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Pressures to Privatize? The IMF, Globalization, and Partisanship in Latin America Author(s): David Doyle Source: Political Research Quarterly, Vol. 65, No. 3 (SEPTEMBER 2012), pp. 572-585 Published by: Sage Publications, Inc. on behalf of the University of Utah Stable URL: https://www.jstor.org/stable/41635256 Accessed: 18-03-2020 15:48 UTC

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Pressures to Privatize? The IMF, Globalization, and Partisanship in Latin America

Political Research Quarterly 65(3) 572-585 © 20 1 2 University of Utah

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David Doyle1

Abstract

Despite pervasive downward pressure on government policy from exogenous forces, the author argues that partisanship still exerts an effect on privatization in Latin America. When a country is indebted to the International Monetary Fund (IMF), and a government of the right is in power, scholars can expect increased levels of privatization. However, when a country is indebted to the IMF and a government of the left is in power, electoral incentives will prompt these governments to ignore IMF pressure and reduce levels of privatization.The author tests this argument on a data set of eighteen Latin American countries, between the years 1 984 and 1 998.

Keywords

comparative politics of developing countries, international political economy

With the failure of import substitution industrialization (ISI) to provide sustained economic growth and stability, all Latin American states, from the 1980s onward, began to adopt market-orientated structural reforms that signifi-

cantly reduced the role of the state in the economy. Priva- tization was a central component of these reforms, and in Latin America we witnessed some of the largest and most aggressive privatization programs. A number of scholars have argued that this trend can be understood primarily with reference to the pressures of the international politi- cal economy. Rising levels of trade integration and capi- tal mobility since the end of the Bretton Woods system in

1971, combined with the increasing leverage of the interna-

tional financial institutions, have significantly constrained the preferences of domestic actors (Przeworski and Wallerstein 1988; Gill and Law 1989; Andrews 1994). In this scenario, national governments respond to the exigencies of the International Monetary Fund (IMF) or hyper-mobile international capital rather than the prefer- ences of the electorate, forcing policy to converge toward a neoliberal end point. As a consequence, the ideology of the governing party is no longer a salient explanation for variation in policy adoption.

However, not all scholars subscribe to the argument that we are witnessing the inevitable death of partisanship. Scholars, concerned with the advanced industrial democ- racies, have suggested that left governments, despite the limitations they face, are consistently able to maintain

social-welfare spending and progressive taxation (Garrett 1998; Allan and Scruggs 2004), defend macroeconomic policy autonomy (Oatley 1999), and resist privatization (Boix 1997; Zohlnhöfer, Obinger, and Wolf 2008).

However, given the weak position of labor and the left in the developing world, the heightened dependence on foreign investment, the vulnerability of primary commod- ity exporters to the vagaries of international trade, and the

significantly increased leverage of the international finan-

cial institutions, it is unclear how applicable these findings are outside of the advanced industrial democracies. There

is, however, a nascent literature focusing on the impact of

international pressures on partisanship in the developing world, and this issue has begun to receive some attention in the Latin American context (see Murillo and Martínez- Gallardo 2007; Kingstone and Young 2009; Murillo 2009; Hart 2010). This growing literature suggests that although international pressures remain prevalent, partisanship does exert an impact on policy. However, this literature also sug- gests that both the substantive nature and means of this impact vary dramatically across policies, indicating there- fore the continued need for policy-specific investigations of

'Dublin City University, Dublin, Ireland

Corresponding Author: David Doyle, Dublin City University, School of Law and Government, Glasnevin, Dublin 9, Ireland

Email: [email protected]

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Doyle

the convergence thesis (Hart 2010, 306). More importantly, there is also a need for studies to explicitly focus on the variables that shape partisan behavior in the developing world. This article contributes to this task by focusing on the interaction of international pressures and partisanship on levels of privatization across Latin America.1 I argue that although the pressures of the IMF and the global economy significantly constrain the preferences of domestic actors, this does not completely obstruct distinct

partisan responses toward state divestiture. Rather, parti- sanship continues to shape policy in Latin America, thus reinforcing the importance of electoral democracy across the region. When a country is indebted to the IMF and a government of the right is in power, we can expect increased

levels of privatization. However, when a country is indebted to the IMF and a government of the left is in power, elec- toral incentives will prompt these governments to reassert

their partisanship, ignore IMF pressure, and reduce the level of privatization. I test this argument on a cross- national, time-series data set of privatization in eighteen Latin American countries, between the years 1984 and 1998. The results of the statistical tests provide strong support for

the central argument. The article is structured as follows. The first section dis-

cusses the convergence thesis, the second section considers recent work on contemporary partisanship, and the third section presents the main argument of the article. The fourth

section presents both the dependent and independent vari- ables and the model utilized to test this argument. The fifth section discusses the results of these estimations, whereas

the final section presents the conclusion and the wider implications of this research.

The Pressure to Converge The pressures of international trade competition and capital mobility, together with the debt crisis of the 1980s and the subsequent advance of market reforms across the developing world, are thought to have significantly con- strained distinct partisan supply-side polices. The coer- cive influence of the international financial institutions

together with the realities of the contemporary global economy have severely limited the policy autonomy of domestic political actors, ineluctably forcing all govern- ments to converge on orthodox neoliberal policies, mani- fest in little regulation and privatization (see Schneider, Fink, and Tenbücken 2005; Henisz, Zelner, and Guillén 2005), reduced social welfare expenditure (see Kaufman and Segura-Ubiergo 2001; Rudra 2002), flexible labor markets, and a shift in the burden of taxation from capital onto labor (see Wibbels and Arce 2003). This argument has become commonly known as the convergence thesis, the efficiency hypothesis (see Garrett 1998), and the race-to-the-bottom thesis (see Drezner 2001).

The increasing importance and mobility of international capital in today's globalized markets have forced states to aggressively compete for these mobile asset holders, and in so doing have significantly constrained the policy options of national governments (Przeworski and Wallerstein 1988; Gill and Law 1989; Andrews 1994). If governments do not adopt policies that reflect the preferences of capital, then mobile asset holders will simply exercise their exit option. The pressures of increasing trade competition compound this effect. Government spending to compensate those affected by the dislocating impacts of trade integration is thought to reduce the competitiveness of a country's exports by distorting prices and wages (Kaufman and Segura-Ubiergo 2001), forcing governments to reduce the size of the public economy in the pursuit of efficiency.

