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Linking the results of the policy dialogue to the
provision of financial assistance
The conduct of policy discussions is widespread internationally and is not
limited to the dialogue between donor countries and institutions and governments
of developing countries. This is not surprising since the policy
framework of any country is of importance to other countries as well. Thus,
in the OECD detailed discussions are held on the economic policies of all
its member countries. The European Central Bank and the European Union
conduct surveillance activities of their member countries to ensure that
members conform to the understandings reached under the Growth and
Stability Pact. The ASEAN Secretariat also carries out surveillance activities
for its members in East Asia. In the case of the European Union there is
provision for sanctions if member countries persistently do not adhere to
the understandings incorporated in the Growth and Stability Pact.
The development co-operation system provides for explicit and direct
links between the implementation of policy reform in developing countries
and the provision of financial assistance by donors. The linkage of policy
reform implementation and the provision of aid will typically become
stronger as a recipient government’s dependency on donor support increases
(and as development performance recedes), and if high, would provide a
justification for making such a strong link. If practised effectively, the ‘application
of financial leverage’ could become an important instrument for
making certain that agreed-upon policy reforms are indeed implemented.
To induce the Zambian government in the 1990s to implement its programme
in accordance with its design, donors made certain that there would
be a direct link between programme implementation and the provision of
financial support. Donors did this by applying several inducement techniques.
Sometimes, they would formulate quantitative or ‘qualitative’, or
‘structural’ but ‘time-tabled’ benchmarks, for government action, the meeting
of which would demonstrate to donors that programme implementation
was on track. 9 An example was the inclusion in Policy Framework Papers
(PFPs) of ‘time-tabled’ policy reform commitments. This technique
was employed by the IMF under its programmes and also by the World
Bank in its ‘policy-based operations’. It made for very explicit
‘conditionalities’. Sometimes conditionalities would also be formulated in
more general and qualitative terms, such as ‘making progress with strengthening
governance’, which left much room for interpretation. And sometimes
there would be no conditionality at all, because all policy measures
had already been taken by the government. But the general principle was
that donors would make certain that they could adjust the implementation
of their aid programmes to changes in reform programme implementation
9 And thus, that the release of financial support was justified.
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