About the Report

The record of countries coming out of war or chaos is dismal: 

Roughly half of them fall back into crises, and among the other 

half, most end up highly aid dependent. This report, sponsored 

by the Center for Sustainable Economies, seeks to develop rules 

or guidelines to improve aid effectiveness in such countries. 

The author is grateful for the many comments and suggestions 

she received on a previous draft.

About the Author

Graciana del Castillo is an economic expert on countries in 

crises, including those affected by conflict, natural disasters, 

or financial collapse. She is a partner of the Macroeconomic 

Advisory Group and a member of several advisory boards. 

She received her PhD in economics from Columbia University 

in 1986 and was an adjunct/visiting professor there from 

1990 to 2007. As the senior economist in the Office of the 

UN Secretary General, del Castillo designed the arms-for-land 

program for El Salvador. As the economic policy adviser to 

the UN Special Representative in Kosovo, she was involved in 

designing policies to jump-start the economy following the war 

in 1999. She is widely published and the author of Rebuilding 

War-Torn States (Oxford University Press).

2301 Constitution Ave., NW • Washington, DC 20037 • 202.457.1700 • fax 202.429.6063

Special Report 286 September 2011

© 2011 by the United States Institute of Peace. 

All rights reserved.

Graciana del Castillo

The Economics of Peace

Five Rules for Effective Reconstruction

Summary

•	 The United States’ longest war, in Afghanistan, and one of the largest relief efforts in U.S. 

history, in Haiti, are testing U.S. leadership in the world, as well as its determination to deal 

with fiscal imbalances, the debt burden, and economic malaise at home.

•	 U.S.-led reconstruction in both countries is lagging and becoming increasingly expensive, 

and it will not succeed without a major change in strategy. U.S. goals in both countries will 

be elusive unless the misguided policies and misplaced priorities under which reconstruction has been taking place change in fundamental ways. 

•	 Each country is different and will need to develop its own strategy. Nevertheless, we have 

identified basic rules, lessons, and best practices that national policymakers and the international community should keep in mind to improve the provision of aid and technical 

assistance.

•	 During the immediate transition from war or chaos, reconstruction is not development as 

usual: The peace (or political) objective should prevail at all times over the development 

(or economic) objective. Without peace there cannot be development.

•	 Policymaking should be tailored to four major differences from development as usual. 

Emergency policies should be adopted without delay, aid to groups most affected by crises 

should be prioritized, corruption should be checked, and national ownership of reconstruction policies must be assured. 

•	 For both Afghanistan and Haiti, a broad-based debate—including national leaders, U.S. 

government officials, members of Congress, military leaders, academics, think tanks, and 

aid practitioners in these countries—is urgently needed and should take place without 

delay, as it did at the time of the Marshall Plan. 

Countries coming out of civil war or other internal chaos cannot engage in sustainable longterm development unless they first go through an interim phase: economic reconstruction 

or the economics of peace. The challenge of this phase is to reactivate the economy while 

simultaneously consolidating peace. During this phase, the economics of war or chaos—in 

United States Institute of Peace www.usip.org

SPECIAL REPORT

Contents

The Challenge of Economic Reconstruction 3

Rules for Effective Reconstruction 4

Conclusion 12
2

which there is no rule of law and illicit activities favoring specific groups predominate—

need to be reversed so that licit, broad-based, inclusive, and sustainable economic activity 

can be jump-started. 

All of the above needs to take place under the serious political and security constraints 

needed to minimize the chances of reverting to conflict or chaos. To engage productively 

in the economics of peace so that normal development can take root, countries need an 

integrated strategy for economic reconstruction in which security, political, social, and 

economic issues are addressed together, rather than separately.1 Today, the United States 

is grappling with these challenges as it attempts to lead humanitarian and reconstruction 

efforts in Afghanistan and Haiti. 

Economic reconstruction has proved particularly difficult since the Cold War, as it has 

taken place in countries coming out of internal conflicts—although often with regional 

implications. Such conflicts require special efforts at national reconciliation so that warring groups can live together in peace. At the same time, reconstruction has taken place 

in countries at low levels of development—often fragile or failed states. Most of them lack 

basic resources and capabilities, require large amounts of humanitarian assistance, and need 

to lure spoilers away from the illicit and profitable war economy. 

In countries emerging from complex crises, reconstruction usually is part of a multifaceted transition to peace and stability. Crime and violence must surrender to public security (the security transition). Lawlessness and political exclusion must give way to the rule 

of law, political participation, good governance, and respect for human and property rights 

(the political transition). Ethnic, religious, class, or other confrontation must be addressed 

(the social transition). War-ravaged or chaos-affected countries must become functioning 

economies that enable crises-affected groups and other ordinary people to make a decent 

and honest living (the economic transition).

That war-torn countries have roughly a fifty-fifty chance of reverting to war or chaos 

or ending up highly aid dependent2 makes reconstruction a high risk–high reward investment for both the countries and the international community that supports them. This 

makes economic reconstruction necessary, demanding, and promising. Failure is directly 

linked to the large human, financial, and environmental consequences associated with the 

economics of war—as has happened in Afghanistan, a perfect example of reconstruction 

gone sour as the economics of peace have not taken hold since the military intervention 

a decade ago. 

Meanwhile, although natural disasters—including earthquakes, hurricanes, floods, and 

droughts—hit rich and poor countries alike, such events can have far more dire economic, 

political, and security consequences in countries that are more vulnerable as a result of 

past conflicts and chaos. Serious natural disasters in these countries may lead to renewed 

conflict as different groups fight to have their losses and grievances redressed. Haiti is a 

good example of this. Hit by both natural disasters and conflicts in the past, Haiti has had 

a series of weak and mostly ineffective governments, class confrontations, insecurity, five 

peacekeeping operations, and a largely dilapidated, distorted, and corrupt economy. The 

earthquake made Haiti more insecure and politically unstable, even as the country has 

embarked on a difficult transition, not unlike that of countries coming out of internal conflict, to elect a new government and improve security, alleviate the dreadful conditions that 

people most affected by the disaster are living in, and reconstruct the economy.

Economic reconstruction amid the complex transition to peace is fundamentally different from long-term development. However, because countries coming out of war or 

other internal chaos in the past two decades have been at low levels of development, 

international assistance has largely followed a misguided development-as-usual approach. 

The views expressed in this report do not necessarily 

reflect the views of the United States Institute of Peace, 

which does not advocate specific policy positions.

To request permission to photocopy or reprint materials, 

e-mail: permissions@usip.org

About the Institute

The United States Institute of Peace is an independent, 

nonpartisan institution established and funded by Congress. 

Its goals are to help prevent and resolve violent conflicts, 

promote postconflict peacebuilding, and increase conflict 

management tools, capacity, and intellectual capital worldwide. The Institute does this by empowering others with 

knowledge, skills, and resources, as well as by its direct 

involvement in conflict zones around the globe.

