IMF Survey: Helping Postconflict Nations Rebuild

November 26, 2007

What do Rwanda and Bosnia have in common? Here's an answer that might come as a surprise.

Helping Postconflict Nations Rebuild

Money changers count currency in Kabul: technical assistance helps postconflict countries get back on their feet. (photo: Shah Marai/AFP)

Books on Technical Assistance

Both countries have seen income grow strongly—between 4 and 6 percent a year—for four years in a row.

The story behind the reconstruction and recovery of these conflict-ridden countries has many heroes, foremost among them of course their own people. But people in the international community have helped as well, as the three books reviewed here richly show.

Starting from scratch

Building Monetary and Financial Systems: Case Studies in Technical Assistance opens with brief case studies of the technical assistance provided by the IMF and other agencies in rebuilding monetary and financial systems in postconflict countries, among them Rwanda, the Democratic Republic of the Congo (DRC), Liberia, and Iraq. While surely involving far less cement than does the rebuilding of bridges, the work described here is no less concrete. Providing nations with a stable currency and with banks that can be trusted to store wealth is as important to their commercial success as providing roads and bridges.

Books reviewed

Building Monetary and Financial Systems: Case Studies in Technical Assistance, Charles Enoch, Karl Habermeier, Marta Castello-Branco (eds.), International Monetary Fund, Washington, D.C., 2007, $29.

One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina, Warren Coats, Jameson Books, Illinois, 2007, $42.50.

United Nations Development Aid: A Study in History and Politics, Digambar Bhouraskar, Academic Foundation, New Delhi, 2007, Rs. 695.

Although each of the case studies is less than 15 pages in length, they still provide enough context by describing the source of the conflict and its often horrific socioeconomic impact. As a result, the challenges faced by the providers of technical assistance as they start to restore monetary and financial systems at first appear insurmountable. For instance, starting in 2001, a new currency framework had to be put in place in the DRC in the face of a lack of confidence in currency arising from recurrent hyperinflations; the near-complete collapse of the banking system (bank deposits in 2001 were a mere 1.5 percent of GDP); and a still-unsettled political situation resulting from "regional insecurity, transitional political arrangements, and uncertainty about the holding of general elections."

Andre-Phillipe Futa, a minister in the DRC government at this time, noted later in a speech in Washington in 2005, that "in spite of these difficult conditions, the Government decided to adopt, with the IMF's technical assistance ... a staff-monitored program aimed at breaking the long-standing hyper-inflation cycle and introducing rigorous monetary and budgetary policies along with a set of first generation structural reforms." Mr. Futa concluded that "the outcome was outstanding." Inflation, which had been at 600 percent a year through the 1990s, dropped to 16 percent in 2002. And incomes grew that year by 3 percent—"the first time in ten years" that incomes had risen.

The case studies describe many such tales of success, and of the personal courage of many people in these countries and in the international community, but they are narrated with caution and reserve. The study on Rwanda notes quietly that the National Bank of Rwanda "was faced with quite a different situation from the one prevailing before the genocide: a large number of senior positions were now held by new staff" as the previous staff had lost their lives or had to flee the country. The study of Iraq likewise makes a subdued mention of the August 2003 bombing of the UN building, in which IMF staff were injured, as a "watershed turning point for the worse" in the provision of technical assistance.

A board for Bosnia

Warren Coats's One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina makes up for the drama that is missing from Building Monetary and Financial Systems. One gets an early taste of this: the book begins with a description of the author "sitting on a bench in the cockpit of a C-130 Hercules" aircraft that is descending through sheets of rain to Sarajevo airport. Coats says he "thought fleetingly about [U.S. Commerce Secretary] Ron Brown, who was killed in a crash a few months earlier while trying to land at Dubrovnik, not far from Sarajevo."

Coats's plane did land safely that day in July 1996 and on every other day of his numerous trips to the fledgling republic of Bosnia and Herzegovina over the subsequent seven years. Coats was a leading player in the team of IMF economists and other international experts that, following the political breakthrough of the 1995 Dayton Peace Accord, quickly provided the technical assistance that helped build Bosnia's monetary and financial systems.

