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 Slippery Slope of Political Conditionality

OECD Development Centre

The effectiveness of conditionality hinges in large measure on the willingness of donors to suspend aid in the case of non-compliance. Yet, for a multitude of reasons, donors often hesitate (Killick, 1998; Kanbur, 2000; Woods, 2007; Dreher, 2008). Donor governments have historical, foreign policy, security, investment and trading reasons to support particular recipient governments and to use their aid and their influence within the IFIs to secure lenient treatment for favoured clients. Economic and geopolitical considerations still go a long way in explaining the geographic allocation of aid flows. Indeed, the diplomatic use of aid undoubtedly received a boost from the terrorist attack of 9/11, with aid flows to the Middle East increasing four-fold between 2001 and 2004 (Lancaster, 2007, p. 7). Against this backdrop, donors are often reluctant to cut aid, regardless of how recipients have scored in achieving targets and objectives. As Kanbur puts it (2000, pp. 5-6), “When push comes to shove, all of the pressures, mostly from the donor side, are to look the other way when conditionality is violated.” Moreover, the instruments of donor co-ordination are only on rare occasions strong enough to maintain solidarity in the face of conflicting donor interests (Killick, 1998, p. 174). And clever recipient governments often adopt effective divide-and-rule strategies towards donors.

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