Consensus-Building, Knowledge and Conditionality

Progress in poverty reduction depends primarily upon policy and institutional changes in low-income countries. The Bank's previous approach to inducing these changes has been through negotiated loan conditionalities. The empirical evidence suggests that this approach has been largely ineffective where change occurred it was chosen by governments rather than induced by loans. I discuss various countervailing pressures which undermine the effectiveness of loan conditionalities. An alternative approach for the same objective of inducing change is to empower the domestic constituencies for change through knowledge and participation. I argue that this is likely to be more effective in promoting policy change, and that for institutional change, which is now usually the frontier of economic reform, it is likely to be essential. This change in approach is part of the rationale for the Comprehensive Development Framework.