Controlling Capital: The International Monetary Fund and Transformative Incremental Change from Within International Organisations

Abstract

As a result of a long-running internal debate there have been notable incremental changes to how the International Monetary Fund (IMF) treats capital controls, particularly those directed at inflows. These changes combine new acceptance of these policy instruments with an older emphasis on their negative consequences and on the desirability of free movement of capital. Policy change of this sort is puzzling from the standpoint of the existing literature on international organisations (IOs), which has thus far paid little attention to transformative incremental change associated with long-term contestation. This article departs from this tendency by drawing on insights from principal–agent theory, constructivism and historical institutionalism to identify the conditions under which such change may originate. I argue that actors within IOs are likely to pursue incremental change by layering new policies on to old ones as a way to build coalitions and to respond to external organisational insecurity imperatives and diverse member state preferences and to internal path-dependent organisational cultural features. Over time the incremental shifts brought by layering can induce transformative rather than reproductive change because they fit with consequentialist and appropriateness behavioural logics. I illustrate this argument by investigating recent changes in IMF policy on capital controls.

Keywords:

• IMF
• organizational culture
• capital controls

Notes on contributor

Jeffrey M. Chwieroth is Reader in International Political Economy in the Department of International Relations at the London School of Economics. His previous appointments have been with the Institut für Höhere Studien (Institute for Advanced Studies) in Vienna, the Department of Political Science at Syracuse University, and the Robert Schuman Centre for Advanced Studies at the European University Institute. His book Capital Ideas: The IMF and the Rise of Financial Liberalization (Princeton University Press) was published in 2010. His current research explores sovereign wealth funds and the political aftermaths of financial crises.

Notes

1. Campbell (2004), Streeck and Thelen (2005) and Mahoney and Thelen (2009) provide recent reviews.

2. Mishler and Rose (2007: 823) observe:In stable societies, where continuity is substantial and change incremental, early life socialization and later life experience may teach fundamentally the same lessons and have indistinguishable effects. By contrast, in societies undergoing abrupt transformations, discontinuities between early life socialization and adult experience provide considerably more scope for adult relearning.

3. This conceptualisation of change also characterises much of literature on ideas (Carstensen 2011).

4. The two are not mutually exclusive in the sense that actors can have mixed motives for engaging in intra-organisational contestation.

5. Issues and Developments in the International Exchange and Payments System, SM/94/202, 29 July 1994 (IMF Archives), 24–5.

6. Capital Account Convertibility – Review of Experiences and Implications for Fund Policies – Background Paper, SM/95/164 Supplement 1, 7 July 1995 (IMF Archives).

7. Chile – Staff Report for the 1994 Article IV Consultation, SM/94/172, 6 July 1994 (IMF Archives), pp. 3, 4, 8.

8. These diverse preferences are revealed clearly in IMF Executive Board Discusses Liberalizing Capital Flows and Managing Outflows, Public Information Notice (PIN) No. 12/42, 4 May 2012 and IMF Executive Board Discusses The Liberalization and Management of Capital Flows – An Institutional View, PIN No. 12/137, 3 December 2012.

9. In May 2011, Strauss-Kahn, facing criminal charges, resigned from his position.

10. ‘IMF and the Government of Indonesia to Co-Host High-Level Conference on Capital Flows’, IMF Press Release No. 11/68, 7 March 2011.

11. For a review, see Magud et al. (2011).

12. Ostry et al. (2012), which did not require member state approval, takes a contrary view.