Aid conditionality is ineffective in inducing economic reforms. Selectivity, on the basis of the good policy choices of a government, is not as innocent a tool as donors portray. Both may, and generally do, conflict with any attempts to promote country ownership of the reform process and policies. This document presented at the 2000 Conference on “Aid and Development” in Stockholm, discusses the problems derived from aid conditionality and suggests alternatives for its reform. The study draws on the experience of the Swedish aid programme.
Claims by the World Bank that aid is more effective in a good policy environment and that economic reform can be supported, but not bought, have raised many questions. Both statements are misleading. Experience proves that reform can be implemented as a result of donor pressure, but chances are that it will be reversed as soon as aid runs out. Although the focus remains on whether aid conditionality can be effective, the real issue is whether it is desirable. Since freedom of choice and ownership are perceived as key aspects of development and, since lack of choice transfers government accountability to the agency influencing policy, conditionality, even if effective, is not desirable.
Selectivity is used by donors as a solution to safeguard country ownership. Many objections have been raised regarding the benefits of this policy approach, although a few lack consistency. These objections include:
- That selectivity denies support to the poor living under governments with bad policies. Yet it is unlikely that aid would benefit them and it might even contribute to sustain a bad regime unless channelled through NGOs.
- That countries with good policy environments do not need aid. This is not so. A poor country may need aid to sustain and implement its good policies. Also, the effects of good policies take time to consolidate.
- Unclear definitions of what makes a good policy environment are harmful. Where decisions are based on judgement, donors and governments would return to the negative bargaining process characteristic of conditionality.
- Detailed definitions of what makes a good policy environment would be equally damaging. Governments would adopt donor-favoured policies to attract funding, thus diminishing any possibility of real policy ownership.
Donor policies should leave behind the ineffective conditionality and selectivity approaches. A model combining outcome and policy measures should be adopted. Aid decisions should be based on a small number of outcomes and limited set of policy measures. The following matters must be considered in the adoption of this approach:
- Aid allocations based on outcomes allow governments to define their own policies to attain them, thus promoting local ownership. Also, policy choices are the government’s responsibility and it is accountable for them.
- Assessments based on outcomes face practical problems. Outcomes are difficult to monitor, improvements happen over long periods of time and changes result from a combination of policies and context elements.
- Policy conditionality can ensure that aid is given to countries that maintain macro-economic stability. It can also prevent the adoption of damaging policies that have a quick impact on outcomes, such as rapid income growth achieved by destroying forests.
- Policy conditionality can help overcome the problem of assessing outcomes when there is a long lag between the implementation of a policy and its ultimate effects.
