1 THE HIGH POLITICS OF IMF LENDING By STROM C. THACKER* Introduction degree of scrutiny given role of In CONSIDERING ternational Monetary Fund (IMF, or Fund) in international economy, we know little about causes underlying of IMF's be havior.1 During 1980s, IMF became a "lender of last resort" for many developing country governments that had been cut off from pri vate credit markets faced destabilizing imbalances of payments. After return private capital began voluntarily what were called emerging markets in early 1990s, anticipated erosion of Fund's role in developing world did not materialize. Faced with re current payments' imbalances, pressures for currency devaluation, macroeconomic instability associated with crises in Latin America, Asia, Russia, developing nations have turned with increasing IMF frequency credits stabilization plans. Despite growing body of research on IMF's critical role in international finance, we still have few explanations of only patchy empirical data on why IMF approves loans some countries but not ors. As Fund delves furr in management of balance of payments cur rency crises around world, both oretical practical impera tives dictate that we more specify fully test more systematically *A preliminary version of this paper was at presented 1997 annual meeting of American Po litical Science Association in Washingn, D.C. I would like thank Tim McKeown, Patrick Con way, William Bernhard, Mary Matws, Dane Rowls, participants in faculty research seminar in Department of International Relations at Bosn University, anonymous World Politics referees for ir insightful comments suggestions. Yvonne Ochoa Jaya Badiga pro vided able research assistance. The usual disclaimers 1 apply. The literature on IMF is extensive. For useful surveys, see Graham Bird, "The International Monetary Fund Developing Countries: A Review of Evidence Policy Options," Inter national Organization 50, no. 3 (1996); idem, IMF Lending Developing Countries: Issues Evidence (London: Roudedge, 1995); Sebastian Edwards, "The International Monetary Fund Devel oping Countries: A Critical Evaluation," NBER no. Working Paper, 2909 (1989); Tony Killick, IMF Pro grams in Developing Countries: Design Impact (London: Roudedge, 1995); John Williamson, ed., The Lending Practices of InternationalMonetary FundXWashingn, D.C: Institute for International Economics, 1982); idem, IMF Conditionality (Washingn, D.C: Institute for International Eco nomics, 1983). World Politics 52 (Ocber 1999), 38-75
2 HIGH POLITICS OF IMF LENDING 39 competing explanations of IMF behavior. What facrs influence IMF's decisions lend? Are se decisions based on technical eco nomic criteria, or do y reflect preferences of Fund's more powerful members? What are those preferences, how do y affect IMF's relationship with its developing country clients? In or words, matter? does politics matter? More importantly, how does The literature on international institutions multilateralism politics suggests that operation of multilateral economic organizations like IMF will assume growing importance in a posgemonic international order.2 This body of ory raises several important ques tions: To what extent do multilateral institutions modify interests or constrain behavior of ir member states? Can more power fill states use se as organizations effective instruments of national or are foreign policy, such pressures diluted or transformed in passing through multilateral channels? Finally, what underlying inter ests drive behavior of large powers within multilateral in stitutions, how do y do so? On practical side, Gallarotti has shown that poorly managed international not can organization only be ineffective but also can destabilize international system.3 The debates surrounding proposed increases in Fund resources recent loan packages negotiated with South Korea, Indonesia, Russia, Brazil demonstrate growing popular recognition of se kinds of problems, but scholarly research has yet address se questions adequately. Economists have made inroads in isolating economic bases of IMF lending, but y are first point out that ir models remain incomplete. Researchers have found statistically significant results for 2 For effective treatments of se related issues, see Robert O. Keohane, After Hegemony: Co operation Discord in World Political Economy (Princen: Princen University Press, 1984); idem, International Institutions State Power: Essays in International Relations Theory (Boulder, Colo.: Westview, 1989); idem, "Multilateralism: An Agenda for Research," International Journal 45, no. 1 (1990); John Gerard Ruggie, ed., Multilateralism Matters: The Theory Praxis an of Institutional Form (New York: Columbia University Press, 1993); Stephen D. Krasner, ed., International Regimes (Ithaca, N.Y.: Cornell University Press, 1983); Kenneth A. Oye, ed., Cooperation under Anarchy (Princen: Princen University Press, 1986). International institutions multilateralism are not necessarily equivalent. The IMF fits s Ruggie definition in Multilateralism Matters of multilateral organization as "defined by such generalized deci sion-making rules as or voting consensus procedures" (p. 14). On IMF see decision-making procedures, Frank Southard, "The Evolution of International Monetary Fund," Princen Essays in Interna tional Finance, no. 135 (1979); Frederick K. Lister, Decision-Making Strategies for International Organizations, vol. 20, World Affairs (Denver, Colo.: Graduate School of International Studies, Uni versity of Denver, 1984). 3 Giulio M. Gallarotti, "The Limits of International Organization: Systematic Failure in Man agement of International Relations," International Organization 45, no. 2 (1991).
