A large number of countries have emerged from civil war or other forms of internal conflict . A few have managed to construct a fragi le peace and embark on ...
Vo l . 29, No . 12, pp. 1967-1985 , 2001 © 2001 Pub l i shed by E l sev i er Sc i ence Ltd . Pr i nt ed in Grea t Br i ta i n 0305-750X/ 01 / $ - see f ront ma t t er
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Pos t -Con f l i c t Recons t ruc t i on and the Cha l l enge to In t erna t i ona l Organ i za t i ons : The Case o f E l Sa l vador GRAC I ANA DEL CAST I LLO
Co l umb i a Un i vers i ty , New York , USA Summa r y . - Count r i es in post -conf l i c t t rans i t i ons have to reconc i l e the deve l opmen t cha l l enge w i th the add i t i ona l burden of reconst ruc t i on and na t i ona l reconc i l i a t i on . Th i s paper f i rst descr i bes the pecu l i ar i t i es of these count r i es wh i ch make t hem c l ear l y d i f ferent f rom those pursu i ng norma l deve l opmen t . Second is a d i scuss i on of the cha l l enges tha t these t rans i t i ons pose on the count r i es i nvo l ved and on the i nterna t i ona l organ i za t i ons tha t suppor t t hem . Th i rd , the paper i l lust rates through a d i scuss i on o f E l Sa l vador -by a l l s t andards a success s t ory -how the Int erna t i ona l Mone t a ry Fund and the Un i t ed Na t i ons had to adap t to mee t the cha l l enges of post -conf l i c t reconst ruc t i on . The pape r conc l udes w i th some po l i cy recommenda t i ons . © 2001 Pub l i shed by E l sev i er Sc i ence Ltd . wo rds - La t i n Amer i ca , E l Sa l vador , pol i t i ca l economy , post -conf l i ct reconst ruc t i on , i nterna t i ona l organ i za t i ons , deve l opmen t ass i stance
Key
1 . I NTRODUCT I ON A l arge numbe r of count r i es have emerged f rom c ivi l wa r or other forms of i nterna l conf l i ct . A f ew have managed to const ruc t a f ragi l e peace and emba rk on wha t is of ten a comp l ex t r ipl e t rans i t i on : f rom conf l i ct to peace ; f rom a nonpar t i c i pa tory , mi l i tar i zed soc i ety to a sys t em based on democra t i c pr inc ip l es and the ru l e of l aw ; and f rom stat i st pol i c i es and macroeconom i c m i smanagemen t to stab i l i zat ion and econom i c re form . Post conf l i ct t rans i t ions put a heavy burden not on l y on the count r i es themse l ves , but on the inter na t i ona l organ i za t i ons tha t are ca l l ed upon to p l ay a cr i t i ca l ro l e in fac i l i tat ing and f i nanc i ng t hem . Our ana l ys i s focuses on the i ssue of econom i c reconst ruc t i on . ' In post -conf l i ct t rans i t ions, po l i cymakers need to dea l ear l y on w i th ser i ous macroeconom i c i mba l ances and mone t ary and f isca l managemen t i ssues in the m i ds t of pol i t ica l , soc i a l and inst i tut iona l vu lnerab i l i t i es tha t are the l egacy of conf l i ct . Econom i es com i ng out of i nterna l st r i fe or cond i t i ons of ext reme soc io-po l i t i ca l upheava l have , as a genera l rul e, devast a t ed or at l east severe l y d i stor ted econom i es . Bo th human cap i ta l and phys i ca l inf rast ruc ture are of ten in shamb l es , ex i st ing na t i ona l inst i tut ions are i nadequa t e or l ack i ng, and ma j or macroeconom i c d i sequ i l ibr i a may requ i re tough stab i l i zat ion pol i c i es .
Thus , count r i es emerg i ng f rom prot rac ted c ivi l wars have to conf ront the norma l cha l l enge of soc i oeconom i c deve l opment wh i l e accommoda t i ng , at the same t ime , the add i t iona l burden of reconst ruc t i on and peace conso l i da t i on , so that they can in the future address the i r gr i evances through inst i tut iona l and peace fu l means . Th i s is par t i cu l ar l y arduous s ince , af ter years of pol i t i ca l. po l ar i za t i on and ideo log i ca l conf ronta t i ons , the l ack of consensus on macroeconom i c managemen t and st ructura l re form is of ten acut e . Put t i ng the economy back in a pa th of stab i l i zat ion and growth , however , becomes i mpera t i ve , i f a l arge numbe r of former comba t ant s of bo th s ides and other conf l i ct -af fected groups , i nc l ud i ng retur nees , interna l l y d i sp l aced persons , and the res i dent popu l a t i on in former zones of conf l i ct , are to be re i nser ted ef fect i ve l y and permanent l y i nto the produc t i ve l i fe of the count ry .
* The au thor is grate fu l to E l i ot Ka l ter , who l ed I MF m i ss i ons to E l Sa l vador dur i ng the per i od of ana l ys i s , and to A l varo de Soto , who represent ed the UN Secre t ary-Genera l in the peace negot i a t i ons , for i ns i ght fu l reco l l ect i ons and thought fu l i deas and sugges t i ons . She is a l so gra te fu l to Ma r i o Bl e j er , Enzo Croce , Bruce Cu l mer , Juan Car l os D i Ta t a , Ange l a Kane , Jav i er Guzman , Robe r t A . Munde l l , and J i m Sut ter l i n for adv i ce and commen t s. Er rors , of course , rema i n her own . F i na l rev i s i on accept ed : 17 Ju l y 2001 . 1967
1968
WORLD DEVELOPMENT
Deve l opmen t organ i za t i ons , i nc l ud i ng the Wor l d Bank , the Un i t ed Na t i ons Deve l opmen t Progr amme (UNDP) and the reg i ona l deve l opmen t banks , par t i cu l ar l y the Int er -Amer i can Deve l opmen t Bank , p l ay an i mpor t ant ro l e in the econom i c reconst ruc t i on . One of the mos t daunt i ng cha l l enges in car ry i ng out post -conf l ict t rans i t ions , however , is to des i gn and i mp l ement an econom i c program for the econom i c reconst ruc t i on of the coun t ry-usua l l y sponsored by the Interna t i ona l Mone t ary Fund ( I MF or Fund) -w i t h i n the const ra i nts and f i nanc i a l requ i rement s of na t i ona l reconc i l i at ion ef for ts resu l t i ng f rom the pol i t i ca l agreement for peace -usua l l y brokered by the Un i t ed Na t i ons (UN) . Because of the cr i t ica l rol e of the UN and the Fund i n post -conf l i ct t rans i t ions , this paper wi l l focus on these two inst i tut ions to the exc l us i on of the many others tha t are a l so i nvo l ved . 2 In these t rans i t i ons the UN of ten p l ays the cr i t i ca l ro l e of good of f i ces and ver i f i cat ion of peace agreement s and of fac i l i tator of the i r operat iona l i mp l ement a t i on . The Fund cont i nues to ass i st count r i es in restor i ng macroeconom i c ba l ance , st rengthen i ng the externa l pos i t ion, and i mprov i ng the inst i tut iona l f ramework . Mor e i mpor tant l y , an IMF -suppor t ed econom i c program is a de f ac to i f not de j ure requ i rement for ass i stance f rom the Wor l d Bank , the Int er -Amer i can Deve l opmen t Bank and of ten f rom bi l atera l donors . G i ven the pecu l i ar i t i es of count r i es in post conf l i ct t rans i t ions , ass i stance to these count r i es- i n ( former I MF Manag i ng D i rec tor ) M i che l Camdessus ' words -has had to be re i nvent ed (Camdessus , 1996) . Th i s has requ i red the re th i nk i ng of ana l yt i ca l and oper a t i ona l i ssues so that they can be f ramed in a mu l t i d i sc i p l i nary st rategy in wh i ch f i rst -best po l i c i es based on pure l y econom i c prof i t -maxi mi z i ng cr i ter i a are of t en not appropr i a t e or even recommended . Post -conf l i ct reconst ruc t i on and the pract i ca l and inst i tut iona l cha l l enges to the UN and the Fund are i l lust rated w i th the case of E l Sa l vador . Af t er a decade- l ong war , 75,000 est i ma t ed dead , and ser i ous damage to human cap i ta l and phys i ca l inf rast ructure , overamb i t i ous expectat i ons were crea ted by a peace agreemen t s i gned i n 1992 be tween the government of E l Sa l vador and the Frent e Farabundo Mar t i para l a L i berac i on Nac i ona l ( FMLN ) . Desp i t e the fact that E l Sa l vador is, by any standard , cons i dered one of the mos t successfu l UN peace-keep i ng opera t i ons , the i mp l ement a t i on
of the peace process in the count ry was p l agued w i th di f f icul t ies and comp l ex cha l l enges f rom the star t . Now tha t the t rans i t ion is over , i t is a good t i me to eva l ua te i ts st rengths and weak nesses, both to fac i l i tate future exper i ences and to avo i d repea t i ng the mi st akes of the past . The per formance of the economy and the st ructura l re forms adopt ed dur i ng the Na t i ona l Reconst ruc t i on P l an (NRP) were i mpress i ve . F i ve years af ter the peace agreement was s igned, E l Sa l vador was ra ted on l y a not ch be l ow i nves tment grade (BB+) by St andard and Poor ' s (wh i ch on l y g i ves i nves tment grade to Ch i l e and Uruguay) and i nves tment grade f rom Moody ' s . Rea l GDP growth averaged about 6% dur i ng 1992-97 and the rate of inf l at ion fel l to 10% . There was a ma rked st rengthen i ng of the ba l ance of paymen t s wh i ch permi t t ed the accumu l a t i on of reserves equ i va l ent to six mon t hs of i mpor ts . The i mprovemen t in econom i c per formance ref l ected a ma j or reor i entat i on of econom i c po l i cy , i nc l ud i ng a greater re l i ance on marke t forces and a ma j or re form of the exchange and t rade syst ems . By 1997, the comm i tmen t s of the peace agreement s had been mos t l y comp l i ed wi th, and the expend i ture assoc i a ted w i th the requ i red inst i tut iona l re forms had been i ncorpora t ed into the conso l i da t ed budge t . The i mpress i ve ach i evement s i n the econom i c per formance and in the i mp l ement a t i on of the peace process d i d not come be fore va l uab l e l essons were l earned . The Fund i nvo l vement in the econom i c program wh i l e the wa r raged and the UN i nvo l vement in end i ng the conf l i ct ca l l ed for care fu l p l ann i ng and co l l abora t i on be tween the two organ i za t i ons . Never the l ess , the ad j us tment program w i th the Fund and the peace process under the UN umbre l l a were crea ted separa te l y w i th l i t t le co l l abora t i on. 3 As the i ncongru i t i es and inef f i c i enc i es of these separa te pa ths became ev i dent , the need for a coopera t i ve and i ntegra ted approach where both inst i tut ions wou l d i nform each other of the i r respect i ve act i v i t i es and wou l d show f l exibi l i ty w i th i n the i r own manda t es to ach i eve common and inter re l ated goa l s , became ev i dent . The UN came to acknow l edge tha t peace requ i red macroeconom i c stabi l i ty . Cor respond i ng l y , the Fund recogn i zed exp l i ci t ly the need for i ncreased f l exibi l i ty in set t i ng econom i c ob j ect i ves to a l l ow for d i vergent demands , thereby t ak i ng into account the need i nc l ud i ng for peace- re l ated expend i ture , through access to some domes t i c f i nanc i ng, desp i te i ts inf l at ionary i mpac t . Bo th inst i tut ions
POST - CONFL I CT RECONSTRUCT I ON AND I NTERNAT I ONAL ORGAN I ZAT I ONS agr eed tha t ac t i ons shou l d be i n i t i a t ed i n a coord i na t ed manne r . Ou r ana l ys i s shows t ha t expend i t ur es l i nked t o t he i n i t i a t i on o f progr ams i n comp l i ance w i t h t he peace agr eemen t s exe r t ed pressure on f i sca l ob j ec t i ves i n t he 1992 econom i c progr am , and pu t t he au thor i t i es i n t he d i f f i cu l t d i l emma be t ween comp l i ance w i t h t he prov i s i ons o f t he peace agr eemen t s and comp l i ance w i t h t he s t ab i l i za t i on progr am . Unde r s t andab l y , t he gove rnmen t d i d no t wan t t o unde rm i ne t he mac roeconom i c ga i ns made s i nce 1990 , bu t de l ays i n t he i n i t i a t i on o f peace - re l a t ed progr ams , due t o a l a rge ex t en t t o f i nanc i a l d i f f i cu l t i es , pu t t he peace accord a t per i l on l y f ew mon t hs a f t er i ts s i gna t ure . Th i s expe r i ence i s i nd i ca t i ve o f t he dange r o f i nadequa t e f i nanc i ng f or peace - re l a t ed pro j ec t s , par t i cul ar l y i n t he ea r l y s t ages . Peace agr eemen t s bu i l d up expec t a t i ons t ha t i f t hey a re no t promp t l y fu l f i l l ed may l ead f orme r comba t an t s t o s t op comp l y i ng w i t h t he agr eemen t s . Th i s was t he case i n Oc t obe r 1992 when t he FMLN s t opped demob i l i za t i on because o f de l ays i n s t ar t i ng t he a rms - f or - l and progr am . Con t r ad i c t i ng o t he r ana l ys t s who a rgued t ha t t he aus t er i t y i mposed by t he I MF - spon sor ed progr am i mpeded t he t i me l y i mp l emen t a t i on o f t he agr eemen t s i n subsequen t years , 4 our ana l ys i s shows t ha t t he Fund made t he f i sca l t arge t s f or 1993-94 ( and l a t er years) mo r e f l ex i b l e so as t o i ncorpor a t e t he f i nanc i a l needs o f t he NRP . Mor eove r , we show t ha t expend i t ure i n t hose yea rs was s i gn i f i cant l y be l ow wha t was pe rm i t t ed i n t he progr am and , as a resu l t , f i sca l and o t he r t arge t s i n t he progr am we r e o f t en ach i eved w i t h a ma rg i n . F r om th i s ana l ys i s we conc l ude : desp i t e the cr i t i ca l de l ays a t t he ea r l y s t age o f t he process wh i ch cou l d have de ra i l ed t he process a l toge ther , prob l ems w i t h t he fu l l and t i me l y i mp l emen t a t i on o f peace - re l a t ed progr ams l a t er on we r e no t due to f i nanc i ng cons t ra i n t s i mposed by t he s t ab i l i za t i on progr am . The s l ow pace o f cap i t a l expend i t ur e ( i nc l ud i ng unde r t he NRP) , may be a t t r i but ed , i n par t , t o l ack o f po l i t i ca l w i l l -pa r t i cu l a r l y a t l owe r l eve l s o f t he c i v i l se r v i ce - and t o va r i ous i mp l emen t a t i on prob l ems , i nc l ud i ng adm i n i s t ra t i ve , ope r a t i ona l , t echn i ca l , l ega l , and l og i s t i ca l . In add i t i on , t he l ack o f appropr i a t e t echn i ca l exper t i se a t t he UN Obse r ve r M i ss i on i n E l Sa l vador ( ONUSAL ) , par t i cu l ar l y i n t he econom i c and f i nanc i a l areas , made UN suppor t i n ove r com i ng these d i f f i cu l t i es i nade qua t e . The cau t i ousness o f t he gove rnmen t w i t h
1969
r ega rd t o expend i t ur es was ano t he r f ac tor de l ay i ng t he process. Th i s may have been i nduced by uncer t a i n t i es w i t h respec t t o ex t er na l f i nanc i ng ar i s i ng f rom f i sca l conso l i da t i on i n donors ' coun t r i es as we l l as donors ' f a t i gue i n l i ght o f new demands i n the hem i sphe r e (Ha i t i , Gua t ema l a ) and i n t he res t o f t he wor l d (Rwanda , Bosn i a , Gaza and the Wes t Bank ) .