Board of Directors

J. Robinson West (Chair), Chairman, PFC Energy •

George E. Moose (Vice Chairman), Adjunct Professor of 

Practice, The George Washington University • Judy Ansley,

Former Assistant to the President and Deputy Security 

Adviser under President George W. Bush • Anne H. Cahn,

Former Scholar in Residence, American University 

• Chester A. Crocker, James R. Schlesinger Professor of 

Strategic Studies, School of Foreign Service, Georgetown 

University • Kerry Kennedy, President, Robert F. Kennedy 

Center for Justice and Human Rights • Ikram U. Khan,

President, Quality Care Consultants, LLC • Stephen D. Krasner,

Graham H. Stuart Professor of International Relations, 

Stanford University • John A. Lancaster, Former Executive 

Director of the National Council on Independent Living 

• Jeremy A. Rabkin, Professor, George Mason School of Law 

• Judy Van Rest, Executive Vice President, International 

Republican Institute • Nancy Zirkin, Executive Vice 

President, Leadership Conference on Civil Rights

Members Ex Officio

Michael H. Posner, Assistant Secretary of State for 

Democracy, Human Rights, and Labor • James N. Miller, 

Principal Deputy Under Secretary of Defense for Policy •

Ann E. Rondeau, Vice Admiral, U.S. Navy; President, 

National Defense University • Richard H. Solomon, 

President, United States Institute of Peace (nonvoting) 
3

The dismal record of economic reconstruction mentioned earlier is the result.3 To improve 

this record, this paper identifies five rules for effective economic reconstruction to ensure 

lasting peace.

The Challenge of Economic Reconstruction

At the time of the Marshall Plan, the term economic reconstruction was used for the rebuilding 

of infrastructure and services in market-based economies that had strong economic institutions and were coming out of an interstate war. Because economic reconstruction in the present context takes place in countries at low levels of development coming out of civil war or 

internal conflicts, it needs to be broadly defined to include not only the rehabilitation of basic 

services and infrastructure, but also the establishment of an adequate basic economic framework necessary for effective policymaking in a market-based economy, productive utilization 

of large volumes of aid, and creation of national reconciliation programs.4

That economic reconstruction occurs amid a complex transition to peace and stability does 

not mean, however, that countries can afford to wait to have the elected authorities, the 

institutions, the policies, the good governance, the security, and the human capacity in place 

before they engage in production. Reconstruction needs to happen within whatever conditions 

exist; it cannot be postponed while the international community gets its act together, or while 

civil servants are trained so that they can do it right. As T. E. Lawrence said in 1917, “Better the 

Arabs do it tolerably than that you do it perfectly. It is their war, and you are to help them, not 

to win it for them.”5 Mistakes inevitably will be made in such complex situations. 

On the other hand, the international community’s prevalent practice of carrying out 

reconstruction tasks on its own is just as unacceptable as waiting for an improved framework to be in place before local activities are supported. In the first case, local capacity will 

not be built and there will be no national ownership, making reconstruction unsustainable. 

In the second case, it may take a long time and the country could revert to conflict or chaos 

in the process. Current practices need to change so that reconstruction aid for reactivating 

agriculture, legitimate business activity, and other job-creating investment in basic services 

and infrastructure can start in the very early stages of the reconstruction process. Elections, 

institutions, policies, governance, security, and human capacity may have to follow.

It can seem overwhelming to create the basis for a just, viable, and sustainable economy 

in the long run while maintaining a fragile peace, political stability, and security in the short 

run. Political transitions in countries emerging from crises can be slow and painful.6 Governments often lack political legitimacy and may not control parts of their own country. There 

may be great interference from the international community, in some cases even involving 

foreign military forces. 

But a dynamic reactivation of the economy is crucial to provide citizens—particularly 

those most affected by the crisis—with self-employment opportunities, jobs, and basic 

infrastructure and services, which would allow them to have honest, fair, and sustainable 

incomes. The short-run objective is to address the grievances of crises-affected groups; it is 

important to ensure that they get an immediate dividend in the form of better living conditions, without which peace and stability will not last.

During reconstruction, the yardstick to measure success should not be how much the 

country improves in terms of development indicators. Poverty alleviation, achievement of 

the Millennium Development Goals (MDGs), improved higher education, and other facets of 

development are long-term objectives that will remain elusive unless short-term gains are 

consolidated. John Maynard Keynes’s dictum that “in the long run we are all dead” may apply 

quite literally to situations where peace is so fragile.7

Reconstruction needs to happen 

within whatever conditions exist; 

it cannot be postponed while the 

international community gets its 

act together, or while civil servants 

are trained so that they can do 

it right.
4

Short-term transitions to peace and stability have proved incredibly difficult, not only 

for the countries involved, but also for the international community, which has been illprepared to support them effectively. Immediate humanitarian assistance directed toward 

refugees and displaced populations, with the aim of reducing hunger and critical health 

conditions, has been rather effective and a number of specialized agencies and non-governmental organizations (NGOs) have taken it on. But reconstruction, according to Jeffrey 

Sachs, has proved to be an institutional orphan: No one organization has a specific mandate 

to address it.8

Ignoring the peculiarities and special needs of conflict-prone countries, as well as carrying out reconstruction under misguided policies and misplaced priorities, has been a major 

factor in the dismal record of reconstruction since the end of the Cold War.9 Relapses into 

conflict and chaos have led to more human tragedy, large numbers of refugees and internally 

displaced populations, and huge costs in military interventions and peacekeeping forces. 

Failed states are incubators for terrorism, trafficking of drugs and women, other forms of 

violence against women, piracy, and other illicit activities that often have costly regional 

and global repercussions.

Moreover, the aid dependency created during reconstruction in countries as far apart as 

Haiti, Mozambique, Afghanistan, and Liberia is hardly sustainable—particularly in the aftermath of the global financial crisis, with its higher unemployment, crumbling infrastructure, 

fiscal imbalances, and taxpayer scrutiny in donor countries, as well as the significant competing needs of normal development, dealing with pandemics, and environmental problems. 

Only a few countries have managed to move successfully from economic reconstruction to a 

normal development path in which they can be weaned off this high aid dependency.10

While security operations, political processes, and other aspects of the transition to 

peace have been widely debated, a serious debate on aid and reconstruction akin to that 

promoted by Allen Dulles’s Marshall Plan, written in the winter of 1947–48 as the U.S. Congress was building support for it, has been notoriously lacking in the post–Cold War period. 

The Marshall Plan debate included policymakers, members of Congress, academics, and 

practitioners.11 In the absence of such debate today, the reconstruction failures in Afghanistan and Haiti are testing U.S. leadership in the world even as it also must contend with 

fiscal imbalances, the debt burden, and economic malaise at home. U.S.-led reconstruction 

efforts in both countries are lagging and have become increasingly expensive, and they will 

not succeed without a major change in strategy. Such a change is always difficult, but the 

economics of peace deserve a fair chance of success. 

Rules for Effective Reconstruction

Lessons—both good and bad—from the experience of the past two decades allows identification of the special needs and policy constraints of war-torn and disaster-affected 

countries, suggesting a number of basic rules as key to effective reconstruction. In many 

countries, ignoring some of these has often led to misguided policies, setbacks, and even 

the collapse of peace processes.

