Angela Wood, Bretton Woods Project

Matthew Lockwood, Christian Aid

March 1999

Acknowledgements

Thank you to Roger Williamson for his comments on the report.

Thank you to the C. S. Mott Foundation for its continued support of the Bretton Woods Project.

Executive summary

Donors have applied conditionality to their adjustment lending in order to induce governments to make reforms in their economies. However, implementation has been poor because it has been hard to induce unwilling governments to change, especially if they regard proposed reforms to be inappropriate or perceive that they are likely to be ineffective.

To overcome these implementation problems the World Bank and IMF have resorted to applying progressively more detailed and tightly defined preconditions and conditions, whilst policing their implementation more carefully and designing stronger incentives. Although these measures have helped to persuade governments to implement those conditions necessary to access the money, reforms have often been reversed once the programme has ended and other, non-core conditions have still not been implemented. This could be called financially-driven tactical compliance.

The conclusion of many studies is that these efforts have not been sufficient to overcome poor implementation, which is caused by a lack of ownership (ie, governments and civil society have not fully engaged in designing their reform programmes, so they are not committed to implementing them). Therefore, in addition to improving the conditionality tool it is also necessary to encourage ownership of the reform process. The World Bank has accepted that it needs to build ownership into the adjustment process and is developing new mechanisms for doing so (although it still perceives that conditionality can be useful in some circumstances). The IMF has more grudgingly accepted ownership in its rhetoric but is doing relatively little to institutionalise it as an objective.

James Wolfensohn’s Comprehensive Development Framework, which incorporates the Partnerships Initiative, is the vehicle through which the Bank aims to achieve ownership and partnership. The framework is a positive step forward. However, to be effective it will require a radical change in donor and government practices. A potentially limiting aspect of the framework is that it incorporates selectivity. The Bank’s reassessment of aid’s effectiveness identified selectivity, on the basis of good economic policy, as a vital element for ensuring that aid achieves maximum growth and poverty reduction. However, unless the Bank, and other donors, are able to take a more eclectic view of what constitutes a good economic environment, rather than withdrawing from conditionality, selectivity could in reality imply more up-front conditionality.

Other analysts have also been examining how to both improve conditionality as a tool and develop alternatives based on ownership. Their proposals can almost all be placed on a continuum between pure selectivity at one end and recipient-led dialogue at the other.

NGOs’ engagement in the conditionality debate has largely focused on concerns about donors’ policy prescriptions and advocating alternatives. It is important that they now engage in the debate about alternatives to conditionality. We suggest that three basic principles should underlie an NGO approach to the conditionality debate:

• Poverty focus – what should happen is what works for the poor.
• Participation/democracy – this suggests that the aid relationship on both the donor and the recipient side should be opened up to a much wider public examination and debate about the use of aid and the associated policy reforms.
• Partnership rather than coercion.

These principles lead us to argue that NGOs should reject the idea of pure selectivity. This is important, since there is a strong drift in this direction by official creditors. The approach to selectivity being taken by the donors will not cause them to question the validity of their own priorities. It will de-emphasise greater engagement with the difficult cases where potential recipients have different priorities. It will not, by itself, strengthen democracy and civil society involvement in the aid relationship.

In our view, the only selectivity which should apply is that asked for in cases of repressive dictatorships, by legitimate opposition movements (a current example being Burma). In all other cases, we support the notion of dialogue and partnership, inclusive enough to involve civil society. But to make this any different from traditional conditionality – to make the engagement honest – donors have to be prepared to genuinely listen to and understand recipient priorities and constraints. They cannot engage in dialogue from a starting position that they are right about all policy advice. In this situation, there is no point in dialogue.

Introduction

During a consultation meeting last July, the World Bank’s newly unveiled Partnership’s Initiative was hailed as the “perestroika of development assistance”. Indeed, a fundamental shift does appear to be occurring in the World Bank’s approach to designing and implementing conditionality and managing the development process. This change reflects two trends in the Bank:

a reassessment of the effectiveness, and the role, of aid in response to declining aid budgets; and

a realisation that conditionality has not been effective for inducing reform and that instead governments and civil society must “own” the reform process.

While the USSR‘s transformation was led by President Gorbachev, aid’s perestroika is being led by World Bank President, James Wolfensohn. In January this year, he unveiled his “Comprehensive Development Framework”, which is based on the concepts of partnership – between governments, civil society and donors to build ownership of the reform process – and the need to be more selective about which countries donors lend to – to generate more growth and poverty reduction from a diminishing pot of aid.

This apparent shift by the Bank raises some fundamental questions:

• Is the paradigm changing or is the World Bank simply repackaging itself?
• How is the IMF‘s approach changing?
• What is ownership?
• Can selectivity and ownership be reconciled? What is partnership?
• Can donors cooperate and coordinate themselves?
• Is this the end of conditionality?

It is important that we outside the official aid community re-examine our preconceptions about conditionality, ownership and partnership with a view to widening and contributing to this growing debate. A simplistic divide characterises much of our thinking on the use of conditionality: on the one hand there are those who recognise the need for ownership and sovereignty but regard some governments as unresponsive to the wider needs of their populations and therefore support some form of “poverty-focused” or “social” conditionality, which if done rightly could strengthen civil society; and on the other, there are those who regard all conditionality imposed from outside as undermining the democratic system and abusing the sovereignty of the borrower country. The latter emphasise the need to support the democratic process regardless of the outcome for the poor.

This paper looks at how conditionality is being redesigned to make it a more effective tool and asks whether new initiatives for programme design and implementation will diminish the need for it, or whether these simply repackage conditionality whilst strengthening the hand of donors. The first part of this paper provides an overview of the recent experience with conditionality; part 2 looks at new donor approaches to conditionality, efforts to nurture ownership of reform programmes and develop partnerships with donors, and selectivity; part 3 outlines several of the new approaches to conditionality being developed by analysts outside the Bretton Woods Institutions (BWIs); and finally, in part 4 the implications of this apparent paradigm shift are examined in terms of the priorities for NGOs.