Working Paper 04/2012 Rebuilding war-torn states: tomorrow's challenges for post-conflict...

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1 ACMC Paper 4/2012 > Conflict prevention in practice: from rhetoric to reality Rebuilding war-torn states: tomorrow’s challenges for post-conflict reconstruction The economics of peace or economic reconstruction (that is, the economic transition) represents an intermediate and distinct phase between the economics of war or chaos (that is, the underground economy of illicit and rent-seeking activities that thrive in these situations) and the economics of development. The main objective of this intermediate phase should be to make peace irreversible. Unless this happens, war-affected countries will not be able to move into a development-as-usual phase in which they will confront the normal socio-economic challenges facing countries at low levels of development but not affected by conflict or chaos. 2 ECONOMICS OF WAR ECONOMICS OF PEACE (or economic reconstruction) (or economic transition) ECONOMICS OF DEVELOPMENT (or normal development) (or development as usual) > PAPER 04/2012 Graciana del Castillo Managing Partner, Macroeconomics Advisory Group, and former Senior Research Scholar, Columbia University Peace through security versus economics: a critical dilemma In the aftermath of the Arab Spring and regime change in many countries, with South Sudan joining the international community as an independent state, and with countries as far apart as Afghanistan, Liberia and Haiti obviously ‘off track’ in their efforts to rebuild their war-torn or disaster-affected communities, it seems a perfect time to review and re-assess policies, strategies and civilian-military interactions for the transition to stability and sustainable peace. Despite the differing characteristics of each particular case, when countries at a low level of development emerge from civil war or other chaos they face the difficult challenge of responding to the root causes of the conflict so as to make peace irreversible. In fact, countries embark on a complex, multifaceted transition—to pull back from violence and insecurity (the security transition); to transform a repressive political regime into a participatory one based on the rule of law and respect for human rights (the political transition); to end ethnic, tribal, religious or class confrontations and initiate a process of national reconciliation (the social transition); and to move away from large macro-economic disequilibria and war-torn economies in order to engage in economic reconstruction and so create a functioning economy in which people can have access to basic services and earn a fair, licit and sustainable income (the economic transition). 1

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Transcript of Working Paper 04/2012 Rebuilding war-torn states: tomorrow's challenges for post-conflict...

Page 1: Working Paper 04/2012 Rebuilding war-torn states: tomorrow's challenges for post-conflict reconstruction

1 ACMC Paper 4/2012 > Conflict prevention in practice: from rhetoric to reality

Rebuilding war-torn states: tomorrow’s challenges for post-conflict reconstruction

The economics of peace or economic reconstruction (that is, the economic transition) represents an intermediate and distinct phase between the economics of war or chaos (that is, the underground economy of illicit and rent-seeking activities that thrive in these situations) and the economics of development. The main objective of this intermediate phase should be to make peace irreversible. Unless this happens, war-affected countries will not be able to move into a development-as-usual phase in which they will confront the normal socio-economic challenges facing countries at low levels of development but not affected by conflict or chaos.2

ECONOMICS OF WAR

ECONOMICS OF PEACE(or economic reconstruction)

(or economic transition)

ECONOMICS OF DEVELOPMENT(or normal development) (or development as usual)

> PAPER 04/2012

Graciana del Castillo Managing Partner, Macroeconomics Advisory Group, and former Senior Research Scholar, Columbia University

Peace through security versus economics: a critical dilemmaIn the aftermath of the Arab Spring and regime change in many countries, with South Sudan joining the international community as an independent state, and with countries as far apart as Afghanistan, Liberia and Haiti obviously ‘off track’ in their efforts to rebuild their war-torn or disaster-affected communities, it seems a perfect time to review and re-assess policies, strategies and civilian-military interactions for the transition to stability and sustainable peace.

