Thursday, 2 December 1999

From "Aid conditionality"

By Tony Killick (Development studies reader, p. 479).

Conditionality can be viewed as a substitute for the collateral assets which private lenders would require [...] as a safeguard against moral hazard, i.e. against the danger that the provision of aid will actually weaken a government's will to undertake policy reforms [...] A related justification concerns the influence of recipient-country policies on aid effectiveness. Bilateral donors and IFIs are dispensing public monies paid by the taxpayers of the richer countries [...] Donors additionally argue that their support can be used as a political resource by reformers within a government and may tip the balance in favour of improvement by giving reformers additional clout when policy decisions are taken [...] Conditionality can further improve domestic economic policies by inducing greater consistency over time [...] This is important where a goverment's policies lack credibility among potential investors and others whose decision will impact on the economic results obtained [...]

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