Ethiopia offers an example of how the process of designing a poverty reduction strategy can help build consensus around key development priorities and mobilize aid. In 2000, Ethiopia was struggling to cement a fragile peace after a border war with Eritrea and to repair the damage wrought by this conflict.

The war had severely eroded government accountability and effectiveness, and had curtailed the delivery of basic public services in remote and rural areas. Money to fix these problems was scarce as the war had increased defense spending and caused the international donor community to cut back support.

Against this precarious background, the government began preparing its poverty reduction strategy in 2001. As part of this process, it organized consultations moderated by representatives of civil society in more than 100 of Ethiopia's 550 districts. A development assistance group in Addis Ababa supported the consultations, channeling money from 17 donors to the government, civil society and the private sector through a trust fund managed by the United Nations Development Program.

The Bank also helped organize consultations with the private sector in several Ethiopian cities. As a result, certain key policy areassuch as land tenure, the financial sector, and competition policy were opened for discussion and addressed by the poverty reduction strategy. These talks helped the government produce a three-year poverty reduction strategy. Under this plan, more power is being handed to local governments, and private investment is being encouraged as part of a plan to increase growth by developing agricultural industries.

Starting with the peace process, and continuing with the poverty reduction strategy, the government has reduced defense spending dramatically. At the same time, expenditures to reduce poverty have more than doubled.

The World Bank, the European Union, the African Development Bank, and several other donors have agreed on common guidelines for their assistance efforts. They have promised to coordinate their programs to follow the government's priorities.

For its part, the government needs to show quick results from the process of decentralizing some public services and responsibilities, one of the strategy's most prominent elements. This will require building local capacity and raising the ability of districts to absorb new funding. This presents a new challenge for donors who now must work with three levels of government, and who have to look beyond individual projects to ensure they are supporting broad goals across all sectors.

Finally, given the financial resources needed to achieve the goals set down in the poverty reduction strategy, financial support must increase dramatically. Ethiopia's aid flows lag far behind other countries in the region—about $13 per person compared to an average of $23 per person in Sub-Saharan Africa as a whole.

To prevent a build-up of new debt while the country remains vulnerable, new aid to Ethiopia will need to be in the form of grants. Additionally, to support the government's poverty reduction strategy, the authorities and the donor partners are looking at ways of helping Ethiopia progress from a reliance on humanitarian aid to long-term development assistance.