Despite the differing characteristics of each particular case, when countries at a low level of development emerge from civil war or other chaos they face the difficult challenge of responding to the root causes of the conflict so as to make peace irreversible. In fact, countries embark on a complex, multifaceted transition—to pull back from violence and insecurity (the security transition); to transform a repressive political regime into a participatory one based on the rule of law and respect for human rights (the political transition); to end ethnic, tribal, religious or class confrontations and initiate a process of national reconciliation (the social transition); and to move away from large macro-economic disequilibria and war-torn economies in order to engage in economic reconstruction and so create a functioning economy in which people can have access to basic services and earn a fair, licit and sustainable income (the economic transition).1

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The record is indeed unimpressive. In fact, the United Nations estimates that roughly 50 per cent of the countries that have embarked on the economics of peace have moved backwards and reverted to conflict within a few years. Of the half that have moved forward into normal development, most have ended up highly dependent on aid. This is an unsustainable situation in the aftermath of the global financial crisis, with its severe fiscal and employment repercussions in donor countries.

The economics of peace is broadly defined as including not only the rehabilitation of basic infrastructure and services ravaged during war and the demining of fields and roads so that productive activity can begin, but also the modernisation or creation of a basic institutional and policy framework. This is essential for the successful re-integration of former combatants and other crisis-affected groups into the economy, which is the basis for national reconciliation. It also entails dealing with ‘spoilers’, who will be reluctant to give up the illegal activities they engage in to benefit themselves during conflict.

Because of the strong link between security and the economy in the transition to peace, the interaction between military and civilian policies and strategies is especially important. It is widely accepted that restoring security is an important challenge, even a pre-condition for re-activating the economy. Causality, however, goes both ways. It is less recognised, but just as important to remember, that the re-activation of productive activities, jobs and basic services for the population at large is in turn central to establishing lasting security. Failure in this area has been perhaps the primary impediment to restoring and maintaining security in many countries.

So much is at stake, and the dilemma of ‘peace through security’ as opposed to ‘peace through economics’ deserves further debate. One can argue that an imbalance between efforts and resources in responding to the security and economic challenges has proved a major factor for countries relapsing into conflict. Because of the way security and the economy interact, the civilian–military collaboration during this phase is crucial in order to succeed in a number of areas:

> eliminating the underground economy

> rebuilding essential infrastructure and services

> designing, implementing and monitoring disarming

> developing and implementing demobilisation and re-integration programs that are sustainable over time

> demining roads and fields

> carrying out other activities that need to take place in the transition to peace.

Moreover, security and economic challenges need to be dealt with in an integrated manner rather than separately. For this, military–civilian collaboration is essential. The need for integration does not mean that every player should participate or have a say in every activity; this would be a recipe for inaction. It means that the various parties involved should be well informed about what others are doing, both inside the host government and among the international community, so as not to be working at cross-purposes and to be able to benefit from the synergies these operations might create.

The following section of this paper discusses the characteristics of the economics of peace and what makes the challenges of this intermediate phase fundamentally different from those associated with development as usual. The third section discusses aid-related problems that affect economic reconstruction; in particular, it analyses the various myths and realities of aid, which host governments and the international community need to keep in mind when deciding on a strategy for peace. The fourth section argues that, despite the characteristics of each particular case, a coherent, integrated and pragmatic strategy for peace through economics is central to stability and sustainability. Such a strategy requires moving away from humanitarian aid to reconstruction aid as soon as feasible and finding a balance between military and economic assistance. Without such a strategy foreign forces—national or NATO forces or UN peacekeepers—will not be able to withdraw from the country and leave behind a stable, sustainable situation. Finally, recommendations for facilitating the economics of peace are made in the form of 10 basic ‘commandments’. These could be used as the guiding principles when designing, negotiating and implementing future policies, strategies and civilian–military interactions for stability and peace.

Economics of peace versus development as usual: the main challengesBecause the economic transition takes place in the context of a multifaceted transition to peace—not independently from it—and because the transition requires a number of specific peace-related activities that are complex and costly but vital to keeping the peace, the economics of peace or the economic reconstruction phase differs fundamentally from development as usual. These additional activities have important financial consequences that need to be given priority in budgetary allocations, and as a result the peace and the development objectives often clash during this

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phase. When this happens the peace (or political) objective should prevail at all times over the development (economic) one. The purpose of this phase is national reconciliation and peace consolidation, rather than optimal economic policies. Obviously, without peace there is little chance for development.