International coercion occurs when the international

financial institutions directly influence the policy choices of national governments (Henisz, Zelner, and Guillén 2005, 872). The IMF, since 1952, has had the right to pursue pol- icy reform in debtor nations, and although it was initially reluctant to employ this power, the 1980s, as a consequence of both the debt crisis and the increasing prominence of monetarist ideas, witnessed a steady and substantial increase in the number of conditionalities attached to loans dis-

bursed by the IMF (Henisz, Zelner, and Guillén 2005, 875). As a result, the influence of the agency on national government policy increased significantly (see Stallings 1992), particularly for developing world countries (Wibbels

and Arce 2003). In the wake of the collapse of ISI, Latin America governments have repeatedly been forced to turn to the IMF and the Word Bank to finance their current

account deficits (Haggard and Maxfield 1996, 214). In return for financing this gap, the IMF imposes conditions on these loans (Vreeland 2003). Consequently, the IMF has had a discernable influence on the decision of govern- ments to liberalize their capital accounts (see Brune and Guisinger 2003, 876), grant independence to the central bank (see Polillo and Guillén 2005), and privatize state assets (see Brune, Garrett, and Kogut 2004; Henisz, Zelner, and Guillén 2005).

For the IMF, the principal rationale for privatization is the

assumption that the private sector will be able to increase the

efficiency of production (Biersteker 1990, 485). In addition, privatization enables states to divest themselves of loss- making and indebted companies, while the proceeds of privatization can be used to pay off existing debts, signal- ing economic stability and orthodoxy (Brune, Garrett, and Kogut 2004). Henisz, Zelner, and Guillén (2005) estab- lished a clear empirical link between international coer- cion and state divestiture. Exposure to multilateral lenders was positively correlated with the likelihood of majority privatization. Brune, Garrett, and Kogut (2004) found strong

evidence to suggest that investors are willing to pay more for privatized assets in countries that are indebted to the

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574 Political Research Quarterly 65(3)

IMF, and thus subject to IMF conditionality. Investors view IMF conditionality as a signal of credible policy reform and are therefore willing to pay a premium for divested state assets.

Consequently, privatization, in addition to currency devaluation, inflation prevention, and the restoration of market mechanisms, became the fourth plinth supporting all World Bank and IMF programs in Latin America (see Biersteker 1990, 484-85). Between 1987 and 1990, priva- tization was only the eighth (of fourteen) most frequent structural condition attached to IMF loans in Latin America.

However, by 1993, it had become the fourth most frequent structural conditionality, and by 1994, privatization, after fiscal sector reform, had become the second most com- mon structural condition associated with IMF loans across

the region. In fact, between 1997 and 1999, 16.5 percent of all IMF conditionalities for Latin America involved

privatization (Independent Evaluation Office of the IMF 2001,26).

Partisanship Under Pressure? As the policies associated with the pressures of the conver- gence thesis reflect the preferences of the political right rather than the preferences of the left (see Biglaiser and Brown 2005), the end result has been a significant con- traction in the policy options available to contemporary left-leaning governments. However, scholarly support for the demise of partisanship is far from unanimous. The voluminous literature on the advanced industrial democ-

racies has long argued that partisanship exerts an impact on policy. Cameron (1978, 1256) and Hicks and Swank (1992, 669-70) contended that the positive effects of trade openness on social spending were directly related to the partisanship of the government in power. More recent analyses indicate that left-leaning governments retain an influence on social-welfare spending (Garrett 1998; Allan and Scruggs 2004), progressive taxation, and macroeco- nomic policy autonomy (Oatley 1999), and even privati- zation (Boix 1997; Bortolotti, Fantini, and Siniscalco 2003; Zohlnhöfer, Obinger, and Wolf 2008).

However, the ability of contemporary partisanship to shape policy outcomes in the developing world is less clear, particularly in Latin America, where a number of market reforms were implemented by traditional populist, labor-based, political parties (see Stokes 2001) and where scholars have long argued that the region lacks program- matic political parties (see Kitschelt 2000). Kingstone and Young (2009) have argued that partisanship in Latin America has no relevance for a wide range of policies, including privatization. Murillo (2009) and Murillo and Martínez-Gallardo (2007) demonstrated that although the ideology of the incumbent had practically no effect on the reform of Latin American public utilities, the relative

ideology of the main opposition did. Similarly, Murillo (2002) contended that although governments across the region were unable to resist the pressures to privatize, the regulatory institutions and selling conditions were shaped by divergent partisan preferences.

However, a growing literature, while recognizing the reality of international constraints, argues that partisan- ship in the developing world still matters, although this varies dramatically across policies (Hart 2010, 306). This research demonstrates that the ideology of the government in power has an effect on levels of expenditure in Latin America (Kaufman and Segura-Ubiergo 2001; Huber et al. 2008), the burden of taxation across the region (Wibbels and Arce 2003), tax revenue (Hart 2010), and levels of labor regulation (Murillo and Schrank 2005). A need for policy-specific research remains (Hart 2010, 306), but more importantly there is a need to elucidate the variables that shape the behavior of partisan governments once in power. The literature has primarily focused on the indepen-

dent effect of partisanship (for exceptions, see Kurtz and Brooks 2008; Pop-Eleches 2009), but as research on the advanced industrial democracies has demonstrated, parti- sanship can also condition the effect of international and domestic pressures on policy.

The IMF, the Left, and Privatization

I argue that although the pressures of the IMF and the global economy significantly constrain the preferences of domestic actors, this does not completely hinder distinct partisan responses toward state divestiture. The ideology of the executive continues to matter for privatization in Latin America, thus reinforcing the importance of electoral

democracy across the region. Latin America, after the debt crisis of the 1980s, witnessed some of the most rapid and widespread liberalizing market reforms. Concurrently, the region experienced one of the most extensive episodes of IMF intervention in recent history (Pop-Eleches 2009, 8). Therefore, the relevance of partisanship in Latin America, in the face of considerable IMF influence, offers a diffi- cult test for critics of the convergence thesis.

