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Normative Change from Within: The International Monetary Fund’s Approach to Capital Account Liberalization

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Author's Note: Earlier versions of this paper were presented at the Annual Meeting of the International Studies Association, Chicago, IL, 28 February to 3 March 2007, and the Political Economy Workshop, Centre d’Études et de Recherches Internationales (Center for International Studies and Research, CERI), Institut d’Études Politiques de Paris, Sciences Po, Paris, 19 March 2007. The author is grateful for helpful comments on earlier drafts provided by Rawi Abdelal, Kirsten Ainley, Jacqueline Best, Stuart Brown, Barry Buzan, Ben Clift, Benjamin J. Cohen, Mark Duckenfield, Emiliano Grossman, Eric Helleiner, Kimberly Hutchings, Nicolas Jabko, Simon Johnson, Daphne Josselin, Robert Kissack, Mathias Koenig-Archibugi, Ralf Leiteritz, Bessma Momani, J. David Richardson, Uli Sedelmeier, Ken Shadlen, Michael Tierney, Robert Wade, Andrew Walter, Catherine Weaver, and Cornelia Woll. This research was greatly facilitated by an appointment as a Visiting Scholar in the Research Department of the International Monetary Fund in the summer of 2005. Research support provided by the Department of Political Science at Syracuse University is also acknowledged.

Abstract

Beginning in the mid-1980s, in the absence of active encouragement from the IMF’s management or member states, the staff began to encourage the liberalization of capital controls as a norm. This behavior constitutes a puzzle for the conventional wisdom, which sees the “Wall Street-Treasury Complex” as responsible for the IMF’s approach, as well as a blind spot for rationalist approaches, which offer little insight into processes that shape preference formation “from within” international organizations (IOs). In a context where the Fund’s member states permitted the staff considerable discretion and autonomy, I argue the staff’s initial adoption of the norm of capital freedom was largely shaped by three internal processes: administrative recruitment, adaptation, and learning. But norm adoption did not mean the end of internal discussion, and a vigorous debate emerged between “gradualists” and supporters of the “big bang” over how the norm should be interpreted and applied. In this “battle of ideas,” I emphasize the critical role of internal entrepreneurship.

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