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Workers' austerity concerns win concessions from IMF finds new study

Workers in debt-ridden countries get sympathetic treatment from the International Monetary Fund which is not the big bad wolf of popular myth a new study suggests.

While the IMF demands reforms from countries seeking loans in times of economic crisis, the new research shows that it listens to the views of citizens, especially in democracies, and may soften the labour conditions it sets when they protest. For example, mass demonstrations in Greece during 2011 when the country took extreme austerity measures led the IMF to make compromises over wages, pensions and job numbers.

The authors of the study, published today in the journal International Organization, say their findings suggest that international bodies, including the IMF, are more likely to respond to domestic politics than to constrain them.

IMF logoThis is particularly true when workers are politically powerful at home and especially when they can influence the outcome of a country’s democratic elections. In these cases, the research showed fewer and less stringent reforms to the country’s labour market because national governments negotiated with the IMF to represent workers’ interests and lessen the burdens of austerity on them.

Dr Stephanie Rickard, a lecturer in government at LSE and one of the paper’s authors, said: “Our findings suggest that democratic governments represent workers’ interests at the international bargaining table and the IMF is responsive to these interests. This contradicts the conventional wisdom which assumes that international bodies can ignore domestic concerns in setting conditions for loans.

“In other words the fate of workers in this time of economic crisis may not be as bleak as people have assumed. It also means that reformers may be able to do more to help workers by pushing for democracy in borrowing countries than by campaigning to restructure the IMF or its lending practices.”

The researchers conducted a detailed study of 20 years of IMF loan documents up to the year 2000 to examine the conditions imposed on borrower nations. In contrast with previous studies, they looked not at the number of conditions set but on their content, focussing on those related to employment, wages, social benefits and the jobs market.

They assigned each of these conditions to one of nine categories and gave each category a weighting to reflect the relative stringency of conditions. This allowed the researchers to construct a measure for the intrusiveness of labour conditions set by the IMF. By comparing conditions set for different countries they were able to see how domestic political pressures shaped the outcome.

And to test their theory that these changes were driven by workers’ interests in the borrowing country they compared IMF loan conditions in nations with different levels of labour strength.

The comparison produced clear statistical evidence that democracies with more powerful labour movements received less intrusive labour market conditions from the IMF.

Dr Stephanie RickardThe authors also tested their theory with a comparative case study of South Korea and Bolivia. It showed that in South Korea’s financial crisis of 1997, the IMF loan programme which initially looked for quicker and cheaper ways of laying off workers was amended after resistance by the country’s union movement and the establishment of a national consensus on austerity measures between government, employers and unions.

In Bolivia, by contrast, the union movement was in decline by the mid-1980s which was when the country entered an almost continuous period of IMF bail-outs. As a result the government offered little or no resistance to stringent IMF conditions stipulating privatisation, wage freezes, pension reductions and greater labour market flexibility.

International Negotiations and Domestic Politics: The Case of IMF Labor Market Conditionality| by Teri Caraway, Stephanie Rickard and Mark Anner.

Ends

For more information, or a full copy of the paper, contact:

Dr Stephanie Rickard (lead author)
+44 (0)20 7849 4919
S.Rickard@lse.ac.uk|

LSE Press Office 
+44 ())20 7955 7060
pressoffice@lse.ac.uk

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31 January 2012

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