When a country is indebted to the IMF, a left govern- ment will be far less willing to adopt policies that appear to favor the prescriptions of the IMF. In this case, left govern-

ments will actually reduce levels of privatization. During balance of payments crises, Latin American governments, irrespective of their ideology, are forced to turn to the IMF

to secure increased access to foreign exchange. In return, to ameliorate the likelihood of such crises reoccurring, the IMF will impose specific conditions on the borrower in return for this loan. Vreeland (2003) has argued that gov- ernments can use these conditions to scapegoat the IMF for highly unpopular economic reforms, which in turn

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Doyle 575

can enable democratic leaders to increase their survival

rates (Smith and Vreeland 2006). I argue however that this is dependent on the ideology of the government in power. For a government of the left, choosing to abide by the con-

ditions attached to an agreement with the IMF will prove extremely deleterious for their electoral prospects and/or survival rates. Consequently, when indebted to the IMF, a left-wing government, because of the incentives they face, will actually reduce levels of privatization.

For a government of the right, the IMF will serve the very useful role of political alibi for much-needed reform (Vreeland 2003). Indeed, governments of the right enter into IMF agreements even when they do not need foreign exchange to utilize IMF conditions to push through their preferred policies (see Vreeland 1999). Witness the agree- ments signed by Luis Alberto Lacalle in Uruguay in 1990 and by Fernando Henrique Cardoso in Brazil in 1998. Therefore, although independently, right governments may have little or no impact on levels of divestiture, when

indebted to the IMF, we can expect right governments, who can utilize the IMF to increase their bargaining lever- age with domestic opponents, to significantly increase privatization.

Governments of the left, however, face different incen-

tives when indebted to the IMF. The IMF is highly unpop- ular in Latin America and is often viewed, particularly by supporters of the left, as little more than a tool of Western

economic imperialism (see Azpiazu and Basualdo 2004). Latinobarómetro surveys indicate that on average, across the region, over 25 percent of the population has a very negative image of the IMF (Latinobarómetro 2001). IMF- driven state divestiture would be highly unpopular among the core support base of the left throughout the region. Privatization by left governments, while indebted to the IMF, may appear as the surrender of national policy auton- omy. In addition, the dislocating impact of privatizations would have deleterious distributive effects for many ele- ments of this core support base, in particular organized labor and unionized state employees. As Kurtz and Brooks (2008, 251) note, "The political left will find it difficult to abandon a strong labor movement, even if this political ally forces comparatively regressive policy choices on it, since it has no viable, organized alternative base of sup- port." Were a government of the left to observe the condi- tions attached to an agreement signed by its predecessor, particularly an unpopular right administration, or to will-

ingly agree to privatization as part of a new agreement, then this could cause widespread discontent among its core support and, potentially, widespread disruption because of the mobilization of these groups. This would severely undermine the popularity of these left governments, thus

drastically reducing their electoral prospects. In fact, it may even reduce their tenure in office.

Indeed, for Arturo Valenzuela (2004, 1 1), in any expla- nation concerned with interrupted Latin American presidencies, "the political costs that came attached to IMF-compliant policies form a prominent theme." For the left, the dangers associated with the observance of IMF programs are evident. When Siles Zuazo returned to office in Bolivia in 1982, he faced massive economic problems, forcing him to turn to the IMF for assistance. However, the conditions set by the IMF roused a fiercely restive labor movement and eventually, after a turbulent year and with his support crumbling, Siles Zuazo agreed to move the presidential elections forward one year, thus cutting short his own mandate (see Valenzuela 2004, 10). Carlos Andrés Pérez, of the left-leaning Acción Democrática, was elected president of Venezuela in 1988, but once in power, Pérez was faced with severe balance-of-trade def- icits and rising inflation. Given this reality, Pérez believed he had no choice but to adopt an IMF-sponsored stabili- zation plan, "the Great Turnaround," which included an aggressive privatization program. However, opposition to privatization and the proposed austerity program was fierce. Spontaneous protests and rioting began with the "Caracazo," in early 1989, and continued for a three-year period that witnessed nearly five thousand protests and strikes. Pérez's popularity crumbled, and his party recorded

an abysmal performance in the 1989 elections, resulting in the legislative party effectively abandoning their president.

Eventually, after two failed military coups in 1992, Pérez was impeached and removed from office six months early (see Pérez-Liñán 2007, 99-103; Silva 2009, 200-218).

Discontent with IMF reforms among the supporters of left-leaning leaders will result in many of these leaders implementing policies that contradict IMF conditions. For example, in Ecuador, Rodrigo Borja of the Partido Izquierda Democrática was initially committed to resist- ing market reforms, but the stark reality of the fiscal situ- ation forced him to seek IMF assistance and continue the

adjustment and privatization program of his predecessor, León Febres Cordero. Labor groups began an organized opposition to this plan and framed the issue as a "war against an IMF-style economic package" (Silva 2009, 155). After repeated protests and strikes, Boija, keenly aware of his diminishing support, rolled back on his plans, and consequently no state enterprises were divested during his tenure.

Other political leaders on the left are clearly cognizant of the dangers of surrendering to the will of the IMF and indeed actively capitalize upon their resistance to the IMF. Alan Garcia, when elected as president of Peru in 1985, reversed his country's previous cooperation with the IMF. In his populist inaugural speech, Garcia equated the demands of the IMF with the relinquishment of his country's sovereignty (Pop-Eleches 2009, 118). Instead,

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576 Political Research Quarterly 65(3)

Figure I . The choices facing governments of the left in Latin America

IMF-sponsored Declining Removed from office, adjustment. ► supporttmrest ► electoral defeat, e.g. Carlos privatization Andrés Pérez, Siles Zuazo

IMF / / Roll-bad: on policies, e.£. Rodrigo Boija

X X Balance of No adjustment

payments crises 00 Peptization potential economic costs, e.g. Alan Garcia

Alternative

funding, e.g. Evo Morales in Bolivia

and to popular approval, he pursed a heterodox stabiliza- tion program, an element of which was a refusal to pursue any privatizations despite the urgings of the IMF.

