This Guide seeks to fill a gap in the information available to decision-makers faced with the urgent, all-encompassing needs of a country emerging from conflict. It is based on the premise that improved economic wellbeing can enhance the prospects for sustaining peace and reduce the high percentage of post-conflict countries that return to violence.
The Guide brings together lessons learned from past and current efforts to promote economic growth in post-conflict countries. It proposes a new approach and provides concrete recommendations for establishing effective economic growth programs that will improve well-being and contribute to preventing a return to conflict. It does not provide a checklist applicable in all post-conflict settings, although it does provide the basis for constructing a checklist appropriate to a specific country context.
The Guide is intended to be practical; it can be applied in the chaotic circumstances that prevail in post-conflict settings. Part 1 describes the economic impact of conflict and suggests ways to set economic growth priorities. Part 2 discusses lessons learned and provides recommendations for seven specific sectors: 1) macroeconomic foundations, including both fiscal and monetary policy and institutions; 2) employment generation; 3) infrastructure; 4) private-sector development, including both the private-sector enabling environment and enterprise development; 5) agriculture; 6) banking and finance; and 7) international trade and border management.
The Guide is based on staff research and workshops organised by the Economic Growth Office of USAID’s Economic Growth, Agriculture, and Trade (EGAT) Bureau during 2007-2008, augmented with input from other USAID and field implementers, staff of other United States Government agencies (including the Department of Defense), the World Bank and International Finance Corporation, and several bilateral donors and think tanks.
Key Findings:
- Evidence shows that early attention to the fundamentals of economic growth increases the likelihood of successfully preventing a return to conflict and moving forward with renewed growth. Since 40 percent of post-conflict countries have fallen back into conflict within a decade, it is critically important to heed this evidence and alter the familiar donor approach, which focuses first on humanitarian assistance and democracy-building, with economic issues side-lined to be dealt with later.
- Each post-conflict situation is different, but in general, economic growth programs should aim to: re-establish essential economic governance functions and restore the government’s legitimacy; boost employment and improve well-being as quickly as possible; address the root economic causes of the conflict; and stabilise the economy and position it to grow rapidly.
- Substantial structural challenges and the ever-present risk of a return to conflict mean that donors need to make decisions quickly, balancing specific trade-offs that are much more acute than in stable developing countries. Four trade-offs recur: the need for effective economic solutions in the short-term while moving toward more efficient ones over time; the tension between the need to achieve tasks urgently and the effect such actions (if they bypass local institutions) might have on the government’s perceived legitimacy; the conflicts that can arise between short-term and long-term objectives; and the desire to use the window of opportunity to make dramatic economic reforms immediately after the conflict, contrasted with most governments’ very limited absorptive capacity to manage change.
Recommendations:
- Vigorously promote local private-sector participation in relief and humanitarian assistance programs.
- Phase down refugee camps as soon as possible, to encourage displaced families to return to their previous economic activities, except where such activities are no longer economically viable.
- Knock down as many obvious barriers to both formal and informal economic activity as possible, as quickly as possible. Such barriers could include everything from price controls to unnecessary administrative requirements.
- Ensure that the country has a viable currency, accepted for trade and commercial transactions. Ensure that the government can make payments and collect revenues. Build the country’s capacity to manage its fiscal responsibilities.
- Avoid too much appreciation of the exchange rate, such as that which can result from large donor expenditures, which will reduce the country’s export competitiveness.
