Fourteenth International Conference on Interdisciplinary Social Sciences

Abstract

The aftermath of the most recent global financial collapse brought worldwide protests against governments’ responses to the crisis. While crisis responses took different forms throughout the world, there has been a common observation in many places that government action protected large private banks, shifting the cost of disappearing financial wealth onto societies in different ways. This article traces the modern historical development of the politics of systemic financial risk, through new archival documents of the United States’ role in 1970s reform to the International Monetary Fund. The analysis shows that, after the U.S.-led breakdown of Bretton Woods, the U.S. Treasury successfully defeated organized resistance from developing countries within the IMF to ensure that expansions of the IMF’s role in deficit finance would include harsh policy conditions. This historical narrative offers a new perspective on the development of IMF conditional lending, showing that it was developed well before the full structural adjustment programs of the 1980s as an explicit U.S. strategy to defend the interests of American multinational private banks who were significantly over-leveraged in loans to developing countries, particularly in Latin America. The discussion of this data argues that the 1970s mark a paradigm shift in the IMF from individual country assistance to global systemic risk management. This U.S.-led transformation in global economic governance should be seen as a foundation of the modern political economy of financial risk, in which global and regional hegemonic states offload private credit risk onto weaker social actors, globally and within their own societies.