Legitimacy of International Economic and Financial Arrangements

“…Along broadly similar lines, Hooghe et al (2019) look at the role of national political contestation in processes that lead to a situation of non-legitimacy. An example of this approach is also found in this thematic issue's article by Metinsoy (2022), where it is shown how the International Monetary Fund (IMF) loses legitimacy when taking responsibility for labour market reforms. What these studies have in common is that a decrease in the legitimacy of international arrangements is equated with a lack of support from those affected by them.…”

“…International organizations might contradict their own legitimacy claims in their policy formulations, as discussed in the next contribution. Metinsoy (2022) suggests that the IMF builds its legitimacy claims on being a "technocratic" organization that is "above" (geopolitical) concerns and designs policies solely in accordance with "macro-economic indicators" in a country. In her article, Metinsoy provides evidence that US-allied left-wing governments receive both a higher number and stricter labour conditions than non-allied and right-wing and centrist governments, irrespective of their prior labour institutions.…”