Following the launch of the UK policy on conditionally, improving the use of conditions by multilateral institutions has been a high priority. The majority of these efforts have focused on the World Bank and IMF and some important progress has been made.
In 2005 the UK agreed to provide £100 million in addition to our core funding of the World Bank if progress was made on harmonisation and conditionality. The first £50 million was linked to the bank carrying out a thorough review of its practice and current thinking on conditionality. In September 2005 the bank's governors endorsed this review along with five new ‘Good Practice Principles’ for the use of conditions which accord well with the principles underlying the UK policy on conditionality.
We also secured an agreement that the bank management would report to the board on progress after one year. The first report did not provide sufficient information and in September 2006, we told the bank that we would withhold our second contribution of £50 million until we saw clear evidence that the principles were being applied. President Wolfowitz agreed to produce a fuller report, which was discussed by the bank's board in December. In our view, this thorough and candid report provided the evidence that the bank has made the satisfactory progress on conditionality that is required to release the second £50 million contribution.
The report also reiterated bank management's strong commitment to make further improvements in its use of conditionality. For example:
avoiding conditions on sensitive policy areas if government ownership is uncertain or the political environment is fragile;
early and more proactive disclosure of the bank's analytic work;
reducing the number of benchmarks;
specifying the progress expected so that an assessment can be made of the impact of the programme on the poor and the bank's contribution to that programme.
Going forward, further progress on conditionality will be a central consideration in our funding of the next replenishment of the World Bank, which begins in March. We asked the bank to produce its next report on conditionality later this year and to consult with developing country Governments in order to hear their views on how things are changing.
The International Monetary Fund (IMF) has a set of conditionality guidelines that are aligned with the principles adopted by the bank. The IMF's most recent internal review demonstrated an improved focus of conditions within its area of core competence on macroeconomics. In addition a detailed report by the fund's independent evaluation office is currently being finalised. This will examine the IMF's use of conditions in areas such as privatisation and trade liberalisation.