Likewise, when Néstor Kirchner assumed power in Argentina in 2003, the state was very heavily indebted to the IMF. Privatized utility companies were clamoring for an increase in previously frozen tariffs, but Kirchner, unwilling to countenance an increase in utility costs for the beleaguered working and middle classes, refused (Economist Intelligence Unit 2003, 20; Clarín , July 4, 2003). The IMF insisted, as part of a thirty-six-month stand-by agreement, that the government finish negotia- tions with privatized utilities and allow tariff hikes (IMF 2003). Despite the urgings of the IMF, Kirchner refused to budge, instead becoming embroiled in a lengthy and acrimonious dispute with privatized utilities, which resulted in Kirchner 's decision to nationalize a number of

them, much to the ire of the IMF.

Left-leaning politicians often attempt to boost their popularity by denigrating the IMF, or by establishing pop- ular images of themselves as champions of national sover- eignty willing to stand up to the IMF. For example, in Brazil in December 2005, the government announced it was to repay its entire US$15.5 billion debt to the IMF, and Lula, in a rather triumphal public proclamation of this news, declared, "We want to announce to the world: the time of colonization of this country is finished" ( Gazeta Mercantil , December 21, 2005).

For left governments, therefore, it is far more difficult to

privatize and scapegoat the IMF as other administrations may do, even when in need of the revenue. The potential consequences for their electoral prospects, and/or survival rates, outweigh the benefits to be accrued by privatizing.

This is not to ignore the costs of such action. The refusal to obey IMF loan conditions could undermine the poten- tial to secure credit from the IMF in the future. In addi-

tion, it may send negative signals to international capital markets. Indeed, the legacy left by many of those who have avoided significant reforms for fear of public outcry,

for example, Alan Garcia in Peru and Raúl Alfonsin in Argentina, has been the collapse of national currencies, spi-

raling deficits, and steady inflation (Valenzuela 2004, 12). The short-term time horizon of most politicians, however, ensures that their primary concern is their own immediate popularity and political survival above all else. Figure 1 outlines this argument. Once in power, if faced with severe

balance of payments crises, governments of the left will be forced to turn to the IMF for funding. The left adminis-

tration must then decide whether to abide by the condi- tions in this agreement.2 Only left leaders who can secure alternative sources of funding can avoid the tough deci- sions associated with borrowing from the IMF. For exam- ple, contemporary left-leaning governments in Bolivia, Ecuador, and Argentina have recently found an alterna- tive source of foreign exchange, in the form of the current

Venezuelan government. It is important to note that I do expect international pres-

sures, particularly the coercive influence of the IMF, to prove reliable predictors of privatization in Latin America.

However, I also expect partisanship to shape levels of privatization across the region, but only when reacting to exogenous pressures. Therefore, I hypothesize,

Hypothesis 1: When indebted to the IMF, and when a government of the right is in power, we should observe increased levels of privatization.

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Doyle 577

Hypothesis 2: When indebted to the IMF, and when a government of the left is in power, we should observe decreased levels of privatization.

This argument builds on previous work that has high- lighted the manner in which partisanship interacts with the international environment. Early studies on the advanced industrial democracies uncovered the positive interaction of trade openness and partisanship on social spending (Cameron 1978, 1256; Hicks and Swank 1992, 669-70). Recent work by Kurtz and Brooks (2008) examined the consequences for labor regulation caused by the interac- tion of partisanship and varying levels of unionization, while Pop-Eleches (2009) has demonstrated the manner in which IMF interventions interact with national gov- ernments in Latin America to produce divergent partisan responses toward policy adoption. However, there are a number of alternative explana- tions for privatization in Latin America that we must also consider. Both Murillo (2009) and Murillo and Martínez- Gallardo (2007) have argued that political competition shapes the pace and extent of state divestiture by affect- ing the incentives of the incumbent and his or her chal- lenger to initiate privatization. Other explanations for policy adoption have focused on the constraining effect of political institutions. The new institutionalism litera- ture posits that variables such as the degree of presiden- tial power (Mainwaring and Shugart 1997) and the volume of presidential support in the legislature (Shugart and Carey 1992; Morgenstern and Nacif 2002) explained a government's ability to implement, or alternatively to resist, economic reforms. In a similar vein, veto-player theory highlights the institutional restrictions that politi- cal actors face when pursuing their preferences (Tsebelis 2002).

Finally, when a government is in severe financial dis- tress, the pressure to adopt market reforms such as priva- tization may increase significantly (Haggard and Kaufman 1995; Weyland 2002). Proceeds raised from the divestiture of state assets may be utilized to pay creditors, finance cur-

rent expenditure and reduce deficits, and dampen inflation-

ary pressure (Bortolotti, Fantini, and Siniscalco 2003, 309; Biglaiser and Danis 2002, 91). Reduced levels of external debt will also send signals of credibility to the market, improving a country's credit rating and generating lower interest payments (Biglaiser and Brown 2003, 80).

The Dependent and I ndependent Variables To test the effect of international pressures and partisan- ship on privatization, I estimate an econometric model with a sample of eighteen Latin American states over the period 1984 to 1998.

