political economy Political or comparative economy is a branch of political science and economics studying economic systems (e.g. Marketplace, markets and national economies) and their governance by political systems (e.g. law, institutions, and government). Wi ...

and

international relations International relations (IR, and also referred to as international studies, international politics, or international affairs) is an academic discipline. In a broader sense, the study of IR, in addition to multilateral relations, concerns al ...

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

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

, debt relief or bilateral aid. 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, alt ...

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 funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...

, the

World Bank The World Bank is an international financial institution that provides loans and Grant (money), grants to the governments of Least developed countries, low- and Developing country, middle-income countries for the purposes of economic development ...

or a donor country with respect to loans, debt relief and financial aid. Conditionalities may involve relatively uncontroversial requirements to enhance

aid effectiveness 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. The ...

, such as anti-

corruption Corruption is a form of dishonesty or a criminal offense that is undertaken by a person or an organization that is entrusted in a position of authority to acquire illicit benefits or abuse power for one's gain. Corruption may involve activities ...

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

austerity In economic policy, austerity is a set of Political economy, political-economic policies that aim to reduce government budget deficits through Government spending, spending cuts, tax increases, or a combination of both. There are three prim ...

or the

privatization Privatization (rendered 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 w ...

of key

public services A public service or service of general (economic) interest is any service (economics), service intended to address the needs of aggregate members of a community, whether provided directly by a public sector agency, via public financing availab ...

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

structural adjustment A structure is an arrangement and organization of interrelated elements in a material object or system, or the object or system so organized. Material structures include man-made objects such as buildings and machines and natural objects such as ...

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. If conditions are not met or other political differences between the donor and recipient materialize, aid may be suspended. 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 The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of la ...

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 the Earth, global intergovernmental organization established by the signing of the Charter of the United Nations, UN Charter on 26 June 1945 with the stated purpose of maintaining international peace and internationa ...

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 Ma ...

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.
/sup>

European Union

The

European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...

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 mark ...

and adopting the

acquis communautaire The Community acquis or ''acquis communautaire'' (; ), sometimes called the EU acquis, and often shortened to acquis, is the accumulated legislation, legal acts and court decisions that constitute the body of European Union law that came into ...

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 ActionAid is an international non-governmental organization whose stated primary aim is to work against poverty and injustice worldwide. ActionAid is a federation of 45 country offices that works with communities, often via local partner organi ...

, 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 (NGOs) and seven statutory allies from 29 European countries. Eurodad and its members make up a network, this network researches and works on issu ...

, 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