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This article examines the eectiveness of policy conditionality by international and other aid donors. The subject is treated within a principal-agent framework and is based on evidence from a sample of 21 developing countries, mainly relating to experiences with World Bank structural adjustment programmes. The evidence provides strong support for the overall hypothesis that conditionality-applying donors (speci®cally the BWIs) are often unable to put in place a system of rewards and punishments sucient to overcome the frequent perceived con¯icts of interest between themselves and recipient governments. Diculties which donors experience in punishing non-implementation of policy stipulations are among the chief reasons for this result. In the event of serious donor±recipient disagreements, domestic politics usually dominates. The use of donor ®nancial leverage is not a substitute for weak domestic institutions or political will'. We also ®nd that the conditions necessary for conditionality to provide à technology of precommitment' are often not satis®ed. The BWIs and other donors should recognize that their main contribution to policy reform in developing countries has been through in¯uence on the contemporary intellectual climate, and persuasion of governments through regular contacts.

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Based on study of (a) the HIPC debt relief initiative, (b) the linking of aid to policy conditionality and (c) transactions-cost arguments in favour of programme aid, this article argues that major elements in the new aid agenda may not be well-based empirically. This is partly because of inadequate knowledge, but particularly because the evidence often conflicts with political preferences. As a result, it is likely that large amounts of aid resources are being misdirected. Ways are suggested of narrowing the gap between evidence-based and 'political' decisionmaking. In the meantime, donors should avoid diverting more aid into debt relief, should roll back their reliance on policy conditionality, and should exercise pragmatic caution in the expansion of programme assistance.

1, THE SPREAD OF ADJUSTMENT PROGRAMMESUTURE historians of economic policies in developing countries will surely come to regard the 1980s and early-199os as a period remarkable for the spread of the influence of the IMF and World Bank (hereafter collectively the BWIs). By then the IMF had come to be lending almost exclusively to developing countries (with the later addition of 'economies in transition') and a rapidly growing proportion of such lending was undertaken through its mediumterm Enhanced Structural Adjustment (ESAF) and Extended (EFF) facilities, both seeking to combine standard Fund approaches to macroeconomic management with wider-ranging measures to raise the efficiency of key economic institutions and the productive structure of the economy. Moreover, and by contrast with earlier years, almost all Fund lending was of a high-conditionality nature.Similarly, the World Bank's incursion into quickdisbursing, policy-related structural adjustment lending in 1979 grew rapidly, with a five-fold increase in the number of such programmes (hereafter S A P S ) during 1980/82 to 1989193 and a seven-fold increase in their value, averaging nearly US$6 billion a year in the later period. Today only a modest minority of developing countries have not at some time been recipients of BWI structural adjustment loans, and many countries have had a long succession of them. At least in intention, this spread of SAPS has given the BWIs an historically unprecedented leverage over the economic policies of sovereign developingcountxy governments, to an extent that would be unimaginable among OECD states. TONY KILLICK is Senior Research Fellow, Overseas Development Institute, London, and VisitingProfessor, University of Surrey. This article draws upon an on-going study of the uses and limitations of conditionality, including the preliminary results of an llcountry survey of experiences with World Bank structural adjustment loans undertaken with Ramani Gunatilaka, whose assistance is gratefully acknowledged. 0 Blackwell Publishen Ud. 19%. I08 Cowky Road. Oxfwd OX4 IJF. UK and 238 Main Srrcet. Cambridge. M A 02142. USA. 21 1 212 TONY KILLICK THE PARADOX OF GOOD POLlCIES AND WEAK RESULTSHistorians of the period will surely also note the large apparent successes of the policy thrust promoted by the BWIs. Expressed in broad terms, the BWIs' approach to policy improvement could be boiled down to three pieces of advice: avoid large macroeconomic imbalances; pursue 'market-friendly ' policies; take maximum advantage of opportunities in foreign trade and for foreign investment.Historians will find plenty of evidence that this type of policy strategy indeed produced economic results superior to those which had gone before and to available alternatives. In addition to the results of academic investigations, the recent histories of major countries and regions appear to demonstrate the strategy's efficacy. The remarkable response of the Chinese people to the rolling back of central planning, the encouragement of private enterprise, the gradu...