The dependent variable in this study is privatization revenue as a percentage of GDP in country i at time t. These data are derived from Nancy Brune's Global Privatization Database (Brune 2004) and cover eighteen Latin American countries between the years 1984 to 1998.3 These data document each privatization transaction in the year the government decided to sell the enterprise, thus avoiding issues with stalled privatization programs or the method and timing of payment (Brune and Garrett 2000).4

I contend that the pattern of state divestiture in Latin America can be explained best by the pressures of the international political economy, combined with the inter- action of partisanship. I follow Brune and Garrett (2000) and acknowledge that there may be some lapse in time between the causal determinant and the resulting privatiza- tion, and so all independent variables are lagged one year. As a proxy for the influence of the IMF in Latin America, I measure the volume of loans issued by the IMF to coun- try i at time t, denominated in Special Drawing Rights (SDR), relative to GDP. These data were taken from Breen (2010). The SDR is the IMF's unit of account, and its value is derived from a basket of currencies. This measure has

been employed in other studies concerned with the IMF and provides a far more accurate picture of a state's obliga- tion to the IMF than, say, a simple binary coding capturing whether a state is currently part of an IMF agreement or not (see Copelovitch 20 10).5

I utilize two standard measures of economic globaliza- tion. The first, trade , is the sum of imports plus exports as

a percentage of a country's GDP, logged. These data were taken from the World Development Indicators (World Bank 2010). The second measure, capital , is taken from Chin and Ito's (2008) index of capital account openness. Based on information from the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions , the index reflects the degree of restrictions on cross-bor- der capital movements in a given country and takes on higher values the more open a country is to cross-border financial transactions.

To capture the ideology of the governing administration in country i at time t, I utilize two dummy variables, repre-

senting both left and right. Each executive was awarded an ideological score on a 0-4 scale, where 0 represents a party of the right, 1 center-right, 2 center, 3 center-left, and 4 left.

This coding was provided by Grigore Pop-Eleches (2009) and is based on Coppedge's (1997) expert survey on Latin American party positions, which scores parties on the 0-4 scale above. As the Coppedge coding does not extend beyond 1996 and includes a number of parties that were not awarded an ideological score, Pop-Eleches (2009, 59) coded the missing years and parties with data from Lodola and Queirolo (2005). The Coppedge coding utilizes pre- electoral statements and policy positions, thus reducing the danger that "party ideology scores may be affected by

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578 Political Research Quarterly 65(3)

post-hoc knowledge of policy choices" (Pop-Eleches 2009, 59).6 In doing so, this coding scheme acknowledges that "in a few cases, parties have undeniably and credibly changed blocs," thus allowing for the reality of shifting ide-

ologies in Latin America (Coppedge 1997). So, for example, Fernando Henrique Cardoso in Brazil is classified as center-

left in 1994 and center-right in 1998. Although such a cod- ing system is subjective, expert surveys are particularly well

suited to capturing empirical information on policy posi- tions across states (see Wiesehomeier and Benoit 2009, 1437). Left government , then, takes the value of 1 when the government in power is of the left, that is, all those who scored 3 or 4 on the Coppedge scale. Right govern- ment takes the value of 1 when the government in power is of the right, that is, those who were awarded a 0 or 1 on the Coppedge scale. Left government*IMF is an interaction term between

left government and IMF. Similarly, right government *IMF

is an interaction term between right government and IMF.

In accordance with the central argument of this article, I expect the former interaction term to have a negative effect on levels of privatization in Latin America and the latter to have a positive effect. To test Murillo and Martínez-Gallardo 's (2007) argu-

ment concerning political competition (also see Murillo 2009), I replicate two of the measures utilized in their article. Legislative advantage is the difference in seats between the incumbent's party and the largest opposition party in the legislature as a proportion of the total number

of seats and acts as a proxy for the relative political power of the incumbent and the challenger. These data were taken from the Database of Political Institutions (Beck et al. 2001). The second measure, left opposition , is a dummy variable that takes the value of 1 when the ideol- ogy of the main challenger is to the left of the incumbent (see Murillo and Martínez-Gallardo 2007, 125-26). To examine the role that political institutions play

in shaping levels of privatization, I employ two vari- ables. Executive power , from Doyle (2010), captures the executive's formal constitutional control over legis- lation.7 Executive seat share captures the president's support in the legislature. This variable simply measures the percentage share of seats held by the president's party in the lower house. These data were taken from the Latin American and Caribbean Political Dataset (Huber et al. 2008). Finally, I include a standard set of variables to capture a

country's domestic economic condition. GDP per capita , logged, in constant U.S. dollars (2000), reflects the income level of a state, while inflation and GDP growth reflect short-term macroeconomic conditions. A country's press- ing financial obligations is captured by its capability of servicing its debt, debt service. It is all short-term debt as a percentage of exports of goods, services, and income.

All economic data were taken from the World Development Indicators (World Bank 2010).

The Model

The model utilizes an unbalanced time-series, cross- sectional data set for eighteen Latin American countries, spanning the period 1984 to 1998. To address potential problems of autocorrelation, serial correlation, and het- eroscedasticity, I follow Beck and Katz's (1995) recom- mended procedure and utilize ordinary least squares with panel-corrected standard errors (PCSEs). I also include a lagged dependent variable to deal with temporal depen- dence and correct for serial correlation (Beck 2001). However, Achen (2000) recommends correcting for first- order autoregression to avoid the problems associated with a lagged dependent variable. I estimate and report both models, further lending credence to the results. Country dummies are also included to control for fixed effects. PCSE models tend to produce conservative results, while the inclusion of country dummies may deflate the statistical significance of other regressors, and although there is a risk that some hypotheses may be rejected pre- maturely (Kaufman and Segura-Ubiergo 2001, 566), this approach does increase the strength of any results that do emerge. The basic form of the lagged dependent equation is as follows:

PRIV = ex + bPRIV 1 , + bIMF , + it i 1 it-l , 2 it- , 1 b ^Leftgovernment it 1 + b ^Globalization J + (1) b5EconomicCond.t l -I- b JPolInstitutions J +

bPolCompetition'L.^ 1

In the equation above, a represents country dummies, b is the parameter estimate for the independent variables, and jLt represents the error term.

The Results

The results of both models are reported in Table 1 and Table 2. Table 1 reports the estimations with PCSEs, cor- rected for first-order autoregression. Table 2 reports the estimations with PCSEs with a lagged dependent variable. Model 1 in each table is the basic model with the left gov- ernment variable. Model 2 adds the interaction between

IMF and left government. Model 3 includes the variables for political competition and the political institutional vari-

ables. Model 4 is the basic model again, except with the right government variable. Model 5 includes the interac- tion between right government and IMF, while model 6 adds the political variables.