2 . PECUL I AR I T I ES OF POST - CONFL I CT TRANS I T I ONS We de f i ne pos t -con f l i c t t rans i t i ons as t hose f ac i ng coun t r i es t ha t have su f f ered t he t r auma o f c i v i l wa r or o t he r i nt erna l conf l i c t and have t o emba r k on econom i c recons t ruc t i on and on po l i t i ca l and soc i a l r e f orm t o prov i de the unde rp i nn i ngs o f peace and promo t e democ ra t i za t i on and na t i ona l hea l i ng . As f orme r Pres i den t C l i n t on s t a t ed i n Sa r a j evo i n 2000 , " I t i s no t enough t o end a wa r ; we mus t bu i l d t he peace . " I n bu i l d i ng the peace , i t is i mpor t an t to keep i n m i nd tha t coun t r i es i n pos t -con f l i c t t rans i t i ons o f t en sha re a numbe r o f charac t er i s t i cs w i t h coun t r i es i n t he norma l process o f deve l opmen t . F i rs t , coun t r i es i n pos t -con f l i c t t rans i t i ons have , as a gene ra l ru l e , devas t a t ed or a t l east severe l y d i s tor t ed econom i es . Bo t h human cap i t a l and phys i ca l i n f ras t ruc ture a re o f t en i n shamb l es . St a t i s t and popu l i s t po l i c i es o f the pas t have l ed to ma j or mac roeconom i c d i sequ i l i br i a tha t o f t en requ i re t ough stab i l i za t i on po l i c i es and s t ruc tura l r e f orm . Second , coun t r i es i n pos t -con f l i c t t rans i t i ons have f l awed or weak na t i ona l c i v i l ( l ack o f t ranspa rency , poor i ns t i tut i ons j ud i c i a l gove rnance , cor rup t l ega l and sys t ems , absence o f prope r t y r i ghts , l ack o f i ndependen t cen t ra l banks , weak t ax and cus t oms adm i n i s t ra t i on and pub l i c expend i t ure managemen t , e t c . ) . Th i rd , coun t r i es i n pos t -con f l i c t t rans i t i ons are h i gh l y dependen t on of f i c i a l a i d f l ows , mos t l y i n t he f orm o f gr an t s . Th i s dependency is par t i cu l ar l y s t rong r i gh t a f t er the so l u t i on o f the conf l i c t and a t t he ear l y s t ages o f wha t o f t en proves t o be a l ong and d i f f i cu l t t rans i t i on . Four t h , coun t r i es i n pos t -con f l i c t t rans i t i ons o f t en have pro t rac t ed a r rea rs on paymen t o f f ore i gn deb t . Thus , t he prov i s i on o f f i nanc i a l a i d is cons t r a i ned by t he need to c l ea r t hose ar rears and t o norma l i ze re l a t i ons w i t h cred i tors , par t i cu l ar l y w i t h t he i n t e rna t i ona l f i nan-
1970
WORLD DEVELOPMENT
c i a l inst i tut ions tha t have rest r i ct ions to assist count r i es i n ar rears . In add i t i on, post -conf l i ct count r i es usua l l y requ i re debt re l i ef on unsusta i nab l e externa l debt burdens . These s imi l ar i t i es are , however , m i s l ead i ng . I t may not be poss i b l e to bu i l d the peace un l ess i t is acknow l edged that count r i es in post -conf l i ct t rans i t i ons are c l ear l y d i f ferent and have d i f ferent needs f rom those pursu i ng norma l deve l opment act i v i t i es or even f rom those com i ng out of econom i c chaos for three ma i n reasons . F i rst , count r i es in post -conf l i ct t rans i t ions face a h i gher r i sk of re turn i ng to c ivi l unrest . To avo i d thi s, these count r i es need to conf ront the norma l cha l l enge of soc i oeconom i c deve l opmen t i n such a way tha t i t a l l ows them to accommoda t e the add i t i ona l burden of econom i c reconst ruc t i on and na t i ona l reconc i l i at ion . Cr i t i ca l act i v i t i es that of ten need to be car r i ed out in thi s respec t i nc l ude the de l i very of emergency a i d to the former conf l i ct zones ; the demob i l i za t i on of former comba t ant s and the i r re i ntegrat i on i nto produc t i ve sectors of the economy ; the re form of the a rmed forces and the crea t i on of na t i ona l c i v i l i an po l i ce forces ; the econom i c rehab i l i tat i on and reconst ruct i on of human cap i ta l and phys i ca l inf rast ructure and of bas i c serv i ces damaged or i nter rupted as a resu l t of conf l i ct ; and the c l earance of m i nes . Because of the need to car ry out these act ivi t i es, f iscal and mone t ary targets of IMF -sponsored econom i c programs i n these count r i es may have to be made more f l ex ibl e to fac i l i tate f i nanc i ng. Second , former adversar i es shou l d be encouraged to l i ve w i th each other , and , to succeed , they wi l l have to overcome the of ten sharp pol i t i ca l po l ar i za t i on , and ideo log i ca l , ethn i c , or re l ig ious conf ront a t i on tha t fue l l ed the conf l i ct and are the l egacy of wa r. On l y through the est ab l i shment of an adequa t e inst i tut iona l f ramework to foster na t i ona l reconc i l i at i on wi l l former adversar i es be ab l e in the future to address the i r gr i evances through peace fu l means . A l ack of reconc i l i at i on may doom reconst ruc t i on ef for ts to fa i lure . Th i rd , af ter years of sharp po l ar i za t i on on econom i c and soc i a l i ssues, the l ack of consensus on mac roeconom i c managemen t and st ructura l re form is of t en acute . Th i s makes the t rans i t i on par t i cu l ar l y di f f i cul t s ince put t i ng the house back in order and f i nd i ng a consensus to i mp l ement econom i c reconst ruc t i on is a l mos t a precond i t i on for susta i ned i nternat i ona l ass i st ance .
Due to these pecu l i ar i t i es of post -conf l i ct t rans i t ions , po l i cy-mak i ng i n such s i tuat ions cannot be bus i ness as usua l . I t shou l d be gu i ded by the fo l l ow i ng pr i nc i p l es : F i rst , in car ry i ng out post -conf l i ct act ivi t i es, econom i c pr ior i t i es shou l d be gu i ded by pol i t i ca l cons i dera t i ons s ince i t i nvo l ves address i ng prob l ems wh i ch , i f lef t unreso l ved , may l ead to a re turn of f ight ing . Second , the equ i ty pr i nc i p l e tha t preva i l s i n norma l deve l opment act i v i t i es wi l l be over shadowed by the eth i cs of peace-keep i ng : i t is of t en i mpera t i ve to g i ve preferent i a l t rea tment and address the l eg i t i mate gr i evances of those groups mos t i nvo l ved in, or mos t af fected, by the conf l i ct , to d i scourage them f rom go i ng back to arms , as we l l as to redress hardsh i p or repress i on suf fered dur i ng the conf l i ct . 6 Th i rd , g i ven the pr i mord i a l ro l e conf er red to the pol i t i ca l cr i ter ion, the t emporary re l ega t i on of the equ i ty pr inc ip l e , and the many f inanc i a l and techn i ca l const ra i nts f aced by count r i es in post conf l i ct t rans i t ions , i t wou l d be unreasonab l e to expec t the po l i cy des i gn or the a l l ocat i on of resources to be opt i ma l f rom a pure l y econom i c po i nt of v i ew . 3 . POST-CONFL I CT CHALLENGES TO COUNTR I ES AND TO I NTERNAT I ONAL ORGAN I ZAT I ONS G i ven these pecul i ar i t i es, the needs of count r ies in post -conf l i ct t rans i t ions are qua l i tat i ve l y d i f ferent . Th i s undoubt ed l y creates a numbe r of un i que cha l l enges for the count r i es concerned , as we l l as for the i nternat i ona l organ i za t i ons tha t suppor t them . The pr i mor d i a l cha l l enge of the post -conf l i ct t rans i t ion is to prevent the recur rence o f host i l i t i es, tha t is, to make the t rans i t ion i r revers ib l e . Th i s enta i l s the comp l ex pol i t i ca l task of address i ng the root causes o f the conf l i ct . Such a task has very l i t t le chance of success un l ess the economy is qu i ck l y stab i l i zed and brought back into a pa th of i nves tment and h i gh-qua l i ty , emp l oyment -genera t i ng growth w i th l ow inf l at ion . Crea t i ng oppor tun i t i es for emp l oymen t is cr i t i ca l s ince i t wi l l fac i l i tate the comp l ex , l ong , and expens i ve process of re i ntegrat i ng former comba t ant s , returnees , and d i sp l aced persons into soc i ety and into produc t i ve act i v i t i es . Re i nt egra t i on is a cond i t i on s i ne qua non for the conso l i da t i on of peace . The pecul i ar i t i es of count r i es in post -conf l i ct t rans i t ions , i n con j unc t i on w i th the absence and /or the weakness of pol i t i ca l and l ega l
POST - CONFL I CT RECONSTRUCT I ON AND I NTERNAT I ONAL ORGAN I ZAT I ONS i ns t i tut i ons and t he i nadequacy o f manpowe r , makes t he f ormu l a t i on o f econom i c po l i cy par t i cu l ar l y cha l l eng i ng . A l t hough cond i t i ons va r y w i de l y f rom coun t r y t o coun t ry , t he common r equ i r emen t f or t he i mp l emen t a t i on o f e f f ec t i ve and sus t a i nab l e econom i c po l i c i es i s t he re t urn o f peace and o f t he ru l e o f l aw and t he accep t ance by t he popu l a t i on o f t he new gove rnmen t and t he l eg i s l a t i ve bod i es t ha t a re go i ng t o manage t he economy . I n t e rna t i ona l organ i za t i ons become i nvo l ved i n t he cha l l enge o f pos t -con f l i c t recons t ruc t i on i n d i f f erent ways and a t d i f f erent s t ages . Many ass i s t coun t r i es i n norma l t i mes and , i n some cases , even dur i ng t he conf l i c t . Th i s i s norma l l y t he case o f t he Fund wh i ch suppor t s coun t r i es i n the i r e f for ts t o s t ab i l i ze the i r econom i es and ca r ry ou t s t ruc tura l r e f orm. I n pos t -con f l i c t t rans i t i ons , t he Fund con t i nues t o ass i s t coun t r i es i n res t or i ng mac roeconom i c ba l ance , s t reng t hen i ng the i r ex t erna l pos i t i on , and i mprov i ng i ns t i tut i ona l f r amewor k . the i r Coun t r i es i n such t rans i t i on , howeve r , a re o f t en no t ab l e to mee t t he cr i t er i a f or bor row i ng f rom t he Fund , and a re un l i ke l y t o a f ford i ts norma l l end i ng t e rms . A t t he same t i me , t he ro l e o f t he Fund i n pos t -con f l i c t s i tua t i ons becomes even mo r e cr i t i ca l s i nce , for t he r easons d i scussed ear l i er , ex t e rna l ass i s t ance and t he reac t i va t i on o f grow t h are dec i s i ve i n t he t rans i t i on process , and donor s a re no t l i ke l y t o be gene rous w i t h coun t r i es t ha t a re no t pu t t i ng the i r econom i es i n orde r and do i ng the i r bes t t o he l p t hemse l ves . Thus , Fund b l ess i ng t hrough a f orma l or i n f orma l progr am has proved t o be a requ i re men t for ex t e rna l ass i s t ance i n pos t -con f l i c t t rans i t i ons . To suppor t such progr ams f i nanc i a l l y , t he Fund and t he Wo r l d Bank p l ay an i mpor t an t ro l e i n ca t a l yz i ng ex t e rna l f i nanc i ng f rom o t he r donors , i nc l ud i ng o t he r i nt erna t i ona l and reg i ona l organ i za t i ons and of f i c i a l b i l a t era l donors , f or examp l e , t hrough the Pa r i s C l ub , donors ' suppor t groups and s consu l t a t i ve group mee t i ngs . I n genera l , UN i nvo l vemen t i n a g i ven pos t conf l i c t t rans i t i on may f o l l ow a peace -mak i ng ro l e e i ther as f ac i l i t a tor or med i a t or , and / or a peace - keep i ng ope r a t i on wh i ch i nvo l ves ove r see i ng t he cease- f i re and the d i sa rmamen t a r r angemen t s t hrough t he dep l oymen t o f b l ue he l me t s f orces t ha t he l p keep f orme r be l l i ger ent s apa r t . I n pos t -con f l i c t t rans i t i ons , t he UN o f t en p l ays t he cr i t i ca l ro l e o f good of f i ces and ver i f i ca t i on o f peace agr eemen t s and o f fac i l i t a tor o f the i r ope r a t i ona l i mp l emen t a t i on . I n
197 1
th i s capac i t y , t he UN addresses ma i n l y po l i t i ca l and secur i t y , bu t a l so l ega l , i ns t i tut i ona l , and j ud i c i a l i ssues and may p l ay a cruc i a l ro l e i n demob i l i za t i on and re i n t egra t i on progr ams . Mo r e recen t l y i n Kosovo and Eas t T i mor , as t o some ex t en t prev i ous l y i n Cambod i a , t he UN has a mo r e i nt rus i ve ro l e by pe r f orm i ng c i v i l adm i n i s t ra t i on f unc t i ons t ha t are norma l l y t he pre roga t i ve o f sove re i gn gove rnmen t s .
