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World Bank role in Afghanistan unclear

17 January 2002

After the first two donor conferences on the reconstruction of Afghanistan – in Islamabad in November and in Brussels in December – some people worry that reconstruction funds could easily be misused and fuel continued civil strife. Others worry that reconstruction efforts will fail unless regional concerns are addressed from the outset.

Kaiser Bengali, managing director for Karachi-based think-tank Social Policy Development Centre, pointed out that little effort had gone into involving Pakistani officials, NGOs and businesses in the Islamabad meeting. Instead the focus was entirely on forging new direct relationships between the international donor community and the Afghan people. He warned that “if foreign companies monopolize the entire bounty of reconstruction contracts in neighboring Afghanistan, the discontent will breed among the Pakistani middle class and business community. This is a recipe for militancy and extremism in the future”.

The Brussels conference stressed that unless donor governments make long-term commitments, the continued stranglehold of Afghan warlords will threaten the country’s redevelopment. US Agency for International Development administrator Andrew Natsios said funds for reconstruction, if misused, could “strengthen the centrifugal forces that will once again tear apart the country.”

UNDP estimates reconstruction of Afghanistan will cost US$7-12 billion for the first five years alone. Yet these figures are at best guesstimates according to Bengali, who pointed out there is little reliable up to date data on Afghanistan’s economy and that more detailed needs assessments are urgently needed.

The World Bank’s approach paper proposes an external mechanism to manage reconstruction in the form of a trust fund “administered by an organisation which has the capacity to provide professional approaches to assistance strategy formulation, project appraisal, financial management, procurement, environmental and social safeguards and donor coordination.” It presumably means the Bank itself. An initial trust fund to support the interim government will be administered by UNDP. The World Bank’s role in financing reconstruction efforts is still unclear.

“We do not begin this work on a blank slate,” commented William Byrd, World Bank Acting Country Manager for Afghanistan at the Islamabad conference. “We will be building on the analytical work that the Bank and partners have been producing in recent years and on international experience with post-conflict reconstruction elsewhere.”

The reconstruction strategy proposed by the World Bank intends, among other things, to “restart private sector-led growth” for the country while keeping bureaucracy and public administration to a minimum. It suggests scaling up the better existing programmes of service delivery by NGOs in the absence of a functioning public sector. A recent World Bank study (see article Doing well out of war) suggests that among the best ways to prevent civil war – which often spawns terrorism – is to promote economic growth and in particular manufacturing, so as to diversify economies away from dependence on commodities.

The serious need for international financing for reconstruction stands in contrast to what critics fear will be a “reborn colonialism” where coalition interests dominate strategies drawn up by the IFIs. The role of the IFIs in the security, peace and post-conflict sector is hotly debated. An article in the Conflict, Security, Development Journal (1:1, 2001) claims that a governance approach to the security and reconstruction sector is well within the mandate of the Bretton Woods institutions. Peace and security has also been defined as a global public good and, as such, should receive financing from global sources. Thus the World Bank, IMF and regional development banks have an important role to play in this sector.

Nonetheless, a report funded by the Swedish Ministry for Foreign Affairs (Financing Global Public Goods, 2001) recognises that “decisions to provide loans and credits to other nations are inherently political and cannot be separated from the larger framework of international relations.” The report also says that while multilateral development banks (MDBs) play a significant role in detecting signs of instability or conflict, the strong position of large regional member states in the Board might make it difficult for MDBs to engage in an effective post-conflict dialogue.

This issue was debated at a seminar in Stockholm last October. One participant stressed that “banks have no role to play” in conflict situations because their loan financing is too expensive in a volatile situation. It suggests that grants not loans should be the main source of financing until basic institutional structures are re-established under UN auspices. Others agreed that the World Bank role in a conflict area should be very limited. “Political value systems underpin everything,” commented Fransisco Sagasti, Special Advisor for University for Peace of the United Nations. “There are no technical answers to political questions,” he claimed.

Proposals from these two first reconstruction conferences will be debated at a ministerial-level conference on post-conflict Afghanistan in Tokyo 21-22 January 2002.

See also: Doing well out of war (Bretton Woods Update 26)

World Bank Afghanistan site

Bretton Woods Project longer article on the World Bank and Afghanistan’s reconstruction

Financial Times special report: Afghanistan

New report on Global Public Goods