The results of all the models lend strong support for the central argument of this article. First, the influence of the IMF is clear. In the majority of the models, the coefficient

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Doyle 579

Table I. Prais-Winsten Estimates of Privatization in Latin America

Variables Model I Model 2 Model 3 Model 4 Model 5 Model 6

IMF 4. 1 e+07** 7.6e+07*** 8.9e+07*** 4.le+07** -2.3e+06 207,666

(2.0e+07) (2.9e+07) (3.3e+07) (2.0e+0 7) (l.9e+07) (l.9e+07) Left government -0.2 1 9 -0.00407 0. 1 1 6

(0.366) (0.375) (0.412) Left government*! M F -8.5e+07** -9.6e+07**

(3.4e+07) (3.9e+07) Right government 0.124 -0.0675 -0.262

(0.244) (0.255) (0.297) Right government*! M F 8.2e+07** 9.2e+07**

(3.7e+07) (4.0e+07) Inflation -0.0541 -0.0598 0.00475 -0.0450 -0.0492 -0.000769

(0.126) (0.126) (0.119) (0.124) (0.124) (0.122) GDP growth 0.0263 0.0179 0.0114 0.0260 0.0161 0.0112

(0.0251) (0.0246) (0.0251) (0.0254) (0.0254) (0.0254) GDP per capita 0.127 0.116 -0.539 0.171 0.101 -0.694

(1.458) (1.465) (1.449) (1.509) (1.532) (1.590) Debt service -0.00536 -0.00868 -0.0103 -0.00492 -0.00917 -0.01 1 1

(0.0104) (0.0108) (0.0106) (0.0105) (0.01 10) (0.0113) Trade 0.378 0.164 -0.271 0.340 0.125 -0.228

(0.643) (0.636) (0.640) (0.640) (0.635) (0.647) Capital openness 0.125 0.134 0.268* 0.139 0.153 0.281*

(0.140) (0.140) (0.151) (0.130) (0.130) (0.150) Legislative advantage - 1 .747* - 1 .530*

(0.931) (0.869) Left opposition 0.235 0.323

(0.293) (0.356) Executive power 3.719 3.519

(2.357) (2.478) Executive seat share 1 .977** 1 .8 1 7*

(0.988) (0.965) Observations 218 218 202 218 218 202

R 2 .115 .133 .207 .117 .134 .197

Panel-corrected standard errors are in parentheses. Estimated with country fixed effects. *p < . I . **p < .05. ***p <.01.

for the IMF variable is positive and statistically signifi- cant at the .05 level or better. Substantively, the effects are large. A move from the tenth to the ninetieth percen- tile in the volume of SDRs issued as a percentage of GDP results in a 0.4 percent increase in privatization proceeds as a percentage of GDP. A move from the tenth to the ninety-fifth percentile in the volume of SDRs results in a 1 percent increase in privatization proceeds. Given that the mean rate of privatization for the sample was 0.45 percent of GDP, these effects are very large. Clearly, international coercion, in the form of the IMF, has had a

significant impact on the divestiture of state assets across Latin America.8

However, despite the international pressure that Latin American states experienced to privatize, this did not restrict the effect of partisanship across the region. While

neither left government nor right government had any independent effect upon levels of state divestiture, as hypothesized, partisanship does moderate the impact of international pressures.9 When a left-wing government is in power and indebted to the IMF, this will trigger diver- gent partisan responses. This is exactly what we witness in all of the models where the left government* IMF inter- action term is present. In all the models, the coefficient for the interaction term is negatively signed and statisti- cally significant at the .05 level or better. Again, the sub- stantive effects are notable. A move from the tenth to the

ninetieth percentile in the volume of SDRs issued as a percentage of GDP, when a left-wing government is in power, will result in a 0.1 percent reduction in privatiza- tion proceeds as a percentage of GDP. A shift to the ninety- fifth percentile will result in a reduction of 0.2 percent.10

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580 Political Research Quarterly 65(3)

Table 2. Panel-Corrected Standard Errors with Lagged Dependent Variable Estimates of Privatization in Latin America

Variables Model I Model 2 Model 3 Model 4 Model 5 Model 6

IMF 5. 1 e+07** 8.4e+07** 9.3e+07*** 5.2e+07** l.4e+06 424,933

(2.5e+07) (3.3e+07) (3.5e+07) (2.4e+07) (2.7e+07) (2.7e+07) Left government -0.104 0.0908 0.0864

(0.352) (0.347) (0.406) Left government*! M F -9. 1 e+07** - 1 .0e+08**

(4.2e+07) (4.6e+07) Right government 0.0358 -0.123 -0.223

(0.230) (0.234) (0.289) Right government*! M F 8.4e+07* 9.4e+07**

(4.3e+07) (4.6e+07) Inflation -0.0445 -0.0491 -0.00456 -0.0405 -0.0436 -0.00168

(0.120) (0.115) (0.124) (0.117) (0.114) (0.124) GDP growth 0.0112 0.000952 -0.00501 0.0118 0.00199 -0.00275

(0.0272) (0.0276) (0.0279) (0.0271) (0.0279) (0.0285) GDP per capita 0.419 0.324 -0.237 0.414 0.283 -0.355

(1.289) (1.256) (1.422) (1.349) (1.355) (1.551) Debt service -0.00645 -0.00921 -0.0106 -0.00630 -0.00951 -0.0112

(0.0109) (0.0112) (0.0117) (0.01 1 1) (0.0115) (0.0122) Trade -0.0872 -0.0791 -0.493 -0.0985 -0.0698 -0.487

(0.668) (0.640) (0.708) (0.663) (0.641) (0.719) Capital openness 0. 1 56 0. 1 60 0.279* 0. 1 65 0. 1 66 0.294*

(0.143) (0.140) (0.159) (0.133) (0.129) (0.156) Legislative advantage -2.030* - 1 .9 1 7**

(0.991) (0.929) Left opposition 0.242 0.32 1

(0.300) (0.351) Executive power 3.593 3.462

(2.643) (2.704) Executive seat share 2.050** 1 .974**

(1.000) (0.970) Lagged dependent variable 0. 1 24 0. 1 29 0.0403 0. 1 25 0. 1 34 0.0503

(0.149) (0.146) (0.154) (0.149) (0.147) (0.155) Constant -1.507 -0.967 2.448 -1.523 -0.636 3.677

(8.971) (8.774) (12.69) (9.411) (9.448) (13.76) Observations 211 211 195 211 211 195

R2 .159 .181 .225 .159 .178 .221

Panel-corrected standard errors are in parentheses. Estimated with country fixed effects. *p < . I . **p < .05. ***p < .01 .