4 . EL SALVADOR : AN I LLUSTRAT I VE CASE The roo t causes t o t he decade - l ong c i v i l wa r i n E l Sa l vador go back mo r e t han a cen t ury . I t i s no exagge r a t i on t o say tha t t he prob l em o f l and t enur e 9 was as much a roo t cause o f t he conf l i c t t ha t r aged t hroughou t t he 1980s as was t he ove rbea r i ng powe r o f t he a rmed forces . The t wo prob l ems we r e no t unre l a t ed : scho l a rs o f E l Sa l vador po i n t ed t o t he a rmed forces as an i ns t rumen t c rea t ed and nur t ur ed by t he l anded c l ass t o pro t ec t and prese rve i ts pos i t i on (de So t o & de l Cas t i l l o , 1995) . Desp i t e t he po l i t i ca l t ens i ons and soc i oeconom i c i n j ust i ce , E l Sa l vador expe r i enced s i gn i f i cant econom i c progress i n t he 1960s and 1970s . Rea l GDP gr ew a t an annua l ra t e o f c l ose to 6% i n t he 1970s , re f l ec t i ng a s t ab l e mac roeconom i c env i ronmen t , an i mprovemen t i n t he t e rms o f t rade and an expans i on o f t he reg i ona l ma r ke t for manu f ac t ur ed produc t s , wh i ch f o l l owed the crea t i on o f t he Cen t ra l Ame r i can Common Ma r ke t ( CACM ) . Domes t i c i nves t men t i nc reased f rom 131, /o o f GDP i n 1967-69 to 22% o f GDP i n 1977-79 . Th i s was f i nanced mos t l y ou t o f na t i ona l sav i ngs wh i ch r eached 18% o f GDP in 1977-79 . 10 Soc i a l progress l agged , a l t hough some ga i ns we r e ach i eved i n i ncreas i ng l i fe expec t ancy and i n i mprov i ng l i t eracy ra t es and pr i ma r y educa t i on enro l l men t . No t w i t hs t and i ng t hese l i m i t ed i mprovemen t s , by the t i me c i v i l wa r e rup t ed , l i fe expec t ancy con t i nued to be be l ow 60 yea rs o l d , i n f an t mor t a l i t y ra t es con t i nued t o be h i gh , on l y 20% o f t he schoo l - age popu l a t i on a t t ended seconda r y educa t i on , i l l i t eracy was as h i gh as 45% o f t he popu l a t i on ( age 15+) , and pe r cap i t a GDP r ema i ned l ow a t s l i ght l y ove r US$600 . 11 (a)
The econom i c consequences o f c i v i l wa r
The c i v i l wa r i n E l Sa l vador d i ve r t ed pub l i c resources f rom i nves t men t and t he soc i a l sec tors t o m i l i t ary expend i t ur e . Wh i l e m i l i t ary
1972
WORLD DEVELOPMENT
expend i ture averaged over 4% of GDP in 198890 and represented 20% of cent ra l governmen t expend i ture , the h i ghest l eve l in La t i n Amer i ca w i th the except i on of N i caragua , cent ra l government expend i ture i n educa t i on as a share of GDP dropped f rom 4% in 1980 to less than 2% in 1990 (as compared to an average of over 4% for La t i n Amer i ca in both years) . By 1990, tota l hea l th expend i ture had fa l l en to l ess than 1% of GDP ( f rom 2% in 1980) , wh i ch , in per cap i ta terms , represented l ess than a th i rd of the average for La t i n Amer i ca. At the same t ime , i nappropr i a t e econom i c pol i c i es and a deter i ora t i ng externa l env i ronment due to fa l l ing t erms of t rade , h i gh rea l rates of interest , and wor l d recess ion, worsened pub l i c f i nances . As a resul t , governmen t revenue fel l sharp l y in re l at i on to GDP . In add i t i on, the co l on rema i ned overva l ued . The externa l def i c i t on goods , serv i ces and rent ( that is, the cur rent account exc l ud i ng t ransfers) 12 i ncreased f rom less than 4% of GDP in 1977-79 to over 12% in 1987-89 . By 1989, domes t i c i nves tment and na t i ona l sav i ngs were down to 15% and 6% of GDP , f rom the h i gh pre-war l eve l s repor ted above. Ne t i nternat i ona l reserves had dec l i ned to the equ i va l ent of three mon t hs of i mpor ts ; and s i zab l e externa l paymen t s ar rears had accumu l a t ed . The s i tuat ion de ter i ora ted fur ther at the turn of the decade as a resu l t of the intens i f i cat ion of the a rmed conf l i ct , a devasta t i ng ear thquake , a severe drought , and the weaker econom i c s i tuat i on in other Cent ra l Amer i can count r i es. As a resu l t of these deve l opment s , domes t i c i nves tment and na t i ona l sav i ngs bo t tomed out in 1990 at 12% and 5% , respect i ve l y (see Tab l e 1) . Damage to the count ry ' s i nf rast ructure as a resu l t of the c ivi l war was est i ma t ed at over US$1 .5 b i l l ion (over 30% of 1990 GDP) . Wa r dest ruc t i on and gr i nd i ng pover ty caused ser i ous env i ronment a l prob l ems as we l l . Rea l GDP dec l i ned by 12% dur i ng the 1980s and rea l per cap i ta i ncome dropped by 25% , w i th 56% of the popu l a t i on fa l l ing be l ow the pover ty l eve l . In a count ry known for i ts pr i ce stabi l i ty, inf l at ion reached 24% at the end of the decade . A l though there was some i mprovemen t in soc i a l i nd i cators, by 1990 E l Sa l vador was in 110th p l ace in the UNDP ' s human deve l opment rank (out of 173 count r i es) , and just be l ow N i caragua , w i th an i ncome per cap i t a of just one- four th of tha t of E l Sa l vador. Infant mor ta l i ty rema i ned h i gh at 56 per thousand (compared w i th an average for La t i n Amer i ca of 44 per thousand) ; the da i l y ca l or i e i nt ake per cap i ta of 2,155 was
about four - f i f ths of the average for La t i n Amer i ca ; adu l t i l l i teracy of 27% was a l mos t tw i ce the average for La t i n Amer i ca , and 4 years of schoo l i ng on average rema i ned ext reme l y l ow by La t i n Amer i can st andards . One factor that fostered the economy of E l Sa l vador dur i ng the wa r years and he l ped conta i n the spread of pover ty was the remi t tances of m i grant workers abroad , par t i cu l ar l y f rom the c lose to one mi l l i on Sa l vadorans l i v ing in the Un i t ed States . At the end of the 1980s remi t tances represent ed 5% of GDP and grew rap i d l y in com i ng years . (b) I MF and UN i nvo l vement i n E l Sa l vador Upon t ak i ng of f i ce in June 1989, Pres i dent Cr i st i an i set three ma i n goa l s for h i s Adm i n i st rat i on (1989-94) : ( i ) to negot i a te an end to the c ivi l wa r and ini t i ate a na t i ona l reconst ruc t i on and reconc i l i at i on ef for t ; ( i i ) to car ry out macroeconom i c stab i l i zat ion and st ructura l re form so as to put the economy back in a pa th of susta i nab l e growth and deve l opment ; and ( i i i ) to reduce pover ty . Negot i a t i ons w i th the Fund on an econom i c program to be suppor t ed by a 12-mon th st andby ar rangement began in Novembe r 1989, but were i nter rupted by an outbreak of war f are i n San Sa l vador . In add i t i on, the f inanc i a l s i tuat ion had been aggrava t ed by a ser i es of externa l shocks-par t i cu l ar l y the drama t i c drop in the pr i ce of cof fee af ter the breakdown of the Interna t i ona l Cof fee Agreemen t in June 1989 . Notw i ths t and i ng those adverse factors , Pres i dent Cr i st i ani ' s econom i c program was f ina l l y adopt ed in 1990 at the peak of the a rmed conf l i ct . 13 At that t i me econom i c act i v i ty was d i srupted by c ivi l wa r wh i ch i nc l uded acts of sabot age of e l ect r i c powe r and other inf rast ructure , and d i srupt i on of harvests . Dur i ng thi s per i od, of f icial t ransfers (grants) star ted to dec l i ne ( f rom c lose to 6% in 1989 to 3% in 1991) , but a t the same t i me pr i vate t ransfers ( remi t tances) i ncreased ( f rom about 5% of GDP in 1987-89 to over 7% in 1990-91) (see Tab l e 2) . Wh i l e the Fund suppor t ed stab i l i zat ion in a c ivi l wa r economy (1989-92) , the UN negot i a t ed a Peace Accord (1990-92) . The Novembe r 1989 FMLN of fens i ve was the l argest of the c ivi l war , for the f i rst t i me af fect ing l arge par ts of the cap i ta l c i ty of San Sa l vador . A f ew days l ater , six Jesu i t pr i ests were assass i nated, and the k i l l ers were w i de l y be l i eved to be c l ose l y assoc i a ted to the mi l i tary. Domes t i c and inter -
1989
Tab l e 1 . E l Sa l vador : bas i c econom i c i nd i ca tors 1991 1992 1993
1990
1994
1995
1996
1997
(Annua l percent age change except otherw i se i nd i ca ted) GDP ( in mi l l i ons of co l ones) Nom i na l GDP Rea l GDP (1990 pr i ces) Rea l GDP Consume r pr i ces (end of per i od) Consume r pr i ces (average) Rea l wages (pr i va te sector ) Rea l wages (pub l i c sector ) Par t i c i pa t i on ra te ' Unemp l oymen t ra te ' Exchange ra te (end o f year ; Co l ones per US$) Exchange ra te (average; Co l ones per US$) Rea l ef fect i ve exchange ra te (pos i t i ve numbe rs i nd i ca te apprec i a t i on)
32 , 224 17 35 , 288 .8 1 .1 23 .5 17 .6 -3 .8 -2 .2 29 .7 13 .0 5 .0
36 , 488 27 36 , 488 .4 3 .4 19 .3 24 .0 -8 .4 -12 .3 31 .7 12 .0 8 .0
42 , 594 16 37 , 792 .8 3 .6 9 .9 14 .4 -7 .5 -9 .7 34 .0 11 .1 8 .1
49 , 839 17 40 , 644 .0 7 .5 19 .9 11 .2 -1 .0 -3 .2 35 .9 9.8 9 .2
60 , 359 21 .4 43 , 639 7 .4 12 .2 18 .6 -2 .3 -4 .6 35 .4 9 .9 8 .7
70 , 748 17 46 , 279 .2 6 .0 8 .8 10 .5 1 .7 16 .5 38 .1 7.7 8 .8
83 , 130 17 49 , 239 .6 6 .4 11 .4 10.0 1 .3 3 .1 37.7 7.7 8 .8
90 , 63 9 .0 50 , 139 1 .8 7 .2 9 .8 0 .8 4 .5 38 .5 7.7 8 .8
97 , 929 6 52,141 .0 4 .0 2 .2 4 .4 2 .1 3 .3 38 .0 7 .8 8 .8
5 .6
7 .6
8 .0
8 .4
8 .7
8 .7
8 .8
8 .8
8 .8
-1 .6
-18 .8
6 .7
8 .2
12 .4
2 .2
8 .2
4 .7
4.8
( In percent age of GDP)
Sav i ngs and i nves tmen t Gross domes t i c i nves tment Pub l i c sector Pr i va te sec tor Na t i ona l sav i ngs Pub l i c sector Pr i va te sec tor Ext erna l sav i ngs`
15 .3 3 .9 11 .4 5.9 -1 .6 7.5 9.4
11 .8 2 .3 9 .5 5 .2 5 .5 -0 .3 6.6
14 .8 2 .8 12 .0 10.2 10.4 -0.2 4.6
18 .0 4 .0 14 .0 12 .4 0 .2 12 .2 5 .6
18 .5 4.0 14.5 14.1 0.8 13 .3 4 .4
19 .7 3 .7 16 .0 16 .0 2 .0 14 .0 3 .7
20 .0 3 .5 16 .5 15 .2 3 .2 12 .0 4 .8
14 .8 3 .7 11 .1 12 .6 1 .9 10 .7 2 .2
14 .9 3 .3 11 .6 14 .5 1 .9 12 .6 0 .4
Non- f i nanc i a l pub l i c sector Overa l l ba l ance (be fore grants) Overa l l ba l ance (af ter grants) Sav i ngs NFPS Ext erna l f i nanc i ng Domes t i c f i nanc i ng Cent ra l Bank prof i ts
-5 .7 -4.0 -1 .5 1 .6 2 .5 -
-2 .5 -0.4 -0 .3 -0.1 0.5 -
-5 .1 -3 .2 -0 .6 2 .5 0 .7 -
-6 .5 -4 .6 -0 .6 3 .9 0 .6 - 0 .8
-3 .6 -1 .6 0 .7 2 .0 -0 .3 -0 .2
-2 .0 -0 .6 2.0 2 .0 -1 .4 -0.2
-0 .9 -0 .1 3 .2 1 .3 -1 .2 0.2
-2.7 -2 .5 1 .8 2.7 -0.2 0.3
-2.0 -1 .8 1 .6 2 .0 -0.2 0.3
Sources : Cent ra l Reserve Bank , M i n i s t ry of F i nance , and I MF . ' Econom i c act i ve popu l a t i on as a percent age of the tota l popu l a t i on . ' Unemp l oyed as a percent age o f tota l l abor force. Ext erna l sav i ngs equa l s the cur rent account def i c i t w i th an oppos i t e s i gn .
