Economic Crisis, ‘Political Sustainability’ and the International Financial Architecture

We examine some recent cases in which stabilisation has failed for political reasons, in the process developing a model of political response to crisis which stems from the ‘survival strategy’ literature. Alongside the ‘standard’ correlations of stabilisation failure with inequality and deficiencies in social capital, we also draw attention in this context to the ability of ‘pro-poor expenditure’ strategies to facilitate stabilisation – and thus kill two birds with one stone. This approach has implications for the international financial architecture – and, specifically, helps to strengthen the case for capital inflow controls and for the IMF’s Poverty Reduction and Growth Facility. 1 Professor of Economics, University of Sheffield.