The efficient delivery of assistance
97. We have previously emphasised the need for development
assistance as one of the most important measures both to prevent
conflict and reconstruct after conflict. It should, of course,
both be of a high quality, clearly targeted at the elimination
of poverty, and be at a level significant enough to make a real
impact. Eugenia Piza-Lopez had stressed in her evidence to the
Committee the distinctiveness of the post-conflict challenges.
She explained, "During a war the infrastructure is destroyed
in a country. Roads are destroyed. Water systems are destroyed.
Schools and hospitals are destroyed. Now, the reconstruction of
the physical infrastructure perhaps is not the most critical part
of the process to build peace, but it is indeed an extremely important
one".[152]
There was also the expensive and time-consuming requirement of
rebuilding systems, such as the health sector.[153]
98. Thus one issue raised in evidence is the level,
continuance and predictability of donor funding for reconstruction.
The provision of social safety nets and a working economy will
prove vital in encouraging combatants to lay down their arms.
It must be made obvious that they can do better by engaging in
a peaceful society than by using violence to prey on a community.
Yet Ed Cairns from Oxfam complained of "the slowness of many
parts of the international assistance".[154]
99. The Committee discussed in detail the situation
in Rwanda as an example of a country traumatised by conflict and
with immense needs. The most important funding bodies post-conflict
are the IMF and the World Bank. Barbara Kelly, speaking of
the need for a longer-term financial commitment to Rwanda, explained
that "the thing that drew us to a closer involvement with
the Bank and the Fund on Rwanda was, in fact, the publication
of the ESAF programme which identified a rather modest budgetary
forecast for the next three years, with a relatively small increase
on education and health expenditure ... This concerned us because
... Rwanda's needs are enormous and as a post-conflict country
they need to do things quickly, both to bind the work they are
doing on reconciliation and to alleviate the dire poverty".[155]
Discussion with the IMF and the World Bank in Washington raised
two issues - "the need for Rwanda to improve its own revenue
take and the fact that donors need to give more aid and longer-term".
There were meetings of donors in Brussels and Stockholm and agreements
to "make commitments so that there is a consistency of approach
in the Rwandan Government, so they know what they can expect and
they can build their social sector provision".[156]
The amount pledged was $250 million. This was about $30 million
more than Rwanda needed to meet its ESAF obligations so "already
we are in a situation where we can look at expanding the social
provisions".[157]
100. Barrie Ireton explained that "The essentially
important thing we were discussing with the Fund and the Bank
was whether or not the budget deficit, before taking into account
the grants from donors, could be higher, and if the donors then
were prepared to put in more money to close the gap again".[158]
There is a temptation to run up a budget deficit to meet the obvious
social (or perhaps security) needs of a country. Such a deficit
would ordinarily be financed either by the inflationary printing
of money or by the accumulation of debt which in the future would
impose severe servicing costs, reducing expenditure on the social
sectors. The longer term commitments by donors assure the IMF
that the budget deficit can be met by donor contributions without
the need for borrowing - "one can have a sustainable increase
in productive expenditure which will not eventually have to be
used for debt servicing".[159]
101. Barbara Kelly said that "This is very different
from anything we have done before in a post-conflict country".
The dialogue begun with both Rwandans and donors was all about
the "long haul" - "We have made a commitment to
be in for a long haul in Rwanda, at more or less the same level,
beyond this current budgetary period that the Rwandans are looking
at, so that they have some feel that there is some donor consistency
there to support them, providing they work within a framework
which we all feel comfortable with, and providing reconciliation
and peace is something which is there, together with the alleviation
of poverty".[160]
We congratulate the Government on the initiative they have
taken to ensure some stability and predictability of funding for
Rwanda. There are clearly aspects of the conflict in that
country which make it unique even within the long catalogue of
wars which have taken place in the last fifty years. But we
are convinced that the success of this initiative can be a model
for post-conflict reconstruction in other countries. Such
longer-term financial commitments obviously involve political
risks - the new administration in a country, even when recognised
internationally, may be unelected and untested, particularly in
such areas as human rights. As Barbara Kelly made clear, commitments
are not completely unconditional but presume an acceptable developmental
and human rights framework for government activity. Although there
are risks, it may well be more risky to do nothing, to allow a
new government to be inadequately funded, to remain continually
unsure of international support. We consider such longer-term
funding commitments, under clear and transparent conditions, to
be the best way to entrench good practice in post-conflict administrations.
102. We have already discussed the sensitivity of
the International Financial Institutions to conflict. We were
told in the case of Rwanda that there was a Social Impact Assessment
being undertaken by the World Bank which the IMF would take into
account when doing their mid-term review of the ESAF, looking
to see "whether they can expand the envelope for health and
education funding against some increased revenue provision".[161]
In general Barrie Ireton assured us that "The IMF and the
World Bank have increasingly taken an interest not just in the
level of expenditure but in its composition".[162]
These are all encouraging signs. Nevertheless, it seems to have
taken considerable leadership by the United Kingdom for there
to be action to ensure adequate levels of social spending in Rwanda.
The World Bank and, in particular, the IMF should formally acknowledge
the need for prompt, generous and socially targeted interventions
in post-conflict situations. They should be proactive in all such
cases in bringing donors together to match grants and loans and
provide some security to funding. We recommend that in all
post-conflict situations there be meetings between donors, the
IMF and the World Bank to agree a coordinated and longer-term
funding strategy for the country concerned which will ensure the
funds necessary for post-conflict reconstruction and adequate
spending on the social sectors.