Oz
r y
Cn y
10 n
Z z C7 to
a yt "
p ly a
a-1
O
w
A
Cur rent revenue and grant s Cur rent revenue Tax revenue Of f i c i a l grant s Cap i t a l revenue and cur rent t ransfers f rom pub l i c enterpr i ses Expend i ture and ne t l end i ng Cur rent expend i ture Cap i t a l expend i ture Overa l l ba l ance (be fore grants) Overa l l ba l ance (af ter grants) F i nanc i ng Ext erna l f i nanc i ng Domes t i c f i nanc i ng Memor andum i t ems M i l i t ary expend i tures ( In mi l l i ons of co l ones) De f ense (mi l i tary proper ) ( In mi l l i ons of co l ones) Po l i ce (pub l i c secur i ty) ( In mi l l i ons of co l ones)
Tab l e 2. E l Sa l vador : cent ra l governmen t conso l i da t ed opera t i ons ( in percent age o f GDP) 1989 1990 1991 1992 1993 1994 1995 9 .7 10 .7 10 .3 12 .9 13 .2 13 .5 13 .7 8 .1 8 .6 8 .5 10 .8 10 .8 11 .6 12 .7 7 .6 8 .1 8 .5 9 .6 10 .3 10 .9 12 .0 1 .6 2 .1 1 .8 1 .9 2.0 1 .4 0 .8 0 .2 0 .1 0 .6 0 .2 0.4 0.4 0.3
1996
1997
13 .5 13 .3 11 .2 0.2 0 .4
12 .5 12 .2 11 .0 0 .2 0 .6
13 .0 10 .5 2 .5 -4 .9 -3 .3
11 .9 10 .1 1 .8 -3 .3 -1 .2
13 .8 10.8 3 .0 -5 .3 -3 .5
16.2 11 .6 4.6 -5 .2 -3 .3
14 .6 11 .2 3 .1 -3 .4 -1 .4
14 .2 11 .5 2 .6 -2 .1 -0 .7
14.3 11 .1 3 .0 -1 .4 -0 .6
15 .5 12 .4 3 .2 -2 .2 -2 .0
13 .6 11 .2 2 .6 -1 .3 -1 .1
3 .3 0 .6 2 .7
1 .2 -0.3 1 .5
3 .5 1 .8 1 .7
3 .3 2 .6 0 .7
1 .4 1 .7 -0 .3
0 .7 1 .8 -1 .1
0 .6 1 .2 -0 .6
2 .0 2.2 -0.2
1 .1 1 .7 -0 .6
4 .0 1 , 282 3 .3 1055 0.7 227
3 .1 1,118 2 .4 872 0 .7 246
2 .7 1 , 157 2 .2 926 0 .5 231
2 .3 1 , 146 1 .8 917 0 .5 230
1 .9 1 , 154 1 .5 920 0.4 234
1 .4 1,001 1 .2 837 0 .2 163
2 .1 1,782 1 .0 859 1 .1 924
2.5 2 , 235 1 .0 886 1 .5 1350
2 .3 2 , 244 0 .9 886 1 .4 1358
r
d
d C
Expend i ture and net l end i ng 13 .9 11 .9 13 .8 16.2 14.6 14 .4 14 .2 14 .8 13 .4 M i l i t ary expend i ture ' 4 .0 3 .1 2 .7 2 .3 1 .5 1 .2 1 .0 1 .0 0 .9 Non-m i l i t ary expend i ture 9 .9 8 .8 11 .1 13 .9 13 .1 13 .2 13 .2 13 .8 12.5 Na t i ona l c i v i l i an po l i ce 0 .5 0 .4 0 .2 1 .1 1 .5 1 .4 Soc i a l expend i ture 5 .3 5 .0 4.4 4 .4 4 .6 4.9 5 .0 5 .4 5 .8 Sources : Cent ra l Reserve Bank , M i n i s t ry of F i nance , and I MF . ' Banco Cent ra l de Reserva , based on Ley de Presupues to e Informes , and as repor t ed by the I MF . ' Da t a ad j us t ed to ref l ect the f ac t tha t up to 1992 the po l i ce was mi l i tar i zed and was r i ght l y i nc l uded as "mi l i t ary expend i ture . " Af t er 1993 , expend i ture for the Na t i ona l Ci v i l i an Po l i ce and Po l i ce Academy , bo t h i nst i tut i ons crea t ed under the peace agreement s has been t aken f rom "mi l i t ary expend i ture " and i nc l uded in "nonm i l i t ary expend i ture . "
010
Z
POST - CONFL I CT RECONSTRUCT I ON AND I NTERNAT I ONAL ORGAN I ZAT I ONS na t i ona l pressure on t he t wo be l l i gerent par t i es to end the i r hos t i l i t i es gr ew . The v i o l ence o f 1989 no t on l y c l a i med hundr eds o f l i ves and seve re phys i ca l damage ; i t a l so demons t r a t ed t he i mposs i b i l i t y o f m i l i t ary v i c t ory by e i ther s i de , and se t t he s t age f or a nego t i a t ed so l u t i on . By ea r l y 1990 , t he FMLN and t he Gove rnmen t o f Pres i den t Cr i s t i an i had sepa ra t e l y r eques t ed t he Sec r e t a ry -Gene r a l o f t he UN t o he l p t hem nego t i a t e a so l u t i on to t he m i l i t ary conf l i c t . The agenda agr eed f or t he nego t i a t i ons made c l ear t ha t i n orde r t o end t he conf l i c t i ts roo t causes wou l d need t o be addr essed . Af t e r t wo yea rs o f l ong , comp l ex and pa i ns t ak i ng nego t i a t i ons , and a ser i es o f par t i a l agr eemen t s , t he f orma l s i gn i ng o f t he E l Sa l vador Peace Accord t ook p l ace on Janua r y 16, 1992 i n the Chapu l t epec Cas t l e i n Mex i co C i t y . The Chapu l t epec agr eemen t was t he beg i nn i ng o f t he l ong , amb i t i ous and a rduous pos t -con f l i c t t rans i t i on i n E l Sa l vador . Fo r t he UN - wh i ch med i a t ed t he agr eemen t and became i nvo l ved i n i ts f i rst pos t -con f l i c t t rans i t i on w i t h t he c rea t i on o f ONUSAL - success f u l i mp l emen t a t i on o f the Sa l vador an peace agr eemen t ca r r i ed f ar - reachi ng i mp l i ca t i ons , no t on l y because o f i ts i nves t men t i n t i me and resources , bu t a l so because o f t he i mp l i ca t i ons f or f u t ure cha l l enges o f t he k i nd . ( i ) Econom i c consequences o f peace: 1992-97 C i v i l wa r i n E l Sa l vador was cos t l y bu t t he econom i c consequences o f peace we r e a l so o f s i gn i f i cance . Th i s s i tua t i on was aggr ava t ed by t he f ac t t ha t f ore i gn f i nanc i ng dr i ed up a f t er t he end o f t he co l d wa r con f l i c t and there was ha rd l y any peace d i v i dend i n t he f i sca l sense . A t t he same t i me , peace cou l d on l y be ach i eved a t a re l a t i ve l y h i gh cos t . Recons t ruc t i ng damaged i n f ras t ruc ture , res tor i ng bas i c soc i a l serv i ces , re i n t egra t i ng f orme r comba t an t s , and reac t i va t i ng grow t h en t a i l ed f i nanc i a l cos t s t ha t we l l exceeded t he resource capab i l i t y o f the coun t ry and requ i red gene rous ass i s t ance f rom t he i n t e rna t i ona l commun i t y . As pa r t o f t he peace nego t i a t i ons , a numbe r o f progr ams we r e to be i mp l emen t ed i n t he f r amewor k o f t he Na t i ona l Recons t ruc t i on P l an ( NRP) f or 1992-97 , a t an es t i ma t ed cos t o f abou t US$2 b i l l i on . The f i nanc i a l i mp l i ca t i ons o f t he NRP had t o be i ncorpor a t ed i nto and reconc i l ed w i t h t he f i sca l res t r i c t i ons i mposed by t he econom i c st ab i l i za t i on progr am . The ma i n ob j ec t i ve o f t he NRP was t he sa t i s f ac t i on o f t he mos t i mmed i a t e needs o f t he popu l a t i on ha rdes t h i t by t he conf l i c t , t he
1975
recons t ruc t i on o f damaged i n f ras t ruc ture , and t he deve l opmen t o f t he f orme r zones o f conf l i c t . Among a l l progr ams des i gned i n re l a t i on t o t he peace agr eemen t , t wo me r i t spec i a l a t t en t i on : t he c rea t i on o f a na t i ona l c i v i l po l i ce , sepa ra t e and d i s t i nc t f rom t he a rmed forces , and t he t rans f er o f l and t o f orme r comba t an t s o f bo t h s i des and to suppor t e rs o f t he FMLN who had occup i ed l and dur i ng t he wa r yea rs . G i ven t ha t l and had been a ma i n roo t cause o f t he conf l i c t , t he l and progr am was the ma i n veh i c l e f or re i n t egra t i ng t hose mos t c l ose l y i nvo l ved w i t h t he conf l i c t i n t o t he produc t i ve l i fe o f t he coun t r y ; i t represen t ed i n f ac t an a rms - f or - l and exchange ; cred i t was t o be prov i ded t o demo b i l i z i ng comba t an t s t o prov i de t hem w i t h a v i ab l e l i ve l i hood and a s t ake , howeve r t i ny , i n the coun t ry ' s wea l t h (de l Cas t i l l o , 1997) . O t he r peace - re l a t ed progr ams i nc l uded t he rese t t l emen t o f d i sp l aced pe rsons ; re i n t egra t i on t hrough m i c ro- en t e rpr i se deve l opmen t ; t he reduc t i on o f t he a rmed forces ; t he c rea t i on o f a po l i cy academy t o t ra i n t he new c i v i l i an po l i ce; t he s t reng t hen i ng o f t he coun t ry ' s democ r a t i c i ns t i tut i ons ( i nc l ud i ng t he j ud i c i ary and t he e l ec tora l sys t em) ; and t he rebu i l d i ng o f soc i a l and phys i ca l i n f ras t ruc ture . The NRP was to be car r i ed ou t t hrough consensus bu i l d i ng among t he gove rnmen t , t he FMLN and o t he r sec tors o f t he coun t ry , w i t h t he i dea t ha t th i s wou l d f ac i l i t a t e t he a l l oca t i on o f resources and t he i mp l emen t a t i on o f peace - re l a t ed progr ams . W i t h the s i gn i ng o f the peace agr eemen t , the cha l l enge o f a t t end i ng t o t he unsa t i s f i ed demands o f t he par t i c i pan t s i n the conf l i c t , and t he fu l f i l l ment o f bas i c needs f or l arge segmen t s o f t he popu l a t i on tha t had su f f ered s i gn i f i cant dec l i nes i n the i r l i v i ng s t anda rds , requ i red t he r esump t i on o f s t ab i l i t y and econom i c grow t h . The gove rnmen t was comm i t t ed t o ensur e t ha t recons t ruc t i on e f for t s be conduc t ed i n a f r amewor k of mac roeconom i c s t ab i l i t y . Unde r l y i ng t he gove rnmen t ' s ac t i ons was t he be l i e f tha t s t ab i l i t y and econom i c grow t h cou l d no t be sus t a i nab l e w i t hou t a l as t i ng peace and tha t peace wou l d no t be dur ab l e w i t hou t h i ghqua l i t y grow t h. St ab i l i za t i on e f for ts l ed t o a r educ t i on i n the ra t e o f i nf l a t i on , r ecove ry i n econom i c ac t i v i t y , and a s t ronge r ba l ance o f paymen t s . The i mproved econom i c pe r f ormance re f l ec t ed a s t reng t hen i ng o f t he pub l i c f i nances and was f ac i l i t a t ed by t he i mp l emen t a t i on o f s t ruc tura l r e f orms tha t i nc reased ma r ke t a l l oca t i on o f resources , l ay i ng t he bas i s f or sus t a i ned grow t h and med i um- t e rm ba l ance o f paymen t s
197 6
WORLD DEVELOPMENT
v i abi l i ty . By m i d-1990 , the government had un i f i ed the exchange rate and had i nt roduced a f l exibl e exchange rate sys t em . The va l ue of the co l on deprec i a t ed in rea l ef fect i ve t erms by 20% that year . A more rea l i st i c exchange rate, i n con j unc t i on w i th some re turn of investors ' conf i dence due to econom i c re form, caused an i nf l ow of pr i va te capi ta l , wh i ch toge ther w i th of f ic ia l t ransfers and debt reschedu l i ng w i th bi l atera l cred i tors , i nc l ud i ng the Par i s C l ub , a l l owed for a decrease in externa l debt ar rears . On January 6, 1992, the Fund ' s Execut i ve Board conc l uded the 1991 Ar t i c l e I V consu l tat i ons and approved a 14-month st and-by ar rangement (SDR 42 mi l l i on) . The ar rangemen t ca l l ed for a m i d t erm rev i ew, to be comp l e t ed by Augus t 31, 1992, to prov i de the oppor tun i t y for the i ncorpora t i on in the program of the f inanc i a l requ i rements of the NRP . The Sa l vadoran author i t i es expec t ed that the Peace Accord wou l d a l l ow for a reduc t i on in mi l i tary out l ays and make room for an i ncrease in soc i a l expend i ture . To be ab l e to keep the program on t rack , however , there was an unders t and i ng w i th the Fund that peacere l ated expend i ture wou l d have to be f i nanced by add i t i ona l pub l i c sav i ngs , rea l l ocat i on of other pub l i c expend i ture , or externa l resources . Managemen t of the economy in 1992 was comp l i ca t ed by a severe s l ump in i nternat i ona l cof fee pr i ces, a drought , and the l arge f inanc i a l requ i rements of the NRP . Wh i l e rea l GDP grew by c lose to 8% , there was a cons i derab l e de ter i ora t i on in the overa l l def ic i t of the nonf i nanc i a l pub l i c sector or NFPS (of over two percent age po i nts of GDP) , in the cur rent account , and in the rate of inf l at ion . At the same t i me , the accumu l a t i on of reserves was l ower than cont emp l a t ed in the program. The rev i ew of the program ca l l ed for under the st and-by ar rangement was not comp l e t ed because an agreement cou l d not be reached on pol i c i es to re turn the program to an appropr i ate pa th . I t was the v i ew of the Fund at the t i me that , in l ight of the shor t fa l l s i n externa l assist ance in 1992, the government shou l d take add i t i ona l f isca l measures or pos tpone some of the peace- re l a ted expend i ture , shou l d shor t fa l l s in externa l ass i stance recur in 1993 ( IMF , var i ous years) . W i t h the ach i evement of peace , remi t tances f rom Sa l vadoran workers abroad cont i nued on a l arge sca l e (averag i ng over 12% of GDP in 1992-95) and comp l emen t ed the f inanc i a l suppor t f rom the i nterna t i ona l commun i t y to econom i c reconst ruc t i on of the count ry . In