1. Economic Reconstruction Is Not Development as Usual: The Peace Objective Should 

Prevail over Development at All Times

Economic reconstruction in war-torn countries takes place within the context of a multifaceted transition to peace, not independently from it. It requires a number of specific peacerelated activities that are complex and costly, but key to keeping the peace. This requirement 

makes economic reconstruction fundamentally different from development as usual. 

U.S.-led reconstruction efforts 

in Afghanistan and Haiti are 

lagging and have become 

increasingly expensive, and 

they will not succeed without a 

major change in strategy. 
5

War-torn countries share some characteristics with countries at low levels of development, which often leads to their conflation. The former, however, have to reconcile the 

development challenge with the additional burden of carrying out peace-related activities, 

such as the demobilization, disarmament, and reintegration (DDR) of former combatants 

and other war-affected groups; the rehabilitation of services and infrastructure in former 

war zones; demining; and other such programs. These additional activities have important 

financial consequences and need to be given priority in budgetary allocations, where peace 

and development objectives have often clashed.12

The first and most important rule for effective reconstruction is that, during the immediate transition from war, reconstruction is not development as usual: The peace (or political) 

objective should prevail at all times over the development (or economic) objective. All stakeholders, both national and international, must accept this on the grounds that, should the 

country revert to conflict—which, as mentioned earlier, happens roughly half the time—

there is hardly any chance at long-term development. 

Countries coming out of natural disasters or other chaos also need to prevent conflict, 

which is always brewing during crises. Just as countries emerging from war need additional 

activities to ensure that the peace process is sustainable, countries hit by natural disasters 

or financial collapse need to address the immediate needs of groups most affected by the 

crisis, which also creates serious financial constraints. Thus, the first and most important 

rule of reconstruction applies equally to Haiti and Afghanistan. Many of the setbacks of the 

past—from Afghanistan to Iraq, to several countries in Africa, Central America, and the 

Balkans—can be directly attributed to ignoring this rule and proceeding with development 

as usual.13

2. Policymaking Should Be Tailored to Four Major Differences from Development 

as Usual

Economic policymaking in countries coming out of crises—wars, natural disasters, and even 

financial chaos—is distinctly different from policymaking under normal development for 

four main reasons. The differences arise regarding the horizon over which economic policies 

can be planned (i.e., short term versus medium and long term); the amount of aid (i.e., sharp 

spikes versus low and stable flows); the treatment of different groups (i.e., preferences versus equal treatment for all); and the involvement of the international community in national 

affairs (intense and intrusive versus nonexistent). Again, as the overriding objective of postcrises situations is to avoid reverting to war or creating social conflict, the second rule for 

effective reconstruction is that economic policymaking in crisis-affected countries should 

be geared toward four objectives: adopting emergency policies without delay, prioritizing 

the needs of crisis-affected groups, maximizing the effect of aid and avoiding corruption, 

and reining in the international community and ensuring national ownership of policy.

Adopting Emergency Policies without Delay In normal development, economic policies 

and programs aimed at addressing economic stagnation, backwardness, weak institutions, 

poor human resources, poverty, and other pathologies of underdevelopment are planned with 

a medium- and long-term horizon in mind. No such luxury exists following crises. Emergency 

policies, adopted with resolution and without delay, are needed to deal with homeless 

populations, hunger and disease, demobilizing soldiers, returnees, and displaced populations, 

as well as all other immediate needs the crises create. These policies often serve a shortterm humanitarian, political, or security purpose. However, they can often distort and have 

unintended consequences on medium- and long-term development. In Kosovo, for example, 

where 75 percent of the housing had been destroyed by the war in the summer of 1999, the 

emergency led to a short-term solution: Aid was used to purchase kits to winterize houses. 
6

It was clear that this policy would be expensive and would not address the longer-term need 

to rebuild the housing stock, which had to start from scratch in the spring. The imperative 

of having roofs during the cold winter, however, together with EU restrictions on using local 

inputs and companies not belonging to member states, led to the policy’s adoption. It was 

necessary under the circumstances, but not in line with longer-term economic objectives.

The development-as-usual approach of development organizations has often led to misguided priorities and delays in approving disbursement of funds, which have often impeded 

effective reconstruction. In Haiti, for example, the Inter-American Development Bank 

(IADB) has focused on medium- and long-term projects in education reform and transportation, while hundreds of thousands of people still live in weather-beaten tents eighteen 

months after the earthquake and more than a quarter million people have been infected by 

cholera, a disease that had not been seen in Haiti for sixty years.14 Unless policies and funding are focused on addressing the emergency needs of the quake-affected country, normal 

development will never take root in Haiti.

Prioritizing Crisis-Affected Groups After crises, policymakers often need to put aside 

the guiding equity or development principle—that is, the principle of treating all groups 

with the same needs equally—in favor of the political or reconstruction principle, which 

justifies giving special treatment to groups most affected by crises, even in the presence of 

others with similar needs. For peace to last, policymaking should be targeted toward alleviating the grievances of the afflicted and engaging in national reconciliation, which likely 

involves the effective DDR of former combatants and other conflict-affected groups.15 

Development institutions resisted such preferential treatment in the past. After twelve 

years of war in El Salvador, the main objective of the 1992 arms-for-land program was to 

ensure that former combatants were involved in productive activities and would not return 

to fighting. This program was part of the UN-brokered peace agreement, but development 

institutions—most notably the World Bank, but also the United Nations Development 

Programme (UNDP)—had problems accepting it. Following the equity principle rather than 

the reconstruction principle, World Bank officials responsible for El Salvador argued in 1993 

that there were 300,000 peasants without land in El Salvador, and that they could not support special treatment of former combatants and Farabundo Martí National Liberation Front 

(FMLN) supporters.16

In other cases, the failure of DDR programs has been a major factor in reinvigorating 

an insurgency. In Afghanistan, after the military intervention to remove the Taliban from 

power and the signing of the Bonn Agreement in 2001, reconstruction focused on misplaced 

long-term development objectives, such as poverty alleviation and the MDGs, rather than 

actively pursuing programs to reintegrate the Taliban, warlords, and other armed groups 

into society.17

Likewise, in disaster-affected countries, policymaking should be targeted toward 

addressing the needs of those groups directly hit by the crisis who may be homeless and 

more vulnerable to hunger and disease. In Haiti, the cholera epidemic and the increased 

political and security risks came as no surprise in October 2010, ten months after the quake, 

as the government and international community had failed to provide basic health, shelter, 

and security for those living in camps and other vulnerable conditions. The international 

community should have focused on basic services and improved housing so that people 

could move out of the camps as soon as possible. Delays in emergency policies brewed 

disease and insecurity.

Maximizing the Effect of Aid and Avoiding Corruption Foreign aid spikes sharply right 

after crises as media attention focuses on the plight of raped women, starving children, 

homeless populations, physical destruction, and other tragedies. World Bank data show that 

official development assistance (ODA) following serious crises can reach as high as 50 to 100 

After crises, policymakers 

often need to put aside the 

guiding equity or development 

principle in favor of the political 

or reconstruction principle, 

which justifies giving special 

treatment to groups most 

affected by crises.
7

percent of the recipient countries’ gross national income (GNI).18 By contrast, aid during 

normal development fluctuates much less and remains at much lower levels, between 3 and 

5 percent of GNI. Media frenzies following crises are short-lived, so aid flows soon return to 

the low and stable levels that characterize normal development.19 The short-lived increase in 

aid, the improvised way in which it is channeled, low absorptive capacity, weak institutions, 

and procurement policies put special pressure on both governments and donors to use aid 

effectively and avoid corruption during the transition to peace. 

