Policy Conditionality, Structural Adjustment and the Domestic Policy System. Conceptual Framework and Research Agenda

Abstract

Policy conditionality has been a frequently used tool in the context of the Euro zone crisis management. By linking the disbursement of loan installments to specific policy requirements the macro-economic adjustment programmes used conditionality as leverage to promote structural reforms.

How does conditionality induce policy change? This central question is examined by considering conditionality as a ‘mega’ policy instrument that seeks to guide the domestic policy system and define its reform trajectory. Policy conditionality thus determines the areas of reform and prescribes their direction while also defining the means and timeframe within which they have to be implemented. Conditionality impacts on domestic governance and transforms the policy making system into a compliance and implementation mechanism.

The paper argues that the reform potential of conditionality relies on its interaction with the domestic political system and policy process. A public policy lens can help to better understand the dynamics inherent in this process as well as highlight the strengths and limitations of conditionality. Following the conventional stages of public policy, the contribution focuses on the political challenges involved and sketches out a prospective empirical research agenda.

Keywords: Policy Conditionality, Structural Reform, Domestic Governance, Euro Crisis Management, Policy Instrument