add i t i on, the Gove rnmen t requested US$2 bi l l ion for i ts peace- re l a ted programs dur i ng 1992-97, ma i n l y in the form of externa l grants and l ong- t erm concess i ona l l oans f rom bi l atera l and mu l t i l atera l cred i tors . Grant s averaged over 3% i n 1992-95, mos t l y p l edged at four consu l tat i ve groups (CG) mee t i ngs he l d i n May 1991, Ma r ch 1992, Apr i l 1993, and June 1995 (Repub l i c of E l Sa l vador , 1995 ; FMLN , 1995) . A l though donors were suppor t i ve of E l Sa l vador ' s peace ef for ts, they showed a c l ear prefer ence for f i nanc i ng spec i f i c pro j ects , mos t l y in i nf rast ructure and the env i ronment . Thus , qu i ck-d i sburs i ng externa l f i nanc i ng for peacere l ated expend i ture such as the re i ntegrat i on of ex-comba t ants , the crea t i on of the na t i ona l c i v i l i an po l i ce , and the promo t i on of democrat i c inst i tut ions was in shor t supp l y. The per formance of the economy dur i ng the NRP was i mpress i ve . Rea l GDP growth aver aged over 6% dur i ng 1992-97 . The rate of inf l at ion, wh i ch averaged 24% i n 1986-91, fel l to less tha t 10% on average . There was a ma rked st rengthen i ng of the ba l ance of paymen t s f rom a def i c i t of 0 . 4% of GDP in 1989-92 to a surp l us of over 2% i n 1993-97 . Th i s permi t t ed the e l i mi na t i on of externa l paymen t s ar rears, the re-estab l i shment of re l at ions w i th externa l cred i tors , and even h i gh sovere i gn cred i t rat ings f rom the top i nternat iona l rat ing agenc i es by 1997, a l l ow i ng the government to bor row i nternat i ona l l y at a re l at i ve l y l ow cost . Gross i nternat i ona l reserves , wh i ch had dec l i ned to dangerous l y l ow l eve l s by the end of the 1980s (s l ight l y over three mon ths of i mpor ts) , reached six mon t hs of i mpor ts in 1997 . There was , however , cont i nued pressure on the co l on to apprec i a te due to l arge f inanc i a l i nf l ows resu l t i ng f rom remi t tances , grants and other fore i gn assist ance . The i mprovement i n econom i c per formance ref l ected a ma j or re-or i entat i on of econom i c po l i cy , i nc l ud i ng a grea ter re l i ance on marke t forces and a ma j or re form of the exchange and t rade sys t em . The mu l t i p l e exchange rate reg i me was rep l aced by a un i f i ed marke t -det ermi ned exchange rate system, i mpor t tar i f fs were reduced and uni f i ed, and exchange rest r i ct ions e l i mi na ted . Pr i ce cont ro l s were reduced and state monopo l i es in the marke t i ng of agr i cu l tura l commod i t i es were e l i mi na t ed . The st rengthen i ng of f isca l po l i cy was based on a ma j or tax re form ( i nc l ud i ng the i nt roduc t i on of a va l ue added tax (VAT) ) . Grea t er f l ex ibi l i ty in ad j ust i ng pub l i c sector pr i ces, and i mprove-
POST- CONFL I CT RECONSTRUCT I ON AND I NTERNAT I ONAL ORGAN I ZAT I ONS
men t s in the opera t i ng ef f i c i ency of state enterpr i ses were a l so adopt ed . Cred i t po l i cy was t i ghtened in the context of a d i smant l i ng of the comp l ex sys t em of cred i t a l l ocat i ons and a movemen t toward marke t -de t erm i ned interest rates . Desp i t e t remendous di f f icul t ies, by end1997, the government had ach i eved ( i ) the s i mp l i f i cat i on of the tax st ructure to a sys t em based on a f ew broad-based taxes ; ( i i ) the rest ructur i ng and re-pr i vat i zat i on of the f inanc i a l system, i nc l ud i ng the l ibera l i zat ion of interest rates, the e l i mi na t i on of cred i t cont ro l s and the rev i s i on of the l ega l f ramework encompass i ng new l aws for the cent ra l bank , banks and f inanc i a l inst i tut ions, and the creat ion of a new char ter for the super i nt endency of f inanc i a l inst i tut ions; ( i i i ) the acce l era t i on of t rade re form i nc l ud i ng the s i mp l i f i cat i on and sharp reduc t i on of tar i f f l eve l s and the e l imi na t i on of nontar i f f bar r i ers ; and ( iv) s igni f i cant advances in the modern i za t i on of the pub l i c sector . The med i um- t e rm ad j us tment st rategy i nc l uded a soc i a l sector program a i med a t reduc i ng pover t y and ra i s i ng the st andards of l i v ing, educa t i on and hea l th of the popu l a t i on through i nves tment in soc i a l i nf rast ructure . The st rategy a l so prov i ded for t emporary emp l oyment , i ncome , and food supp l ements , and expans i on of soc i a l serv i ces . The governmen t deve l oped a soc i a l safety ne t through the deve l opment of commun i t y pro j ects , suppor t ed by the Soc i a l Inves tment Fund , des i gned to channe l donors ' f i nanc i ng to pover ty a l l ev i at i on pro j ects . Ef for ts were a l so made to i mprove the ef fect i veness of soc i a l expend i ture , w i th hea l th and commun i t y schoo l programs
des i gned to expand coverage and qua l i ty of hea l th and pre-pr i mary and pr i mary educa t i on in the poorest areas through commun i t y par t i c i pat i on . Desp i te government ef for ts, remi t tances f rom Sa l vadorans abroad rema i ned , however , a cr i t ica l fac tor i n pover ty a l l ev i at ion . Interna t i ona l ass i stance to E l Sa l vador was st rengthened by the government ' s own ef for t at i ncreas i ng domes t i c sav i ngs . The NFPS sav i ngs rose f rom average d i ssav i ngs of 0 . 8% of GDP in 1989-93 to sav i ngs of 2 . 0% of GDP by 199497 . At the same t ime , the def i c i t of the NFPS (exc l ud i ng grant s) -wh i ch ref l ects the bor rowi ng requ i rements of the gove rnmen t -was reduced f rom 5 . 0% to 2 . 0% of GDP in comparab l e per i ods . The i mprovemen t was due to an i ncrease in cur rent revenue that resu l ted f rom the i nt roduc t i on of VAT at a rate of 10% in l ate 1992, the approva l in ear l y 1993 of the l aw of F i sca l Cr i me to reduce tax evas i on , and the i nt roduc t i on of a f iscal package y i e l d i ng revenue equ i va l ent to 2% of GDP . Th i s i ncrease in revenues was accompan i ed by a shor t fa l l i n cap i ta l expend i ture ( i nc l ud i ng under the NRP) due to i mp l ement a t i on prob l ems (see Tab l e 3) . Because soc i a l progress l agged and the pover ty s i tuat ion rema i ned d i sma l , there was no room for comp l acency . Soc i a l deve l opment and pover ty a l l ev i at ion were , however , to be tack l ed on a l onger - t erm bas i s . Put t i ng the economy on a sound foot i ng on the f iscal s ide was a mus t in thi s endeavor . In thi s regard, by the end of 1997, the per formance of the Sa l vadoran economy had been qu i te remarkab l e : the UN had cer t i f i ed comp l i ance w i th
Tab l e 3 . E l Sa l vador : Conso l i dated operat ions of the nonf inanc i a l pub l i c sector 1991 1989 1990 1992 1993 1994 1995 Cur rent revenue andgrants 12 .0 13 .3 13 .3 15 .5 16 .0 17.0 17 .4 Cur ren t revenue 10 .3 11 .1 11 .5 13 .6 14 .0 15 .6 16 .6 Tax revenue 7 .6 8 .1 8 .5 9 .6 10 .3 10.9 12 .0 Of f i c i a l grant s 1 .7 2 .2 1 .8 1 .9 2 .0 1 .4 0 .8
Expend i ture and net l end ing
Cur rent expend i ture Cap i t a l expend i ture Overa l l f i sca l ba l ance (be fore grants)
Overa l l f i sca l ba l ance (af ter grants) Sav i ngs NFPS
F i nanc i ng
Ext erna l f i nanc i ng Domes t i c f i nanc i ng
197 7
1996 17 .2 17 .0 11 .2 0 .2
1997 15 .4 15 .2 11 .0 0 .2
16.0 11 .8 4.0 -5 .7 -4 .0 -1 .5
13 .6 11 .4 2 .4 -2 .5 -0 .3 -0 .3
15 .8 12 .1 3 .6 -4 .3 -2 .5 -0 .6
20.1 14.2 5 .7 -6 .5 -4 .6 -0 .6
17 .8 13 .3 4.6 -3 .8 -1 .8 0.7
17 .9 13 .6 4 .1 -2 .3 -0 .9 2 .0
17 .6 13 .4 4 .2 -1 .0 -0 .2 3 .2
19 .7 15 .1 4 .5 -2 .7 -2 .5 1 .8
17.2 13 .3 4.0 -2 .0 -1 .8 1 .6
1 .6 2.5
-0 .1 0 .5
2 .2 0 .3
3 .9 0 .6
2.0 -0 .4
2 .0 -1 .4
1 .3 -1 .2
2 .3 0 .1
2 .1 -0 .3
Sources: Cent ra l Reserve Bank , M i n i s t ry of F i nance , and I MF .
197 8
WORLD DEVELOPMENT
mos t comm i t men t s of the peace agreements , 14 and the expend i ture assoc i a ted w i th the requ i red inst i tut iona l re forms had been incor pora t ed i nto the conso l i da t ed government budge t . ( i i ) Bus i ness as usua l
As d i scussed above , the government of E l Sa l vador had been i mp l ement i ng an I MF -suppor t ed econom i c program s ince 1990 . The s i gn i ng of the UN-broke red Peace Accord in ear l y 1992 paved the way for acce l era ted econom i c deve l opment and i mproved soc i a l we l f are for the ent i re popu l a t i on . Desp i t e the UN i nvo l vement in the search for peace and in the des i gn and i mp l ement a t i on of the NRP , the econom i c program was formu l a t ed and i mp l emen t ed w i thout the UN be i ng i n formed about e i ther i ts progress or i ts const ra i nts . Simi l ar l y , the UN d i d not i nform the Bre t ton Woods Inst i tut ions about progress in the negot i a t i ng process nor d i d i t consu l t them on the f inanc i a l i mp l i ca t i ons of the NRP and other programs under negot i a t i on . Notor i ous l y absent were these inst i tut ions dur i ng the negot i at ion of the econom i c and soc i a l por t i on of the peace accord in Decembe r 1991 and dur i ng the negot i a t i ons tha t l ed to a rev i sed agreement on the l and program in Oc tober 1992 . Some ind i rect ear l y co l l aborat i on, however , took p l ace in ca ta l yz i ng fore i gn ass i stance . The Fund and the Bank l ent ful l suppor t in the CG mee t i ng he l d in Wash i ng ton in Ma r ch 1992 to ef for ts to secure externa l ass i stance to cover out l ays under the NRP . The bus i ness-as-usua l approach l ed to m i sunders t and i ngs and conf ronta t i ons as the separa te econom i c and peace processes moved forward. In a speech in Bangkok in Apr i l 1993, Secre t ary-Genera l Bout ros Gha l i expressed st rong concern about the UN sys t em where the Fund and the UN d i d not seem to work on a ful l y coord i na t ed and t ransparent bas i s toward the over r i d i ng goa l of conso l i da t i ng peace . Imp l ement a t i on of the agreement s shou l d not , in h i s v i ew, be cond i t i oned on the ava i l abi l i ty of fore i gn f i nanc i ng, as the Fund ins i sted . The Secre t ary-Genera l argued tha t i t was the government ' s respons ib i l i ty , both as s i gna tory to the peace accords and as the government of E l Sa l vador , to def ine f isca l pol i c i es and pub l i c expend i ture pr ior i t i es tha t wou l d enab l e i t to ful f i l l i ts comm i t men t to ful l i mp l ement a t i on of the accords . 15 Simi l ar l y , the Fund has a l so acknow l edged the bus i ness-as-usua l approach by recogn i z i ng that , wh i l e coopera t i on be tween
the UN , the Fund , and the Bank had been i nst rument a l i n draw i ng up the techn i ca l ass i st ance and the macroeconom i c f ramework in the case of Rwanda , such coord i na t i on had ini t i a l ly not t aken p l ace w i th regard to the prepara t i on of E l Sa l vador ' s NRP . As a resul t , the f isca l i mpac t of the NRP had not been ful l y assessed when the Peace Accord was drawn up ( IMF , 1995a) . ( i i i ) Increased coopera t i on and f l ex i b i l i ty w i th i n a mor e i nt egra t ed approach
As po i nt ed out ear l i er , the Fund ' s ini t ial reac t i on to the NRP f inanc i a l needs had been that , to keep the 1992 program on t rack , peacere l ated expend i ture wou l d have to be f i nanced by add i t i ona l pub l i c sav ings , rea l locat ion of expend i ture , or externa l resources . Af t er ear l y 1993, however , the fund worked c lose l y w i th the government to deve l op an econom i c program tha t wou l d a l l ow for NPR expend i ture of $250 mi l l i on a year in 1993-94 ( represent i ng over 3% of GDP a year ) , to cover the i ndemn i za t i on payment s re l ated to the demob i l i zat ion of the mi l i tary , the est ab l i shment of a new po l i ce force , the set t ing up of hea l th and educa t i on fac i l i t ies i n the former conf l i ct areas , and the acqu i s i t i on of l and for ex-comba t ant s . Thus , a comprom i se scenar i o was i ncorpora t ed in the 1993 econom i c program; by cut t i ng cer ta i n expend i ture ca tegor i es and rea l locat ing others , room was made for a s ign i f i cant i ncrease in peace- re l a ted expend i ture . 16 As d i scuss i ons be tween the Fund and the UN began on a regu l ar bas i s and a more coopera t i ve and i ntegrated approach was deve l oped , ways were exp l ored to suppor t the government to f i nance the i ncreased peace- rel ated expend i ture requ i red under the NRP , f rom a m i x of more externa l resources , h i gher domes t i c revenue , expend i ture swi tch i ng, and i ncreased bond f i nanc i ng and money creat ion . 17 Desp i t e an uneven pa t tern i n the ava i l ab i l i ty of grants and ne t externa l f i nanci ng ( fore ign f inanc ing) , the cent ra l governmen t was ab l e to i ncrease nonmi l i t ary expend i ture by over three percent age po i nts of GDP i n 1992-97 as compared to 1989-91 . Th i s can be exp l a i ned by a decrease i n mi l i tary expend i ture (of two percent age po i nts of GDP) 18 and an i ncrease in tax revenue (of 2 .5 percent age po i nts of GDP) wh i ch a l l owed for a reduc t i on in the cent ra l government f isca l def i c i t f rom c lose to 5% of GDP to be l ow 3% be tween these per i ods .
