Policy-based assistance : a historical perspective

foreign assistance techniques is traced, with emphasis on the current popularity of policy-based assistance. The report criticizes A.I.D."s attempts to play a major role in the structural adjustment process promoted by the World Bank and the International Monetary Fund. A.I.D."s Economic Support Fund, designed to provide the necessary flexibility for setting macroeconomic policy targets, is constrained by congressional earmarking and the concentration of these funds in countries of geopolitical or military importance to the United States. Under these circumstances, A.I.D. has no credibility in seeking to establish macroeconomic policy conditions. The overall conclusion of the paper is that A.I.D. should focus its policy-based lending on certain sectors and programs rather than attempt to replicate the international financial institutions" stabilization-adjustment programs. Specifically, the report recommends that A.I.D. (1) concentrate its programs on general U.S. interests, such as promoting pluralism, encouraging open economies, and implementing environmental, health, and educational intitiatives, and (2) build on A.I.D."s own areas of expertise - its presence in the field, its knowledge of the social milieu it which it operates, its sectoral skills, and its ability to carry out a continual dialogue with national authorities. In this way, the Agency can complement the stabilization-adjustment programs by reducing their adverse impact on the poor.