Conceptualising the EU/LMF Financial Assistance Process

Abstract

This paper provides an analytical approach to the negotiation process for financial assistance in Latvia. We believe that auditing the negotiation process may help us gain a better understanding of financial assistance programmes’ outcomes. More specifically, we assume that decision-makers engaged in a financial assistance negotiation might need to place a high priority on determining the difference that the process makes, net of other influences, to the outcome.The paper is structured as follows: The first part constructs an analytical framework for conceptualising financial stabilization negotiations. This framework allows for testing hypotheses concerning the negotiation process based on evidence from actual experience, in addition to laboratory evidence. It then outlines the various international negotiation strategies that debtors and lenders can use to affect the outcome. It also discusses the importance of actors’ negotiation ‘capability’ in shaping negotiation strategies and outcome. The second part presents findings on the Latvian case, with a brief review of the negotiation process and outcome in the form of a description of policy interaction with policy circles and a review of core areas of policy conditionality. The paper then explains the factors that account for the negotiating strategies attempted by the lenders (e.g.,IMF and the European Commission) and the debtors (e.g., the Latvian government and other key stakeholders) as well as their influence on the outcome. Finally, it concludes by summarizing lessons that can be learned from the negotiation process surrounding financial assistance in Latvia.