Setting priorities for social and economic recovery is critically important. Everything that is essential to get a country back on its feet should be put in motion at the starting point of a recovery program. Matters of less immediate importance should be postponed for a while. This is so for obvious reasons: a shortage of qualified people, both local and foreign, the absence of functioning institutions, limited financial resources and the simple fact that certain investments and institutional arrangements need a basis to build on (for example, a functioning central bank is needed to regulate and supervise commercial banks, and a country-wide cellular phone network can only be put in place after inter-city fixed links have been repaired or installed).
Fortunately, a set of actions and investments seems to exist that is both essential and, with some luck, sufficient to stabilise a country, and these actions can be started simultaneously at the very beginning of implementing a recovery program.
These actions and investments, taken together, constitute the first level of priority. They relate to basic human needs, internal security, the political system, public institutions, and socio-economic recovery.
Ensuring the physical survival of people is of course the first order of business. Modern society has developed sophisticated and efficient systems to deal worldwide with major emergencies on very short notice, as long as there is no ongoing war. UNHCR in particular has an excellent track record in dealing with emergencies and humanitarian needs, and so have other organisations within and outside the UN system. As a result, we have not seen in recent years large-scale post conflict human disasters such as mass starvation and major epidemics as they used to occur in the past.
This brings us to the issue of internal security, a much talked about but not well-understood subject.
For our purpose, a program to establish internal security assumes that the war is over. In this sense, the anti-American and anti-foreign terrorism and guerrilla warfare, which started in Iraq shortly after the invasion of the country was completed in the spring of 2003, constitute a problem of continued warfare and not of post-conflict security. Quite possibly, the Iraq problem cannot be resolved through conventional methods such as strengthening the occupying force and trying to improve its image. There may be only two solutions to this problem that have historically been successful: withdrawal or radical counter-terror. The U.S. administration seems now to have opted for withdrawal(6).
In other post-conflict countries, the media tend to give coverage to food being stolen in warehouses, foreign aid workers being robbed at gunpoint etc. However, these are generally minor incidents, not much different from what happens every day in Western countries, except that they are generally less violent; it is quite rare that foreigners, be they civilians or in uniform, get killed in these circumstances (war reporters are in a separate category: they knowingly put themselves at high risk to get better news coverage, and sadly many of them pay this with their lives). The real victims of a lack of internal security are not foreigners, but local people, who get little or no coverage from the international media (except currently in Iraq).
The general state of lawlessness that results from any prolonged armed conflagration encourages all kinds of criminal behaviour: looting, settling old scores, as prescribed by the rules of vendetta in, for example, traditional law in Afghanistan and Albania, continuing the unfinished agenda of interethnic warfare, or simply killing and stealing for material gain, such as your neighbour's land, under the cover of general confusion. Violent crime and murder become a daily event and a permanent threat to the civilian population, even in the presence of a foreign military force.
In that kind of environment, which is typical for an early post-conflict period, it is of course difficult to convince people of the merits of liberal democracy, human rights and the rule of law. Thus, improving internal security is an essential part of the first stage of a recovery program.
On the political side, the outcome of the conflict will probably be anything but a clear-cut situation where the newly created government, be it local or a foreign protectorate or a mixture of the two, has full authority to speak for the people and is endorsed by all major groups. Quite frequently, the presence in the country of a powerful military occupation force, as in Bosnia, Kosovo, Sierra Leone, Ivory Coast and Afghanistan, seems necessary to prevent the outbreak of new hostilities.
This military presence is frequently more than a short term necessity: during the last twenty years, in about half the post conflict countries new hostilities have erupted within five years after the end of the original conflict (see the table in Appendix 1).
Thus, the newly established government lives frequently on borrowed authority. One of its main purposes must be to make itself and the political system it stands for acceptable to all powerful groups in the country. This may look in many cases (e.g. in Bosnia in 1996 and 1997) like a hopeless undertaking that is doomed to fail, but it does not need to be so: again in Bosnia, enough progress on various fronts has been made for NATO to be able to continue to reduce its military presence as it did in recent years, and NATO may be able to fully withdraw its forces some years from now, say, between 2005 and 2010.
