political economy Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are linked. Widely studied phenomena within the discipline are systems such as labour m ...

and

international relations International relations (IR), sometimes referred to as international studies and international affairs, is the scientific study of interactions between sovereign states. In a broader sense, it concerns all activities between states—such a ...

, conditionality is the use of conditions attached to the provision of benefits such as a

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...

debt relief Debt relief or debt cancellation 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 particu ...

bilateral aid In international relations, aid (also known as international aid, overseas aid, foreign aid, economic aid or foreign assistance) is – from the perspective of governments – a voluntary transfer of resources from one country to another. Ai ...

. These conditions are typically imposed by

international financial institutions An international financial institution (IFI) is a financial institution that has been established (or chartered) by more than one country, and hence is subject to international law. Its owners or shareholders are generally national governments, al ...

or regional organizations and are intended to improve economic conditions within the recipient country.

International financial institutions

Conditionality is typically employed by the

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glob ...

, the

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...

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 Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain. Corruption m ...

measures, but they may involve highly controversial ones, such as

austerity Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. There are three primary types of austerity measures: higher taxes to fund spend ...

or the

privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...

of key

public services A public service is any service intended to address specific needs pertaining to the aggregate members of a community. Public services are available to people within a government jurisdiction as provided directly through public sector agencies ...

, which may provoke strong political opposition in the recipient country. These conditionalities are often grouped under the label

structural adjustment Structural adjustment programs (SAPs) consist of loans (structural adjustment loans; SALs) provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries that experience economic crises. Their purpose is to adjust the coun ...

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 International Monetary Fund, 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).Dreher, A. (2009)
"IMF Conditionality: Theory and Evidence"
Public Choice, 141, 233-267

'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 Nations The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and security, develop friendly relations among nations, achieve international cooperation, and be a centre for harmonizi ...

Human Development Report The Human Development Report (HDR) is an annual Human Development Index report published by the Human Development Report Office of the United Nations Development Programme (UNDP). The first HDR was launched in 1990 by the Pakistani economist ...

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.
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European Union

The

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been ...

also employs conditionality with respect to enlargement, with membership conditional on candidate countries meeting the

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 marke ...

and adopting the acquis communautaire.

References

External links

* World Bank conditionalit

* Conditionality in IMF-supported programs - overvie

* David Hall and Robin de la Motte, ''Dogmatic Development: Privatisation and conditionalities in six countries'', War on Wan

* "The Future of Aid Conditionality", Globalization Institut

Big Picture TV
{{Webarchive, url=https://web.archive.org/web/20160318214107/http://www.big-picture.tv/?id=3258 , date=2016-03-18 Free video clip of Martin Khor (Director, Third World Network) speaking about structural adjustment * ActionAid, April 2004
"Money talks: How aid conditions continue to drive utility privatisation in poor countries"
*

Eurodad Eurodad (European Network on Debt and Development) is a network of 53 non-governmental organisations and seven statutory allies from 29 European countries. Eurodad and its members make up a network, this network researches and works on issues tha ...

, November 2007

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

International development Anti-corruption measures