The similarities between countries in the process of economic reconstruction and those undergoing normal development, while real indeed, should not lead to the conflation of policies.3 Policy making in countries emerging from conflict—as in those emerging from other crises such as natural disasters or financial collapse—has less room for flexibility than under normal circumstances. Differences arise in relation to the horizon over which economic policies can be planned (short-term emergency as opposed to medium- and long-term problems); the amount of aid (sharp spikes as opposed to low and stable flows); the treatment of different groups (preferences as opposed to equal treatment for all); and the involvement of the international community in national affairs (intense and intrusive as opposed to non-interference).

As a result, emergency policies needed to overcome crises should be adopted with a sense of urgency and of forgiveness for distortions. In such situations, contrary to the process of normal development, there is no luxury to plan policies with medium- and long-term horizons in mind. Policy making in crisis situations should also involve a disregard for the ‘equity principle’ that guides development policies and favour instead groups that have been most affected by the crisis. At the same time, countries emerging from such crises face the challenge of using large volumes of aid (which can reach as much as 50 to 100 per cent of GDP or even more in a few cases) in an effective and non-corrupt way. They also have to put up with the intrusive political involvement of the international community and often with the presence of foreign troops.

If peace is to have a chance, it is important to recognise that the short-term challenge of the economics of peace is primarily to avoid relapsing into conflict and thus to contribute to stability and national reconciliation—not to deal with the immediate challenges of development. The latter involves a long-term proposition that can be properly dealt with only if peace is sustained.

Aid myths and realities in supporting peaceThe past few years have witnessed a hotly debated controversy over aid that has erroneously focused on

whether aid should be increased or eliminated altogether, rather than on how the aid can be made more effective. The challenge is to use aid to create dynamism and inclusion in countries emerging from war or chaos. So far, aid has proved to be more of a problem than a solution: not only have aid policies failed to achieve their basic objectives but, most worrisome, they have threatened the legitimacy of government, created all types of distortions and facilitated corruption. This is particularly the case in countries that have received large volumes of aid for long periods.

In analysing the impact of aid on countries emerging from severe crisis, it is clear that economic stabilisation and the re-activation of growth in these countries have proved much easier than the creation of productive, sustainable employment for the population at large, without which peace might not be long-lasting.4 At least three myths permeate an analysis of aid effectiveness.

The first myth is that growth-creating aid is effective in supporting the government reform agenda and re-activating the economy. This is not necessarily so. Countries in the normal process of development receive levels of aid—expressed as official development assistance over gross national income—of 3 to 5 per cent of GDP, whereas, with few exceptions, in countries emerging from war and major disasters aid can, as noted, spike to 50 to 100 per cent of GDP in the immediate post-crisis period.5 Furthermore, large volumes of aid are highly correlated with a large international presence in the country, including foreign military forces.

It is not surprising that large volumes of aid and the international presence, by themselves, create growth, particularly starting from a low base.6 The question becomes whether such growth is positively affecting the population at large and is sustainable over time or whether it is supporting a small elite and creating distortions that are hurting the economy and the ordinary citizen, not only in the current time frame but also in the future. The latter situation is clearly the case in Afghanistan, which has experienced spectacular growth—showing annual growth of 12 per cent on average a year in the past decade, which is even higher than China’s 11 per cent. Similarly, growth figures for Liberia exaggerate the positive impact aid has had in the country.7

The second myth is that rapid growth will generate productive employment and will improve living conditions. This is not necessarily the case. In fact, aid is largely used to finance foreign contractors for goods and services produced by companies in donors’ countries and foreign procurement of UN and other interested parties in the country. Furthermore, high rates of growth are often associated with mining and agricultural plantations or

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export-processing zones, which create mostly low-wage, low-quality jobs—a source of resentment that can easily become a catalyst for instability.