Inter-ethnic hatred and a tradition of violence are of course hard to overcome. If one excludes radical dictatorship as an option, then institutions must be established that provide for non-violent conflict resolution and ensure a reasonable form of power sharing and participation of all major groups in the fruits of peace and development.
For all practical purposes, that means there must be democratically elected central and local governments, backed by a set of public institutions that learn rapidly to function in a regular fashion. Even then, there normally will be powerful groups who believe they will gain advantage by overthrowing the newly established system of government. These groups need to be policed closely and should be deprived of their leadership, which is more easily said than done. If all these things are being done and function reasonably successfully for an extended period, say ten years or more, then there is a fair prospect that stability and socio-economic development become sustainable.
Of course, an economic recovery program cannot wait for ten years or more before it gets underway, for the simple reason that it is itself an essential building block for stability and development. As a result, those who decide on starting a recovery program must make an educated guess if the conditions are good enough, and if they think so, go ahead and hope for the best.
The possibility to repair major deficiencies of the newly established political system is quite limited. It is mainly a function of the strength of foreign political and military presence. This is one of the reasons why the risk of failure is greatest where the former warring parties are largely left to their own devices, as exemplified by the disastrous turn of events in Afghanistan after the departure of the Soviet army in 1989.
The political system is only a framework, which must be filled with functioning institutions. The most important of these are a Ministry of Finance to provide a quantitative framework for all government activities and to start a system of revenue collection, and a Ministry of Interior with a police force to establish and maintain an acceptable level of internal security. The usual set of technical ministries for education, health, agriculture, industry (if there is any), infrastructure, energy etc., should also be established at an early date, even if they are initially staffed with only two or three people, such as a minister and his assistant and a foreign expert. It will be the most important function of these technical ministries during the early years of economic recovery to work with foreign donors, each of whom has, and wants to have, a distinct program or project that produces visible results that can be shown to a critical audience of parliamentary review committees and television viewers in the donor's home country: a school, a hospital, a dam etc.
The newly created technical ministries will need quite a bit of support if they are to have a reasonable chance to succeed in co-ordinating these individual donor programs with a view to avoiding excessive duplication (there will always be some) and major gaps, and to ensure that the individual projects and programs add up to a sensible whole that contains the essential requirements for the country's recovery.
Leaving aside non-governmental institutions such as (hopefully, independent) media and political parties, the government will also have ministries of foreign affairs and of defence, the latter trying to control whatever army or armies there are in the country.
At least two important institutions are not on this list of earliest priorities: a central bank, and an independent judiciary. Regarding the central bank, the country's currency will probably have lost most of its value during the hostilities and will have been de-facto replaced by one or more foreign currencies. Re-establishing a viable local currency may well take a year or more. In the meantime, a foreign currency will serve de-facto and maybe also de-jure as legal tender, with or without setting up a currency board(7).
Thus, there is no immediate need for a central bank to control money supply, set interest rates etc. Similarly, there will probably be no commercial banks at least for a year or two, and hence no need for a central bank to regulate and supervise them.
While a country's economic recovery can start without a functioning independent central bank, it will be needed in the medium term and should be provided for in the country's basic document, such as its constitution. Also, it is no small matter to set up a properly working central bank, and a start should be made without much delay.
A similar argument applies to setting up an independent judiciary: in the best of cases, it takes years to make it work and therefore it should be started as early as possible. This temporary absence of an independent judiciary is a serious dilemma for all efforts to establish a functioning civil society and to improve internal security. Having recourse to courts governed by martial law and to traditional ethnically or tribally based systems of adjudication of conflicts is quite undesirable: it would give an additional lease of live to some of the very institutions whose failure in non-violent conflict resolution has contributed in a major way to the eruption of hostilities. However, for an interim period, use of these systems may be unavoidable, under whatever supervision the newly established government can provide. If some form of protectorate were established, then it would of course be an important function of the protectorate administration to administer justice while working on establishing a functioning independent judiciary.
