October 21, 2020
Paasha Mahdavi (UCSB), Christina Schneider (UCSD) and Jennifer Tobin (Georgetown)
Abstract
This paper analyzes the politics of coordinated international financial rescues. We argue that the strategies and decisions of official and private creditors to address financial crises in other countries are highly contingent on each other. Other actors’ decisions and actions affect the risk calculus of creditors who want to avoid a default of the crisis country by offering loans but also worry that the loans may not be sufficient to prevent the country’s default (which would increase their losses). The more other creditors are willing to lend or to forgive, the lower are the perceived risks of lending, which unlocks more financing from other creditors. And even though the IMF is not always the central actor with respect to loan size, its unique ability to impose and monitor policy conditionality provides important signals to other creditor groups. We use a stochastic actor-oriented model to analyze how networks of financial rescue strategies co-evolve over time. Our results reject notions of free riding across creditor groups and support our expectations that increases in financial support in one network are strongly related to support in other networks. They highlight that coordination across creditor groups plays a central role in international financial rescues.