POST - CONFL I CT RECONSTRUCT I ON AND I NTERNAT I ONAL ORGAN I ZAT I ONS
( i v) On be i ng mor e roya l i st than the k i ng
The per formance of the Sa l vadoran governmen t in manag i ng the economy under a success i on of IMF -suppor t ed programs and in car ry i ng out peace- re l a ted expend i ture dur i ng 1989-97 was remarkab l e . The Sa l vadoran government , however , spent less on peace- re l a ted programs than wha t was a l l owed under i ts 1993 and 1994 programs w i th the Fund . As a resu l t i t ach i eved f isca l and other targets of t en w i th a marg i n . Th i s means tha t there was room under f iscal and domes t i c f i nanc i ng ce i l ings to spend more , espec i a l l y on cap i ta l expend i ture ( i nc l ud i ng under the NRP) . By spend i ng l ess than wha t the program a l l owed , i t cou l d be argued tha t the Sa l vadoran author i t i es " were more roya l i st than the k i ng" a l though , as we exp l a i ned ear l i er , there were va l id reasons for thi s . The s i tuat i on in 1992, however , had been d i f ferent . Because the expend i ture requ i rements of NRP had not been i ncorpora t ed i nto the 1992 program ( they were unknown at the t i me the program was des i gned) , the NFPS def ic i t was much h i gher than progr ammed (c lose to 7% of GDP compared w i th the 2% requ i red by the program) .
In 1993, w i th the i ncorpora t i on of the NRP into the program, the def i c i t of the pub l i c sec tor def i c i t was programmed to reach 6% of GDP. Th i s def ic i t , however , was less than 4% in 1993, s ign i f i cant l y l ower than programmed , ref l ect ing a shor t fa l l i n cap i ta l expend i ture of the cent ra l government ( i nc l ud i ng under the NRP) , and a somewha t bet ter than expec t ed per formance of cur rent revenue . Fur thermore , desp i te a s i zab l e shor t fa l l i n progr ammed ne t externa l f i nanc i ng, the ne t i ndebt edness of the NFPS was unchanged in 1993, compared w i th a program l imi t of c lose to 1% of GDP . At the same t i me , cur rent expend i ture of the cent ra l government was h i gher than programmed , w i th l ower expend i ture on goods and serv i ces more than of fset by h i gher than ant i c i pated t ransfers to loca l governmen t s for expend i ture on hea l th, educa t i on , and the re integrat ion of ex-comba t ant s . But , cap i ta l expend i ture was about 3% of GDP compared w i th over 4% of GDP in the program . Cap i ta l expend i ture i n 1994 was a l so l ower than programmed ( l ess than 3% as compared to over 4% i n the program) (see Tab l e 4) .
Tab l e 4 . E l Sa l vador : Summa r y ba l ance of paymen t s ( in percent age o f GDP) 1989 1990 1991 1992 1993 1994 1995 Cur rent account Trade ba l ance Serv i ces Ren t Cur rent t ransfersa Cap i t a l and f i nanc i a l account Cap i t a l accountb F i nanc i a l accoun t Nonf i nanc i a l pub l i c sec tor Cent ra l Bank Pr i va te sec tor ( inc l . er rors and om i ss i ons) Overa l l ba l ance Memor andum i t ems GDP ( in mi l l i ons of US$) Gross i nterna t i ona l reserves ( in mi l l i ons US$) Gross i nterna t i ona l reserves (mon t hs of i mpor t s) Pub l i c ext erna l debt ra t i o ( in percent o f GDP) Deb t serv i ce ra t i o (percent of expor t s o f goods and serv i ces)
1979
1996
1997
-9 .2 -13 .1 -2 .4 1 .6 4 .7 7 .3 5 .7 1 .6 3 .0 1 .1 -2 .6
-6 .6 -12 .6 -2 .3 1 .9 6 .4 8 .2 4 .1 4 .1 0 .0 0 .0 4 .1
-4 .6 -13 .4 -2 .1 1 .8 9 .1 4 .1 3 .0 1 .1 0 .0 -1 .4 2 .1
-5 .6 -18 .5 2 .7 -1 .7 11 .9 4.9 3 .8 1 .1 1 .5 -0 .6 0.1
-4 .4 -17 .0 2 .5 -1 .7 11 .8 6 .6 3 .2 3 .4 2 .0 -0 .7 2 .1
-3 .7 -17 .7 2.3 -0.7 12 .4 5.5 3 .5 2 .0 2.2 -1 .4 1 .2
-4 .8 -19 .5 3 .1 -1 .0 12 .6 6 .3 2 .0 4 .3 1 .3 0 .8 2 .2
-2.2 -15 .9 3 .1 -0 .9 11 .5 3 .8 0 .6 3 .2 2 .1 0 .5 0 .6
-0 .4 -14.4 3 .4 -0.8 11 .4 2 .6 0 .2 2.4 1 .0 0 .3 1 .1
-1 .9
1 .6
-0 .5
-0.7
2 .2
1 .8
1 .5
1 .6
2.2
4 , 986 500
5 , 414 571
5 , 970 567
5 , 955 563
6 , 957 675
8 , 086 788
9 , 508 935
10 , 359 1 , 099
11 , 192 1,461
3 .3
3 .8
4 .4
4 .0
4 .2
4 .2
3 .9
4 .9
5 .9
42 .5
39 .4
37 .2
38 .4
27 .4
25 .6
23 .6
24 .3
23 .9
24 .4
18 .2
26 .2
35 .4
24 .7
25 .7
15 .4
16 .8
13 .0
Sources : Cent ra l Reserve Bank , M i n i s t ry of F i nance , and I MF . a Mos t l y rem i t t ances o f workers abroad . b Mos t l y of f i c i a l t ransfers .
198 0
WORLD DEVELOPMENT
5 . POL I CY RECOMMENDAT I ONS The exper i ence of E l Sa l vador rev i ewed above , and tha t of many other count r i es i n post -conf l i ct t rans i t ions i n wh i ch the i nternat iona l commun i t y has been act i ve l y i nvo l ved , a l l ow us to formu l a t e some po l i cy recommendat i ons , not on l y for the count r i es i nvo l ved i n such t rans i t ions , but a l so for the i nterna t i ona l organ i za t i ons that fac i l i tate and f i nance them . Ini t ia l cond i t i ons in the respect i ve count r i es and access to externa l f i nanc i ng wi l l de t erm i ne the appropr i a t e reconst ruc t i on st rategy and po l i cy m i x requ i red for the reestab l i shment of produc t i on and t rade . Appropr i a t e pol i c i es are i mpor t ant not on l y in t erms of macroeconom i c managemen t but a l so to crea te the r ight f ramework for i nternat i ona l ass i stance . The formu l a t i on of econom i c po l i cy needs to i nc l ude a v i ab l e econom i c reconst ruc t i on st rategy , a l ega l , inst i tut iona l , and regu l a tory f ramework tha t wi l l guarant ee the proper opera t i on of proper ty r ights and pr i vate marke ts , and a coord i na t i ng mechan i sm to ensure the ef fect i ve access and ut i l i zat ion of fore i gn ass i stance and techn i ca l adv i ce f rom bi l atera l and mu l t i l atera l sources , as we l l as f rom nongoverment a l organ i za t i ons (NGOs ) . A key aspec t of a post -conf l i ct t rans i t ion st rategy is tha t count r i es mus t not on l y own the i r reconst ruc t i on programs in the sense tha t i t is up to t hem to set up the pr ior i t i es, but they mus t bu i l d a na t i ona l consensus for econom i c and inst i tut iona l re forms . In this regard , government s , both na t i ona l and loca l , shou l d wor k c l ose l y w i th c ivi l soc i ety and w i th NGOs i n deve l op i ng the reconst ruc t i on st rategy and programs . Care fu l p l ann i ng and adequa t e f i nanc i ng are i mpor t ant at an ear l y stage . Be fore the comba t ant s are d i sarmed and demob i l i zed , a re i ntegrat i on st rategy needs to be in p l ace , we l l funded and ready for i mp l ement a t i on in step w i th demob i l i za t i on . Un l ess thi s is successfu l l y done , common cr i me wi l l increase , the secur i ty s i tuat i on wi l l deter iorate, and the peace process may be endangered . Th i s is c l ear l y wha t happened in E l Sa l vador and the l esson is par t i cu l ar l y re l evant to cases such as Kosovo where re integra t i on was a sham and the consequences are be i ng fel t , not on l y i n Kosovo i tsel f , but in Macedon i a and Serb i a . A i d ass i stance is essent i a l to count r i es i n post -conf l i ct t rans i t i on . These count r i es have hard l y any capac i ty to ra i se the i r own revenue ,
a t l east i n the ear l y stages of the t rans i t ion. For thi s reason , count r i es need to present to potent i a l donors a we l l st ruc tured and comprehens i ve rehab i l i tat ion, reconst ruct i on, and deve l opment p l an a t consu l ta t i ve groups or other such donors mee t i ngs , so tha t donors can p l edge the i r ass i stance w i th ful l know l edge and unders t and i ng of the needs and vu lnerab i l i t i es of the count r i es concerned . Externa l techn i ca l and f inanc i a l ass i stance needs to be proper l y coord i na t ed and channe l ed to h igh-pr ior i ty pro j ects . In thi s regard, the i nternat i ona l commun i t y shou l d estab l i sh a foca l po i nt to br i ng toge ther the var i ous donors and to make sure that they al l work toge ther in a promp t and ef fect i ve way and to ensure that comm i tmen t s for ass i stance are actua l l y d i sbursed . G i ven the very d i f ferent c i rcumstances of count r i es com i ng out of conf l i ct , there shou l d be no s ing l e inst i tut iona l formu l a to dea l w i th coord i na t i on . I t is pre ferab l e that the coord i na t i ng agency be crea ted. on an ad hoc bas i s . I t is i mpera t i ve , however , tha t thi s shou l d not become a ma t t er of cont roversy and tur f bat t l es be tween agenc i es and thus de l ay the prov i s i on of externa l ass i stance . Ef for ts at i mprov i ng mac roeconom i c managemen t are a mus t for econom i c reconst ruct i on . Mac roeconom i c pol i c i es shou l d be des i gned w i th spec i a l care to address the ma i n prob l ems of the par t i cu l ar count ry . Because of the need for na t i ona l reconc i l i at ion, i t is par t i cu l ar l y i mpor t ant tha t count r i es i n post conf l i ct t rans i t ions pursue h i gh-qua l i ty growth . Th i s means growth tha t is susta inab l e , creates emp l oyment , and br i ngs pover ty a l l ev i at ion, growth that promot es greater equa l i ty of i ncome through greater oppor tun i t y and human deve l opment , and growth tha t respects bo th human f reedom and the env i ronment . An i mprovemen t in econom i c per formance of ten requ i res a ma j or re-or i entat i on of econom i c po l i cy , a greater re l i ance on marke t forces, and a ma j or re form of the exchange and t rade sys t em . The l at ter genera l l y i nc l udes a remova l of pr i ce cont ro l s , the est ab l i shment of a marke t -de t erm i ned exchange rate system, reduced and un i f i ed tar i f fs, and the e l i mi na t i on of exchange and t rade rest r i ct ions . Ef for ts at i mprov i ng soc i a l cond i t i ons shou l d a i m at reduc i ng pover ty and ra i s ing the standards of l i v ing, educa t i on , and hea l th o f the popu l a t i on through i nves tment in soc i a l inf rast ructure . To deve l op the necessary inf rast ructure may t ake t i me and measures wi l l have to be adopt ed to prov i de t emporary emp l oyment ,