There are two partly opposing views on the objectives of an economic recovery program. The traditional view recommends to rebuild what was damaged, modernising facilities to the extent possible, based on a so-called "damage assessment". We recommend instead a forward looking approach, starting with the question where the country, its people and its economy, assisted by the international community, can reasonably expect to find themselves four or five years from now. The physical destruction and social disruption brought about by past conflict provide a unique opportunity to build a more modern and open economy as a basis for a more open and democratic society.
Both approaches will lead to similar results in a number of instances, such as the reconstruction of power plants, bridges and water supply systems, but more important will be the differences.
The forward-looking approach will concentrate its support on the potential sources of future development: the engines of growth, such as, in most cases, a dynamic small and medium size enterprise sector, modern farms, rural and urban services, an efficient financial sector, etc., supported by efficient infrastructure services and a public administration that helps, rather than hinders development. Improved education and health systems are integral to a program that wants to achieve sustainable growth, with universal access to primary education and primary healthcare being the most immediate and urgent targets for obvious reasons: they are, beyond the needs of sheer survival, the population's most strongly felt wishes (and rightly so: both have extremely high benefit -to- cost ratios).
Some housing reconstruction may also be of high priority: while many or most displaced people will find temporary accommodation with family or friends, there may be an urgent need to relieve genuine homelessness.
It is a frequent occurrence towards the end of an armed conflict that nobody has given much thought to what to do next. Then, as the prospect for peace or at least an armistice becomes imminent, a mad scramble arises among diplomats and technical experts to come up on very short notice with a political and economic program, which, given the time constraints, tends to be haphazard and superficial and prepared with little or no discussion with the people most immediately concerned - the citizens of the country or countries who have been at war.
This does not need to be so: the end of an armed conflict does not occur by miracle and is actually fairly predictable within a certain timeframe, but diplomats and generals have apparently not yet taken the habit of thinking beyond their immediate concern to end a war. Only exceptionally has work on a post-conflict recovery program been initiated at an early enough stage, as was the case for Bosnia where the World Bank took the necessary steps in putting together a team for this purpose nearly a year before the Dayton Agreements were signed. Even if peace had come a few months earlier, there would have been enough time to prepare a meaningful program and discuss it in detail with the emerging future local leaders: the first version of a recovery program for Bosnia was completed three months ahead of Dayton. This is a fairly good indicator of what can and should be done: preparing a good economic recovery program is a major undertaking and requires for a medium sized country a team of at least a dozen individuals for periods from three to six months.
The result of this work is not, and should not be, a "plan" in the traditional, socialist sense, but rather a framework for discussing the most important issues for the country's economic future. First, economic policy, not a trivial matter since conventional wisdom - the "Washington consensus" in economic parlance - does not apply, at least not without major modifications for a transition period of several years. Second, a proposed design of the public institutions needed for the early phases of the country's economic recovery and, equally important, a plausible road map how to get there, considering the starting point, which may rank anywhere from virtual absence of a modern public sector (as in Congo-Kinshasa and Afghanistan) to limited disruption, where competent civil servants and a body of rules and regulations are readily available for most needs (e.g. Croatia after the war with Serbia). Third, economic recovery in the narrow sense of the word: re-establishing basic infrastructure services and laying the basis for growth driven by the productive sectors.
Major obstacles are found on the road to a consensus on a sound economic recovery program. Probably not all those who contribute to formulating the recovery program will be able to deliver a contribution of the required high quality. This is so because probably not all of them will be sufficiently familiar with the situation in the country due to shortcomings in internal security precluding travel to a large part of the country, and because of total or partial lack of critical data. Important statistics and other documentation may have been destroyed during the war, or at least not maintained up to date, and an assessment of war damage and of the consequences of past neglect of physical assets is generally not available. Thus, the first version of a recovery program will be rough in certain areas, and only subsequent versions will be of relatively even and satisfactory quality.