The third myth is that, by creating jobs and supporting private sector development, aid will of necessity strengthen the licit economy. During wars people can become really entrepreneurial. By promoting private sector development, aid can strengthen the corrupted entrepreneurial class that existed before. In encouraging better relations with local partners at different levels of government donors have often condoned corruption. Similarly, by channelling aid outside the government budget donors have often encouraged bribes, rather than reduced corruption. Furthermore, many foreign contractors have proved corrupt themselves or lenient about paying bribes to facilitate their operations in these countries.8

The reality with aid in conflict- and disaster-affected countries is often far from what the myths would lead us to believe. Aid has failed to help countries stand on their own feet and has led to dependency. Disbursement of reconstruction aid is often delayed until the country has the right conditions in terms of political leadership, governance, institutions and human capacity. In the meantime, humanitarian aid continues to be disbursed.9 Humanitarian aid to save lives in the short run should not be neglected, but it should be recognised that such aid promotes consumption (rather than investment), creates price distortions and work disincentives (just as welfare programs do in industrial countries) and fails to build local capacity.

Countries must be weaned off humanitarian aid as soon as the situation allows it. Reconstruction aid to improve infrastructure, promote start-up companies and re-activate services, agriculture, small enterprises and mining should start right away and should be the main focus of international aid commitments. It is unfortunate that the striking differences between humanitarian aid and reconstruction aid have become blurred in the present context—with the same agencies, non-government organisations or military forces often providing both.10 Saving  ives is important but making them worth living should be just as important.

At the same time, aid creates all types of distortions. By changing relative prices, food aid discourages local production and work. Donor-imposed policies designed to liberalise trade—including those introduced by international development and financial institutions as well as bilateral donors—have led to cuts in tariffs on rice and other staple products. Both initiatives have adversely affected food security and have often led to floods of imports that

crisis affected countries can ill afford and that create permanent dependency.11

The mere presence of foreign workers and their activities puts pressure on prices, wages, rents, and transportation and other services. And, more troublesome, aid-related activities generally deprive the government of expertise: by offering better wages (generally in hard currency) and more attractive working and living conditions, the international community lures the most qualified people away from the civil service. Skilled workers and professionals who obtain jobs as drivers and interpreters will soon lose their skills. This not only affects the government’s capacity to provide services and security in the short run; it also threatens the future productive capacity of the country.12

Moreover, aid is provided in a fragmented way, and innumerable flagship programs tax governments’ limited capacity. By not channelling aid through the government budget, donors have promoted a fragmented, rather than integrated, strategy in which the recipient government cannot have strong ownership, and lack of ownership generally leads to unsustainable projects. At the same time, ‘coordination’ is a catchcry among the aid community, but no one wants to be coordinated. A truly integrated approach among the different organisations has remained difficult to achieve, despite big improvements in their collaboration over the years.

A coherent, integrated and pragmatic strategy for peaceEach country emerging from war or chaos should end up with its own strategy, attuned to its own political, security, socio-economic and cultural situation. Strategies will also differ according to the level of aid and other international support that countries can garner according to their geopolitical importance. Taking these factors into account, the national authorities, with international support as needed, should prepare a tailored strategy, one based on national priorities and a sober assessment of existing conditions and resources and that is coherent, integrated and pragmatic. Any such strategy needs to have broad support among the population and must be coordinated among the various interested parties.

Whatever the strategy is, however, lessons from the recent past suggest that the economics of peace will be more effective in achieving the strategy’s goals if some basic rules are followed. The first and most important of these is that economic reconstruction is not development as usual and the peace objective should prevail over the development one

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at all times. As a consequence, optimal economic policies are not always feasible or desirable in the short run. The second rule is that policy and legal frameworks should be kept as simple, flexible and transparent as possible, given the existing constraints and limited government capacity to execute such policies.13

Once the government builds up consensus for its overall strategy, it should design the specific policies and set up priorities in budgetary allocations. An appropriate and fair legal and regulatory framework for the distribution of gains and risks, as well as for ensuring accountability based on results, is essential for improving efficiency and fairness and avoiding corruption. Unfulfilled expectations on the part of disgruntled groups can seriously endanger the transition to peace.

