Chapter Five: Aid and Fiscal Capacity Building in Post-Conflict Countries

Abstract

The transition from war to peace is fraught with tension and the risk of a return to bloodshed. With so much at stake, it is crucial that the international community and local stakeholders make sense of the complex mosaic of challenges, to support a lasting, inclusive and prosperous peace. Recent missions, such as in Afghanistan, Somalia or Sudan, have highlighted the fact that there can be no one-size-fits-all approach to steering countries away from violence and towards stability.

This Adelphi offers a series of economic perspectives on conflict resolution, showing how the challenges of peacebuilding can be more effectively tackled. From the need to marry diplomatic peacemaking with development efforts, and activate the private sector in the service of peacebuilding aims, to the use of taxes and natural-resource revenues as a financial base for sustainable peace, this issue considers how economic factors can positively shape and drive peace processes. It examines the complex ways in which power and order may be manifested in conflict zones, where unpalatable compromises with local warlords can often be the first step towards a more lasting settlement. In distilling expertise from a range of disciplines, this Adelphi seeks to inform a more economically integrated and responsive approach to helping countries leave behind their troubled pasts and take a fuller role in constructing their futures.

Notes

Paul Smoke and Robert R. Taliercio Jr., ‘Aid, Public Finance, and Accountability: Cambodian Dilemmas', in James Boyce and Madalene O'Donnell (eds), Peace and the Public Purse:Economic Policies for Postwar Statebuilding (Boulder, CO: Lynne Rienner, 2007), pp. 85–118.

For more on this, see Ashraf Ghani, Clare Lockhart, Nargis Nehan and Baqer Massoud, ‘The Budget as the Linchpin of the State: Lessons from Afghanistan’, in Boyce and O'Donnell, eds, Peace and the Public Purse, pp. 153–84.

Sanjeev Gupta, Benedict Clements, Rina Bhattacharya and Shamit Chakravarti find a negative relationship between government revenue and conflict in a sample of low- and middle-income countries; see Gupta et al, ‘Fiscal Consequences of Armed Conflict and Terrorism in Low- and Middle-income Countries’, European Journal of Political Economy, vol. 20 no. 2, 2004, pp. 403–421. The intensity of conflict, as well as its presence, also negatively affects the tax/GDP ratio; see Tony Addison, Abdur R. Chowdhury and S. Mansoob Murshed, ‘The Fiscal Dimensions of Conflict and Reconstruction,’ in Tony Addison and Alan Roe (eds), Fiscal Policy for Development: Poverty, Reconstruction and Growth (Basingstoke: Palgrave Macmillan, 2004), pp. 260–73.

Emilia Pires and Michael Francino, ‘National Ownership and International Trusteeship: The Case of Timor-Leste’, in Boyce and O'Donnell, eds, Peace and the Public Purse, pp. 147.

See Boyce Investing in Peace: Aid and Conditionality after Civil Wars, (Oxford: Oxford University Press, 2002), pp. 41–2; and Susanne Jonas, Of Centaurs and Dove: Guatemala's Peace Process, (Boulder, CO: Westview, 2000), pp. 185–186.

Among dozens of examples of EU budget-support conditionality listed in a report by the European Commission (2005), the Mozambique case is the sole example of revenue-side conditionality.

‘The Afghanistan Compact’, London Conference on Afghanistan, 31 January–1 February 2006, p. 12. Available at http://www.unama-afg.org/news/_londonConf/_docs/06jan30-AfghanistanCompact-Final.pdf.

For further discussion of revenue conditionality, see Michael Carnahan, ‘Options for Revenue Generation in Post-Conflict Environments,’ Political Economy Research Institute, Policy Paper Series on Post-Conflict Public Finance (Amherst, MA and New York: Center on International Cooperation: May 2007).

Quoted in Sanjeev Gupta, Shamsuddin Tareq, Benedict Clemens, Alex Segura-Ubiergo and Rina Bhattacharya, ‘Rebuilding Fiscal Institutions in Postconflict Countries’ Occasional Paper no. 247 (Washington DC: IMF, December, 2005), p. 12, available at http://www.imf.org/External/Pubs/NFT/Op/247/op247.pdf.

Ghani et al, in Boyce and O'Donnell eds, Peace and the Public Purse, p. 174.

Ibid., p. 136.

Ibid., p.136.

Quoted in Paul Collier, Lani Elliott, Havard Hegre, Anke Hoeffler, Marta Reynal-Querol and Nicholas Sambanis, Breaking the Conflict Trap: Civil War and Development Policy (New York: Oxford University Press, 2003), p.166.

