The Political Economy of Stabilization Programmes in Developing Countries

This report investigates the endogenous effects of the implementation of stabilization programmes (credits and different variants of conditionalities) in developing countries. A model is outlined, which at the same time builds on Modern Political Economy and New Institutional Economy and incorporates cognitive (psychological) aspects in decision making. Emphasizing the demand and supply of support for the government by the various interest groups and the population, this model helps to explain not only the programmes' effects on the standard of living, but also on the use of instruments by the groups involved. Especially, effects on the politicians' own consumption, the extent of corruption by bribery and the suppression of the population and particular groups are analysed. Conditions under which the economic and/or the political situations improve for the population are identified and corresponding testable propositions are formulated ...