Reining in the International Community and Ensuring National Policy Ownership 

With large volumes of aid, technical assistance, and foreign troops in crisis-affected countries, 

it is inevitable that the political involvement of the international community in the internal 

affairs of recipient countries is intense and intrusive. Under normal development, this would be 

considered unacceptable interference in national affairs. Policies should not be imposed from 

abroad or even by unrepresentative elites within the government; national leaders should design 

policies, set priorities, and build broad support for them. National ownership, national capacity 

and ingenuity, and national consensus building are essential to sustain the peace. 

Policymakers need to present a vision to their population showing them where they 

expect to lead the country in the short and medium terms. Government ministers and other 

public officials need to visit the local communities to engage the population in this tough 

process. National ownership during reconstruction, however, is more challenging than it is 

during normal development because of the great variety of stakeholders involved, the key 

role that donors play in financing reconstruction, and the donors’ tendency to impose their 

own priorities and agendas on weak national governments.

In the early 1990s, Alvaro de Soto and the author argued that 

as a general rule, it is the role of the government to harmonize policies and set 

priorities. But this theoretical notion is sometimes difficult to apply when small or 

weak countries face conflicting external pressures that jeopardize such vital concerns 

as preserving internal peace and maintaining external financial lifelines. Sometimes a 

government dares not put its foot down and insist on terms for external financing that 

take into account its particular political predicament, for fear of losing financing.

They warned that “an arbitrary model of ‘nation building’ should not be imposed on 

reluctant, sometimes faraway countries,” stressing the “need for assisting a state in achieving its own goals at a shaky period in its history.” They finally recommended that “international organizations should support a country thus beset and help it avoid a collision 

between competing processes, insisting on the preeminence of peace over narrow economic 

objectives.”20

The International Monetary Fund (IMF) largely ignored the issue of national ownership 

at the time, setting the terms of the programs it was willing to support financially. Since 

then, the IMF has recognized, at the highest level, that ownership of national policies is key 

to achieving good results and sustainable policies. Following the donors’ meeting on Haiti 

at the end of March 2010, the IMF managing director noted that for reconstruction to work, 

“the Haitian authorities need to be on the driver’s seat. The IMF experience is that, for such 

a program to work there needs to be real ownership by the country.”21

3. First-Best Policies Should Not Be Pursued during Reconstruction 

Because the political or peace objective should prevail over the economic or development 

objective, and because countries in crisis have to adopt emergency policies, which are often 

distortionary and not conducive to long-term development, first-best economic policies are 

not possible or desirable during reconstruction. In 1995 the author wrote that in postconflict 

situations where countries had to integrate political, security, social, and economic issues, 

they had to “settle for less than optimal policies in their economic reform efforts so as to 

accommodate the additional financial burden of reconstruction and peace consolidation.”22
8

In 2001, the author argued further that assistance to postconflict countries required the 

rethinking of analytical and operational issues, framing them in a multidisciplinary strategy 

in which “first-best policies based on purely economic profit-maximizing criteria are often 

not appropriate or even recommended.”23

Many at the IMF judged the above view as heresy at the time, and the Fund carried out 

its activities in the 1990s always targeting first-best policies—as if war-torn countries could 

isolate their economic programs from the political and security realities of the aftermath 

of war. The IMF was not alone in this; other international and development organizations 

acted in the same way. In fact, the UNDP and the World Bank regarded transitions out of 

conflict and chaos as special cases of normal development. As the IMF gained experience 

in countries emerging from war, however, the organization came to accept political and 

security constraints in some cases. In a 2005 IMF study on rebuilding fiscal institutions in 

postconflict countries, the authors mentioned that the tax policies in these countries might 

require adopting specific policies that are not “first best” in terms of efficiency. When the 

IMF’s board of directors discussed the study, they agreed that first-best policies may not be 

immediately appropriate, but that policies that are not optimal should be phased out as soon 

as feasible.24 The author agrees that the latter is a must. 

In 2003, the World Bank acknowledged the special nature of conflict countries for the 

first time, arguing that

economic development is central to reducing the global incidence of conflict; however, 

this does not mean that the standard elements of development strategy—market 

access, policy reform, and aid—are sufficient, or even appropriate, to address the 

problem. At the most basic level, development has to reach countries that it has so far 

missed. Beyond this, development strategies should look different in countries facing a 

high risk of conflict, where the problems and priorities are distinctive.25

A few years later, Paul Collier, who had led the 2003 World Bank study, also recognized 

that both governments’ and donors’ policies need to be distinct during reconstruction and 

“not simply development as usual.”26

Not surprisingly, the pursuit of first-best policies as if there were no political and security 

constraints took its toll, as Robert Zoellick, the president of the World Bank, recognized in 

January 2009. In a speech at the U.S. Institute of Peace, Zoellick acknowledged and expressed 

concern about the poor record of conflict-affected countries and unveiled a major change 

in vision and policy for the organization.27 He not only accepted that reconstruction is not 

development as usual, but called for an integrated approach to economic, political, and security issues. This is precisely the concept of human security that UN Secretary-General Boutros 

Boutros-Ghali elaborated in 1992 as the best and only way to address the root causes of conflict.28 It is encouraging that the World Bank has finally adopted this concept, which renders 

optimal economic policies infeasible or even desirable in the immediate postcrisis period.29

Zoellick also explicitly acknowledged that in the aftermath of war or chaos, countries 

needed first to consolidate peace and security before development could take root. In his 

own words, 

too often, the development community has treated states affected by fragility and 

conflict simply as harder cases of development. . . . Yet, these situations require looking 

beyond the analytics of both security studies and development—to a different 

framework of building security, legitimacy, governance, and economy. This is not 

security as usual or development as usual. Nor is this about what we have come to 

think of as peacebuilding or peacekeeping. This is about securing development—

bringing security and development together first to smooth the transition from conflict 

to peace and then to embed stability so that development can take hold over a decade 

and beyond. Only by securing development can we put down roots deep enough to 

break the cycle of fragility and violence. . . . Too many perfect economic plans have 

floundered upon the rocks of political impossibility.30

It will be interesting to see whether the important changes in vision at the top of the 

Bretton Woods institutions—the IMF and the World Bank—have a practical effect on the 
9

way these organizations provide their policy advice and technical assistance in the future. 

Will these organizations be more willing to accept the basic rules for effective reconstruction and recommend second-best economic policies to keep the peace, even if it means 

delaying economic stabilization and structural reform? The position of the IMF’s new managing director on these issues remains to be seen.