The financial system that confronted Coats on his arrival in the country was as fragmented as its political system had been. There were four currencies in circulation—the Bosnian dinar, the Yugoslav dinar, the Croatian kuna, and the deutsche mark. Coats writes that "each of the three ethnic majority areas used its own currency or the currency of the neighboring country defining its ethnicity." There were many commercial banks but few operated nationwide and were not much used in any case. There were three payments bureaus, each of which had a monopoly in the territory it covered.

How some order was created from this chaos is the story that Coats tells in great and often colorful detail. He relies extensively on the primary sources—many of which he created as one of the principals in the story—and offers rich portraits of the personalities involved. As a result, technical assistance comes alive as involving not only hard work but also camaraderie among team members. In a typical passage, Coats writes that "following dinner, at which we enjoyed one of Croatia's better white wines and one of Montenegro's better reds ... Kim led off with a song in Korean, Hugh sang a long one in Gaelic, Ben in Hebrew, Chris in Australian English, and Jean-Luc in French."

Luckily, all appear to have been singing from the same page as the currency board arrangement that the team put in place has proved to be of sustained value to Bosnia and Herzegovina. An assessment carried out by the Bank for International Settlements in 2003 concluded that the currency board had been "a successful choice" and one that "opens the door for entry of foreign investments and international capital" and can "speed up the process of development of a self-sustainable open economy in Bosnia and Herzegovina on the way to the community of the European states."

Lessons learned

These examples of successes in technical assistance, and particularly those involving successful cooperation among the numerous agencies involved in providing this assistance, would gladden the heart of Digambar Bhouraskar, the author of United Nations Development Aid: A Study in History and Politics.

His book tells the story of the promise with which technical assistance was viewed at the time the UN was created and of the subsequent political struggles that have often come in the way of its successful provision. Bhouraskar notes that in 1948, recognizing the "impact of economic conditions in underdeveloped countries on international peace and stability," U.S. President Truman "expressed strong interest in providing substantial technical assistance to them for their development through multilateral channels. He appealed to other developed countries to join them in this international endeavor and promised to make a substantial contribution ... This strong U.S. initiative radically changed the attitude of other developed countries and they also joined in the U.S. effort."

Unfortunately, as Bhouraskar convincingly documents, the effort foundered in political differences on how to proceed and, as a result, the technical assistance provided in the subsequent two decades was too little and provided through too many sources to be truly effective. Matters improved after the creation of the United Nations Development Programme (UNDP) in 1966 but Bhouraskar notes in a concluding chapter that there are several "areas in which more reforms are needed."

Bhouraskar worked in the UN for three decades and these conclusions are written with the clarity and authority that comes from this long, personal association. Foremost among the problems he mentions is that of coming up "with a meaningful methodology for project evaluation." Whereas success is sometimes obvious, as in the case of the Bosnian currency board, in many cases it is difficult to measure the impact of technical assistance and the cost-effectiveness of its delivery. Bhouraskar recommends the setting up of an independent office to evaluate the effectiveness of technical assistance provided by UN agencies, adding that "a good model to follow" would be the watchdog Independent Evaluation Office established by the IMF.

A second problem is that of avoiding "considerable overlap and duplication" among the various UN agencies and also between the UN and other agencies. Bhouraskar writes that the creation of UNDP "was a step in the right direction" but that the goal of making it a central funding agency for assistance "has not been achieved yet." It is still the case, he says, that agencies "have their own programmes of technical cooperation financed from their regular budgets....The proliferation of technical assistance activities in the system has created problems in coordination and hindered a unified approach and response to emerging crisis or challenges."

The "decision making process and structures in the UN" also complicate the task of providing technical assistance. Bhouraskar writes that the UNDP reports to its Executive Board "which then reports to the ECOSOC, which then reports to the Second Committee of the General Assembly." At each stage, the issues are discussed "all over again," even though "the incremental value added at each stage is usually very small." He recommends that "in operation activities like technical assistance, the General Assembly should vest complete responsibility for policy and oversight in the Executive Board of the UNDP," with the Board reporting periodically and directly to the General Assembly.

Despite these problems, Bhouraskar remains a firm supporter of the work of the UN and other international agencies: "They don't always succeed but they keep trying and rarely give up. In most cases, the outcome is positive though not always optimal." The numerous case studies in the other two books reviewed here demonstrate that as well: the provision of technical assistance often makes a big difference—for the better.

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