The development of physical and human infrastructure is often necessary throughout the country, and governments must decide what basic infrastructure and services are essential to create social capital and re-activate agriculture, tourism, mining, or whatever other sectors they want to stimulate. While some elements of infrastructure can be a prerequisite for production (dams in some areas, for example), development of others (such as road, ports or railways) could be postponed to coincide with the generation of mining or agricultural produce for export.

Because many countries emerging from war are at very low levels of development, aid should be immediately targeted at developing basic human infrastructure. The aid system has been more effective in rebuilding clinics and schools, roads and other physical infrastructure than it has been in building the social capital necessary to have effective public education and health services. Capacity building in the former areas should be done on a holistic basis, rather than in a fragmented way. It should also be done on an emergency shift since the inadequacy of these services has not only been a major deterrent to re-activating production but has also give rise to great frustration among the population.

Both national and international companies can participate in the construction or rehabilitation of national and local infrastructure. Local entrepreneurs should be encouraged to participate in bidding projects, alone or in joint ventures. Because financing is always a serious constraint, governments must explore different forms of concessions under public–private partnerships.14 In post-crisis situations private investors hardly ever become involved unless it is in partnership or with guarantees from the government, donors or multilateral agencies.15

In choosing the foreign partners, governments must also decide on the pros and cons of entering into contract

agreements with large transnational corporations, rather than with smaller firms from the region that might have experience in comparable countries: the latter might bring technologies and practices that are cheaper and more readily adapted to local conditions. Additionally, governments must decide on the scale of some projects: the experience of Iraq has shown that small projects can work better than large ones in an insecure environment or in one where the operational capacity and maintenance abilities of the country are limited.

If political conditions allow it and the support of regional development banks is forthcoming, regional infrastructure could be built to make these countries more competitive by bringing cheaper electricity or power to some parts of their territory or to create roads and other infrastructure that could facilitate and decrease the costs of travel and trade.

Governments need to make crucial decisions about exploiting natural resources and creating resource funds. They need to find a combination of incentives and coercion to bring large investors into the peace process and ensure a fair allocation of resources—between investors and citizens as well as between present and future generations. Although the exploitation of natural resources has great potential in terms of re-activating production and employment, as well as in improving the fiscal and external stance of the government, it can also become a lightning rod for conflict among local indigenous groups or a focus for sabotage by insurgencies in countries with ongoing conflict.16

Just like large influxes of aid, large export proceeds from natural resources could appreciate the local currency, thereby discouraging other exports—an effect usually referred to as ‘Dutch disease’. Despite the fact that Dutch disease has not been a problem among recipients of large amounts of aid such as Afghanistan and Liberia, international financial institutions often recommend that governments create resource funds in order to save the proceeds from the exploitation of natural resources for future generations.17

Whether or not to follow this advice is one of the toughest decisions national governments have to make: will future generations be better off if export proceeds are saved in a fund (and probably invested in international capital markets) or will they be better off if most of those proceeds are invested in human and physical infrastructure that will also benefit future generations? The answer to this question depends on how productively the funds can be invested in infrastructure as well as in improving the human capacity of young populations.18

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Economics of peace into the future: 10 basic commandments In responding to tomorrow’s challenges for economic reconstruction in countries emerging from war or another type of crisis, as well as in countries that are clearly off track in their efforts to rebuild their economies, it is imperative that civilian–military donors and partners heed 10 basic commandments.

1. Apply TE Lawrence’s dictum, that it is better to let them do it than it is to try to do it better for them. Let national negotiators and local leaders and communities determine what their economic needs and priorities are, and let insurgents determine their preferred avenue for re-integration. Unless the participants are empowered and assume ownership, programs will not be sustainable, resources will go to waste, and peace will not endure.

