Examination of approaches to policy-based nonproject assistance

This paper provides an overview of policy-based, nonproject assistance, focusing on structural adjustment lending by A.I.D., the IMF, and the World Bank. Following a discussion of the value, yet limited applicability, of the market model as the theoretical basis for conditionality, the paper reviews the implementation in several countries of A.I.D."s approach to conditionality, which embodies a pragmatic approach to reforming the economic policies and institutions that impede market-led development. Succeeding sections: evaluate the operational effectiveness and consistency of policy-based nonproject assistance; identify major advantages and disadvantages of conditionality; and assess the impact of both monetary and fiscal policy reforms on beneficiaries, especially the poor. A final summary section stresses the importance of policy reform, the possibility of undertaking it while providing protection to the poor, the importance of a strong private sector and a "pro-active" government, and the need to avoid unrealistic expectations: policies that developed over centuries cannot be changed overnight. The report concludes by noting that because policy reform changes the balance of power among economic groups, perhaps the main problem encountered in encouraging policy reform is to convince the leadership that they will be able to survive, and even prosper, while at the same time giving up power and authority.