The Challenges facing Developing Countries in their International Relations
1. The Politics of Aid and the Use of Conditionality: Some Issues for Donor Agencies
Stephen Jones, Oxford Policy Management
Abstract: Empirical studies today, illustrate clearly that conditionality in its extant form has failed. The use of conditionality in the aid relationship has hence become the subject of increasing debate in recent times. Several alternative models have been suggested, but they generate two central problems. The first problem is a technical one of developing practical solutions based on a more complex and holistic analysis, as opposed to the simplicity of former approaches. The second problem is political i.e. the problem of evolving a ‘partnership’ in a context of only partial consensus. The presentation based on a paper commissioned by the Danish International Development Agency clarifies critical issues in the use of conditionality, related problems and proposed solutions in both a multilateral and bilateral context.
Conditionality may be defined as, ‘a mutual arrangement by which a government [recipient] takes, or promises to take, certain policy actions, in support of which an International Financial Institution (IFI) or other agency will provide specified amounts of financial assistance’ (Killick, 1998). Conditionalities can be of different types - ex ante and ex post, cross-conditionality, and so forth. Four levels at which conditions are set are identified:
Level 1: Project (counterpart funds, accountability)
Level 2: Sector (policy, expenditure)
Level 3: Macroeconomic (fiscal and monetary)
Level 4: Non-economic/ Cross-cutting (e.g. governance, human rights, environmental)
Recent trends in the use of conditionality have witnessed a shift away from level 1 towards level 2. The shift however is not without problems. It is often difficult for donor agencies to adapt instruments designed for the project level, to make them appropriate for the sector level. Sector ministries may not be able to guarantee sector expenditures which requires higher level political commitment. The shift from level 3 to 4, i.e. the shift from the Washington consensus towards more comprehensive development approaches generates similar problems.
The rationale for the use of conditionality is of two types. First, conditionality works as a commitment technology. Acceptance of conditionality increases the credibility of the recipient government and encourages private investment. In this case, the donors and recipients are in agreement on policy objectives. The second type of rationale applies to situations where the two parties are not in agreement. Conditionality is used as an instrument by which donors change the incentives for recipients to promote policy reforms that would not be implemented otherwise.
The concept of conditionality and its efficacy has been attacked from several directions. First, structural adjustment was based on an inadequate development model. Second, Collier points out that often the aim to promote the policy environment is accompanied by the incompatible need to maintain flows of funds to allow continued debt servicing. This reduces the credibility of ex ante threats. Killick highlights other constraints on donors, which prevent the withdrawal of aid e.g., the complicated political and economic foreign policy objectives of donors, constraints on international agencies that prevent them from acting against their own shareholders, staff incentive and budgetary systems create pressures to disburse without concern for the long-term consequences of disbursement. Ineffectiveness of conditionality may also be located in the political economy of the recipient country.
The critique of conditionality in achieving its aims i.e. improvement of economic policies and institutions, is substantiated empirically. Killick, for instance, on the basis of 21 detailed case studies, suggests that the probability of implementation of reforms is a function of extent to which government perceives implementation to be in its interest i.e. ‘ownership’ of reforms. Non-implementation, it has been found, is rarely punished, while the existence of an IFI programme does not produce the expected raise in credibility of the government. Others corroborate this negative view of the record of conditionality.
Suggestions of reform of conditionality include an emphasis on partnership, characterised by ownership, selectivity, support and dialogue. Whether the concept of conditionality is antithetical to moves towards a partnership conception of the aid relationship, is a moot one. Contradictions include comprehensiveness in lending versus selectivity, local capacity versus results orientation, global public goods versus country-based programmes. Bilateral donors too, are moving towards programmatic and sector based instruments. Both bilateral and multilateral donors face the difficult question of when and how they should engage in the policy reform process so as to bring about irreversible shifts in the political economy towards a more developmental state. The question involves issues of political judgement, and often necessitates donor coordination (bilateral and multilateral) which varies greatly, depending on the bilateral donors involved.
The contradiction in the donor agenda was neatly summarised by the Chairperson Ngaire Woods, in the discussion. The lessons of the last twenty years have been that conditionality does not work, hence the need to have a more modest agenda with greater simplicity of instruments which are in the control of recipients. In counter to these lessons, the international financial institutions seem unable to give up their transforming and expansive agenda which extends well beyond the boundaries of economic policy management. It is noteworthy that the conditionality debate has implications not only for issues of development, but also international relations. Problems of implementing conditionalities, for instance, provide us an important insight into why strong states are often unable to dictate policies to weak states. Failures of such coercion result from the fact that the donors themselves are unable to define and coordinate their demands, while recipient (weak state) governments are unable to fulfil the conditions.
(The full paper can be found at http://www.um.dk/danida/partnership2000/papir3.zip)
The rest of the seminar series:
Introduction
The Politics
of Aid and Conditionality by Stephen Jones
International Investment Treaties, Valpy Fitzgerald
Good governance and the MDBs, Christina
Biebesheimer
Global Governance and the Post
Washington Consensus, Richard Higgott
Intrusive Regionalism, Amitav Acharya
Regionalism in the Middle East, Louise Fawcett
Aiding Democracy Abroad: Lessons from the late
1980s-90s, Thomas Carothers
Developing Countries
and the International Financial Architecture, Ngaire Woods
Humanitarian Intervention, Thomas Weiss