Enhancing the Private Sector Contribution to Post-War Recovery in Poor Countries

This paper analyses the duration and nature of post-war reconstruction in aid-dependent developing countries. Part I presents a comparative analysis, Part II discusses the post-war reconstruction in Nicaragua, and Part III analyses the case of Mozambique. The main findings are that post-war reconstruction, defined as obtaining external and internal balance and high per capita growth, is surprisingly difficult to obtain even under favourable political and economic conditions. The legacy of war is a key constraint on post-war growth, especially through the damaged commercial network, the loss of trust, and the weakening of market institutions. In addition, political uncertainty in the post-war period inhibits private sector investment and significantly reduces the peace dividend. This is worsened by inappropriate stabilisation policies. Aid policies should be modified for war and post-war economies to accelerate the reduction in foreign debt and to support small scale private producers, including those in the countryside. Military spending does not fall and social spending does not rise as quickly as is generally expected thus delaying a noticeable reduction in poverty. The clear sequencing but gradual implementation of government reforms, especially in the social sectors, is important in maintaining entitlements. Key victims of war, and especially of internal war, are civil and economic institutions. Their importance in post-war reconstruction has been underestimated and they should receive priority funding by donors and governments to accelerate post-war growth and poverty reduction.