2. Ensure the integration—rather than merely the coordination—of economic factors into the political and security agenda. This would entail using re-integration and other economic programs as a carrot, even during peace negotiations. Such programs are central to supporting peace and national reconciliation.

3. Support a peace agreement or a peace strategy, as the case may be, designed in accordance with the country’s financial and technical capacity to implement it. This requires reasonable projections for domestic tax revenues and aid, as well as the right mix of foreign and domestic expertise. Avoid overly optimistic projections that lead to unworkable plans and unreasonable expectations the government will not be able to fulfil, as happened in Guatemala.

4. Channel aid through the central government budget, earmarked for local authorities as appropriate, so that officials can acquire legitimacy by providing services, infrastructure and security to their communities.

5. Ensure that such aid moves quickly from short-term humanitarian purposes—to save lives and to feed and shelter those renouncing war or affected by it—to reconstruction activities aimed at creating investment in a holistic way so as to build social capital, improve productivity and financing, ensure food security, and enable people to live dignified lives.

6. Establish well-planned and synchronised programs for demobilisation, disarmament and re-integration. These are the sine qua non for making the transition from war to peace irreversible.

7. Establish different programs for higher level commanders, providing for them orientation, training, credit and technical assistance. The United Nations acknowledged better results from ‘Plan 600’ in El Salvador than from programs for lower-ranking combatants, which lacked a similar level of support.

8. Increase support for non-government organisations with successful records in creating entrepreneurs in rural development, in carpet weaving, jewellery design, construction or any other activity the country wants to encourage. Active policies for promoting new start-ups and local companies’ expansion through credit, training and technical support are imperative.

9. Establish economic reconstruction zones to jump-start sustainable economic activity, create jobs and export earnings, improve aid effectiveness and accountability, and avoid aid dependency. The zones could combine integrated rural development and light industries for domestic consumption and labour-intensive manufacturing and agro-businesses for export. The United States and other countries should open their markets to goods produced in these zones.19

10. Ensure that the political or peace objective prevails at all times, even if this strategy might delay the attainment of economic stability and development. This often means accepting that optimal and best-practice economic policies are not attainable—or, indeed, even desirable.20

BibliographyAddison, Tony (ed.), From Conflict to Recovery in Africa, Oxford University Press, Oxford, UK, 2003.

Boyce, James K (ed.), Economic Policy for Building Peace: the lessons from El Salvador, Lynne Rienner, Boulder CO, 1996.

del Castillo, Graciana, ‘The economics of peace: military vs civilian reconstruction—could similar rules apply?’ in Expeditionary Economics: toward doctrine for enabling stabilization and growth, West Point US Military Academy NY, forthcoming.

——, ‘Aid and employment generation in conflict-affected countries: policy recommendations for Liberia’, in Foreign Aid and Employment , Working Paper no. 2012/47, UN/WIDER, Helsinki, 2012.

——, The Economics of Peace: five rules for effective reconstruction, Special report #286, US Institute of Peace, Washington DC, 2011a.

——, Reconstruction Zones in Afghanistan and Haiti: a way to enhance aid effectiveness and accountability, Special report #292, US Institute of Peace, Washington DC, 2011b.

——, ‘The Bretton Woods institutions, reconstruction and peacebuilding’, in Mats Berdal and Achim Wennman, Ending Wars, Consolidating Peace: economic perspectives, Adelphi Series of Books, IISS, London, 2010a.

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——, ‘Peace through reconstruction: an effective strategy for Afghanistan’, Brown Journal of World Affairs, vol. XVI/II, Spring/Summer, 2010b.

——, ‘Economic reconstruction of war-torn countries: the role of the international financial institutions’, Setton Hall Law Review, vol. 38, no. 4, December 2008a.

——, Rebuilding War-torn States: the challenge of post-conflict economic reconstruction, Oxford University Press, Oxford UK, 2008b.

——, ‘Auferstehen aus Ruinen: Die Besonderen Bedingungen des Wirtschaftlichen Wiederaufbaus nach Konflikten’, Der Überblick (Germany’s Foreign Affairs), issue 4, December, 2006.

