Paul Collier Centre for the Study of African strongEconomiesstrong, May,.pdfVIP

Post-Conflict Recovery: How Should Policies be Distinctive? Paul Collier Centre for the Study of African Economies, Department of Economics, Oxford University May, 2007 1. Introduction Should post-conflict economic policies be distinctive? Evidently, policies need to differ according to national circumstances, but is there anything that is systematic about the post-conflict situation which implies that as a group post-conflict countries will tend to need policies that differ from those of countries that are identical other than not having had a recent conflict? In one sense the way that I have posed the question is already loaded against distinctiveness. That is because one of the key ways in which post-conflict countries differ from most other developing countries is that they inherit economic policies that are highly dysfunctional. Of course, dysfunctional economic policies are not confined to post-conflict countries: Zimbabwe, which has been at peace for nearly thirty years, has recently descended into policies that are in some respects even worse than most post- conflict legacies. However, there is a straightforward reason to expect that countries emerging from conflict will have atypically dysfunctional policies: during civil war governments usually get desperate. In economic terminology, their discount rate increases and this leads to a predictable change in priorities. The fiscal position typically deteriorates as the tax base declines, while spending needs for the army escalate, inducing resort to some combination of debt, inflation, and costly forms of taxation. For example, Adam, Collier and Davies (2006) show that during civil war governments systematically resort more heavily to inflationary finance. The composition of spending also typically deteriorates, with public investment and social spen