Hassoun on the Coerciveness of Loan Conditionality

One of the main functions of both the IMF and the World Bank is to lend money to developing countries.  The IMF lends money to countries specifically for addressing balance of payment problems while the World Bank lends money to countries more generally for economic development.  Typically, disbursement of money is contingent on implementing specific economic policies that are meant to address the economic problems that initiated the country’s request for a loan.  And, typically, conditions have tended to include privatization and liberalization of the economy.

In her recent book, Globalization and Global Justice (CUP, 2012), Nicole Hassoun presents an account of what is wrong with loan conditionality.  She writes

many countries’ participation in international institutions is not voluntary . . .  Countries often pay significant penalties if they do not abide by . . . . WB or IMF rules.  Sometimes these countries do not have other decent options and, so, are not free to resist these organization’s conditions.  Highly indebted poor countries facing default, for instance, may have to abide by IMF conditionality.  The consequences of refusing to do so can be devastating (Hassoun, 2012, p. 73).

Highly indebted countries are in significant need of loans.  Without loans many individuals within such countries would go hungry, for example.  Hassoun claims that loan conditionality is problematic because highly indebted states are in need of a loan and they have no “options but to abide by international institutions’ rules” (Hassoun, 2012, p. 74).  This means they are coerced into accepting loan conditions, since, on her view, coercion occurs when there exists no option but to comply with a set of demands or rules.

While Hassoun does not give a detailed explanation as to why she thinks that borrowing states have no other options available to them but to borrow from the IMF and World Bank, an argument can easily be given.

Contrast private borrowing with international borrowing.  If a private individual is in need of a loan, she has opportunities to borrow from a variety of different sources.  She can apply to different banks, seek investments from the private sector, borrow money from family members and friends, or take up an extra job and attempt to save the extra income.  The international sphere is not like this.  If a country is in need of a loan, it does not have options outside of borrowing from the IMF and World Bank.  The kind of borrowing options that exist at the local private level simply do not exist at the international level.  This is because the IMF and the World Bank are “lenders of last resort.”  They lend money to countries when no one else will.  Moreover, the IMF and the World Bank are essentially the same institutions in the sense that they coordinate all of their actions.  A country cannot receive a loan from one without receiving approval from the other.  Furthermore, if they choose not to lend to a country, then no one else will do so either.  Approval from the IMF and the World Bank is the gold standard of international finance; it guarantees loans from other private investors.  So, if the IMF and the World Bank decide that a certain country is not worthy of a loan (say, because it has a bad credit rating), then other lenders such as private banks or investors are unlikely to give that country a loan.  In short, if a highly indebted state is in need of a loan, outside of borrowing from the IMF and World Bank, there are no other realistic options to pursue. So, Hassoun seems right in her claim: borrowing countries and the individuals within them have no option but to accept the conditions that the IMF and the Bank place on their loans, if they hope to secure a loan.  If Hassoun is right and coercion occurs when there exists no option but to comply with a set of demands or rules, then the IMF and World Bank’s loan conditionality is coercive.

Hassoun’s account of coercion, though accepted by many, is not ultimately compelling.  Hassoun argues that if X consents to rule R being imposed on her by Y but X has no other options available to her, then X’s consent is coerced by Y (see Hassoun, 2012, p. 73-75).  It is not clear to me, even if these conditions are met, that X’s consent is coerced rather than genuine.

Imagine that Aalok lives on the streets of Kolkata and is starving.  For a variety of reasons, Aalok has decided that he will convert to Catholicism as soon as the opportunity presents itself.  Unfortunately, due to food shortage, all but one of the local charities is closed.  Aalok happens to walk by this charity, the Mother House of the Missionaries of Charity.  Mother Teresa is standing at the door and states, “I will feed you on the condition that you convert to Catholicism.”  Aalok consents.

In this case, Aalok has no option but to accept Mother Teresa’s conditions.  He is in need of food.  There is nowhere else to go for help.  Yet, I would argue, Aalok’s consent to the conversion is not coerced.  Aalok consents to Mother Teresa’s offer in a way that is consistent with and expressive of his genuine (or authentic) and rational commitments and aims.  He is autonomous in Hassoun’s sense: he consents in a way that is expressive of his ability “to reason about, make, and carry out  significant plans” on the basis of his “commitments” (see Hassoun, 2012, p. 26).

Similar things could be argued, at least in principle, about loan conditionality.  A country’s consent to certain conditions, say, to privatization of the water industry, may not be coerced.  If a country, such as India was already planning to privatize its water industry and then consents to an IMF loan on the condition of privatizing its water industry, it would not be coerced into accepting such conditions.

In short, establishing that someone has a lack of alternative options is not sufficient to establish that her consent is coerced.  If this conclusion is correct, then, even if there are no other options available to borrowing countries, these countries may not be coerced by the IMF and World Bank into accepting loan conditions.  Hassoun has not convincingly established that the IMF and World Bank coerce borrowing countries.