More generally, it will also be interesting to see whether the international organizations are willing to create more permanent infrastructure and financing mechanisms to 

address the specific problems of conflict countries. As Zoellick mentions, support needs 

to be committed for the long haul; it also must move beyond ad hoc remedies. Funding mechanisms need to ensure continuity and stability of resources over a decade or 

more. Ways also have to be found to ensure the proper and timely disbursement of funds 

from the trust funds for budgetary support or project financing that the World Bank 

often administers.31

4. Aid Should Be Channeled through the Government to Support a National 

Integrated Reconstruction Strategy 

Aid-related problems are widespread in countries coming out of war or other chaos, but 

Afghanistan and Haiti stand out as among the worst. These countries’ sharp reliance on 

aid flows in relation to the sizes of their economies, as well as the large number of donors, 

international agencies, and NGOs involved in relation to their respective national capacities, 

have brought some of the problems with aid to the forefront. In these countries, as in others, donors need to increase the effectiveness of aid delivery and the accountability of aid 

providers, at both the national and international levels. 

The objective of aid should be to allow countries to stand on their own feet as soon as 

possible by supporting effective reconstruction, taking into consideration that this may take 

a number of years in countries at low levels of development. Aid in general has clearly failed 

to support reconstruction in Afghanistan and Haiti. In both countries, it has created serious distortions: The main sources of growth relate directly to the bubbles created by huge 

volumes of humanitarian aid and the large presence of the international community and 

foreign troops. Like all bubbles, these are not sustainable. Growth is also related indirectly 

to the illicit drug economy in Afghanistan and to drug trafficking and other illicit activities 

in Haiti. These activities have thrived as aid has failed to support alternative remunerative 

activities, and security has deteriorated as a result. 

None of the existing sources of growth in Afghanistan or Haiti offer much hope for effective economic reconstruction and an eventual move to genuine economic development in 

the long run; growth in both countries has resulted in large price and wage distortions that 

have discouraged investment and work. More troublesome, it has deprived the civil service 

of needed expertise, since professionals and other skilled people often prefer to work as 

drivers, interpreters, and secretaries with higher-paying multilateral and bilateral agencies 

and NGOs. This affects not only the government’s capacity to provide services and security, 

but also the current and future productive capacity of the country, since the few skilled 

people are not using their skills and will lose them over time.

Food aid together with policies imposed by donors—including the international development and financial institutions as well as bilateral donors—have led Haiti to cut tariffs on 

rice and other products. Both have deterred food security and have often led to floods of 

imports that the country can ill afford.32 Aid also has failed to create dynamic private sectors 

that could produce the jobs and other employment opportunities required to absorb young 

populations. This is partly because of the poor business conditions and high risks in countries 

coming out of war or chaos, and partly the result of the institutional and operational nature 

In Afghanistan and Haiti, 

the main sources of growth 

relate directly to the bubbles 

created by huge volumes 

of humanitarian aid. Like 

all bubbles, these are not 

sustainable.
10

of the aid community, which has been far from business oriented and does not have the right 

tools, expertise, or vision to support business activities. 

The aid system has been more effective in creating health systems and rebuilding 

schools, roads, and other infrastructure,33 but this has not gone without problems. In 

both Afghanistan and Haiti, the governments’ inability to provide basic services, effective 

security, justice, and human rights protection to the population has hobbled their efforts 

to establish their legitimacy. For the Karzai government, legitimacy has been elusive for 

three main reasons. First, the business-as-usual macroeconomic framework, established 

with IMF and World Bank support, does not allow the government the flexibility to print 

money to finance critical peace-related programs. Second, donors have channeled as much 

as 80 percent of aid outside government control, which has allowed them to set their own 

priorities (rather than the government’s) and use their own contractors and goods. Third, 

the government has been unable to raise tax revenues to reasonable levels, in large part 

because a number of warlords in border provinces control customs revenue that they are not 

inclined to share with the government.34

Aid to Afghanistan and Haiti over the years has failed to build the national capacity 

of government employees so that they can perform their basic functions, and to promote 

local entrepreneurship so as to increase local production of goods and services. Rather, aid 

has largely relied on donors’ contractors for services and on goods produced by their own 

companies back home, in what is known as tied aid. At the same time, procurement of U.S. 

and North Atlantic Treaty Organization (NATO) forces in Afghanistan, as well as procurement 

of the UN and many other stakeholders in these countries, is largely done internationally, 

providing little incentive for local production or job creation.

As the rule indicates, for reconstruction to be effective and cost-efficient, it has to 

be channeled through the government budget. Only this would allow for a well-integrated 

strategy based on national priorities. As Herman Schaper argued for Afghanistan, “The best 

way to build capacity is not to deal with dozens of different programs devised by individual 

donors, but to have donors fund programs that are well-coordinated on the basis of Afghan 

priorities and with an Afghan lead.”35 Moreover, as Alastair McKechnie emphasized,36

experience demonstrates that channeling aid through government is more costeffective. To take one example, a basic package of health services contracted outside 

government channels can be 50 percent more expensive than the package contracted 

by the government on a competitive basis. Furthermore, the credibility of the 

government is increased as it demonstrates its ability to oversee services and become 

accountable for results to its people and the newly elected parliament.

By channeling a large part of their aid through their own projects based on their own 

agendas and priorities, rather than promoting government ownership, donors have clearly 

created a fragmented rather than an integrated development strategy. This has been as 

much of a problem in Afghanistan as it has been in Haiti. The parallel systems that aid has 

created need to be eliminated as soon as feasible, as the fragmentation and lack of ownership have not only led to unsustainable projects but also facilitated corruption.

With large amounts of aid circulating in Afghanistan and Haiti outside government control, it is hardly surprising that impoverished low-level officials and their superiors collect 

bribes as much as they can from expatriates and others trying to carry out projects in the 

country.37 Contrary to popular belief, however, corruption is not a major factor in the U.S. 

taxpayers’ money going into the Afghan budget. First, less than a quarter of aid continues 

to be channeled this way. Second, most of this money is channeled through the Afghanistan 

Reconstruction Trust Fund (ARTF) administered by the World Bank under transparency and 

accountability best practices. 

The way aid is channeled has proved to be a serious problem, in that national policymakers often have to make plans without knowing what kind of financial assistance they 

For reconstruction to be 

effective and cost-efficient, it 

has to be channeled through 

the government budget. Only 

this would allow for a wellintegrated strategy based on 

national priorities.
11

can count on, for three reasons. First, there is scant information on aid channeled outside 

the government budget. Second, donors often pledge money at one forum that they have 

already pledged somewhere else, or fail to disburse what they have pledged. Third, when 

donors make deposits into trust funds administered by the World Bank, transparency and 

accountability controls often result in slow disbursement. The third factor has been a particular problem in Afghanistan, but all three are present in both countries.

There is clearly no need for larger volumes of aid. There is, however, a desperate need 

for more effective use of aid. Aid targeted to reconstruction in Afghanistan and Haiti is 

associated with an unusual amount of waste, in part because of the large number of organizations working there. The reports and conferences on Afghanistan and Haiti generated 

by different UN bodies, international financial institutions, other multilateral and regional 

organizations, and bilateral development agencies—in addition to think tanks, NGOs, the 

two governments, the United States, and others—are not only quite numerous, but also 

largely repetitive and incredibly expensive. In 2009 a New York Times article mentioned that 

it cost the United Nations an average of $2,473 per page to create every single document 

that the organization produces in its six official languages, a charge that the organization 

did not refute.38 For the sake of transparency and to evaluate the cost effectiveness of 

international assistance, the World Bank officially reported the cost of producing the World 

Development Report 2011: Conflict, Security, and Development, which apparently amounted to 

about $10 million, or roughly $27,000 per page.39 A debate should follow on whether these 

organizations should use their resources for repetitive reports, conferences, and first-class 

travel for their staff, or whether they should be better geared toward supporting countries 

to create local jobs, local capacity, and local livelihoods. 