Mansoob S. Murshed and Mohammad Zulfan Tadjoeddin, ‘Reappraising the Greed and Grievance Explanations for Violent Internal Conflict’, Micro-Level Analysis of Violent Conflict, Research Working Paper No. 2 (Brighton: Institute of Development Studies, 2007) p. 35.

The World Bank, 2002; UK Department for International Development (DfID), 2003; the US Agency for International Development (USAID), 2005; and the Swedish International Development Cooperation Agency (SIDA), 2006.

See Frances Stewart, Graham Brown and Alex Cobham, ‘Promoting Group Justice: Fiscal Policies in Post-Conflict Countries', Policy Paper Series on Post-Conflict Public Finance, November 2007, available at http://www.cic.nyu.edu/peacebuilding/docs/Promoting%20Group%20Justice.pdf.

Ghani et al, in Boyce and O'Donnell (eds), Peace and the Public Purse, p. 179.

See, for example, Joan Esteban and Debraj Ray, ‘Conflict and Distribution,’ Journal of Economic Theory 87, 1999, pp. 379–415.; and José G. Montalvo and Marta Reynal-Querol, ‘Ethnic Polarization, Potential Conflict, and Civil Wars,’ American Economic Review 95(3), 2005, pp. 796–816.

Ravi Kanbur, ‘Poverty and Conflict: The Inequality Link.’ New York: International Peace Academy, ‘Coping with Crisis’ Working Paper Series, June 2007, p. 3.

Robert Putnam, Bowling Alone: The Collapse and Revival of American Community (New York: Simon & Schuster, 2000), p. 362.

Kanbur, ‘Poverty and Conflict’, p.6.

For a review of the rather sparse literature on the distributional impacts of taxation in developing countries, see N. Gemmell and O. Morrissey, ‘Distribution and Poverty Impacts of Tax Structure Reform in Developing Countries: How Little We Know’, Development Policy Review vol. 23 no. 2, 2005, pp. 131-144.

P. Rodas-Martini, ‘Building Fiscal Provisions into Peace Agreements: Cautionary Tales from Guatemala’ in Boyce and O'Donnell (eds), Peace and The Public Purse, p. 90; Jonas, Of Centaurs and Dove, pp. 171–72.

This figure excludes counter-narcotics expenditures, which would push the ratio closer to 600%. Figures from World Bank, Afghanistan: Managing Public Finances for Development. Volume V: Improving Public Finance Management in the Security Sector, report no. 34582-AF, (Washington DC: World Bank, December 22, 2005), p.42. Available at http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2006/01/11/000160016_20060111123047/Rendered/PDF/345821vol051AF.pdf.

Ibid, p. 47.

World Bank and IMF, Global Monitoring Report 2005: Millennium Development Goals: From Consensus to Momentum. Washington DC: World Bank and IMF, 2005, p.4.. Available at http://siteresources.worldbank.org/GLOBALMONITORINGEXT/Resources/complete.pdf.

Rex Brynen, ‘Managing Public Resources: The Experience of the Palestinian “Proto-State”’, in Boyce and O'Donnell, eds, Peace and The Public Purse, p. 199.

The supposed efficiency advantages of foreign sourcing can be illusory. In Afghanistan, for example, where USAID funds for rebuilding schools and health clinics were routed through a New Jersey-based private contractor, press reports have revealed inordinate delays, shoddy construction and costs exceeding expectations.

Pires and Francino in Boyce and O'Donnell (eds), Peace and The Public Purse, pp. 141–42.

See Boyce, Investing in Peace: Aid and Conditionality after Civil Wars, Adelphi Paper No. 351 (Oxford: Oxford University Press, 2002); and ‘Post-Conflict Recovery: Resource Mobilization and Peacebuilding’, Working Paper no. 159 (Amherst, MA: Political Economy Research Institute, February 2008), available at http://www.un.org/esa/policy/wess/wess2008files/boyce_postconflict.pdf.

Additional information

Notes on contributors

James K. Boyce

James K. Boyce is Professor of Economics in the Department of Economics and Political Economy Research Institute, University of Massachusetts, Amherst. This chapter is based on the author's paper, ‘Post-Conflict Recovery: Resource Mobilization and Peacebuilding’, prepared for the Expert Group Meeting on Post-Conflict Recovery and Economic Insecurity, United Nations Department of Economic and Social Affairs, November 2007.