Kenneth Faulve-Montojo provides a lucid and insightful narrative of the tough and gruelling negotiations between the International Monetary Fund (IMF) and the Government of the Philippines (GOP) under the Marcos, Aquino, and Ramos administrations on reforming two critical postwar Philippine economic policies. In the 1980s the government established a petroleum price support system, known as the Oil Price Stabilization Fund (OPSF) to address distributive goals, but over the years it proved to be very costly to maintain. The government's import policies favoured import-substituting domestic producers, but those policies led to the unintended consequence of a weak and inefficient sector subsisting only because of protection provided by high tariff and non-tariff barriers.
The OPSF and the import policies weighed down economic growth and soon huge fiscal deficits and balance of payments problems arose, forcing the GOP to seek IMF assistance to ‘resolve its macroeconomic imbalances’ (p. 1). The government eventually dismantled OPSF and pursued import liberalisation in exchange for much-needed financing from the IMF and commercial sources. The reform policies were preconditions for five economic programmes (1984, 1986, 1989, 1991 and 1994) designed to address stabilisation and structural adjustment objectives. But what determined these outcomes, the reform policies and the accompanying economic programmes? Faulve-Montojo argues that ‘the key toward determining the outcome is conditioned on the negotiation process’ (p. 2).
Faulve-Montojo uses his account of the GOP-IMF negotiations spanning 1984 to 1994 as a case study to develop a mid-range theory of negotiation. He believes that such a case study is a ‘viable approach toward theory building’ (p. 285). His tightly woven but nuanced study shines a bright light on the process of bargaining, the goals and behaviour of different players, including veto players, under a principal-agent framework, and the causal mechanisms or strategies that can deliver expected outcomes. His point of departure in setting elements of a mid-range theory of negotiation is the seminal work of Robert D. Putnam (‘Diplomacy and domestic politics: The logic of two-level games’, International Organization 42, 3 [1988]: 427–60) describing ‘international negotiations as a two-level game involving “a negotiator who must deal simultaneously with counterparts from other nations referred to as international Level I” and domestic constituency within his nation, referred to as domestic Level II’ (p. 8). His insights from Putnam's model and its subsequent improvements by other authors finds a concrete application in the GOP-IMF negotiation process. The clever utilisation of a case study for establishing a mid-range theory of negotiation explains the intuitive appeal of the book.
The IMF and the GOP enter into conditionality negotiations prior to the designation of an appropriate economic programme. In exchange for financial assistance, the GOP has to alter policies that cause macroeconomic imbalances and adopt growth-enhancing policies. A problematical part of such negotiations is securing approval of the negotiated terms and conditions from the principal (head of government or the IMF executive board, Level I) and support by domestic constituencies (Level II) as well as managing political economy implications to vested interest groups. In other words, the recipient country needs to gain domestic ratification of the international agreement with the least possible resistance by veto players.
Vested interests are private and public veto players who must be wooed to support reform policies. Chief negotiators from either side deploy different strategies such as deference to individuals who have the ear of key decision-makers (for example, the head of government) or invoking international commitments to reform as a mechanism to generate support for reform policies. Often, side-payments to recalcitrant veto players are used to reduce resistance to reforms; defections from the negotiating table due to adamant objections to necessary reforms could derail an economic programme.
Faulve-Montojo convincingly demonstrates that the outcome is conditioned on the ‘process of bargaining with various private and public veto players’ (p. 2) and a deft deployment of appropriate negotiation strategies that has resulted in the agreements and formulation of five economic programmes. Negotiation is never an easy process, but the more arduous task is the implementation of reform policies. Indeed ‘acceptance of the policy is easy; implementation is hard’ (p. 2) is a terse yet telling description of what lies ahead for governments after securing an IMF economic programme.
This is a must-read book for policymakers and observers of the politics and economics of IMF-recipient countries and their negotiations over reforms. It is an erudite but accessible piece of scholarship and it certainly deserves a prominent place along similar works in the field of international economic relations, political economy and behavioural economics.