Given the sample mean of 0.45 percent of GDP, this effect is very substantial. In real terms, based on the mean annual level of GDP for the sample, 0.2 percent is equiv- alent to a reduction in privatization proceeds of nearly US$180,000,000. In addition, the right government*IMF interaction term

is positively signed and statistically significant in every model in which it is included. The substantive effect of this

relationship is very large indeed. A move from the tenth to the ninetieth percentile in the volume of SDRs issued when a government of the right is in power results in an increase in privatization proceeds of nearly 0.8 percent of

GDP. In real terms, this is equivalent to an increase in privatization proceeds of nearly US$790,000,000. Clearly, right governments utilize the IMF to increase their bar- gaining leverage with domestic opponents to significantly increase privatization.11 The IMF is not the only exogenous force to have

placed downward pressure on Latin American states to privatize. Although the sign for trade changes signs and never reaches levels of statistical significance, capital is signed in the expected direction, and reaches levels of sig- nificance at the .1 level in models 3 and 6 of both estima-

tions. The effect of capital is substantive. A shift from the

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Doyle

tenth to the fiftieth percentile in levels of capital openness results in increased privatization revenue of 0.5 percent of GDP, a very large effect given the sample mean of 0.45 percent. We do not witness similar results for the other hypoth-

eses. The economic variables failed to reach levels of sta-

tistical significance in any of the models. Interestingly, the results suggest that privatization is more likely to occur in states with low levels of debt servicing requirements and higher levels of GDP growth (see also Brune and Garrett 2000; Biglaiser and Danis 2002). Neither estimation sup- ports the political competition hypothesis, at least according to these measurements and specifications.12 Left opposition fails to reach levels of statistical significance, while legisla-

tive advantage is negatively signed and just barely reaches levels of significance at the .1 level, although it is statisti- cally significant at the .05 level in model 6 of the lagged dependent variable (LDV) LDV estimation.

Finally, although executive power is positively signed, it fails to reach levels of statistical significance. The results for executive seat share, however, are positively signed and statistically significant. The more constrained an exec- utive is in the legislature, the more difficult it is for him or

her to adopt certain policies, particularly contentious poli- cies such as privatization. A shift from the tenth to the fif-

tieth percentile in the level of seats held by the executive's

party in the lower house amounts to an increase in priva- tization proceeds of 0.8 percent of GDP.

To test the robustness of these results, I also estimated

a number of alternative specifications. First, given that scholars have noted that selection into IMF programs is not random (see Vreeland 2003), I reestimated the model using a Heckman selection model.13 The results not only suggest that selection bias is not an issue but also confirm the core findings. Left government* IMF was signed in the expected direction and statistically significant in the outcome stage of the model, as was right government* IMF. Second, I reestimated all of the models with an alternative

measure of the dependent variable based on the privatiza- tion index developed by Morley, Machado, and Pettinato (1999). Once again, the general argument of the article was confirmed. The interaction terms remained signed in the expected direction and reached levels of statistical significance in the majority of the models.

Third, I reestimated the models with alternative mea- sures for the IMF variable. Debt to the IMF was captured by IMF SDRs as a percentage of the total quota for coun- try i at time t (see Copelovitch 2010). As an alternative measure of IMF influence, I also included all outstanding obligations to the IMF as a percentage of GDP and a sim- ple binary coding for the IMF variable. With these alter- native measures, the interaction terms remained signed in the expected direction in all of the models and proved statistically significant in a number of them.

Fourth, to test the stability of the results, I performed a

modified jackknife, and I also reran all the estimations while dropping one country at a time. Left government* IMF

remained signed in the expected direction and statistically significant in every model at the .05 level or better, barring the model without Peru, where the interaction term was significant at the . 1 level. In addition, to account for miss- ing values within the data matrix, I utilized the Amelia II program to multiply impute any missing observations within the panel (see Honaker, King, and Blackwell 2007). I reestimated all the models utilizing ten multiply imputed data sets. The results held.

Next, I substituted my measure of ideology for that of Kaufman and Segura-Ubiergo (2001, 563), where presi- dents are coded 1 if they had historical links with labor unions and 0 otherwise. The interaction term between

labor governments and the IMF was negatively signed and statistically significant at the .1 level. In addition, I also substituted my measure of ideology (correlation = .7926) for the recent expert survey data of Wiesehomeier and Benoit (2009), where executives and parties are coded on a 1 {right) to 20 {left) scale. Although the number of obser- vations proved very small, the marginal effects supported the argument.

Finally, I also tested for any potential multicollinearity. However, the variance inflation factors and tolerance values clearly indicated that multicollinearity was not a problem in any of models. I also controlled for the num- ber of privatization transactions in country i at time t and the size of the budget deficit, and in addition I included a control variable representing the initial size of the state- owned sector from the Economic Freedom of the World

Report (Gwartney and Lawson 2008). The results remained the same.

Discussion and Conclusion

A central component of market reforms in Latin America,

following the failure of ISI, was the reduction of the state's productive role in the economy, primarily achieved through the divestiture of state assets. Beginning with the Pinochet government in Chile, privatization soon spread throughout Latin America, and a number of these priva- tization programs were initiated by populist, labor-based political parties, a trend that appeared to lend credence to the arguments of the convergence theorists. These schol- ars contend that the pressures of the international political

economy are forcing national governments to converge on neoliberal policies, significantly limiting the poten- tial for distinct partisan alternatives. The ideology of the governing political party therefore is no longer relevant for policy.