This discussion also suggests that an alternative account of coercion is needed.  A plausible account of coercion must take into consideration both the motivations (the rational plans and commitments) of Aalok, in the case of Mother Teresa, and of those within developing countries’, in the case of the IMF and World Bank.  Without such an account we cannot determine whether either are being genuinely coerced or not.

12 responses

  1. Great post Meena! I don’t actually think, however, that the fact that a putative coercee would have done X anyway suffices to establish that they were not, in fact, coerced. If a homeless person threatens me at knife point unless I hand over all my cash, I think they attempt to coerce me even if I was about to hand them that money before they pulled the knife. (I’m both susceptible to an account of coercion with a moralized baseline, whereby one is coerced where one is left worse off than one ought to be, and the view that being worse off in terms of rights/privileges—in this case the power to withhold that money—ought to count as well as being worse off in terms of welfare.)

    However, I agree that saying that the IMF is coercive fits oddly with ordinary language and might cause us to conflate discreet problems. The fact that the IMF is the only place to go for loans of that kind (rendering it a “monopolist” for that good) means that it is in the position to dictate terms (albeit within some range) to countries looking for loans. (Frank Lovett, in formalising Philip Pettit’s work, says that this is the essence of domination.) But the IMF can dictate terms without coercing. For one thing, when countries accept those terms they make themselves better off. I don’t know how this could be coercion on a non-moralized baseline. For another thing, it is far from clear that the IMF is under a perfect duty to unconditionally assist countries. This matters because, were the IMF making obligatory assistance conditional on doing X or Y, we could say that this was coercion on a moralized baseline. What Hassoun seems to be getting at sounds more like what most people call exploitation, don’t you think?

  2. Hi Simon! Thanks for the great comments. There is a lot to address here.

    First, on coercion, I agree that, in the case where a person threatens to stab you unless you give her your money, she *attempts* to coerce you. However, I think it is a further question as to whether she *actually* coerces you. On my view, if you already had the intention to give her your money and still continued to have the same intention (even after she held the knife to you) and your handing over of the money was a way of acting on this intention, then you are not actually coerced by the homeless person into giving over your money. For example, imagine that you were just about to give the homeless person your money because you thought of doing so as way of meeting your duty to help the poor. Imagine that, not noticing what you were about to do, the homeless person held a knife to your throat and said, “Your money or your life.” Imagine that this threat played no role in your action of handing over the money. Imagine that, even after having the knife held to you, you still maintained your original intention to hand over the money as a means of helping her and that this is what motivated your action. In this case, I would argue, the homeless person *attempted* to coerce you, but didn’t *actually* coerce you. You were not forced by her threat. You acted of your own accord and in a way that was representative of your own commitments and aims.

    In the standard case, I do think that coercion occurs. This is because, even if I originally had the intention to give the homeless person my money (as a way of helping the poor), once she held a knife to me, I would likely no longer have that same intention (to help her). Though, I would likely form a new intention to give her my money as a way of saving my own life. If this is what happens and this is what motivated my handing my money over, then, I would argue, the homeless person has coerced me into giving up my money. The intention behind my action is not representative of an authentic or deep aim of mine. It is something that is forced on me by the homeless person through her threat.

    I suppose all of this is to say that I think that the moralized version of the baseline (whether you were left worse off) plays no role in determinations of coercion or at least I am arguing that it shouldn’t play any role. What we need to look at are individuals’ intentions and what motivates them to act as they do and what the source of these motivations is.

    As for the points about domination and exploitation, I think I agree. I have tried to develop some arguments elsewhere (which I may post here later!) on how loan conditionality is dominating (in Pettit’s sense). I also think that exploitation is an issue (this is an issue that I have been working a lot on lately), but this isn’t something that Hassoun’s arguments can support, at least not in their current form. Exploitation occurs when one party takes advantage of the other party. To show that conditionality is exploitive, one would need to show that developed countries derive a benefit from developing countries through conditionality. I think this can be done, but Hassoun isn’t trying to and doesn’t show that this is the case.

    I am interested in your point about whether there exists a perfect duty to aid and what role this duty might play in determining the form that conditionality should take. Can you expand? I think that, if we have a perfect duty to aid, attaching conditions might be impermissible. However, I wouldn’t think that the impermissibility of attaching conditions in this case is tied to the impermissibility of coercion (it would be wrong for reason unrelated to coercion, I think).

    Thanks again!

  3. I wonder if the conversion requirement in Meena’s example is unnecessarily contentious. Suppose I am destitute, on the brink of starvation, etc. and someone offers me my dream job with a very high salary. It would be weird to say that I am coerced into accepting, or at least to say that in a way that makes the interaction morally problematic. I do think that there some moral nuances involved in consensually interacting with people in dire straits, but I suspect that worries about coercion are not the right way to draw out those nuances. So, I suppose I am just voicing my general agreement with both Simon and Meena.

  4. Thanks, Japa! Yes, your example is much simpler and much more convincing than mine! It provides us with yet another example that illustrates that either coercion isn’t the real worry here or, even if it is, that the view that Hassoun proposes of coercion just isn’t the right one.

