BRETTON WOODS UPDATE: Number 40, May/June 2004



Ties that bind: possible shifts on conditionality?
On the back of sustained civil society vigilance and advocacy
on the negative impacts of conditionality come IFI and donor
efforts to review their attitudes towards it. The extent to
which such efforts represent a desire for better
implementation rather than a fundamental re-examination of the
content and impact of policy conditions remains unclear.

In July the World Bank is convening a meeting to discuss
experiences with conditionality in policy-based lending. The
forum, titled Conditionality Revisited, will take place in
Paris and will bring together academics, key decision makers,
and development practitioners from the IMF, the World Bank,
development agencies, and civil society. The meeting is to
discuss recent experiences with conditionality, and to guide
future policy-based lending.

DFID is preparing a policy note on the use of conditionality,
and over the past few months has consulted with NGOs in the
UK. The note will inform the DFID position at the Bank
conference.

In an attempt to broaden the limited remit of IFI and donor
reviews of conditionality, CSOs have outlined some proposals.
These are varied but include a call for the separation of the
lending and advice functions of the IFIs, the commissioning of
independent external reviews of the impact of conditionality
on poverty reduction, and strengthening the democratic
ownership of policy choices.

A report by Harare-based AFRODAD and the UK's Christian Aid,
urges an increased role for parliaments and CSOs in loan
contraction processes. World Vision suggests an "outcome
oriented approach to conditionality" seeing this as
particularly applicable in light of the millennium development
goals.

Other proposals are more contentious. In March, UK-based NGO
Global Witness presented a report at an IMF seminar. They
proposed fiscal transparency as an element of IMF
conditionality, suggesting the Fund should "issue a high-level
policy statement forcing certain transparency standards on
Fund missions and member countries". The Fund currently
promotes fiscal transparency through the Code of Good
Practices on Fiscal Transparency and the Reports on the
Observance of Standards and Codes. NGOs have made other
proposals on transparency (page 4).

The unsuccessful application of conditionality - under donor
-pressure and without a genuine commitment by recipient
countries to implement reforms - highlights the importance of
ownership to sustaining reform. Yet the very idea of
conditionality contradicts ownership. In a speech in February,
UK Secretary of State for international development, Hilary
Benn, acknowledged this, saying "all of us have worked hard to
establish the principle of country ownership in development.
Yet there is a tension here with the conditionality that is
applied to aid".

ActionAid's recent research on privatisation of utilities
highlights the use of conditionality to push "fundamental and
often highly controversial changes in economic policy". They
conclude that use of economic conditionality is "unfair,
undemocratic, ineffective and inappropriate".

Home-grown policies would rule out a dominant role by IFIs and
donors in defining country policy agendas and priorities.
Current IFI lending frameworks undermine country ownership.
Donor and IFI preoccupation with 'effective use of development
resources' is still cited as justification for limiting
country ownership.

The new Reality of Aid report 2004, a major north-south NGO
initiative focusing on analysis and lobbying for poverty
eradication policies, concludes that "imposed conditions are
incompatible with democratic governance". It makes a bold call
for the Bank to adopt a rights-based approach as an
alternative to policy conditionality.

Not mandatory provisions, but 'good practice' advice
The aim of reducing explicit conditionality does nothing to
change the power relationship between countries and IFIs. IFI
opinion and advice hold greater sway for countries with
limited alternatives for accessing development finance. Such
imbalances create room for policy imposition masquerading as
best practice recommendations.

Streamlining efforts illustrate the limited nature of the
rethink on conditionality. Whereas new Bank and Fund policy
papers suggest a commitment to reducing the burden of
conditionality, evidence on the ground reveals limited
progress. Analysts suggest that Fund structural conditions are
being passed on to the Bank.

Bilateral donors aligning with IFIs end up sanctioning
conditions on recipient countries, effectively shutting out
the possibility for alternative policy choices.

The long-term negative effects of conditionality on
accountable policy making far outweigh any perceived
short-term gains around donor-defined reforms.

Owning the loan, poor countries and the MDGs, Christian Aid
indepth/404afrodad/owningtheloan.pdf>


Money talks: How aid conditions drive
utility privatisation in poor countries, ActionAid