Democracy’s Friend or Foe? The Effects of Recent IMF Conditional Lending in Latin America

Abstract

Structural adjustment is commonly prescribed as a condition for receiving loans from the World Bank and the International Monetary Fund, but the effects of structural adjustment and conditionality are controversial. While much research has been devoted to examining the economic effects of conditional lending, far fewer studies have looked at the political consequences. How do conditional lending agreements affect democracy? Does the number of required reforms or the type of reform play a role? Neoliberal theory suggests that improved economic conditions will result from structural adjustment, and over time this should lead to higher levels of democracy. Conversely, democratic practices may decline in the presence of conditionality as the government reduces civil liberties in an attempt to quell the social unrest that results from structural adjustment. Using a sample of Latin American countries from 1998 to 2003, this article analyzes the effects of both the number and type of required conditions on democracy and finds that while the presence of an IMF loan itself does not affect democracy, loan with a high number of required reforms have a deleterious effect on democratic practices. Further, these effects are conditional upon the type of reform required in the loan. This suggests that IMF efforts to consider the political consequences of reforms when negotiating loans have not been entirely successful and that the number and type of conditional requirements should be carefully considered before their inclusion in a loan agreement.