Furthermore, the numerous organizations’ overhead accounts for a large percentage of 

the aid allocated to particular projects without much accountability for results. Ashraf Ghani 

and Clare Lockhart report that, from 2002 to 2004, while Ghani was Afghanistan’s minister 

of finance, “the Afghan government and citizens continuously and publicly requested disclosure of the management of funds provided by the UN agencies and the outcomes they 

had achieved. The UN agencies refused to comply with the request. Estimates were that up 

to 70 percent of these funds had been spent on the international costs—for international 

salaries, white Land Cruisers, satellite communications, and specially chartered airlines—to 

set up a UN agency presence.” Not surprisingly, the Afghan people, the majority of whom 

live on less than a dollar a day, feel cheated by such use of foreign aid—feelings that the 

insurgency uses wisely to add to its ranks. In 2007 Barnett Rubin reported that donors spent 

$500 million on poorly designed and uncoordinated technical assistance in Afghanistan.40

Coordination is a common buzzword among the aid community, but no one wants to 

be coordinated. Thus a truly integrated approach among the different organizations has 

remained difficult to achieve, despite significant improvements in their collaboration over 

the years. Aid providers should work together to use the existing capacity and financial 

resources in an optimal way. Donors and other stakeholders, including heads of UN agencies, NGOs, and congressional leaders, should limit visits to the country, since they tax the 

capacity of the few government officials that speak the language, thus distracting them 

from the key role they play in national reconstruction. 

5. Humanitarian and Reconstruction Assistance Should Not Be Conflated: 

Disbursement of Reconstruction Aid Should Not Be Delayed

Humanitarian aid (or charity) to provide food, shelter, potable water, medical care, and 

resettlement helps to support life and to provide minimum levels of consumption for subsistence in the short run. Delivering such aid through UN agencies and NGOs has proved 

Aid targeted to reconstruction 

in Afghanistan and Haiti is 

associated with an unusual 

amount of waste, in part 

because of the large number of 

organizations working there.
12

relatively easy and financing has been generally available, though not always in the amounts 

requested. However, by affecting relative prices and discouraging labor supply and domestic 

production, this type of aid creates all kinds of price and wage distortions, making effective 

reconstruction and an eventual move toward normal development more difficult. Humanitarian relief thus should be phased out as soon as feasible. Although food aid and other safety 

nets can save lives, they will increase aid dependency, a serious problem in countries in the 

transition from war or other chaos. 

Phasing out humanitarian aid, however, has not proved easy for donors. Their farmers 

and other suppliers support it, as they see their production and prices for their products rise 

as a result. It has not proved easy for national leaders either. It was both courageous and 

visionary of President Alfredo Cristiani of El Salvador to give up, soon after the signature of 

the peace agreements in January 1992, benefits under U.S. Government Public Law 480.41 

At the time, his government decided that the long-term benefit of reactivating basic grain 

production was more important for the country than the short-term benefit of receiving 

such grains.

Since reactivating production and job opportunities is an urgent challenge in countries 

emerging from war or chaos, the question involves what kind of assistance would be most 

effective in creating productive capacity and local capabilities. Only reconstruction (or economic) aid targeting investment opportunities that use local capabilities, land, and natural 

resources can increase productive capacity. Its economic effect, however, will depend on how 

productively the aid is invested and the effects it has on the labor market, on the exchange 

rate, on reactivating production and trade, and on protecting the environment.42

The disbursement of reconstruction aid should not be delayed—as is often the existing 

practice—in waiting for the country to have the right conditions in political leadership, 

governance, institutions, and human capacity. In the meantime, humanitarian assistance 

continues to be disbursed. A serious problem with aid in Afghanistan and Haiti has been 

the exorbitant humanitarian aid for consumption purposes in relation to reconstruction aid 

for investment provided over the years. 

The difference between humanitarian and reconstruction aid, which has become blurred 

in recent years as the same agencies, NGOs, or military forces often provide both, was 

actively debated at the time of the Marshall Plan. Dulles argued that it would be a waste of 

money merely to provide humanitarian aid to feed the Europeans for a year or two. Rather, 

reconstruction aid was necessary to give them the tools without which they would have 

little chance of righting their own postwar economies. Dulles stressed that policies adopted 

in the first year of the Marshall Plan would be decisive in determining how effectively reconstruction proceeded.43 The same is still true today.

Reconstruction aid cannot follow a piecemeal approach in which one donor builds a 

school here, another donor a road there, and still a third donor a dam elsewhere. Nor can 

such aid follow the policy of spending as much as possible on many projects, hoping that 

some will stick, as the U.S. military has done in Afghanistan and Iraq.44 To be effective, 

reconstruction aid needs to be provided in an integrated manner and be considerate of local 

conditions and needs.45

Conclusion

The crises in Afghanistan and Haiti—the United States’ longest war and “one of the largest 

relief efforts in U.S. history,”46 respectively—are testing U.S. leadership in the world, as 

well as its determination to deal with fiscal imbalances, the debt burden, and economic malaise at home. U.S.-led reconstruction in both Afghanistan and Haiti is lagging and becoming 

increasingly expensive, and will not succeed without a major change in strategy. 

A serious problem with aid in 

Afghanistan and Haiti has been 

the exorbitant humanitarian 

aid for consumption purposes 

in relation to reconstruction aid 

for investment.
13

The stakes are high in each country for different reasons, but the U.S. goals in both 

countries will be elusive unless the misguided policies and misplaced priorities under which 

reconstruction has been taking place change in fundamental ways. Each country is different and will need to develop its own strategy. Nevertheless, there are basic rules, lessons, 

and best practices that national policymakers and the international community should keep 

in mind to improve the provision of aid and technical assistance to countries during the 

process of reconstruction. 

For both Afghanistan and Haiti, broad-based debate—including national leaders, U.S. 

government officials, military leaders, members of Congress, academics, think tanks, and aid 

practitioners in these countries—is urgently needed and should take place without delay. 

If the international community continues to ignore the critical juncture in which these 

countries find themselves, it will do so only at its own peril.
14

Notes

1. The economics of peace—or economic reconstruction—is a key but much neglected component of what the 

U.S. State Department refers to as postconflict stabilization and reconstruction, the United Nations refers to as 

peacebuilding, UNDP as early recovery, and the press as nation building. The terms economics of peace, economic 

reconstruction, and reconstruction are used interchangeably throughout this paper, as are the terms long-term 

development, normal development, and development as usual.

2. Aid refers to official assistance that provides some relief to the receiving country, and includes both grants 

(assistance without a quid pro quo) and concessional loans (loans at interest rates below commercial or market 

terms). The World Bank reports ODA data as a percentage of GNI; figures are available at World Bank, “Net ODA 

Received (% of GNI),” http://data.worldbank.org/indicator/DT.ODA.ODAT.GN.ZS.

