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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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The Intrinsic Difficulty of Distinguishing Between Good and Bad Policies

OECD Development Centre

A surprising consensus now exists among economists that there is “no one way to do things.” As far back as 1979, the IMF’s Guidelines on Conditionality stressed the need to avoid blueprint approaches, pay due regard to individual political and economic circumstances of particular countries, and keep the number of conditions attached to loans to a minimum. The World Bank (2005, p. 22) recognised in its 2005 Conditionality Review that “the lessons of the 1990s show that generalised policy prescriptions often fail, and that there is no single model of development.” Such declarations cut across ideological divides. Stiglitz (2005, p. 1) observes “if there is a consensus today about what strategies are likely to help the development of the poorest countries it is this: there is no consensus.” Feldstein (1998, p. 5) makes a similar point:

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