When Ideas Fail to Influence Policy Outcomes: Orderly Liberalization and the International Monetary Fund

The paper explores a case of failure of economic ideas at bringing about institutional change. Specifically, it investigates the mechanism of legitimacy feedback that facilitated and, later, prevented the policy idea of orderly liberalization from being institutionalized into the amendment of the IMF’s Articles that would have extended the Fund’s mission to the liberalization of capital flows. Drawing on archival research and interviews with IMF officials, the paper argues that the convergence of member countries’ expectations around the proposal to amend the Articles was the product of the interaction between IMF-sponsored ideas and the validation of those actors that make up the Fund’s social constituencies for legitimation within a specific historical context. The idea of orderly liberalization was consequential not because it was supported by the U.S. or backed up by a homogenous IMF staff but because it reflected the economic interests of those actors – member states and private sector – who would bore the costs of an extension of the Fund’s mission. Having raised new expectations on the outcome of the process of liberalization and on the role of the IMF in it, the idea of orderly liberalization rhetorically entrapped its suppliers during the Asian crisis, when those expectations went disappointed. At that point, the sociopolitical feedback weakened, leading to the failure of the amendment