—— and Charles Frank, ‘Innovative methods for infrastructure financing: case studies’, Paper prepared for the Inter-American Development Bank for discussion in the framework of the Integration of Regional Infrastructure in Latin America, 2003.

de Soto, Alvaro and Graciana del Castillo, ‘Obstacles to peace-building’, Foreign Policy, vol. 94, Spring, 1994.

Dulles, Allen W, The Marshall Plan, Berg Publishers, Providence/Oxford. (Original 1948 manuscript is in the Allen W Dulles Papers at Princeton University.)

Katz Jonathan M, ‘With cheap food imports, Haiti can’t feed itself ’, Washington Post, 2 March 2010.

Notes1 See del Castillo (2008a, Chapter 1). See also the bibliography for references on the economic transition in countries emerging from war or chaos.2 To avoid repetition, the terms ‘development as usual’, ‘normal development’ and ‘long-term development’ are used interchangeably. The terms ‘economic transition’, ‘economics of peace’, ‘economic reconstruction’ and ‘reconstruction’ are also used interchangeably.3 See del Castillo (2008a, Chapter 3).4 In fact, stabilisation policies have often been an impediment, or at least a constraint, to building up peace in crisis-affected countries. See del Castillo (2010a, 2008a, 2008b), Addison (2003), Boyce (1996), and de Soto and del Castillo (1994).5 In countries such as Afghanistan and Liberia the spikes have been unusually large and long. See del Castillo (2012, 2011b, 2010b).6 Former UN Secretary-General Kofi Annan has said that Africa-wide growth rates of 5.5 per cent are impressive. In a region where annual income per capita can be as low as $200 in some countries, and not much more in others, with few exceptions, such a level of growth is not as impressive as that.7 See del Castillo (2012, 2011b). 8 See del Castillo (2008a).9 A serious problem with aid in Afghanistan and Haiti has been the exorbitant humanitarian aid in relation to reconstruction aid provided over the years. See del Castillo (2012, 2011b).

10 The different impact of these two types of aid was actively debated at the time of the Marshall Plan. Dulles (1993) argued that it would be a waste of money merely to provide humanitarian aid to feed the Europeans for a year or two. Reconstruction aid was necessary to give them the tools without which they would have little chance of righting their own (postwar) economies. He stressed that policies adopted in the first year of the plan would be decisive in determining how effectively reconstruction proceeded. The same is still true in the present context.11 For example, President Clinton publicly apologised in March 2010 at the Senate Foreign Relations Committee for championing policies that destroyed Haiti’s rice production. As he pointed out, ‘It may have been good for some of my farmers in Arkansas, but it has not worked. It was a mistake’. See Katz (2010).12 At the same time, efforts at building the national capacity by using aid to embed consultants in the local ministries have not generally worked. Independent consultants have a stake in perpetuating the need for their own services. It would be best if governments and relevant companies sent experts on secondment for short periods to help build national capacity. Companies should also be willing to do this and send their own staff on short-term assignments since bonding with the government would give them a head advantage once business reactivates in the country.13 For a detailed analysis of these rules, both for civilian-led and for military-led reconstruction, see del Castillo (2011a). For the international financial institutions position, see del Castillo (2010a, 2008b).14 For the experience of innovative ways of financing infrastructure through PPPs in different parts of the world, see del Castillo and Frank (2003).15 This may be different in the case of the Chinese where there is often a tenuous distinction and a symbiotic relationship between private and public companies.16 See del Castillo (2011a).17 Although Dutch disease was rife in El Salvador, the reason it has not been present among other large aid recipients is mainly that a large part of it goes to pay for foreign contractors and experts, foreign procurement of UN and other stakeholders in the country, and other imported goods and services. It is also associated with the fact that local elites and expatriates producing in the country often take their profits out of the country. 18 The experience of Timor-Leste is relevant in this regard. For details see del Castillo (2008a, 2006).19 For the details on reconstruction zones, see del Castillo (2012, 2011b).20 See del Castillo (2008a, 2010a).