Public Opinion in Global Finance: The International Monetary Fund and Government Popularity*
Does public opinion matter in global finance? This book systematically studies how domestic public support for a government influences its interactions with key global financial actors. It argues that government popularity affects the government's credibility during IMF programs and shows how both IMF officials and private international investors adjust their behavior based on a government's approval ratings. Although the public lacks direct agency in global finance, the book highlights the crucial role it plays in shaping a government's relations with global financial actors
※ Book conference was held in April 2024 in New York with Professors Layna Mosley
(Princeton), Jon Pevehouse (U Wisconsin - Madison), Dennis Quinn (Georgetown),
Peter Rosendorff (NYU), and Christina Schneider (UC - San Diego).
Global finance is thought to be a place for high politics and technocratic elites. Mass public is often thought to be outside the web of global financial actors that manage economic crisis. However, the mass public almost always bears the largest burden of structural adjustment during economic crises. Public witnesses their assets losing value upon currency devaluation, unemployment rates hiking up after labor market liberalization, and pension and subsidies being cut upon fiscal austerity. Public reaction is fierce: they get furious and may even stop proposed reforms altogether. Is there room for public influence in global finance?
This book investigates whether and how varying levels of public backing shape governments' interactions with key actors in global finance. Specifically, it focuses on decisions made by the International Monetary Fund (IMF) and international investors during economic crisis. By doing so, it underscores the pivotal role of public opinion in global finance. Unlike many works that examine public opinion as an outcome variable, this book, thus, uses public opinion as a key explanatory variable.
In this book, I argue that public opinion sends information about a government's political capital, which is a key component to evaluate the likelihood of successful reforms. Strong public backing behind a government informs the IMF and international investors that the government has both the willingness and capacity to undertake necessary reforms. Thus, high government popularity strengthens the government's credibility, shaping positive reactions from the IMF and international investors. I demonstrate that more popular governments receive more lenient IMF programs. Moreover, they trigger more favorable reaction from international investors throughout their IMF programs. In short, public opinion, an often-overlooked factor, plays a critical role in shaping responses from global financial actors.
To test my argument, I use a combination of quantitative and qualitative methods. I have built a novel and comprehensive government popularity dataset by assembling various global, regional, and country-specific polls that cover 52 emerging market economies for 1991-2017. Figure 1 sketches the average development of government popularity before, during, and after IMF programs.
Figure 1. Average Development of Government Popularity Before, During, and After IMF Participation.
Using the original dataset on government popularity, the book demonstrates that the terms of IMF programs vary based on a borrower's popularity. More popular borrowing governments receive more lenient IMF programs: they get larger IMF loans with fewer conditions (Figure 2)
Figure 2. IMF Programs and a Borrowing Government's Popularity
Furthermore, more popular borrowing governments experience more favorable reactions from international portfolio investors: risk premiums demanded by investors decrease as governments are more popular (Figure 3).
Figure 3. Marginal effect of IMF programs on a borrowing government's sovereign bond spreads across government popularity
In addition to the statistical analyses, the book presents in-depth case studies on several economic crises in Greece, Ireland, Sri Lanka, and Pakistan.
In the era of heightened politicization of globalization and increasing role of public opinion in shaping global economy, it is important to understand whether and how public opinion affects global finance.
This book demonstrates that public opinion can either facilitate or impair global financial coordination during economic crisis. It elaborates why and under what conditions, key decision makers in global finance - IMF officials and private portfolio international investors - read and utilize public opinion in their decision making. Although the public doesn't have agency in global finance, this book highlights a key role it plays in shaping government’s relations with global financial actors.