National policy will be most effective if donors are not in the driving seat and there is national ownership of policy. Ownership in this context means that Government, through a participatory process, takes the lead in the preparation of the strategic programme document which will guide the economic reform process and whose implementation will later be monitored as a condition for aid and debt relief. Aid effectiveness can also be increased if donors focus their aid on countries that have the right policies, i.e. increase the geographical selectivity of aid flows. Aid effectiveness can be increased by improved coordination between the IMF and the World Bank, and also amongst bilateral donors. The strategic documents prepared by the Government should provide a framework for this.
External debt is a problem for highly indebted poor countries.
But the debt relief provided through the HIPC Initiative will be sufficient to provide a sustainable exit from debt problems and will be effective in reducing poverty as long as the national policy environment is right. The issues of reorienting national policies, promoting national ownership and partnership, and increasing aid coordination are certainly the right ones. But the current diagnosis for change is too rooted in a perspective which locates past problems at the national level rather than in international economic relationships, and is also unbalanced in its attribution of policy mistakes and bad management between donors and recipients. The core elements of an alternative diagnosis for policy change, based on the analysis of this Report, can be summarized in seven propositions. In spite of problems of implementation and interruptions, and differences among countries, there has been a significant change in the policy environment of many LDCs in the direction of economic liberalization.