3 40 WORLD POLITICS impact of a number of economic variables on IMF lending, but low overall explanary power of econometric models reviewed by Bird suggests that "re are probably a range of or non-economic facrs which still need be delineated."4 One likely source of noneco nomic facrs is politics, but scientists have not yet been able demonstrate systematic impact of variables on IMF lend ing.5 Several case studies offer suggestive, but not generalizable, evi dence of bases of IMF lending. Fewer studies have attempted construct a systematic explanation of Fund be havior. This paper attempts fill some of those gaps in literature proposes answers those questions by developing testing sta tistically a explanation of IMF lending patterns. The IMF^s stated decision-making procedures prohibit consider ation of facrs. Loans are made strictly on basis of monetarist "Financial Programming" model a "Doctrine of Eco nomic Neutrality" that is blind such facrs as international politics nature of developing country regimes.6 The Fund may impose strict lending requirements, but it applies m fairly all countries. The meetings of IMF executive board, which approves all Fund pro grams, are highly secretive.7 The specific considerations that determine board's deliberations decisions are refore not available in public domain. For its part, Fund staff publicly maintains posi tion of economic neutrality, but evidence presented in numerous case studies leaves open possibility that facrs play an impor tant role. There are at least three reasons suspect that politics matters in IMF. First, several studies have found extremely low rates of borrower compliance with Fund conditionally, yet IMF continues lend many of se problem debrs even after earlier programs have been canceled for noncompliance.8 Finch, a former IMF staff member, sug gested in late 1980s that economic facrs could not explain se 4 Bird (fn. 1,1995), Dane Rowls, "Political Economic Determinants of IMF Conditional Credit Arrangements: " (Manuscript, Norman Paterson School of International Affairs, Carlen University, Ot tawa, Ont., 1995). 6 Jacques J. Polak, "Monetary Analysis of Income Formation Payments Problems," IMF Staff no. Papers, 6 (1957), cited in Edwards (fn. 1); idem, "The Changing Nature of IMF Conditional ity," Princen Essays in International Finance, no. 184 (1991); Richard Swedberg, "The Doctrine of Economic Neutrality of IMF World Bank," Journal of Peace Research 23 no. 4 (1986). 7 R. S. Eckaus, "How IMF Lives with Its Conditionality," Policy Sciences 19 (Ocber 1986). 8 Southard (fn. 2), 13; Edwards (fn. 1); C David Finch, "The IMF: The Record Prospects," Princen Essays in International Finance, no. 175 (1989); John Spraos, "IMF Conditionality: In effectual, Inefficient, Mistargeted," Princen Essays in International Finance, no. 166 (1986).
4 HIGH POLITICS OF IMF LENDING 41 patterns: "Because decisions were no longer based on compatibility with repayment terms, lending was guided increasingly by preferences of leading industrial countries."9 Second, each country's on representative Fund's executive board is appointed by his or her home government in (Treasury, case of United States). Thus it should come as no surprise that positions of those representatives within Fund reflect interests of national govern ments y serve.10 As Smith puts it, "The IMF is itself a insti tution. It is managed by ly appointed individuals from member nations, interests of its members influence its deci sions."11 Although staff is less directly linked national govern ments, executive board must approve all proposed programs. The familiarity of Fund staff members with preferences of executive board discourages m from submitting loan packages that board is likely ve.12 Finally, weighted voting decision-making of procedures Fund also leave room for politics. As of April 1995, U.S. controlled percent of voting power in IMF, followed by Germany Japan with 5.5 percent each, France United Kingdom with 5.0 percent each.13 An evolving system of special majorities has helped U.S. maintain its influence beyond that dictated by its gradually de creasing voting share.14 An 85 percent majority is required for most important Fund decisions, giving U.S. alone, or groups of countries ve ger, power. The U.S. can also push through favored programs, which it not might be able do based on its votes alone. Al though managing direcr has traditionally been a European, he acts rarely against U.S. That is not preferences.15 surprising since he is a appointed through process over which U.S. has ve power.16 But 9 Finch (fn. 8), Lars Schoultz, "Politics, Economics, U.S. Participation in Multilateral Development Banks," International Organization 36, no. 3 (1982); Benjamin J. Cohen, "International Debt Linkage Strategies: Some Foreign Policy Implications for United States," in Miles Kahler, ed., The Politics of International Debt (Ithaca, N.Y.: Cornell University Press, 1986). 11 Fred L. Smith, "The Politics of IMF Lending," Ca Journal 4 (Spring/Summer 1984). The U.S. representative is "ordered by law clear his or her decisions with Secretary of Treasury." Swed berg (fn. 6), Kendall W. Stiles, Negotiating Debt: The IMF Process Lending (Boulder, Colo.: Westview, 1991). 13 IMF Annual Report (Washingn, D.C.: IMF, 1995), See Lister (fn. 2). 15 Samuel Lichtensztejn M?nica Baer, Fondo Monetario Internacional y Banco Mundial: Estrate gias y Pol?ticas del Poder Financiero (Mexico City: Ediciones de Cultura Popular, 1987), Miles Kahler notes that U.S. has in past refused support a renewal of managing di recrs tenure when his "accomplishments did not meet American expectations." Kahler, "The United States International Monetary Fund," in Margaret P. Karns Karen A. Mingst, eds., The United States Multilateral Institutions (Bosn: Unwin Hyman, 1990), 94.
