Ties that bind: possible shifts on conditionality?

28 May 2004

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 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, multilateral and bilateral 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.

there is a tension between ownership and the conditionality that is applied to aid

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 IFIs, the commissioning of independent, external reviews of the impact of conditionality on poverty reduction and 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. See related article in this issue, ‘US lawmakers scrutinise World Bank record on corruption’.

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, as many of you have not been shy to point out, there is a tension here with the conditionality that is applied to aid such as HIPC debt relief or the IMF’s Poverty Reduction and Growth Facility”.

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.