Furthermore, a long war will have badly eroded the old governing class of the country: most of its members are either dead or have left the country. Only few of the best people will come back, most of them having in the meantime established somewhere else a new life and career. There are of course exceptions to this rule, examples being post-conflict Croatia and Serbia after the lost war in Kosovo. In most cases however, it will be difficult to have a meaningful discussion on the more complex subjects such as fiscal policy, reform of enterprises and banks, and the balance of public and private activities in the economy. As a consequence, the authors of the recovery program must keep two things in mind: keep the program as simple as possible, and plan for time-consuming discussions with the new local leaders, since a lot of explaining will have to be done as to why certain policies are recommended and others discouraged. Of course, the drafters of the program may simply be wrong with certain recommendations, which, while part of mainstream thinking, do not fit the particular circumstances. They should keep in mind that the local leaders will only implement what they believe in, and that the prospect of donor money may provide a willing audience, but is not by itself a convincing argument for or against certain economic policies. Thus, it is better to plan for ample discussions.
Matters seem to be easier when one discusses public investment for reconstruction and upgrading of facilities with the new government, because there is no investment without financing. In reality, however, things are more complicated because of the multitude of donors, each of whom has its own program driven mainly by commercial interests which may or may not fit in a sound overall program. Furthermore, many donors, and bilateral donors in particular, have a political agenda. That is why the Saudis and Iranians finance mosques and madrasses while the U.S. and the E. U. finance independent media and political parties.
How are the authors of the recovery program to deal with that? The country's new government may complain, as has happened, that there are too many mosques being built and that the media are getting too independent and powerful, but that is probably a fair trade-off and one may just let it pass. The people will decide for themselves if they want to go to the mosque or watch the news on TV.
The donors' supplier interests are a more difficult subject: it tends to happen that too many trucks and buses are being supplied while there isn't enough money to fix the roads, or that there is too much sophisticated medical equipment flowing in for the country's single central hospital, but there is little money to repair and run primary care clinics, where the needs and the benefits are by far the highest in the entire health sector. These kinds of problems could be resolved if somebody had the authority to issue instructions to individual donors. However, the "international donor community" sees itself as a benevolent club, spending other people's money at will. The notion of mandatory aid co-ordination has never been seriously discussed, because all donor nations insist on their sovereign rights. Nevertheless, pure folly, for which there are examples, doesn't need to prevail; donors don't want to look foolish and are open, within limits, to adjust their programs to better suit the country's needs. Discussing these matters takes of course a lot of time and must be done early enough to prevent bad decisions.
To state the obvious: even a good recovery program is not worth much if it is not accompanied by a serious and sustained effort to reach consensus between donors and the new government on key decisions concerning economic policy, the shape of public institutions and the nature and scope of public investments. The degree of success in this effort will significantly shape the economic future of the country.
We now can summarise the essential elements for the first stage of a post-conflict recovery program. If any of these elements are missing, the success of the program is from the start in serious jeopardy:
A humanitarian relief program for the first 18 to 24 months, covering basic needs for nutrition, health and shelter;
Establishment of a level of internal security that allows economy and society to function as good as possible, given the circumstances;
Establishment and support of central and local governments, essential public institutions and a security force; donors must promptly provide sufficient budget support in cash for these institutions to function and may want to insist on the installation of an expenditure control system to record the use of these funds;
Sectoral programs for the productive sectors, for infrastructure services, health and education; here also, recurrent cost financing through cash contributions is essential in some sectors, mainly education and health.
(6) Leslie Gelb, in The International Herald Tribune of November 26, 2003, proposes an interesting solution to the Iraqi puzzle: partitioning the country into three parts, Kurdish, Sunni and Shiite, combined with U.S. withdrawal from the troublesome Sunni center.
(7) See Chapter 7, The Budget Problem