Violent conflict is today more frequent than it was two decades ago and international support for peace-making ever more crucial, especially for the poorest countries. Post-war reconstruction is by no means easy, however. A recent study by Queen Elizabeth House, Oxford, examines post-war reconstruction in Nicaragua and Mozambique, asking: how does the nature of the conflict relate to private sector behaviour? Why is post-war recovery so difficult and prolonged? Does foreign aid have a positive role to play? Despite high levels of aid, reconstruction can be extremely slow. Opportunities do exist, however, to accelerate post-war growth and reduce poverty, if governments and donors prioritise the special needs of the poorest people in post-war situations.

The research focussed on Nicaragua and Mozambique for three reasons: both countries went through severe ideological, rather than ethnic, wars in the 1980s; both are agricultural economies, where small farmers are crucial to economic development; and both countries have received large volumes of foreign aid. The main findings for Nicaragua and Mozambique include:

• People expected higher government spending and faster growth in the post-war period but the destructive nature of the wars hindered payment of such peace dividends.
• Debilitating economic costs of the conflicts included the breakdown of commercial networks, loss of trust in government and the legal system, and the severe weakening of market institutions.
• Aid has been considerable and monetary stabilisation effective, yet achieving external solvency, sustainable growth, and poverty alleviation has proved almost impossible.
• Multilateral agencies, whilst promoting privatisation, paid little direct attention to the needs of the private sector, particularly small farmers in rural areas.

Neither Nicaragua nor Mozambique had completed post-war reconstruction after ten years. Foreign donors, however, who support other war-affected developing countries, could improve the effectiveness of their aid and help overcome barriers to successful reconstruction. Donor-policy could include the following:

• International donors, in particular, need to shift their emphasis from obtaining financial equilibrium to accelerating private sector production, especially by poor farmers in war-affected rural areas.
• To reduce private sector uncertainty and accelerate poverty alleviation, immediate debt relief from multilateral agencies and governments is a must. Fast-track HIPC processing of debt relief for poor war-torn economies would generate large dividends.
• Economic and civil institutions with a broad supporting consensus are essential to lowering transactions costs, strengthening the rule of law, and enabling vulnerable small-scale producers and consumers to participate in markets. The reconstruction of such institutions should be funded by international donors.

Source(s):
‘Enhancing the Private Sector Contribution to Post-War Recovery in Poor Countries’, QEH Working Paper #45, Queen Elizabeth House, Oxford, by Tilman Bruck, Valpy FitzGerald and Arturo Grigsby (2000) Full document.
‘War and Underdevelopment’, Oxford University Press, edited by Frances Stewart and Valpy FitzGerald (2000)
‘Paying for the War: Macroeconomic Stabilization in Poor Countries under Conflict Conditions’, Oxford Development Studies, 25/1 by Valpy FitzGerald (1997)

Funded by: UK Department for International Development (ESCOR), January 1999 - March 2000

id21 Research Highlight: 9 October 2000

Further Information:
Tilman Bruck
Queen Elizabeth House
University of Oxford
Oxford OX1 3LA
UK

Tel: +44 (0)1865 273 600
Fax: +44 (0)1865 273 607
Contact the contributor: tilman.bruck@economics.ox.ac.uk

Queen Elizabeth House

Valpy FitzGerald
Queen Elizabeth House
University of Oxford
Oxford OX1 3LA
UK

Tel: +44 (0)1865 273 607
Fax: +44 (0)1865 273 60
Contact the contributor: edmund.fitzgerald@qeh.ox.ac.uk

Arturo Grigsby
Queen Elizabeth House
University of Oxford
Oxford OX1 3LA
UK

Tel: +44 (0)1865 273 607
Fax: +44 (0)1865 273 60
Contact the contributor: arthur.grigsby@wolfson.ox.ac.uk

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