  5. Pingback: An Account of the Coerciveness of Loan Conditionality « Political Philosop-her

  6. Hey Meena and Japa,

    Nice distinction between coercion and attempted coercion Meena, although perhaps there is something to be said for the view that we should still count someone as coerced even if their intention (in the sense of aiming to bring about an outcome) remains the same in the face of a threat or wrongful threat, just so long as that threat figures in some way in their reasoning (or otherwise the process whereby they arrive at a determination about what to do). In other words, even if someone maintains the same intention in the face of a wrongful threat, we should count them as coerced as long as, in their view, the weight in favour of acting to bring about that end changes as a consequence of a threat or wrongful threat.

    Say that I originally intended to give the homeless person money on the basis that, as you suggest, I thought that this was what I was obligated to do. Nevertheless, when I originally arrived at that intention there were some reasons—of self-interest?—that had to be out-weighed. However, once the threat was made, *all* bases—including those of self-interest—aligned, providing conclusive reason to give the homeless person money. I guess the thought is that the threat of having a right of yours violated just shouldn’t be a factor that figures (regardless of whether and the extent to which it is outweighed) in the process that determines what you choose to do.

    It also might be that merely *attempted* coercion is wrong (even if that attempt is not successful in the sense that the outcome the putative coercer attempts to secure would have arisen anyway), such that, for the purposes of political philosophy, we don’t need to agree on when or whether any particular act of attempted coercion was successful or not. I guess my view is just that threats to violate rights in order to bring about some desired end are wrong as well as actual right violations.

    Actually, after re-reading your response I get the feeling that this may be the kind of thing you can integrate into your account (although you’ll want to drop the references to the threats having to be “wrongful”).

    On the IMF, I think you’re definitely right that “exploitation” may not be the right term. I guess I was using it as a catch-all to cover cases in which conditional proposals that seem like hard bargains are extended, but which fall short of coercion (or, let’s say, attempted coercion). But, as you rightly point out, the IMF is not seeking to profit from its loans as such, but rather to secure repayment and/or impose a view—arguably an ideological one—about what is in the best interest of poorer countries or their people. Although states might have originally intended to establish the IMF for (mutually) self-interested reasons, in itself the institution is not one that seeks to derive benefits from its interactions with particular states. In that sense, exploitation seems a much better fit for what an institution like the WTO, arguably, embodies. In accession negotiations, for instance, the WTO (i.e. existing members acting together) seeks to extract the most extensive policy concessions possible purely because this is to their own economic benefit). They utilise the fact that any single country would be stumped if left outside the WTO for this end.

    On a perfect duty to aid (supposing the IMF bore such an obligation, and it was “directed” towards the particular country it was negotiating with), I just meant to point out that it is not only under a non-moralized account of coercion that an offer (to make a country better off than it is at the moment) can be coercive. One might say that a state is coerced by the IMF as along as, post transaction, it is worse off than the IMF ought, under its duty to aid, to make it. Or one might say that a state is coerced by the IMF even if it ultimately is this well off, as long as it “chooses” its IMF package under a genuine and threat that the IMF will do nothing if it is refused.

  7. Pingback: Featured Philosop-her: Nicole Hassoun « Political Philosop-her

  8. You say that poor countries do not have options outside of borrowing from the IMF and World Bank. I do not think that is true. Private investors or other states can lend and have been lending to developing countries at their own risk, even without the approval of the IMF or the World Bank. They usually look at Credit Ratings that companies such as Moody’s and Standard and Poor’s elaborate and make their decisions on the basis of those credit ratings. It is also possible to borrow from other countries. Consider the case of Argentina. After defaulting on its debt in 2002, it received several loans from Venezuela, for example. The only problem is that interests rates might be high, but to say that there are no options is simply misleading. So this makes Hassoun’s argument even weaker. Loan Conditionalities are not coercive offers, for the same reason that borrowing from a bank at the domestic level is not coercive, even is someone is desperate to obtain that loan.

  9. Thanks, Cristian. Your points are well taken. It is true that most countries can access private capital markets, even if they are turned down by the IMF/WB. There may be other sorts of donors available too. But this is less true for very poor (or highly indebted) countries – which are Hassoun’s focus. In terms of borrowing from another country, again, this is possible because it is not dependent on IMF/WB assessments. However, while this might be true, getting this sort of unilateral aid is difficult and perhaps unlikely in any given case. This is because unilateral aid tends to be guided by foreign policy objectives. For example, the US aids regions in relation to its national security concerns such as the Middle East. France has given significant aid to countries in West Africa as part of its aim to spread and preserve French culture. So, getting unilateral aid in any particular case is not likely unless the need happens to coincide with a particular country’s foreign policy aims. So, one could argue that this sort of aid does not constitute a genuine option in any particular case. However, I am generally sympathetic to the claim that, in many cases, there are other options available – which does seem to weaken the scope of Hassoun’s argument. (I’ve been working on this issue in a paper I am writing. So, I am happy to hear your thoughts on this matter!)

  10. Thanks, Cristian! This is very helpful. It would seem, then, that there are other options not only in some cases but in many and perhaps even most cases (including the Least Developed Countries).

  11. Pingback: Responding to Hassoun on Coercion « Political Philosop-her

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