Lending Credibility : The International Monetary Fund and the Post-Communist Transition

Rating:
Summary: Book Prize Winner
Review: Lending Credibility is the winner of the 2003 Ed A. Hewett book prize awarded annually by the American Association for the Advancement of Slavic Studies for the most outstanding publication on the political economy of the former Soviet Union, East Central Europe, and/or their successor states.

The book prize committee wrote the following citation about this volume:

One of the central debates of the transition from socialism over the past decade has been the role of the International Monetary Fund. It is vilified by some as the satanic agent of globalization, and ignored by others who treated democratization as a self-contained process divorced from the messy processes under way in the region's economies.

These debates about the role of the IMF have generated a lot of heat, but not that much light. Just how much influence did the IMF really have over the economies in transition? And was that influence a help or a hindrance the process of economic transition?

Randall Stone's book, Lending Credibility, is the first systematic effort to address these questions. It is a major achievement, the result of both careful reflection on how to conceptualize and investigate the problem, and a prodigious amount of effort gathering data.

A political scientist, Stone addresses one of the standard problems in that discipline: what influence can an international organization (in this case, IMF) have on the domestic policies of member countries (in this case, transition economies). To solve this problem, he deploys a variety of analytical tools. He uses a game-theoretic model of interaction between the IMF, borrower countries, and private investors to derive their equilibrium strategies. The predictions of the model are then tested statistically using a set of monthly data for the 1990s for 26 post-Communist countries, including over 20 variables. In an unprecedented feat of thoroughness, the author complements statistical testing with detailed interviews with dozens of former officials to reconstruct the decision-making process in four of the countries under study and test his theoretical results.

Stone develops the notion of credibility as the key factor linking IMF leverage to domestic decision making. He comes to a balanced conclusion, neither demonizing nor whitewashing the IMF, but arguing that the IMF can play a pivotal and positive role by using its lending to signal support and encouragement for the adoption of effective policies by national leaders.



Rating:
Summary: An astonishing read
Review: Quite the read: fluid, sober, well written and systematic in its approach. Pioneering the approach to this question, Randall Stone utilizes many different tools to present his argument and send his message. Not only is it sound in its argument, but also an enjoyable read. Anyone interested in real research about the impact of the IMF should consult this book.