Report Warns of Loan Pitfalls

Report Warns of Loan Pitfalls



March 27, 2001

Filed at 3:26 p.m. ET


WASHINGTON (AP) -- Add ``conditionality'' to the buzzword junkyard. The World Bank and the International Monetary Fund say making developing countries in Africa jump through too many hoops to get money doesn't work.


The bank said Tuesday in a new report that these countries are unlikely to adopt reforms to stimulate their economies and reduce poverty unless governments and their peoples broadly support the need for change.


In development economics this is called ``country ownership,'' and David Dollar, the co-author of the bank's report said, ``conditionality cannot be a substitute for commitment. Reform has to be home grown.''


Dollar said governments receiving aid welcome a modest amount of conditions -- stabilizing exchange rates or fostering development of an independent judicial system -- but imposing dozens of them is largely ineffective.


Lawmakers in the United States and other industrialized countries and international relief groups have long been critical of the bank and its sister institution, the IMF, for imposing a laundry list of conditions on poor countries to qualify for loans.


Now the bank and the IMF are moving to streamline loan conditions and not demand that countries make so many changes that they strain their economies' ability to carry them out.


Last week the IMF announced it was developing a new set of lending guidelines ready for board approval later this year that will significantly reduce the number and scope of demands on IMF borrowers.


``The aim of this streamlining is not to weaken the implementation of fund programs,'' said Masood Ahmed, deputy director of the IMF's policy department. ``Rather it is to ensure that countries have the maximum possible scope to make their own policy choices.''


The World Bank report, ``Aid and Reform in Africa: Lessons from 10 Case Studies'' covered the Ivory Coast, Democratic Republic of Congo, (formerly Zaire) Ethiopia, Ghana, Kenya, Mali, Nigeria, Tanzania, Uganda and Zambia from the 1980s to the mid 1990s.


``All of the case studies agree that economic policy is primarily driven by domestic politics not outside agents,'' the report said. ``The key to successful reform is a political movement for change and donors cannot do very much to generate this.''


The report identified Ghana and Uganda as the most successful reformers, who grew rapidly and reduced poverty. The eight other countries did not.


The report said where governments are not committed to reform ``conditional loans have generally been a farce in which the government agrees to measures it does not believe in as a way of getting funding, fails to carry them out and then receives the funding from donors anyway.''


Co-financed by European aid donors, France, Germany, the Netherland, Norway and Sweden, the study seeks to help the international development community direct foreign aid to poor countries most likely to use it effectively.


Copyright 2001 The New York Times Company