Political economy of standing against a stand-by

Abstract

What explains the actual and rhetorical defections of political elites in developing countries from the IMF programs even at times of severe economic difficulties? Scholars have focused on "domestic audience costs" of participating in IMF programs. This paper, on the other hand, suggests that as commitments to IMF programs require governments to make changes generating institutional, social and political consequences, governments choose to delay an agreement with the Fund, whenever the program is likely to antagonize key business groups that support the government. In the light of the Malaysian and the recent Turkish experiences, the paper will demonstrate that defection from an IMF program is likely to occur when the new Stand-By Agreement can jeopardize particular business interests backing the ruling political elites either through institutional reforms or economic policies.