3. For the details of the multifaceted transition to peace, see Chapter 1 in Graciana del Castillo, Rebuilding War-Torn 

States: The Challenge of Post-Conflict Economic Reconstruction (Oxford: Oxford University Press, 2008).

4. For a rigorous discussion of the required framework, see del Castillo, Rebuilding, chapters 6 and 13–15.

5. See T. E. Lawrence, “Twenty-Seven Articles,” Arab Bulletin, August 20, 1917.

6. This contrasts with reconstruction in countries such as Korea in the 1950s and Vietnam in the 1990s, which 

did not go through the political transition simultaneously. For a discussion of the differences see Graciana del 

Castillo, “Economic Reconstruction of War-Torn Countries: The Role of the International Financial Institutions,” 

Seton Hall Law Review 38, no. 4 (December 2008): 1265–95.

7. See John Maynard Keynes, The General Theory of Employment, Interest and Money (London: The Macmillan Press 

for The Royal Economic Society, 1936).

8. See Jeffrey Sachs’ introductory remarks at the Columbia University Conference on Peace Through Reconstruction 

in October 2009, http://capitalism.columbia.edu/view/events/conference. Some multilateral organizations and 

donor governments have created or expanded specialized departments to deal with the issue of reconstruction 

in war-torn countries, although most often these institutions have focused on the larger issue of fragile states. 

Fragile states share many of the vulnerabilities of war-torn and disaster-affected countries, but lack the high 

probability that the latter have of relapsing or falling into conflict.

9. Following a peace agreement, as in El Salvador in 1992, a military intervention, as in Afghanistan in 2001, 

or a natural disaster, as in Haiti in 2010, economic reconstruction can be expected to last at least three to 

five years—and often much longer—with the length of time depending on local conditions and available 

international assistance. 

10. Many countries exhibit high aid dependency. ODA to Mozambique peaked at over 80 percent of GNI in 1992, the 

year after the peace agreement. It amounted to 55 percent ten years later, and it was still 21 percent in 2009, the 

last year for which there are data. El Salvador, a country that also signed its peace agreement in 1992, is one of 

the few countries that have avoided aid dependency. ODA fell from only 7 percent of GNI in 1992 to 2.5 percent 

in 1997, and it was only 1.4 percent of GNI in 2009, as compared to Mozambique’s 21 percent. Although official 

aid is sometimes channeled through NGOs, NGOs and other private sources assistance add to the total volume of 

ODA; see World Bank, “Net ODA Received.”

11. See Allen W. Dulles, The Marshall Plan (Providence and Oxford: Berg Publishers, 1993). The original 1947–48 

manuscript is located in the Allen W. Dulles Papers at Princeton University. For a discussion of the Marshall Plan 

and how it is relevant to reconstruction in the present context, see del Castillo, Rebuilding.

12. See del Castillo, Rebuilding, 30–33.

13. See del Castillo, Rebuilding, Chapter 7 on El Salvador and chapters 8–10 on Kosovo, Afghanistan, and Iraq. 

In Graciana del Castillo, “Post-Conflict Peace-Building: The Challenge to the UN,” CEPAL Review 55, (October 

1995): 27–38, the author had argued that the financial institutions “had not succeeded in moving away from 

their pattern of ‘business as usual’ when dealing with the unique conditions of postconflict peacebuilding—but 

unfortunately the same can be said of UNDP and other programs and agencies of the United Nations system.”

14. See Janet Reitman, “How the World Failed Haiti,” Rolling Stone Magazine, August 4, 2011.

15. Because women, children, and youth groups have been involved as both combatants and victims of violence, 

DDR programs are particularly important to address and redress some of these problems.

16. Independent evaluation bodies of the UNDP and the World Bank analyzed the role of these organizations in El 

Salvador and concluded that UNDP was “unprepared and ill equipped for the task at hand” and that the World 

Bank financing to the country had been for typical development projects rather than peace-related projects. See 

del Castillo, Rebuilding, Chapter 7. 

17. The problems with DDR in Afghanistan in the years following the Bonn Agreement have been extensively 

analyzed. See footnote 16 in Graciana del Castillo, “Peace through Reconstruction: An Effective Strategy for 

Afghanistan,” Brown Journal of World Affairs 16, no. 2 (Spring/Summer 2010): 195–211.

18. In addition to Mozambique mentioned earlier, other countries receiving large volumes of aid have included 

Rwanda (95 percent of GNI in 1994) and Liberia (186 percent of GNI in 2008).

19. ODA to the group of low-income countries in 1995–2000 averaged between 2.5 and 3 percent of GNI. An 

exception is Malawi, which has avoided conflict but has had severe food shortages in the past and has received 

ODA flows amounting to 21 percent a year on average from 2000 to 2009. 

20. See Alvaro de Soto and Graciana del Castillo, “Obstacles to Peacebuilding,” Foreign Policy 94, (Spring 1994): 

69–83.

21. See IMF Survey Online, “IMF Chief Emphasizes Support for Haiti,” April 1, 2010, http://www.imf.org/external/

pubs/ft/survey/so/2010/car040110a.htm.

22. In del Castillo, “Post-Conflict Peace-Building,” the author also argued that countries coming out of conflict “face 

a double challenge,” confronting the normal challenge of socioeconomic development and having to settle for 

less than optimal policies in their economic reform efforts to accommodate the additional financial burden of 

reconstruction and peace consolidation. See also Graciana del Castillo, “Economic Reconstruction in Post-Conflict 

Transitions,” in M. Malan and C. Lord, eds., Prague to Pretoria: Towards a Global Consensus on the Doctrine of Peace 

Support Operations (Prague: Institute of International Relations, 2000), 227–34.

23. See Graciana del Castillo, “Post-Conflict Reconstruction and the Challenge to the International Organizations: The 

Case of El Salvador,” World Development 29, no. 12 (December 2001): 1967–85.
15

24. See Sanjeev Gupta, Shamsuddin Tareq, Benedict Clements, Alex Segura-Ubiergo, Rina Bhattacharya, and 

Todd Mattina, “Rebuilding Fiscal Institutions in Post-Conflict Countries,” IMF Occasional Paper no. 247, 

International Monetary Fund, Washington, DC, December 27, 2005. See also International Monetary Fund, 

Public Information Notice (PIN) no. 05/45, March 29, 2005, http://www.imf.org/external/np/sec/pn/2005/

pn0545.htm.

25. See Paul Collier, V.L. Elliott, Hävard Hegre, Anke Hoeffler, Marta Reynal-Querol, and Nicholas Sambanis, Breaking the 

Conflict Trap: Civil War and Development Policy (Washington, DC: World Bank and Oxford University Press, 2003).

26. See Paul Collier, “Postconflict Economic Policy,” in Charles T. Call, ed., Building States to Build Peace (Boulder, CO: 

Lynne Rienner Publishers, 2008).

27. See Robert B. Zoellick, “Securing Development,” U.S. Institute of Peace, Washington, DC, January 8, 2009, 

available at http://siteresources.worldbank.org/NEWS/Resources/RBZUSIPSpeech010809.pdf.