Building on work that emphasizes the interaction of partisanship and the international political economy

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582 Political Research Quarterly 65(3)

(see Hicks and Swank 1992; Pop-Eleches 2009), I argue that partisanship is far from meaningless in Latin America. Granted, the influence of the IMF and the reliance of Latin American states on foreign capital and the export of primary commodities have limited the preferences of domestic actors. Nonetheless, this situation has not com-

pletely removed the efficacy of partisanship. In general, left governments were unable to resist the spread of market

reform and privatization across the region. However, when reacting to international pressures, left governments did have an effect on privatization. When a country is indebted to the IMF, and a government of the left is in power, elec- toral incentives will prompt these governments to reassert their partisanship, ignore IMF pressure, and reduce the level

of privatization. Conversely, governments of the right will utilize the IMF as a political ally in processes of state divestiture, and a right government under IMF debt will significantly increase levels of privatization. I tested this argument on a cross-national, time-series data set of priva- tization in eighteen Latin American countries, between the years 1984 and 1998. The results of the statistical tests demonstrate that the

pressures of the international political economy have had a large impact on privatization proceeds across Latin America. A shift from the tenth to the ninetieth percentile

in levels of IMF debt will result in an increase in privatiza- tion proceeds that nearly equates to the annual mean level of privatization across the region. A similar shift in levels

of capital openness results in an increase in privatization that is nearly double the sample mean. Clearly, both the IMF

and the mobility of capital placed significant downward pressure on Latin American states to privatize. However, this did not restrict partisanship across the

region. The results also clearly show that left governments

will react to international pressures to produce divergent and often unexpected partisan responses. Although left governments have no independent effect on privatization, when indebted to the IMF, a left government will reassert its partisanship and will actually reduce the level of priva-

tization. Alternatively, when indebted to the IMF, a right government will substantially increase privatization. These findings raise a number of very interesting points.

First, they may help to explain partisanship and policy outcomes in other developing regions, in particular those regions that have experienced similar IMF interventions together with upheavals in political and economic develop- ment, such as the postcommunist transition states of Eastern

Europe and those worst affected by the East Asian crisis. In addition, although this study is concerned solely with privatization, this argument could be extended to other policy areas, notably social spending, labor regulation, and taxation, which also generate distinct partisan incen- tives and which have also been subject to IMF structural conditions.

These results also suggest that we need to refrain from

treating the international economy and partisanship as separate entities. Clearly, policy making does not occur in a vacuum but rather in a complicated environment where the international economy and partisanship interact and respond to one another. Furthermore, we cannot under- stand partisanship only through the traditional lenses as applied to the advanced industrial democracies (see Hibbs 1977). Political parties in the developing world face incentives generated by variables, such as IMF pres- sure, that are not a factor in the political economies of the advanced industrial democracies. By focusing on such variables, we will be able to contribute to the well-

established Organisation for Economic Co-operation and Development literature and to an understanding of parti- sanship in the international political economy more gen- erally. This article also suggests that we need to consider more innovatively how partisanship, even in this global- ized era, may affect policy. Can partisanship moderate the pressures of the international environment in other policy areas, and how does this causal mechanism oper- ate? If partisanship cannot resist convergence, then does it shape policy in a subtler manner? However, these remain questions for future research.

Acknowledgments

The author would like to thank Grigore Pop-Eleches, Nancy

Brune, and Michael Breen for very graciously agreeing to share their data. The author would also like to thank Michael Breen

for useful comments and suggestions. The data utilized in this

article, together with the replication files and the supplementary

materials file, can be found at http://www.dcu.ie/~doyled/Site/ Home.html.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interests with

respect to the authorship and/or publication of this article.

Financial Disclosure/Funding

The author(s) received no financial support for the research and/or authorship of this article.

Notes

1 . Privatization remains a divisive political issue across the region, and the recent electoral success of the left has

reignited debates over state ownership (see Chavez 2007).

However, quantitative analyses of the determinants of privatization remain rare (see Boix 1997; Brune and Garrett 2000; Schneider, Fink, and Tenbücken 2005).

2. A left government may also inherit an agreement signed by

a predecessor. They are still faced with similar decisions,

but this could raise some concerns regarding the causal role of debt and the election of leftists. I reestimated all models

with controls for the previous volume of IMF agreements

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Doyle 583

and the total level of debt. I also estimate a Heckman model

that controls for the adoption of IMF programs. The results remained the same.

3. The eighteen countries are Argentina, Bolivia, Brazil, Chile,

Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama,

Paraguay, Peru, Uruguay, and Venezuela.

4. See Table L in the appendix, available at http://www.dcu

.ie/~doyled/Site/Research.html, for the mean, variance, and

range of privatization for each country in the sample.

5. I reran all estimations with a simple binary coding for the

IMF variable. The interaction terms were signed in the

expected direction and reachéd statistical significance in a

number of estimations, but the results did not prove as strong.

6. As Pop-Eleches (2009, 59) notes, the one instance where this

may not have occurred is the scoring of the Partido Justi-

cialista (PJ) as center-right between 1989 and 1991. As a robustness test, I rescored the PJ as center-left between this

period and reran all estimations. The results remained the same.

7. The executive's veto and decree power, right to initiate

legislation and call a referendum, and control over cabinet formation and dismissal were coded, normalized, added

together, and then divided by the total number of preroga-

tives to provide a score for executive power, for each state,

for each year in question (see Doyle 2010).

8. The relatively low R2 can be explained by the nature of the

dependent variable, privatization proceeds as a percentage

of GDP, which is in essence a change variable (see Brune

and Garrett 2000, 16).

9. It is possible that the lack of an independent effect for left-

leaning governments is the result of the inability of the

dependent variable to distinguish between nationalizations

and years where no privatizations occurred.

10. The tenth percentile effectively represents no debt at all to

the IMF. Consequently, fourteen countries in the sample

have moved at some stage from the tenth to the ninetieth

percentile in terms of IMF Special Drawing Rights, with a

small number witnessing such a shift more than once.

11. In addition, I reestimated all models utilizing the 0- to 4-point ideology variable. The results held.

12. One possible explanation for this could be the fact that these studies were concerned with explaining the adoption

of privatization and regulatory law, as opposed to variation

in levels of privatization. 13. The results of all the robustness tests can be found in the

supplementary materials file.

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