5 42 WORLD POLITICS that power rarely needs be wielded The openly. managing direcr typically makes decisions based on a "sense of meeting," derived from comments of various participants ir relative voting power.17 Or powers can be reluctant speak against U.S. for fear that U.S. will later retaliate by exercising its ve power over ir own favored programs.18 Finally, U.S. its like-minded al lies can ger effect international monetary cooperation by forming subsets, or "k-groups," of countries push through certain packages that single parties cannot.19 Given possibility that facrs influence IMF decisions, several scholars have argued that Fund's more powerful members it furr ir own manipulate economic interests.20 The U.S. government, for its part, "has repeatedly ld foreign govern ments that it will not intervene in negotiations between Fund member governments."21 Kahler notes, however, that " U.S. ( or major countries) can still influence programs for friends clients at margin."22 Ors suggest that American politicization of Fund lending is more widespread. A series of case studies conducted for a project directed by Killick Bird reveals that at least one-third of seventeen countries studied secured favorable loan terms on ir IMF programs due intervention of major shareholding countries on ir behalf.23 Stiles concludes that in only one of seven cases exam ined did Fund adopt a ly neutral, technocratic approach lending.24 Such case studies have been useful for providing kind of rich de tailed data that are unavailable by or means, for formulating testable hyposes, for providing initial evidence of role of politics in IMF lending. Despite se advances, we are still unable say much more than that seems politics matter, at least in some cases. This 17 The origins of this procedure date back Fund s early years, when U.S. executive direc r went great lengths muffle strong voice of U.S. power, which neverless was decisive. See Southard (fn. 2), 5-6, Eckaus (fn. 7), 237; Stiles (fn. 12), Ruggie (fn. 2), chap. 1; James A. Caporaso Miles Kahler attribute part of postwar eco nomic cooperation this type of "minilateralism."the creation of Bretn Woods monetary order through U.S. British coordination subsequent adjustments made by G-7 after its breakdown (for example, Plaza Louvre accords) can be profitably undersod in se terms. Caporaso, "International Relations Theory Multilateralism: The Search for Foundations," Kahler, "Multilateralism with Small Large Numbers," in Ruggie (fn. 2). 20 Cheryl Payer, The Debt Trap: The International Monetary Fund Third World (New York: Monthly Review Press, 1974); Swedberg (fn. 6). 21 Kahler (fn. 16), Ibid. 23 Killick(fn.l), Stiles (fn. 12),
6 HIGH POLITICS OF IMF LENDING 43 paper aims two accomplish essential tasks. First, it attempts pro vide first systematic quantitative evidence for wher af politics fects IMF behavior. Second, it proposes a dynamic explanation of how facrs affect interactions of multilateral organizations with ir member states, tests statistical formulation of that argu ment in case of IMF. I first propose a simple macroeconomic model a explanation of IMF lending. I n operationalize se hyposes ger report results of a series of statistical tests conducted on m jointly. I conclude with a discussion of limitations broader implications of this research. A Simple Macroeconomic Model Economists have isolated several important dem- supply-side macroeconomic determinants of IMF lending. Rar than attempt replicate such studies, I take m as a starting point for my analysis. Conway has modeled in IMF participation programs as a func tion of a country's economic environment its past economic per formance.25 He finds statistically significant negative results for lagged variables representing ratio of reserves foreign exchange imports, rate growth of real gross national product, ratio of current account GNP, terms of trade, real rate of interest.26 Vari ables capturing level of development (proxied by share of output from agricultural secr) long short-term debt scks did not attain conventional levels of statistical significance. Lindert tests impact of several variables on interest rate charged on official credir lending fifty-one countries in He obtained statistically significant results for two only variables? log of absolute nominal public publicly guaranteed debt in 1981 log of per capita income?each with a positive coefficient. None of or variables? share of debt held by official credirs, ratio of debt service GNP, ratio of reserves imports, money sck growth, prior default, prior rescheduling, years since first reschedul ing?approached conventional levels of statistical significance. Summarizing his own ors' research, Bird identifies statisti cally significant regression results with negative coefficients for balance 25 Patrick Conway, "IMF Lending Programs: Participation Impact," Journal of Eco ^Development nomics 45, no. 2 (1994). 