"Selective Friendship at the Fund": United States Allies, Labor Conditions, and the International Monetary Fund's Legitimacy

Abstract

This article discusses the International Monetary Fund's recent effort to garner legitimacy by incorporating the reduction of economic inequality in its lending programs. It argues that the impact of the US as a major shareholder on conditionality and geopolitical considerations beyond objective and measurable economic necessities detract from these efforts to expand legitimacy. Using a panel data analysis of International Monetary Fund programs between 1980 and 2013, the article shows that US-allied left-wing governments receive a larger number of labor conditions in their programs compared to non-allied and right-wing governments. The article argues that this is part of left-wing governments' strategy of maintaining their alliance with the US and demonstrating ideological proximity. In exchange, the US uses its influence to secure fewer conditions in total for its allied governments. This not only shifts the burden of adjustment on labor groups but also harms the Fund’s procedural legitimacy, as conditions are not objectively determined. It also has adverse implications for outcome legitimacy by distorting economic policies and outcomes and increasing income inequality.