Policy Ownership and Aid Conditionality in the Light of the Financial Crisis

A Critical Review

image of Policy Ownership and Aid Conditionality in the Light of the Financial Crisis

The current economic situation has obliged the international donor community to reexamine its stance on the conditionality of development assistance. This study evaluates which controversies persist with respect to aid conditionality, how successful donors have been in stemming the rising tide of aid conditionality of the 1980s and 1990s, and whether the donor community practices what it preaches regarding the allocation of aid based on governance and development criteria. Above all, the report considers how the financial crisis has rendered it increasingly difficult to maintain traditional conditionality frameworks. Strategies for reducing the number of aid conditionalities and for enhancing recipient ownership of aid policies are proposed in light of the unsustainability of existing frameworks.

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OECD Development Centre

The international financial crisis, which started in July 2007 but took a decided turn for the worst in September 2008, has given a renewed prominence to the international financial institutions (IFIs), especially the World Bank and the International Monetary Fund (IMF). Before the crisis struck, both institutions had confronted sharply declining demand for their services. Benefiting from extremely favourable external circumstances (particularly high commodity prices), many developing countries no longer had pressing needs for the financial resources of the IFIs. Moreover, because accepting their funds usually implied heavy conditionality, many developing countries preferred other sources of finance.

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