26 He finds statistically significant positive results for prior participation percentage of avail able funds drawn down. A series of dummy variables for each year had generally significant results. 27 Peter H. Lindert, "Response Debt Crisis: What Is Different about 1980s?" in Barry J. Eichengreen Lindert, eds., The International Debt Crisis in Hisrical Perspective (Cambridge: MIT Press, 1989).
7 44 WORLD POLITICS of payments, per capita income, current account, reserves.28 Col lectively, se studies find statistically significant positive regression coefficients for inflation, access private bank credit,29 domestic credit growth, government spending. With exception of Conway, low predictive power of se models suggests that are y underspec ified. Rar than attempt test validity of distinct competing macroeconomic models, this paper draws upon large body of exist ing research identify putative economic determinants of Fund activities. First, balance of payments position of a country is ini tial baseline upon which its in IMF participation programs is evaluated. An improvement in balance of payments is stated primary goal of most IMF lending programs,30 without a payments deficit, a country should neir need nor be eligible for Fund lending.31 When faced with a payments deficit, a country can eir run down its re serves or borrow internationally.32 In context of debt crisis, run ning down reserves was not a viable long-term solution, most reliable source of international was borrowing IMF. Specifically, de terioration in balance of payments is expected increase chances of a receiving loan from IMF. Second, a country's debt position should affect its dem for supply of an IMF loan for distinct reasons. On dem side, a heavier debt burden increases developing countries' need for external fi nance service that debt. In terms of some supply, have argued that more heavily indebted countries have more over bargaining leverage IMF because of ir importance global financial stability.33 In ad dition, some view IMF loans as a payoff foreign credirs.34 Assuming that those lenders wield influence within executive board, IMF loans more likely will go countries where credirs are more ex heavily posed. Lindert found that more heavily indebted countries did re ceive official credir loans, but at higher interest rates than smaller debrs, due reluctance of Norrn taxpayers finance more 28 Bird (fn. 1,1995). 29 This result supports catalytic impact of IMF as a lending providing "seal of approval" that en courages private banks resume lending a country that has an negotiated agreement with Fund. Bird (fn. 1,1995), 122. A negative result would suggest a substitution effect between IMF private lending. 30 Spraos (fn. 8); Finch (fn. 8). 31 Bird (fn. 1,1995), Ibid., See Jahangir Amuzegar, "The IMF under Fire," Foreign Policy 64 (Fall 1986). 34 See Waiden Bello David Kinley, "The IMF: An Analysis of International Monetary Role in Third World Debt Crisis, Its Relation Big Banks, Forces Influencing sions," Multinational Monir 4 (1983). Fund Its Deci s
8 HIGH POLITICS OF IMF LENDING 45 concessionary terms.35 For purposes of this study, fact that larger debrs were more likely receive loans is of primary interest. Third, level of per capita income of a country also may influence its secure ability Fund assistance. Killick notes that IMF's hisr narrow ically focus on balance-of-payments considerations has given way in recent years a broader view that acknowledges relation ship between balance of payments growth.36 Lindert reports that official favoritism for poor countries resulted in lower interest rates on official loans, Bird argues that poorer countries are less likely borrow on private capital markets refore have a higher rela tive dem for IMF loans.37 Countries with lower per capita incomes should be more likely request receive a loan from IMF. Fourth, if Doctrine of Economic Neutrality is followed, a poor credit hisry should decrease chances of a receiving