A Two-Level Principal-Agent Model of IMF Program Design: The Turkish Case
IMF conditionality has always been the most controversial aspect of the programs designed for countries borrowing from the Fund. The difference between the number and scope of conditionality in the programs designed for European countries since 2008 and those in the programs of developing countries in the late 1990s and early 2000s has made the question of which factors influence the design of IMF programs and how they shape conditionality stand out more in the literature, which is the puzzle this research project attempts to solve. The literature examining the institutional aspects of the IMF includes the state-centric approach, which focuses on the influence of the powerful states in explaining the variation in the conditionality of IMF loans, and the public choice approaches, which put a greater emphasis on the intellectual dominance of the IMF staff. However, neither of these approaches fully explains the variation as they neglect the impact of the relation between the Executive Board, the IMF staff and the recipient country authorities, on the decision-making of the institution. This study analyzes the variations in IMF conditionality through building a new analytical framework. I introduce a “Two- Level Principal-Agent Model” of IMF lending with hypotheses that are tested using a single-country study, namely the Turkish case. The main findings of this study provide supporting evidence for the strong influence of economic bureaucracy in the design of conditionality in IMF programs. The validity of the causal mechanisms involved, i.e. antinomic delegation, power of economic bureaucracy and fragmentation in the political system of the recipient country, which I demonstrate through process tracing on the Turkish case, is strengthened by a computational simulation of negotiations over conditionality during IMF program design. The findings and research methods of this study pave the way for enhanced analysis of decision-making processes in international organizations, particularly for cases involving delegation of authority within multiple sides of negotiations, as in the case of IMF lending.