POST - CONFL I CT RECONSTRUCT I ON AND I NTERNAT I ONAL ORGAN I ZAT I ONS i ncome , f ood , and bas i c serv i ces i n t he ear l y s t ages o f t he t rans i t i on . I n t he f i sca l area , s t reng t hen i ng pub l i c f i nance managemen t i s an i mpor t an t pre requ i s i te f or econom i c recons t ruc t i on and t he r esump t i on o f grow t h . Depend i ng on t he de t e r i ora t i on o f pub l i c f i nances , t he d i m i n i shed p l ann i ng and execu t i on capac i t y , and t he br eak i n i ns t i tut i ona l memo r y , a t rans i t i ona l budge t ( for t wo t o three mon t hs ) may be necessa ry . I ssues re l a t i ng t o t ax po l i cy and t ax and cus t oms adm i n i s t r a t i on a re a l so cr i t i ca l and m i gh t requ i re t empor a r y ac t i on unt i l a mo r e pe rmanen t so l u t i on can be f ound . Ef for t s a t r evenue co l l ec t i on a re f undamen t a l s i nce donor s a re re l uc t an t t o f i nance cur ren t expend i t ure (sa l ar i es and pens i ons ) (see Tanz i , 1997 , f or mo r e de t a i l s on f i sca l i ssues) . I n t he mone t a r y area , a sys t em f or exchange , i n t erna l and ex t e rna l paymen t s , and t he prov i s i on o f cred i t needs to be res t ored . Th i s may a l so t ake some t i me and a t empor a r y so l u t i on may have t o be adop t ed t o dea l w i t h urgen t paymen t needs . In f l a t i on has to be checked , s i nce r ap i d i nf l a t i on crea t es unce r t a i n t y and d i scour ages sav i ngs and i nves t men t , promo t es cap i t a l f l i ght , d i s tor t s ma r ke t s i gna l s and i mpe r i l s grow t h . In f l a t i on a l so br i ngs abou t a rb i t ra ry changes i n i ncome d i s t r i bu t i on t ha t mos t l y hur t t he poor sec tors o f t he popu l a t i on . F i sca l and mone t a r y d i sc i p l i ne assures pub l i c sav i ngs and con t r i bu t es t o i nves t men t . A house i n orde r makes i t mo r e des i rab l e t o come back t o and promo t es repa t r i a t i on o f pr i va t e sec t or cap i t a l . A deve l op i ng and we l l -nur t ured pr i va t e sec t or con t r i bu t es t o i nves t men t and gove rnmen t t axa t i on . Good mac ro -managemen t , a t r anspa r en t i ns t i tut i ona l f r amewor k , and a c l ea r unde r s t and i ng o f gove rnmen t po l i c i es encour age i n t e rna t i ona l ass i s t ance : donor s a re mo r e w i l l i ng to he l p coun t r i es t ha t he l p t hemse l ves . The reac t i va t i on o f t he economy w i t h l ow i n f l a t i on i s v i t a l to t he e f f ec t i ve re i n t egra t i on o f f orme r comba t an t s and the i r suppor t e rs i n t o produc t i ve ac t i v i t i es . A t t he same t i me , expend i t ur es l i nked to t he f i nanc i ng o f peace - re l a t ed progr ams a re l i ke l y to exe r t pressure on f i sca l ob j ec t i ves and pu t t he na t i ona l au thor i t i es i n t he d i f f i cu l t d i l emma be t ween comp l i ance w i t h t he prov i s i ons o f peace agr eemen t s and comp l i ance w i t h t he econom i c p rog r am . F i sca l t arge t s i n I MF sponsor ed progr ams w i l l have to be f l ex i b l e enough so as to i ncorpor a t e t he f i nanc i a l needs o f recons t ruc t i on . We a rgue , thus , tha t the
198 1
Fund , wor k i ng c l ose l y w i t h t he UN , shou l d se t rea l i s t i c econom i c cond i t i ona l i t y tha t wou l d a l l ow f or i mp l emen t a t i on o f peace agr eemen t s . Bu t the Fund shou l d no t become a po l i t i ca l f o rum t o advance human r i gh t s and o t he r po l i t i ca l goa l s or se t po l i t i ca l cond i t i ona l i t y; i t does no t have a compa r a t i ve advan t age and i t may even j eopa rd i ze i ts manda t e . 19 W i t h mo r e mu l t i d i sc i p l i na ry i n t e rna t i ona l t eams and mo r e f l ex i b l e i ns t i tut i ona l manda t es i n t erna t i ona l organ i za t i ons wou l d be be t t er pr epa r ed t o he l p coun t r i es reconc i l e the o f t en con f l i c t i ng ob j ec t i ves o f econom i c recons t ruc t i on and t he reac t i va t i on o f grow t h , on t he one hand , and na t i ona l reconc i l i a t i on and peace conso l i da t i on , on t he o t he r . Unde r such cond i t i ons i n t e rna t i ona l organ i za t i ons cou l d be t t er he l p coun t r i es des i gn pos t -con f l i c t ac t i v i t i es i n accordance w i t h a mas t e r p l an whose ma i n t heme and goa l cou l d be to assure t ha t the prese rva t i on o f peace preva i l s above a l l o t he r cons i de ra t i ons . To be sure , an i n t egra t ed approach t o human secur i t y - i mpor t an t as a gene ra l ru l e -becomes i mpe ra t i ve i n pos t - conf l i ct t rans i t i ons . Mu l t i f ace t ed and comp l ex pos t -con f l i c t t rans i t i ons requ i re d i verse and spec i a l i zed exper t i se , no t eas i l y ava i l ab l e i n a s i ng l e i n t e rna t i ona l i ns t i tut i on .
6 . CONCLUD I NG REMARKS The peace process i n E l Sa l vador i nvo l ved t he comp l ex cha l l enge o f des i gn i ng and i mp l e men t i ng progr ams , on t he bas i s o f a na t i ona l consensus , for t he recons t ruc t i on and reconc i l i a t i on o f a coun t ry po l a r i zed by yea rs o f c i v i l wa r . Th i s process was f ac i l i t a t ed by mac ro econom i c ad j us t men t and s t ruc tura l r e f orms tha t a l l owed for a rap i d r ecove ry o f h i ghqua l i t y grow t h , as we l l as by gene rous f i nanc i a l , t echn i ca l ass i s t ance , and po l i cy adv i ce f rom t he i n t e rna t i ona l commun i t y . The gove rnmen t even t ua l l y succeeded i n i mp l emen t i ng t he NRP w i t h i n t he f r amewor k o f a sound mac roeco nom i c p l an cons i s t en t w i t h t he ma i n t enance o f pr i ce and ex t erna l s t ab i l i t y . I n v i ew o f t he l arge numbe r o f coun t r i es r ecove r i ng f rom conf l i c t s i tua t i ons or i n t rans i t i on t o new po l i t i ca l and econom i c sys t ems am i ds t cons i de rab l e t urmo i l , the i n t e rven t i on o f bo t h t he UN and t he Fund w i l l be i ncreas i ng l y needed . I n E l Sa l vador , t hese organ i za t i ons have bu i l t a body o f ev i dence and expe r i ence , bo t h i n des i gn i ng progr ams , po l i c i es , and s t ra t eg i es t ha t have wor ked , and i n avo i d i ng
1982
WORLD DEVELOPMENT
count erproduc t i ve s i tuat i ons and even conf ront a t i ons tha t make the t rans i t ion mor e di f f i cul t and l ess ef fect i ve . The UN and the Fund , in con j unc t i on w i th other na t i ona l and i nternat i ona l actors , wi l l have to work c l ose l y toge ther to prov i de an i ntegra ted approach (as opposed to a mere l y coord i na t ed one) to ma t t ers of peace and econom i c stabi l i ty . The exper i ence of E l Sa l vador demons t ra t es the i mpor t ance of ensur i ng tha t : (a) the UN des i gns peace accords tha t are in l ine w i th the f inanc i a l and techn i ca l capac i ty of the count ry to i mp l ement them ; (b) the programs cr i t i ca l to the successfu l i mp l ement a t i on of the peace process are adequa t e l y f i nanced ear l y on in the process (de l ays in
i mp l ement i ng key programs may endanger peace) ; and (c) the government does not use cond i t i ons i mposed in the IMF -sponsored econom i c program as an excuse to avo i d mak i ng di f f i cul t pol i t i ca l dec i s i ons tha t are essent i a l to a successfu l t rans i t ion . Each organ i za t i on shou l d obv i ous l y use i ts own compara t i ve advant age wh i l e t ak i ng into cons i dera t i on and cont emp l a t i ng the needs of the other . By do i ng so, many mi st akes that l ed to para l l e l but l arge l y unconnec t ed and somet i mes conf l i ct ing opera t i ons i n the ear l y stages of the Sa l vadoran t rans i t ion, as we l l as to unf i n i shed bus i ness in the i mp l ement a t i on of many of i ts programs , cou l d we l l have been avo i ded .
NOTES 1 . The t erm econom i c reconst ruc t i on is used in a broad sense to i nc l ude , not on l y the reconst ruc t i on i tsel f , but a l l the po l i cy measures , i nc l ud i ng stab i l i zat i on and st ruc tura l re form, necessary to reac t i va te the economy and br i ng i t i nto a sust a i nab l e deve l opmen t pa th . 2 . For a de t a i l ed ana l ys i s of the ro l e of the UN programs (UNDP , UN I CEF ) and spec i a l i zed agenc i es of the UN sys t em ( FAO , ILO , UNESCO , UN I DO , UNHCR , UNR I SD , WHO ) , see Un i t ed Na t i ons (1995b) . For a de t a i l ed ana l ys i s of the Wor l d Bank act i v i t i es, see Wor l d Bank (1998a , b , 1997) and I MF and Wor l d Bank (1998) . 3 . As de Soto and de l Cast i l l o (1994) have po i nt ed out , the I MF - suppor t ed stab i l i zat i on program and the UN brokered peace negot i a t i ons " were born and reared as i f they we re ch i l dren of d i f ferent f ami l i es. They l i ved under separa t e roof s . They had l i t t le in common other than be l ong i ng rough l y to the same genera t i on . . . The I MF and the Wor l d Bank d i d not consu l t w i th the UN in the e l abora t i on and subsequent i mp l ement a t i on of the econom i c program . . . When the UN engaged in peace negot i a t i ons ear l y in 1990, i t d i d not th i nk to consu l t the I MF or the Bank , notw i ths t and i ng the ser i ous f i nanc i a l i mp l i ca t i ons of pos twar rehab i l i ta t i on . " 4 . Wood and Segov i a (1995) conc l ude tha t " The mac roeconom i c po l i cy env i ronmen t of auster i ty , " i mpeded the t i me l y i mp l ement a t i on o f the peace agreemen t s. In the i r v i ew, " A grea ter i nterest on the par t of the i nt erna t i ona l f i nanc i a l i nst i tut i ons in the i mp l ement a t i on of the Peace Accords ra ther than a dom i nan t emphas i s on econom i c re form m i gh t have cont r i but ed to the reconc i l i a t i on of the apparent l y conf l i ct i ng pr ior i t i es
of mac roeconom i c stab i l i zat i on and peace-bu i l d i ng . " See a l so Boyce et a l . (1995) . 5. These prob l ems are we l l deta i l ed in the repor ts o f the Secre t ary-Genera l on ONUSAL (Un i t ed Na t i ons , var i ous i ssues) . See a l so de l Cast i l l o (1997) . 6. In E l Sa l vador , for examp l e , 300 , 000 peasant s w i th no l and we re exc l uded f rom the l and program , wh i ch bene f i t ed on l y former comba t an t s and the i r suppor t ers . 7 . For examp l e , the success o f the arms- for - l and program shou l d not be measured by pure l y econom i c or f i nanc i a l cr i ter i a used in norma l l and re form programs (e .g ., produc t i on per acre , debt repayment , etc .) . I t shou l d be j udged by whe ther i t cont r i but ed to na t i ona l reconc i l i a t i on and a l l owed bene f i c i ar i es to f i nd a produc t i ve act i v i ty tha t wou l d perm i t t hem to make a decent l i v ing w i thout resor t i ng to a rms. 8 . To st rengthen i ts capac i ty to ass i st count r i es as they emba r k on post -conf l i ct t rans i t i ons , in 1995 the Fund expanded i ts gu i de l i nes on emergency ass i stance to i nc l ude such s i tuat i ons . The count r i es tha t pose the grea test prob l em for Fund ass i stance are those w i th l arge ar rears to the Fund and the Bank . 9. For an ana l ys i s of the very comp l ex l and t enure prob l ems in E l Sa l vador see de l Cast i l l o (1997) . Dur i ng the war , l and t enure prob l ems worsened ; many rura l proper t i es we re abandoned . I t was es t i ma t ed tha t abou t ha l f a mi l l i on persons were d i sp l aced , approx i ma t e l y 45 , 000 became re fugees , and mor e than one mi l l i on (c l ose to 20% of the popu l a t i on) emi gra t ed , mos t l y to the Un i t ed St a t es . Many of the d i sp l aced persons we re