loan. After massive defaults of 1930s, debr nations were cut effectively off from credit for several years. Many have argued that we should expect similar outcomes now.38 Specifically, past failures IMF uphold loan re quirements should make it more difficult receive additional loans. Finally, both neomarxist modern economy interpreta tions would two suggest additional macroeconomic indicars that should affect Fund decisions due influence of "low politics": trade investment exposure of firms based in IMF's major princi pal shareholder, U.S. Authors grouped loosely within a neomarxist (or dependency) perspective argue that capitalists in core states, es pecially U.S., dictate IMF at policy expense of nations of periphery.39 A economist more concerned with impact of domestic on politics economic foreign policy also might posit, without necessarily adopting concomitant exploitation argument, that well organized export enterprises multinational corporations (MNCs) pressure U.S. government protect ir interests on executive board. Neomarxism suggests that higher levels of U.S. exposure lead a greater likelihood of receiving an IMF loan because attendant 35 Lindert (fn. 27), Killick(fn.l). 37 Lindert (fn. 27), 243; Bird (fn. 1,1995), Barry Eichengreen has questioned impact of "default on penalty" future credit access. Eichengreen, "The U.S. Capital Market Foreign Lending, ," in Jeffrey D. Sachs, ed., Developing Country Debt World Economy (Chicago: University of Chicago Press, 1989), 247. Cf. Jonathan Ean Mark Gersovitz, "Debt with Potential Repudiation: Theoretical Empiri cal Analysis," Review of Economic Studies 48 (April 1981). 39 See E. A. Brett, "The World's View of IMF," in Latin America Bureau, ed., The Poverty Bro kers: The IMF Latin America (London: Latin America Bureau, 1983); Manuel Pasr, "The Effects of IMF Programs in Third World: Debate Evidence from Latin America," World Development 15 (Fall 1987); Swedberg (fn. 6). pol
9 46 WORLD POLITICS icy conditionality promotes expansion of global capitalism. A less more ex explored, domestic-politics interpretation yields ambiguous pectations. The inflow of foreign exchange resration of in ternational creditworthiness would be expected benefit U.S. exporters foreign invesrs, while dem-reduction compo nents of IMF typical program would suggest a negative impact for se variables.40 High Politics imf The international aspects of IMF lending have received far less rigorous analysis. Two rudimentary strs of thought comprise this genre, but neir has been fully developed nor adequately tested. I label first, more common str " proximity" hypo sis. Simply put, friends of U.S. are more likely receive loans than are its enemies. In addition case studies described above, Bello Kinley argue that U.S. disregarded Fund's eco nomic criteria pressured Fund approve loans ly friendly South Africa, El Salvador, Haiti.41 The IMF has also de nied loans economically worthy enemies of U.S., such as Vietnam.42 In sum, more a closely country aligns with U.S., higher probability it will receive a loan from IMF. These arguments have not yet been nor fully developed conceptually thoroughly tested empirically. To illustrate an intuitive analytical foun dation for this argument facilitate its testing, I construct a con tinuous voting space, scaled from 0 1, where 1 represents tal agreement 0 complete discord with United States on a single broad dimension of foreign policy affinity (such affinity could be easily measured by votes in a majority-rule international voting arena, such as United Nations General Assembly). Figure 1 is a graphic represen tation of this space a schematic portrayal of proximity hyposis. Countries at point A, at far left-h side of voting space, have little chance of a receiving loan, while those at point C, at far are right, much more likely receive Fund support. Alignment near middle, at point B, has little or no effect. 40 The net effect of DFI exposure may depend on secral location of investment. If it serves primarily domestic market, a negative result might be expected. If it serves mostly export markets, a positive result would be more likely. The impact of export exposure may on depend wher product exported is a final or an consumption good (negative) input in export secr 41 (positive). Bello Kinley (fn. 34), Susumu Awanohara, "Fiscal Interdiction: U.S., Japan Block IMF Effort Support Vietnam," Far Eastern Economic Review, September 28,1989.
