Conditionality
Encyclopedia
Conditionality is a concept in international development
, political economy
and international relations
and describes the use of conditions attached to a loan
, debt relief
, bilateral aid or membership of international organizations, typically by the international financial institutions
, regional organizations or donor countries.
, the World Bank
or a donor country with respect to loans, debt relief and financial aid. Conditionalities may involve relatively uncontroversial requirements to enhance aid effectiveness
, such as anti-corruption
measures, but they may involve highly controversial ones, such as austerity
or the privatization
of key public services
, which may provoke strong political opposition in the recipient country. These conditionalities are often grouped under the label structural adjustment
as they were prominent in the structural adjustment programs following the debt crisis of the 1980s.
Ex-ante conditionality requires a country to meet certain conditions and prove it can maintain them before it will receive any aid.
Traditionally, the IMF lends funds based on ex-post criteria, which might induce moral hazard behavior by the borrowing country. The moral hazard problem appears when a government behaves in a risky manner in the anticipation that it can turn to the IMF in the case of a crisis. Institutional reforms of the IMF, such as the Flexible Credit Line (FCL) in 1999, attempt to reduce moral hazard by relying more on pre-set qualification criteria (i.e. ex-ante).
Human Development Report
in 2005 estimated that only about 8 per cent of bilateral aid is 'tied', down from 27 per cent in 1990. This however varies from country to country with the United Kingdom, Ireland and Norway giving 100 per cent of their aid untied, and Canada, Austria and Spain giving less than 60 per cent. http://hdr.undp.org/reports/global/2005/pdf/HDR05_HDI.pdf
also employs conditionality with respect to enlargement
, with membership conditional on candidate countries meeting the Copenhagen criteria
and adopting the acquis communautaire.
International development
International development or global development is a concept that lacks a universally accepted definition, but it is most used in a holistic and multi-disciplinary context of human development — the development of greater quality of life for humans...
, political economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...
and international relations
International relations
International relations is the study of relationships between countries, including the roles of states, inter-governmental organizations , international nongovernmental organizations , non-governmental organizations and multinational corporations...
and describes the use of conditions attached to a loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
, debt relief
Debt relief
Debt relief is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations. From antiquity through the 19th century, it refers to domestic debts, in particular agricultural debts and freeing of debt slaves...
, bilateral aid or membership of international organizations, typically by the international financial institutions
International financial institutions
International financial institutions are financial institutions that have been established by more than one country, and hence are subjects of international law. Their owners or shareholders are generally national governments, although other international institutions and other organisations...
, regional organizations or donor countries.
International financial institutions
Conditionality is typically employed by the International Monetary FundInternational Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
or a donor country with respect to loans, debt relief and financial aid. Conditionalities may involve relatively uncontroversial requirements to enhance aid effectiveness
Aid effectiveness
Aid effectiveness is the effectiveness of development aid in achieving economic or human development . Aid agencies are always looking for new ways to improve aid effectiveness, including conditionality, capacity building and support for improved governance.-Historical background:The international...
, such as anti-corruption
Political corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
measures, but they may involve highly controversial ones, such as austerity
Austerity
In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to...
or the privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
of key public services
Public services
Public services is a term usually used to mean services provided by government to its citizens, either directly or by financing private provision of services. The term is associated with a social consensus that certain services should be available to all, regardless of income...
, which may provoke strong political opposition in the recipient country. These conditionalities are often grouped under the label structural adjustment
Structural adjustment
Structural adjustments are the policies implemented by the International Monetary Fund and the World Bank in developing countries. These policy changes are conditions for getting new loans from the International Monetary Fund or World Bank, or for obtaining lower interest rates on existing loans...
as they were prominent in the structural adjustment programs following the debt crisis of the 1980s.
Ex-ante vs. ex-post
Much debate in types of conditionality centers around ex-ante versus ex-post conditionality. In ex-post conditionality, the country receiving aid agrees to conditions set by the donor or lender that they will carry out after they receive the aid. Later follow-ups determine whether they might receive more aid.Ex-ante conditionality requires a country to meet certain conditions and prove it can maintain them before it will receive any aid.
Traditionally, the IMF lends funds based on ex-post criteria, which might induce moral hazard behavior by the borrowing country. The moral hazard problem appears when a government behaves in a risky manner in the anticipation that it can turn to the IMF in the case of a crisis. Institutional reforms of the IMF, such as the Flexible Credit Line (FCL) in 1999, attempt to reduce moral hazard by relying more on pre-set qualification criteria (i.e. ex-ante).
'Tied' aid
Other types of conditionality that often occur are aid which is tied to be used in a specific way. For example, many countries tie aid to the purchasing of domestic products, although this practice has drastically decreased over the past 15 years. The United NationsUnited Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
Human Development Report
Human Development Report
The Human Development Report is an annual milestone publication by the Human Development Report Office of the United Nations Development Programme .-History:...
in 2005 estimated that only about 8 per cent of bilateral aid is 'tied', down from 27 per cent in 1990. This however varies from country to country with the United Kingdom, Ireland and Norway giving 100 per cent of their aid untied, and Canada, Austria and Spain giving less than 60 per cent. http://hdr.undp.org/reports/global/2005/pdf/HDR05_HDI.pdf
European Union
The European UnionEuropean Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
also employs conditionality with respect to enlargement
Enlargement of the European Union
The Enlargement of the European Union is the process of expanding the European Union through the accession of new member states. This process began with the Inner Six, who founded the European Coal and Steel Community in 1952...
, with membership conditional on candidate countries meeting the Copenhagen criteria
Copenhagen criteria
The Copenhagen criteria are the rules that define whether a country is eligible to join the European Union. The criteria require that a state has the institutions to preserve democratic governance and human rights, has a functioning market economy, and accepts the obligations and intent of the EU...
and adopting the acquis communautaire.
External links
- World Bank conditionality http://www.worldbank.org/conditionality
- Conditionality in IMF-supported programs - overview http://www.imf.org/external/np/pdr/cond/2001/eng/overview/
- David Hall and Robin de la Motte, Dogmatic Development: Privatisation and conditionalities in six countries, War on Want http://www.waronwant.org/?lid=7540
- "The Future of Aid Conditionality", Globalization Institute http://www.globalizationinstitute.org/blog/000445.php
- Big Picture TV Free video clip of Martin Khor (Director, Third World Network) speaking about structural adjustment
- ActionAidActionAidActionAid was founded in 1972 as a child sponsorship charity when 88 UK supporters sponsored 88 children in India and Kenya, the focus primarily being to provide children with an education. Global accounts are now reported in Euros and in 2007 and 2008 turnover was close to 180m Euros...
, April 2004, "Money talks: How aid conditions continue to drive utility privatisation in poor countries" - EurodadEurodadEurodad is a network of 58 non-governmental organisations from 19 European countries. Eurodad and its members make up a network, this network researches and works on issues that are related to debt, development finance and poverty reduction.Recently this network has focussed on issues such as...
, November 2007, http://www.eurodad.org/aid/report.aspx?id=130&item=01804 Untying the knots - How the World Bank is failing to deliver real change on conditionality - European Network on Debt and Development reports, news and links on conditionality. http://www.eurodad.org/aid/?id=130