The World Bank and conflict

12 September 2003 | Inside the institutions

While the World Bank has by nature been involved in conflict-affected countries since the very start, the scope of its interventions has evolved in recent years. A 1998 evaluation calculated that conflict related financing amounted to 16% of the Bank’s total lending and it is likely to have increased since then and taken new forms, for example with increased support to demobilization and reintegration programmes. There has been much discussion recently on the potential roles for multilateral agencies in Iraq and this article sets out the ways in which the Bank operates in conflict and post-conflict situations.

One of the Bank’s original functions, as spelt out in its Articles of Agreement, is “to assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war [and] the reconversion of productive facilities to peacetime needs.”

From providing financial capital and rebuilding physical infrastructure, the Bank has progressively moved to a more comprehensive approach, from demobilization and reintegration of ex-combatants to ‘good governance’ reforms. The Bank says this expansion and diversification mirrors the changing nature of contemporary conflicts, as it often finds itself in situations of potential or actual internal conflicts with no clear post-reconstruction mandate. Discussions at the Bank in the late 1990s led to a codification in 2001 of an Operational Policy on “Development Cooperation and Conflict” (OP 2.30), that sets the scope and the terms of the institution’s interventions.

From providing financial capital and rebuilding physical infrastructure, the Bank has progressively moved to a more comprehensive approach, from demobilization and reintegration of ex-combatants to 'good governance' reforms

For countries which may be vulnerable to conflict the Bank should promote economic growth in ways that will minimize potential causes of conflict. For countries already in conflict the Bank should continue poverty reduction efforts where possible or simply provide information on the socio-economic impacts of emergency assistance and analyze the impact of conflict on economic and social development. In countries in transition from conflict the Bank should support economic and social recovery through investment and development policy advice, with particular attention to the needs of war-affected groups who are especially vulnerable by reasons of gender, age, or disability.

This policy therefore explicitly opens the door for World Bank work in conflict prevention. It complements the 1995 “Emergency Recovery Assistance” policy (OP 8.50), that regulates involvement immediately after war, civil disturbance and natural disasters. Combined with a policy on “Dealing with de facto governments” (OP 7.30), OP 2.30 clarifies the Bank’s capacity to intervene in countries where it is unclear who is in power. In particular, “if there is no government in power, Bank assistance [grants] may be initiated by requests from the international community, as properly represented (e.g., by UN agencies), and subject in each case to the prior approval of the Executive Directors.” In the case of Iraq Bank interventions have until now been limited to ‘needs assessment’.

“Products” and instruments: “positioning” the Bank

In countries emerging from conflict, whose Country Assistance Strategy (CAS) is outdated or irrelevant or that do not have a CAS, the World Bank prepares a Transitional Support Strategy (TSS), a short to medium-term plan for involvement in the country which precedes and prepares World Bank involvement in comprehensive reconstruction (Angola, Macedonia, Kosovo, East Timor and the Democratic Republic of Congo all currently have a TSS). Through this framework the Bank can provide emergency recovery grants and loans, as in the case of the DRC recently.

The arms of the World Bank Group aimed at boosting private investment, the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA), are also active in conflict-affected countries. MIGA for example claims to be “an important part of an overall effort to mitigate the negative impact of conflict, particularly when it comes to reducing the risks to investors to get much-needed business in the door”.

The Bank has developed “new products” for situations where normal instruments cannot apply. Beyond flexibility, this also allows the Bank -in its own words – to “position itself” early on, in what critics who have seen the Bank operate in East Timor, Afghanistan or Sri Lanka will no doubt see as a way to ensure a strong clout from the start in the process of reshaping a country’s economy.

One of these new products is the Post-Conflict Fund (PCF), mostly funded from the Bank’s profits. Since its inception in 1998 the PCF has approved a total of $61.5 million for 120 grants. Recipients are diverse and include several UN agencies as well as 30 NGOs. The PCF Secretariat consists of four people. Grants are approved by the PCF Committee that is chaired by the director of the Social Development department in the World Bank.

There are also many examples of the Bank establishing and managing joint donor trust funds in countries, as in Afghanistan, Kosovo or East Timor.

The Bank has a specific unit, the Conflict Prevention and Reconstruction Unit (CPR), which is part of its Social Development department. The Unit’s manager Ian Bannon has 11 staff members with different backgrounds, including handling field operations in conflict-affected countries, not only for the Bank but previously with the United Nations and NGOs.

CPR relates to staff in country offices as well as those based in headquarters on all issues relating to conflict analysis, conflict-sensitive development, post-conflict reconstruction, PCF grants etc. They provide support with their Conflict Analysis Framework (CAF) where needed.

The CAF aims to “enhance conflict sensitivity and conflict prevention potential of World Bank assistance”, focusing on six areas: social and ethnic relations; governance and political institutions; human rights and security; economic structure and performance; environment and natural resources; and external factors. Assessments through this framework have been conducted in Nigeria, and are underway in a few other countries. The CPR unit is also working with UK’s Department for International Development to integrate more conflict analysis in Poverty Reduction Strategy Papers.

The CPR is also responsible for disseminating results of the Bank’s research on conflict and development issues. In May the Bank published a Policy Research Report Breaking the Conflict Trap which has been widely discussed. It does not represent a strategy or policy approach for the Bank but it has been presented to the Executive Board, and is said to have impacted the thinking of Bank’s senior officials as well as concerned operational staff. The report has interesting potential operational ramifications that are being studied. As part of its reflection on the effectiveness of aid and the ‘results’ agenda, the Bank has also developed a new framework, Low Income Countries Under Stress (LICUS) which looks at how to engage in countries emerging from conflicts or that have “weak government capacity”.

Critics have met with scepticism Bank efforts to step up, modernise and publicize its work on conflict prevention and reconstruction. Some argue that the World Bank Group in many respects (for example through its support to extractive industries, or structural adjustment increasing inequality) fuels conflicts rather than it helps preventing them. Bretton Woods Project will give an overview of these debates in an upcoming ‘At Issue’.