Governance conditionality and the reform of multilateral development finance: the role Of the group of eight

Abstract

A salient aspect of the reform of the global financial system pursued by the G7/8 concerns the uses, misuses and abuses of governance conditionality by the international financial institutions (IFIs).The streamlining of structural conditionality will figure prominently in the agenda of the G8 Summit in Kananaskis, Canada, in June 2002.However, the debate has thus far mainly focused on the quantitative aspect of conditionality, oscillating between concerns over how much is too much and how much is enough.Less attention has been paid to the manner in which conditionality has been applied and the contents of the IFIs policy prescriptions.While the World Bank has significantly stretched its policy frontiers by endorsing "good governance" as a core element of its development strategy and the International Monetary Fund (IMF) has integrated concerns over poverty reduction in its lending operations and corporate policies, both institutions continue to rely on the same instruments of punitive conditionality to promote governance reform and institutional development.This paper thus sets outs to examine the IFIs' efforts at strengthening good governance in developing countries and emerging markets.It focuses on the complex relationship between good governance and aid effectiveness and examines the World Bank's approach to governance reform.It argues that the quality of governance is ultimately attributable to its democratic content.Therefore, for the Bank to substantially improve good governance in borrowing countries and reinvent itself, it will need to explicitly address issues of power, politics and democracy.The Bank should abandon the belief deeply anchored in its bureaucratic ethos that governance work can be restricted to technocratic improvements, thereby circumventing political economy factors.The paper proposes a radical reform of the governance of multilateral development finance by shifting to an ex post form of incentive conditionality aimed at rewarding good performance and based on national ownership.

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