Why cronies don’t cry? IMF programs, Chinese lending, and leader survival

Kern, A., Reinsberg, B. and Shea, P. E. (2023) Why cronies don’t cry? IMF programs, Chinese lending, and leader survival. Public Choice, (doi: 10.1007/s11127-023-01114-4) (Early Online Publication)

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Many countries in the Global South have increased their exposure to Chinese debt in recent years. With the COVID-19 pandemic and the US interest rate hike, many countries have struggled to meet their debt repayment obligations. As a result, they have turned to the International Monetary Fund (IMF) for emergency assistance. We argue that the involvement of the Fund wipes out much of the political benefits of China loans for executive leaders of borrowing countries. IMF conditionality requires countries to increase fiscal transparency, which threatens the viability of kickback schemes and increases the likelihood that corrupt leaders will be called out on their misdealing. As a result, we expect corrupt leaders with China debt to leave office earlier when they try to address debt defaults with IMF loans than when they avoid them. Using survival analysis on a dataset of 115 developing countries between 2000 to 2015, we find that leaders indebted to China that go under an IMF program leave office earlier compared to when they do not go under an IMF program. In line with our argument, this effect is strongest in more corrupt regimes. Our argument and analysis contribute to understanding international finance’s political economy, specifically how mixing creditors can be politically risky for leaders.

Item Type:Articles
Status:Early Online Publication
Glasgow Author(s) Enlighten ID:Shea, Dr Patrick and Reinsberg, Dr Bernhard
Authors: Kern, A., Reinsberg, B., and Shea, P. E.
College/School:College of Social Sciences > School of Social and Political Sciences > Politics
Journal Name:Public Choice
ISSN (Online):1573-7101
Published Online:21 October 2023
Copyright Holders:Copyright © The Author(s) 2023
First Published:First published in Public Choice 2023
Publisher Policy:Reproduced under a Creative Commons license

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