10 HIGH POLITICS OF IMF LENDING 47 AB C Voting scale loan probability Impact (-) on (neutral) (+) Figure 1 The Political Proximity Hyposis Despite existence of case plentiful studies, previous research has not effectively evaluated this argument. Furrmore, several studies have documented numerous cases where U.S. "enemies" are rewarded or "friends" punished. In many instances Fund has made loans leftist governments, such as Manley's in Jamaica in 1979 East European Soviet bloc countries of Hungary, Yugoslavia, Romania, each of which ranked among p fifteen IMF loan recipients from This evidence seems paint a picture of IMF lending as an a technocratic process, economic at neutrality its best. But se loans may not have been on economic justifiable purely grounds, eir. Asset compares results of a regression equation designed predict size of IMF loans based on solely economic criteria with size of actual loans received by three East coun European tries conclude that actual lending exceeded a predicted lending by significant margin.44 A less static interpretation of se anomalies introduces "politi cal movement" hyposis, less-developed second str of po litical argument. Movement ward or away from U.S. on international issues may be at least as as important absolute alignment of a particular country. at Hinting this idea, Horowitz asks wher IMF should use loans entice countries like Romania Hungary away from Soviet bloc.45 This notion is con sistent with cases of Hungary, Yugoslavia, Romania, all of whom distanced mselves ly from Soviet Union (that is, moved closer U.S.). In contrast, neir Czechoslovakia nor 43 Amuzegar (fn. 33); Valerie J. Asset, The Soviet Bloc in IMF IBRD (Boulder, Colo.: Westview, 1988). 44 Ibid, Irving Louis Horowitz, "The 'Rashomon Effect': Ideological Proclivities of IMF," in Robert J. Myers, ed. The Political Morality of International Brunswick, N.J.: Transaction Books, 1987), 96. Political Dilemmas Monetary Fund (New
11 48 WORLD POLITICS A B Movement on voting scale Impact on loan probability (-) (neutral) (+) Figure 2 The Political Movement Hyposis Pol, more consistently faithful Soviet allies, received any IMF fund ing during this period.46 Frey applies Hirschman's neutrality model formulate a model of bilateral aid-giving process in a bipolar world where aid recipients can play two superpower donors off one anor.47 On a more gen eral level, McKeown models aid as a relationship formally sequen tial bargaining game between lending principal borrower.48 The lender exchanges aid for a realignment by developing country ward position of lender. The borrower moves from its "ideal" a new point equilibrium point where marginal utility of addi tional aid received equals domestic loss incurred by anor move away from its ideal position. I adapt extend se central in sights hyposize that movement ward U.S. increases a country's probability of a receiving loan from IMF. I portray lending process as a dynamic game between each bor rower a single lender. I do not model this interaction in formal game-oretic terms, nor do I model relationship between U.S. IMF. Rar, I assume U.S. plays role of principal within IMF, generate testable hyposes about relationship be tween Fund borrowing countries, evaluate m empiri cally. If data confirm se hyposes, it would strongly suggest, but not directly confirm, a predominant U.S. presence in an increas ingly important multilateral organization. Such a conclusion would have important implications for study of international institutions as regimes, well as for multilateral management of interna tional economy. 46 Asset (fn. 43), Bruno S. Frey, International Political Economies (London: Basil Blackwell, 1984), chap. 5; Albert O. Hirschman, "The Stability of Neutralism: A Geometrical Note," American Economic Review 54 (March 1964). 48 Timothy J. McKeown, "Resolving 'Conditionality Paradox' in U.S. Bilateral Foreign Aid" (Manuscript, University of North Carolina, Chapel Hill, n.d.).
12 HIGH POLITICS OF IMF LENDING 49 A B C D Voting scale 0 -> <- Impact on (-) (+) loan probability Figure 3 The Impact of Political Movement over Time Figure 2 captures basic argument of movement hy posis. For simplicity's sake, I present this as a linear relationship, though future research might loosen this assumption. It is based on same 0-1 voting space. Rar than measure a country's absolute polit ical alignment, however, it charts change (or in realignment) that position from one time period anor. The maximum distance a country can move vis-?-vis lender is?1.0. Countries that make large movements ward U.S., such as at point B, have a greater chance of IMF receiving credit than those that make movements away from U.S., such as at point A. Figure 3 brings spatial tem poral sides of sry ger illustrate effect of re alignment from one voting cycle next. A country shifting from point A point B has a better chance of a receiving loan than one moving from point D point C, even though point C is still closer lender's position than is point B. Operationalization of Hyposes Because ory tells us that both economic facrs affect IMF a lending, model that excludes eir category is, by definition, A misspecified. combined economy approach addresses one of Bird's main concerns: [S]ome countries may be able muster more support amongst membership of Executive Board than ors. The problem is that such  facrs are difficult model formally include in econometric estimation, but ir exclusion may dem functions which eco explain why rely exclusively upon nomic characteristics will leave much of sry unld.49 It may be difficult model test facrs econometrically, but it is certainly possible. 49 Bird (fn. 1,1995),