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Summary
Our understanding of what makes aid effective is changing. Evidence and
experience have challenged traditional approaches to ‘conditionality’ (where each
donor frequently attached conditions to its aid in order to promote particular
policies in the partner country). This paper sets out a new approach to building a
successful partnership for poverty reduction. We believe that developing
countries must have room to determine their own policies for meeting the
Millennium Development Goals (MDGs), and can use aid most effectively if they
can predictably rely on it as part of their long-term budget plans.
As in any relationship, a good aid partnership is based on an open dialogue, with
rights and responsibilities on both sides. Each partner will take account of the
views and concerns of poor people. Each will be committed to transparency, and
will make public their decisions and the evidence on which they are based. Both
donor and developing countries will be accountable, to their citizens and the
wider global community, for showing how aid is supporting sound policies, which
improve the quality of life for poor people.
Within a framework of partnership, both parties need a clear statement of the
terms and conditions of aid. Donors need to show that aid is being used to
support an effective programme of poverty reduction. Developing countries need
to know what aid they can expect when, and to be clear under what
circumstances it can be withdrawn.
This paper sets out the UK’s position on the use of conditions in effective
partnerships for poverty reduction:
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Aid terms and conditions must support, not ‘buy’ reform. The terms and
conditions of aid will be strongly linked to benchmarks, which both
partners agree are critical for tracking progress on poverty reduction.
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A major purpose of setting terms and conditions will be to demonstrate to
UK citizens and Parliament that overseas aid is well spent; and to
strengthen the public accountability of DFID and partner governments in
delivering on their commitments.
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In sensitive policy areas such as privatisation, the UK will only use
conditions to back reforms where partner governments have had space
to debate - including where appropriate in Parliament - the full range of
policy options, and have made their own decision informed by clear
evidence of the benefits to poor people. The UK strongly supports the
use of poverty and social impact analysis (PSIA) for such purposes.
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The UK will continue to attach ‘process conditions’ to improve the quality
and effectiveness of aid. For example, we will use conditions that
strengthen participation by poor people in decision-making. However,
such conditions must be carefully designed so as not to interfere with
national political processes.
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The UK will seek to make aid more predictable by being clear up front
about the basis on which funds will be reduced or stopped. Relevant
criteria will include compliance with international obligations on human
rights and peace and security.
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The UK will work with other donors to improve aid harmonisation and
limit the overall burden of ‘conditionality’. In particular, we will continue to
press both the World Bank and the IMF to monitor and streamline their
combined terms and conditions.
This paper also identifies areas where more work is needed. Specifically, we will
look at the appropriate use of ‘conditionality’ in fragile states. And, building on
recent European Union experience, we will explore the potential to link aid to
performance results or outcomes rather than a partner government’s policies.
Over the coming months, we shall seek comments on this draft policy paper from
developing countries, other development agencies and members of the public.
By early 2005, we will develop new guidelines for DFID staff to help put this new
approach into practice.
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