POST- CONFL I CT RECONSTRUCT I ON AND I NTERNAT I ONAL ORGAN I ZAT I ONS set t l ed in commun i t i es , some of t hem on abandoned l ands . Thus , proper t y r i ghts became a ser i ous i ssue in the post -conf l i c t t rans i t i on . 10 . Na t i ona l sav i ngs have been measured as the d i f ference be tween domes t i c i nves tment and the cur rent account def i c i t (as a proxy for fore i gn sav i ngs) . 11 . Econom i c da t a were t aken f rom the Gove rnmen t of E l Sa l vador and the I MF . Soc i a l da t a are f rom pub l i shed sources f rom the Wor l d Bank , var i ous years , UNDP , severa l years , Int er -Amer i can Deve l opmen t Bank , and CEPAL (Span i sh acron i sm for the UN Econom i c Comm i ss i on for La t i n Ame r i ca and the Car i bbean) . 12 . Cur rent t ransfers are mos t l y pr i va te t rans f ers f rom rem i t t ances o f workers abroad . The cur rent account exc l ud i ng t ransfers , thus , shows the ext erna l pos i t i on of Sa l vadorans in E l Sa l vador vis- I r -vis the rest of the wor l d , w i thout the ass i stance of Sa l vadorans abroad . Of f i c i a l t ransfers (grants) are mos t l y for i nves tment purposes and are i nc l uded in the cap i ta l account . 13 . A s t and-by ar rangemen t was approved in Augus t 1990 for SDR 36 mi l l i on (US$51 mi l l i on) . Shor t l y af ter the comp l e t i on of the m i d- t erm rev i ew under the ar rangemen t in February 1991, the Wor l d Bank approved the f i rst st ruc tura l ad j us tment l oan . Thus , the I MF ar rangemen t was negot i a t ed l ong be fore the peace agreemen t was s i gned ( thi s is qu i te common ; in Bosn i a and Her zegov i na , for examp l e , negot i a t i ons on an econom i c program star ted wh i l e the Day t on Peace Agreemen t was st i l l be i ng negot i a t ed) . E l Sa l vador has t rea ted thi s s t and-by-ar rangement and the subsequent ones as precaut i onary and has made no purchases under t hem (e .g ., has not bor rowed f rom the Fund) . 14 . Tha t peace- re l a t ed programs have been i mp l emen t ed does not necessar i l y mean tha t they have ful l y succeeded or tha t they wi l l be sust a i nab l e . For a d i scuss i on of the unf i n i shed bus i ness , see the mos t recent UN repor ts to the Secur i ty Counc i l . See a l so de l Cast i l l o (1997) , de Soto and de l Cast i l l o (1995) . 15 . Press con f erence g i ven by the Secre t ary-Genera l at the Econom i c Comm i ss i on for As i a and the Pac i f i c (ESCAP) . See a l so h i s repor t to the Secur i ty Counc i l of May 21, 1993 . 16 . Even af ter pos tpon i ng l ower pr i or i ty pro j ects , NRP expend i tures in 1993 were 35% h i gher than in 1992 and represent ed abou t 7 . 3% of cent ra l governmen t expend i tures . Abou t 40% of these expend i tures we re f i nanced
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through grant s and abou t 30% by l ong- t erm l oans f rom of f i c i a l cred i tors . 17 . In a m i d-1993 mee t i ng be tween UN , I MF and Wor l d Bank of f ic ia ls, the UN expressed concern abou t the l ack of f i nanc i ng for the l and t ransf er program and for the es t ab l i shment of the new po l i ce force . Fear was a l so expressed tha t the secur i ty s i tua t i on wou l d deter i ora t e i f the re i ntegra t i on cou l d not t ake p l ace in a reasonab l e amoun t o f t i me. The Fund had no t ed that , desp i te the f isca l targets of the program , l imi ts d i d no t ex i st on subca t egor i es of expend i ture f i nanced by domes t i c resources . I t was up to the governmen t to pr ior i t i ze i ts expend i ture program . 18 . C i t i ng da t a f rom the I MF staf f and recent econom i c deve l opmen t repor ts on E l Sa l vador ( I MF , var i ous years) , Boyce (1995) not es the l ack of progress in decreas i ng mi l i tary expend i ture . He fa i l s to d i st i ngu i sh, however , be tween de f ense (mi l i tary proper ) and po l i ce (pub l i c secur i ty) expend i ture , s ince the I MF da t a i nc l ude bo t h as mi l i tary expend i ture . The d i st i nct i on is par t i cu l ar l y i mpor t ant af ter 1992 s ince , as per the peace agreement s , the repress i ve and mi l i tar i zed po l i ce forces o f the pas t had been d i sso l ved. As a resul t , po l i ce expend i ture star t i ng in 1993 on l y i nc l udes expend i ture in the na t i ona l c i v i l i an po l i ce (an expend i ture thus re l a ted to the peace accords) , wh i ch shou l d be c l ear l y d i st i ngu i shed f rom mi l i tary expend i ture proper (see Tab l e 2) . The drop i n mi l i tary expend i ture is in l ine w i th wha t has happened in other count r i es w i th I MF -suppor t ed programs . Program count r i es (de f i ned as those w i th at l east one program in 1991-95) reduced the i r mi l i t ary spend i ng to a l ow 2% o f GDP in 1995 f rom over 5% in 1990. Th i s represent ed a l arger decrease than for al l deve l op i ng count r i es and has a l l owed these count r i es to i ncrease soc i a l spend i ng in the f ace of cuts in tota l spend i ng ( I MF , open l et ter o f the Manag i ng D i rec tor to the Execut i ve D i rec tor o f UN I CEF , Decembe r 1996) . 19 . Some of the cr i t i cs o f Fund econom i c cond i t i ona l i ty have proposed tha t the Fund be empowe r ed fur ther to i mpose peace cond i t iona l i ty , tha t is, make l oans cond i t iona l on spec i f i c ac t i ons by the bor rower to secure peace (see Boyce , 1995 ; Boyce et a l ., 1995 ; Boyce & Pastor , 1997) . Th i s wou l d , in our v i ew, go aga i nst the compa r at i ve advant age of the Fund and the UN . On l y the UN shou l d i mpose peace cond i t i ona l i ty and the I MF shou l d on l y i mpose econom i c cond i t i ona l i ty ; the t wo organ i zat i ons shou l d wor k c l ose l y toge ther in thi s endeavor , but on l y a d i v i s i on o f l abor wou l d ensure tha t the targe ts are rea l i st i c and can be mon i tored . The prob l ems of the UN i mpos i ng econom i c cond i t i ona l i ty and the Fund i mposi ng peace cond i t i ona l i ty are i l lust rated by the exper i ence
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of Gua t ema l a . The peace agreement cont emp l a t ed an i ncrease in t ax revenue f rom abou t 8% to 12% by 2000 ( l ater reschedu l ed to 2002) . Th i s was c l ear l y unrea l i st i c f rom an econom i c po i nt of v i ew (g i ven unsuccess fu l ef for ts a t i ncreas i ng t ax revenues , as r ecommended by the Fund in the past ) . The Fund , however , in i ts ef for ts
to suppor t the peace process i n Gua t ema l a f rom the very beg i nn i ng , never the l ess ins i sted on i t , ful l y know i ng how unrea l i st i c th i s was . As a resul t , Gua t ema l a ' s t ax revenue is st i l l be l ow 12% and the governmen t has not yet been ab l e to reach an agreemen t w i th the Fund on an econom i c program.
REFERENCES Boyce , J . K . (1995) . Ext erna l ass i stance and the peace process in El Sa l vador . Wor l d Deve l opment , 23(12) , 2101-2116 . Boyce , J . K ., Acevedo , C ., Bar ry , D ., Conroy , M . E ., Danby , C. , Pastor , M . Jr . , Paus , E. , Rosa , H ., Segov i a , A ., & Wood , E . J. (1995) . Ad j us tment toward peace: Econom i c po l i cy and pos t -war reconst ruct i on in E l Sa l vador . St udy comm i ss i oned by UNDP , E l Sa l vador . Boyce , J . K. , & Pastor , M . (1997) . Int erna t i ona l f i nanc i a l inst i tut ions and conf l i ct prevent i on : F i ve propos i t i ons . Pape r present ed at the Four t h Annua l Con f erence : Progress and Pi t fa l l s in Prevent i ve Ac t i on , New York , Counc i l On Fore i gn Re l a t i ons , Decembe r 11 . Camdessus , M . (1996) . The G-7 in 1996: Wha t is at st ake? I MF Manag i ng D i rec tor ' s Address to the G-7 , Wash i ng ton , DC . de Soto , A ., & de l Cast i l l o, G . (1994) . Obs t ac l es to peacebu i l d i ng. Fore i gn Po l i cy , 94(Spr i ng) [ t rans l ated i nto Span i sh as Los Obs t kcu l os en l a Cons t rucc i 6n de l a Paz , Rev i st a Tendenc i as , 32 (Ju l i o/ agosto 1994) ] . de Soto , A ., & de l Cast i l l o, G. (1995) . Imp l emen t a t i on of comprehens i ve peace agreemen t s : St ay i ng the course in E l Sa l vador . G l oba l Governance (Spr i ng) . de l Cast i l l o, G . (1997) . Arms- for - l and dea l : Lessons f rom E l Sa l vador . In M . W. Doy l e , I . Johns tone , & R . C. Or r (Eds.), Keep i ng the peace : Mu l t i d i mens i ona l UN opera t i ons in Cambod i a and E l Sa l vador . Cambr i dge , UK : Cambr i dge Un i vers i t y Press . FMLN -Gove rnmen t of E l Sa l vador (1995) . Agreemen t s on f i nanc i a l needs to conc l ude the peace agreement s . Par i s , F rance: Repor t o f the Consu l t a t i ve Group , June 22 . Int erna t i ona l Mone t a ry Fund ( I MF ) (var i ous years) . E l Sa l vador : Recent econom i c deve l opment s. I MF , Wash i ng ton , DC . Int erna t i ona l Mone t a ry Fund ( I MF ) (var i ous years) . E l Sa l vador : St a f f repor t . I MF , Wash i ng ton , DC . Int erna t i ona l Mone t a ry Fund ( I MF ) (1995a) . Fund i nvo l vement in post -conf l i ct count r i es EBS / 95 / 141 . I MF , Wash i ng ton , DC , Augus t 16 . Int erna t i ona l Mone t a ry Fund ( I MF ) and the Wor l d Bank (1998) . Issues not e on prov i d i ng add i t i ona l ass i stance to post -conf l i ct count r i es EBS / 98 / 155 . I MF , Wash i ng ton , DC , Sep t ember 1 . Repub l i c of E l Sa l vador (1995) . E l Sa l vador : Neces i dades f i nanc i eras para conc l u i r los acuerdos de paz . I n f orme para l a Reun i on de l Grouo Consu l t i vo , Par i s , France , June 22 . Tanz i , V . (1997) . The ro l e of the Sta te in pos t -chaos s i tua t i ons . In R . Sabot , & I . Szeke l y (Eds .), Deve l -
opmen t st ra t egy and managemen t o f the marke t economy . Ox ford : C l arendon Press. Un i t ed Na t i ons (1995b) . Interna t i ona l co l l oqu i um on post -conf l i ct reconst ruc t i on st rateg i es: Co l l ec t i on of papers . Aus t r i an Study Cent re for Peace and Conf l i c t Reso l ut i on , Stadtsch l a i n i ng , Aust r i a , June 23-24. Un i t ed Na t i ons Deve l opmen t Progr amme (UNDP) (severa l years) . Human deve l opment repor t . Ox f ord Un i vers i t y Press , Ox f ord . Un i t ed Na t i ons (var i ous i ssues) . Repor t of the Secre t aryGenera l on the Un i t ed Na t i ons Observer M i ss i on in E l Sa l vador . Secur i ty Counc i l . Wood , E. , & Segov i a , A . (1995) . Mac roeconom i c po l i cy and the sa l vadoran peace accords . Wor l d Deve l opment , 23(12) , 2079-2099 . Wor l d Bank (var i ous years) . Soc i a l i nd i cators o f deve l opmen t . Ba l t i more , MD : The Johns Hopk i ns Un i ver s i ty Press . Wor l d Bank (1998a) . The Wor l d Bank and post -conf l i ct reconst ruc t i on . Wor l d Bank , Wash i ng t on DC , Pos t Conf l i c t Un i t . Wor l d Bank (1998b) . Post -conf l i ct reconst ruc t i on: the ro l e o f the Wor l d Bank . Wor l d Bank , Wash i ng t on DC , Apr i l . Wor l d Bank (1997) . A f ramework for Wor l d Bank i nvo l vement in post -conf l i ct reconst ruc t i on . R97 . Wor l d Bank , Wash i ng ton , DC , January 30 .
FURTHER READ I NG de l Cast i l l o, G . (1995) . Post -conf l i ct peace-bu i l d i ng: The cha l l enge to the UN . CEPAL Rev i ew , 55 (November ) [ t rans l ated i nto Span i sh as Conso l i dac i dn de la Paz Despues de los Conf l i ctos , Rev i st a de l a CEPAL , 55 (abr i l 1995) ] . Reproduced in UN (1995) . Interna t i ona l Mone t a ry Fund ( I MF ) (1995b) . Fund i nvo l vement in post -conf l i ct count r i es BUFF / 95 / 98 . I MF , Wash i ng ton , DC , Sep t ember 19 . Int erna t i ona l Mone t a ry Fund ( I MF ) (2001) . Ass i s t ance to post -conf l i ct count r i es and the H I PC f ramework . BUFF / 01 / 57 , I MF , Wash i ng ton , DC , Apr i l 19 . Int erna t i ona l Mone t a ry Fund ( I MF ) (var i ous years) . Annua l repor t . I MF , Wash i ng ton , DC . Overseas Deve l opmen t Counc i l (1995) . Deve l opmen t ass i stance in war to peace t rans i t ions : Case stud i es o f E l Sa l vador , Mozamb i que , N i caragua and Cambod i a . ODC , Wash i ng ton , DC . The St an l ey Founda t i on (1995) . Un i t ed Na t i ons-Bre t ton Woods co l l abora t i on : How much is enough? Repor t
POST- CONFL I CT RECONSTRUCT I ON AND I NTERNAT I ONAL ORGAN I ZAT I ONS of the Twent y-s i x th Un i t ed Na t i ons Issues Con f erence Arden House , Har r i man , NY , February 24-25 . Un i t ed Na t i ons (1995a) . Interna t i ona l co l l oqu i um on post -conf l i ct reconst ruc t i on st ra teg i es: the Cha i rman ' s synops i s and conc l us i ons . Aus t r i an Study Cent re for
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Peace and Conf l i c t Reso l ut i on , Stadtsch l a i n i ng , Aust r i a , June 23-24 Un i t ed Na t i ons (1996) . An i nventory o f post -conf l i ct peace-bu i l d i ng act i v i t i es (Repor t of an Int erdepar t men t a l Task Force est ab l i shed by the Secre taryGenera l ) , New Yor k .
