The impact of external economic factors: The role of the IMF

In the literature there seems a certain consensus that the international dimension played an important role in influencing the choices of Central-East European countries (CEECs) and most of the New Independent States of the former Soviet Union (NIS) in introducing democracy and market-oriented economies. The aim of the chapter is to examine how certain external economic influences affected democratic consolidation and the introduction of market forces in the post-communist countries. The analysis concentrates on the role played by external economic actors, taking as a case study the IMF. At times the IMF was accused of undermining the sovereignty and political legitimacy of beneficiary countries. These countries are said to have little choice but to accept the unpopular measures forced upon them by the IMF. It is true that at times when the external situation of a country deteriorated rapidly, with balance of payments disequilibrium, loss of reserves and, in some cases, difficulty in servicing foreign debt, transition countries were heavily dependent on the IMF for assistance (in particular, because of the application of cross-conditionality by other international organisations such as the EU). However, over time the bargaining power of the recipient country appears to have played an important role, and all the transition countries proved unwilling or unable to protract the application of austerity measures for more than a year or two. Given the claims of mistaken policies, undue interference and lack of transparency against the IMF on the one hand, and the increasing volatility of the international financial system on the other, the debate about reform of the international financial architecture acquired a new urgency. In the case of Europe one of the main reforms proposed, i.e. an increased role for regional integration blocs, has de facto already been implemented. At least in the countries, which have applied for membership, the EU is the main external actor, and applies a more far-reaching and stringent economic and political conditionality than was ever the case for the IMF.