28. Boutros Boutros-Ghali, An Agenda for Peace (New York: United Nations, 1992).

29. Criticisms of the World Bank’s development-as-usual approach have even come from the World Bank’s own 

Independent Evaluation Group. See Brian Knowlton, “World Bank Faults Itself for East Timor’s Struggles,” The New 

York Times, April 23, 2011, and The Bretton Woods Project, “World Bank Admits Failures in East Timor,” http://

www.brettonwoodsproject.org/art-568592.

30. See Zoellick, “Securing Development.” Zoellick’s acknowledgement of this was in line with the author’s views 

expressed a decade earlier. In del Castillo, “Economic Reconstruction,” the author wrote that she had been 

“arguing for a long time that these transitions are not ‘development as usual,’” She mentioned this was not 

something everyone was willing to accept and that the UNDP in particular “would like to see these transitions as 

special cases of normal development.” 

31. The Bretton Woods institutions have come a long way since the end of the Cold War in the ways they 

support countries in the complex transition from war, both through policy advice and in terms of financing. 

Nevertheless, major changes are necessary for peace to have a chance. See Graciana del Castillo, “The Bretton 

Woods Institutions, Reconstruction, and Peacebuilding,” in Mats Berdal and Achim Wennman, eds., Ending Wars, 

Consolidating Peace: Economic Perspectives (New York: Routledge and The International Institute for Strategic 

Studies, 2010).

32. Former U.S. President Clinton publicly apologized on March 2010 at the Senate Foreign Relations Committee for 

championing policies that destroyed Haiti’s rice production. As he pointed out, “It may have been good for some 

of my farmers in Arkansas, but it has not worked. It was a mistake.” See Jonathan M. Katz, “With Cheap Food 

Imports, Haiti Can’t Feed Itself,” Washington Post, March 20, 2010. 

33. See, e.g., M. Ishaq Nadiri, “Economics as a Pre-Requisite for the Stability of Afghanistan and the Region,” paper 

presented at the Columbia University Conference on Peace Through Reconstruction, http://capitalism.columbia.

edu/files/ccs/Nadiri%20Working%20Paper%2045.pdf.

34. For details, see del Castillo, Rebuilding, 177–78.

35. Schaper is ambassador from the Netherlands to the UN and previously to NATO. The Netherlands was among the 

few donors in Afghanistan that rightly advocated channeling support through national Afghan programs. See video 

recording of his presentation at the above mentioned Columbia conference, Panel 2, http://capitalism.columbia.

edu/special-conference-peace-through-reconstruction-co-sponsored-earth-institute-columbia-university-0.

36. McKechnie was director of the Fragile and Conflict-Affected Countries at the World Bank. See his presentation at 

the same Columbia University conference, Panel 2. 

37. Corruption and other inefficiencies, however, are not by any means restricted to local officials. The U.S. 

Government Accountability Office (GAO), the special inspectors general for Afghanistan and Iraq reconstruction, 

numerous press reports, and serious academics have extensively recorded the large number of inefficiencies, lack 

of accountability, nepotism, and corruption among foreign contractors, the United Nations, the World Bank, the 

U.S. government, and other international actors in Afghanistan. See, e.g., the William Easterly presentation at the 

Columbia University conference, Panel 2. In Fixing Failed States (Oxford University Press, 2008), Ashraf Ghani and 

Clare Lockhart report a number of misuses of aid financing, including by the United Nations. In “Flaws Shown in 

Afghan Aid,” USA Today, February 2, 2009, Ken Dilanian reports that USAID “continues to pay hundreds of millions 

of dollars annually to private contractors that frequently fail to demonstrate results . . . Of six different audits 

conducted by the agency’s inspector general, only one found a program working largely as it was supposed to.”

38. See Neil MacFarquhar, “Budget Fights Are Brewing at the United Nations,” The New York Times, November 8, 2009.

39. This amount was cited in personal correspondence (August 10, 2011) with one of the report’s directors, who 

admitted that it was an expensive report because it required various consultation visits and forums throughout 

the world in order to capture the experiences of practitioners in war-affected countries. The director argued that 

these experiences are not well recorded in the relevant literature. The thirty-four pages of bibliography in del 

Castillo, Rebuilding, however, suggest that this may not be the case. The literature since 2008 has become even 

larger and more fruitful, widely recording the experience of practitioners in those countries. The World Bank has 

preferred to ignore it, trying as always to reinvent the wheel and rehash arguments that have long been in the 

debate. 

40. Ghani and Lockhart, Fixing Failed States, 93; Barnett R. Rubin, “Saving Afghanistan,” Foreign Affairs 86, 

(January/February 2007).

41. Under Public Law 480, the U.S. government donated grains to the government of El Salvador, which the latter 

sold, using the revenue for economic development programs.

42. Development institutions—UNDP, other UN agencies, the World Bank, regional development banks, and the 

bilateral development agencies—can play a critical role as catalysts and coordinators of reconstruction aid. The 

World Bank and the UNDP also organize donors’ meetings, including consultative group meetings and round 

tables, where donors pledge funds for reconstruction. Even at these donors’ meetings, funding for humanitarian 

and reconstruction purposes are often conflated.

43. See Dulles, Marshall Plan.

44. As Jeff Peterson said at a USIP event entitled “A Fresh Look at Post-Conflict Economics: Theory, Experience, and 

Reality,” this is what the U.S. military has done in Iraq. He attributes it to the lack of a doctrine or theory on 

how to do it. The author would attribute it to the lack of comparative advantage of the military in economic 

reconstruction, where their main objective relates to security rather than politics or economics. There is a broad 

literature, dating from the early 1990s, which has been often ignored in more recent experiences. For event 

information, see http://www.usip.org/events/fresh-look-post-conflict-economics-theory-experience-and-reality.
45. For improved use of aid, I have proposed the creation of reconstruction zones—each consisting of an 

export-oriented and a local-production zone—to implement a coherent and integrated strategy for economic 

reconstruction that would allow countries to move to normal development as soon as feasible. For the details, see 

Graciana del Castillo, “The Economics of Peace: Proposal for the Creation of Reconstruction Zones in Afghanistan 

and Haiti,” U.S. Institute of Peace, Washington, DC, unpublished manuscript.

46. This is how President Obama referred to the crisis in Haiti. See Jonathan M. Katz, “Haiti Suffers Year of Crisis with 

Nobody in Charge,” Washington Post, January 8, 2011.

Of Related Interest

•	 Guiding Principles for Stabilization and Reconstruction (USIP Press, 2009)

•	 The International Donor‘s Conference and Support for Haiti’s Future by Robert Maguire and 

Casie Copeland (Peace Brief, May 2010)

•	 Employment Generation and Economic Development in Stabilization and Reconstruction Operations by Johanna Mendelson-Forman and Merriam Mashatt (Special Report, March 2007)

•	 Domestic Agencies in Reconstruction and Stabilization: The “4th D” by Merriam Mashatt and 

Bob Polk (Peace Brief, June 2008)

•	 Measuring Progress in Stabilization and Reconstruction by Craig Cohen (Special Report, 

March 2006)

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