Preventing and Rebuilding Failed States Amid Global Economic Crisis:

What are Realistic Options for U.S. Policy?Woodrow Wilson International Center for Scholars

Washington, D.C., June 5, 2009

A Guide to Economic Growth in Post-Conflict Countries

James T. Smith, Editorfor

Office of Economic GrowthBureau for Economic Growth, Agriculture, and Trade

Session C: Economic Development

How Can the Political Economiesof Fragile and Failed States

Be Transformed into National Growth Economies?

“Toward sound management of the economy and aid”

Main Messages• Economic growth - Critical for

success

• Reforms and programs need to:– Start right away– Be done differently– Achieve immediate widespread impact

• Short-term actions contribute to achieving long-term objectives

Post-Conflict Goals• Re-establish economic governance

• Restore legitimacy of government

• Boost employment and well-being

• Address root economic causes

• Stabilize the economy

• Position economy to grow rapidly

What’s required for success?• Clear goals

• Sensitivity to post-conflict political and social context

• Pragmatic, coordinated approach

• Host country ownership

• Do EG early!

• Do EG differently!

Post-Conflict: EG Program Emphases

Time

Leve

l of E

ffort

Build Institutional Capacity

Provide Humanitarian Assistance & Expand Physical Security

Undertake Policy & Legal Reforms

Reconstruct Infrastructure& Provide Public Services

Provide Jobs

How should it be done?–Focus on the basics

–Establish priorities

–Understand recurring trade-offs

–Pay attention to sequencing

–Anticipate transition to the long-term

Four Recurring Trade-Offs

• Effectiveness vs. Efficiency

• Urgency vs. Legitimacy

• Short-term vs. Long-term

• Window of Opportunity vs. Absorptive Capacity

Trade-Off: Short term vs. Long termFISCAL POLICY AND INSTITUTIONS

PRIORITY AND SEQUENCING OF ASSISTANCE

Item Urgent Immediate Intermediate

Consolidating

Expenditure control

Receipts management

Indirect (tariffs, excise, sales) tax control

Direct (income and payroll) tax control

Fiscal policy planning and management capacity

Economic and fiscal statistics

Reform of tax policyHigh-intensity level of assistance

Lower-intensity level of assistance

No assistance during phase

II. Best PracticesMacroeconomic Management

Fiscal Policy and InstitutionsMonetary Policy and Institutions

Employment GenerationInfrastructurePrivate Sector Development

Private-Sector Enabling EnvironmentEnterprise Development

AgricultureBanking and FinanceInternational Trade and Border Management

Main Messages• Economic growth - Critical for

success

• Reforms and programs need to:– Start right away– Be done differently– Achieve immediate widespread impact

• Short-term actions contribute to achieving long-term objectives

Where to find “A Guide to Economic Growth

in Post-Conflict Countries”

http://pdf.usaid.gov/pdf_docs/PNADO408.pdf