Post-Conflict Economic Report: Highlights
THE BIG PICTURE
Post-conflict recovery has two objectives. The first is to re-establish the conditions for self-sustaining economic growth and human development. The second, equally important objective is to reduce the major risk factors of conflict recurrence such as low per capita incomes, poor employment opportunities, weak economic growth, and severe socio-economic horizontal inequalities.
Post-conflict recovery is not about restoring pre-war economic or institutional arrangements. It is a transformative process comprising a mix of far-reaching economic, institutional, legal, and policy reforms. There is no “one size fits all” approach. Rather, all recovery efforts should be context-appropriate, based on the circumstances of the country.
Conflict never leaves a tabula rasa. Local economic drivers often flourish and many local institutions and modes of social interaction survive. Post-conflict recovery efforts must understand, build on, and work with the social and institutional dynamics as they are on the ground.
At a minimum, post-conflict economic recovery requires the establishment of basic security, the reassertion of the rule of law, a coherent macroeconomic framework, and an effective system of oversight and accountability. It is also essential to take into account the informal economies that emerged from the rubble. These war-time economies are dynamic and complex, resulting in patterns of wealth accumulation and distribution that can offer the basis of recovery but can also continue to pose serious challenges to post-conflict stability.
ENABLING LOCAL INGENUITY
The central notion of the report is that indigenous drivers are critical to recovery. This notion captures the efforts of the local communities and enterprises to stimulate economic activity after war. Local actors are the best placed and have the strongest incentive to rehabilitate themselves after war. Their efforts to rebuild their livelihoods constitute the most viable platform on which to base post-war recovery efforts and international support.
Reversing the damage and investing in people is therefore essential for post-conflict economic recovery. Simultaneously, it is also important to reduce the inequities among groups (horizontal inequalities) that may have contributed to conflict dynamics in the first place. Indeed, the end of conflict can create an opportunity to redress pre-war distortions and inequalities.
Gender equity must be a key concern in the recovery phase. Ensuring that women and girls have equal access to employment opportunities, education, health and finance is not just a moral imperative – it is central to the notion of human development. Women and girls are key economic and socio-political assets in the recovery process.
Post-conflict societies survive conflict with some informal institutions and forms of governance that may have attained a degree of viability and legitimacy with communities. Acknowledging and working with these institutions is necessary to achieve peace, stability and development.
MACROECONOMIC POLICY
The first post-crisis years are crucial to long-term economic recovery. While quick action is often required, this is not necessarily a time for radical action. Rather it is a period for establishing policies that are most appropriate to create the conditions for recovery.
Good post-conflict macroeconomic performance requires a sequential approach to reforms. It solicits the return of private investment; re-establishes monetary and exchange rate management regimes; promotes a fiscal policy that prioritizes financing recovery; creates jobs; fosters reintegration; and provides basic social services.
Macroeconomic policy must give priority to minimizing conflict risk, even as it promotes growth. This may mean, for instance, tolerating moderate inflation and budget deficits while attracting the return of skilled manpower and private sector investment.
Recovery is likely to be more sustainable when it benefits all rather than only a small segment of the population. It is particularly important to create badly needed jobs and boost incomes, which, helps to consolidate peace by giving young people alternative opportunities and incomes.
There is no unique path to development, yet our review of country experience shows that those that emphasize social inclusion and equity enjoy a stronger recovery and are less likely to fall back into conflict. Growth alone does not define economic recovery, but it is a critical component. It must, however, be broad-based and inclusive, benefiting all groups and income levels.
ROLE OF THE STATE
After conflict, the recovery and rehabilitation of the state itself is a priority; a strong and inclusive state is essential to building and sustaining peace. The three core requirements of a functioning government are authority, legitimacy, and effectiveness. For war-torn countries, the real challenge is often not just the reconstruction of state structures, but also the restoration of the attributes of legitimacy, respect and effectiveness, which were wanting or have been destroyed by conflict.
Post-conflict governments must work to re-establish legitimacy by including all major stakeholders in social and economic processes. The new state must assert its effectiveness by restoring its capacity to administer social, political and economic processes and to assure individual and community security. A continuing absence of security seriously undermines recovery and economic development.
The principal institutional requirements for post-conflict recovery include the creation of a professional public administration and civil service; the rebuilding of representative and inclusive political institutions; and the establishment of mechanisms for oversight, accountability and financial controls.
Good governance pays a large development dividend. In the context of economic recovery, good governance includes the capacity to formulate sound economic policy and provide effective regulation and oversight. It also includes being able to manage public revenues and expenditures in an efficient, equitable and transparent fashion.
While international aid is an important component of post-conflict recovery, relying too heavily on imported capacity must be avoided. It can undermine local capacities and the rebuilding of skilled domestic competencies by putting off investment in domestic human resources. It is essential that national actors take the lead in achieving effective political and economic governance. Allowing for local personnel to work and train alongside foreign experts may temporarily raise the cost of recovery programme. But, in the longer-term it will strengthen the recovery process by reconstituting domestic capacity on a more sustainable basis.
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