103. Dr Neil Cooper and Dr Michael Pugh claim that
in the past "International Monetary Fund (IMF) and World
Bank policies that have the effect of restricting welfare services
can drive communities to seek welfare from armed factions and
unscrupulous black marketeers".[163]
We have mentioned above the decline in levels of ODA, from an
average of 0.33 per cent of GNP of OECD members in 1992 to 0.22
per cent in 1997.[164]
The point was also made to us in evidence that in post-conflict
reconstruction you need to have both institution building and
social spending — "if you spend 0.7 per cent of GDP
on aid it is easier to have both ... than if you spend 0.24 per
cent or whatever".[165]
Ed Cairns explained, "in August 1994 if you walked into the
Ministry of Rehabilitation in Kigale there was not a typewriter,
there was not a telephone and there was no furniture ... it seems
to be patently obvious that a government, which at the end of
the day has to be the prime body responsible for the post-conflict
development of its country, cannot implement things if it does
not have a greater level of capacity. I think in hindsight too
much of the aid has gone to NGOs and too little to government
in Rwanda".[166]
We think this to be an immensely important principle in post-conflict
reconstruction. The prime responsibility of the international
community in a post-conflict situation is to ensure that the legitimate
government is adequately funded for its task of capacity building
and social sector support. Funding for NGO strategies should aim
at the strengthening of local and national government capacity
rather than an effective privatisation and fragmenting of social
provision.
104. A further financial issue for any country emerging
from post-conflict reconstruction is its debt burden. Rwanda,
for example, owes US $994m in public and publicly-guaranteed external
debt, equivalent to 373 per cent of its earnings from exports
of goods and services (the target for sustainable debt under the
Heavily Indebted Poor Countries Initiative is 200-250 per cent).
Clearly, the crippling burden of debt servicing costs can prove
a considerable constraint on a country hoping to rebuild its infrastructure
and spend in the social sectors of health and education. There
is of course in the HIPC initiative an internationally agreed
mechanism for the granting of debt relief for the unpayable debt
of highly indebted poor countries. We discussed the HIPC Initiative
in detail in two previous Reports.[167]
Such relief is, however, dependent on the completion of two three
year programmes. We argued in a previous Report "that the
six year track record is too long, and that three years would
be an adequate amount of time to avert moral hazard".[168]
The Government now agrees with this and in the run-up to the Cologne
G8 Summit proposed a reduction in the track record requirement
to a maximum of three years. The G8 Heads of Government agreed
to the Cologne Debt Initiative, which included the proposal for
reductions in the length of the second stage of the track record
for countries meeting 'ambitious policy targets'. The G8 leaders
also proposed the provision of interim relief by multilateral
creditors after the first three-year stage. These proposals will
be discussed formally at the Annual Meeting of the World Bank
and IMF in October 1999, along with the results of the review
of the HIPC Initiative, the second phase of which is currently
taking place.
105. Even after the adherence to an IMF programme
for the first three years and the agreement of debt relief, the
relief is only provided after a further period of three years.
We were told that in that second three year period Rwanda would
owe US$ 60 million in debt servicing. Donors agreed to establish
a trust fund to enable Rwanda to pay its debt servicing during
this three year period. The UK contributed £30 million to
Rwanda, shared between the Trust Fund and the budget of the Government.
106. In addition to the problem of the long delay
before any relief becomes available is the argument that a new
administration should not be held responsible for the debts accrued
by previous regimes, where those regimes have been corrupt or
guilty of significant human rights abuses. This concept of "odious
debt" was raised by the Kabila Government of DRC after the
fall of President Mobutu. Mark Bowden of Save the Children explained
that the IMF "have offered probably very generous terms on
an IMF basis in terms of the resettlement of the loan. Politically
in the Congo it is almost unacceptable that the new Government
should see themselves as being held responsible for a previous
regime's indebtedness".[169]
We note that the Kabila Government does not appear to be much
more responsible than its predecessor. There were similar views
on odious debt in Rwanda and Mozambique. This sort of argument
meant that there was "a failure to move sufficient resources
after a conflict".[170]
107. Clare Short told the Committee that "we
got agreement in principle from the G7 Meeting in Birmingham to
look at the Highly Indebted Poor Countries Initiative more flexibly
in the case of post-conflict countries".[171]
There was sympathetic discussion of the taking into account of
more flexible IMF assistance in any calculation of the six year
period. Rwanda was cited as an example of difficulties facing
post-conflict countries in their dealings with the IMF and the
World Bank. She explained that "poor Rwanda, trying to get
reconciliation after genocide, needs some progress on poverty
and yet the Bank and the Fund could not responsibly promise programmes
when Rwanda could not afford any pay back".[172]
This problem had been addressed by the longer term donor funding
commitments mentioned above which enabled the IMF and the World
Bank to agree a larger programme in the country. At the Annual
Meetings of the World Bank and the IMF in October 1998, the boards
agreed to allow emergency IMF packages to be taken into account
in the HIPC track record requirement for post-conflict countries.
The specific question of debt relief for post-conflict countries
was not discussed at the Cologne G8 Summit in June 1999. We note
that in its submission to phase 2 of the HIPC Review, on the link
between debt relief and poverty eradication, the UK Government
makes no mention of the need to provide rapid and significant
debt relief to post-conflict countries.
108. A further problem facing some post-conflict
countries such as Liberia and DRC is the fact that the World Bank
and the IMF cannot lend into arrears. This was because they were
established after the Second World War as lenders of 'last resort'.
For them to lend into arrears would be to threaten the stability
of the international financial system. Therefore arrears had to
be cleared by a bridging loan "commercially funded of from
other donors with the bridging loan itself being paid off using
the first tranche of the credit from the IMF".[173]
Such "merry-go-round" arrangements had been used in
Guyana. The World Bank had recently agreed to allow IDA funds
to be used for such bridging loans so that they can "get
back into the IMF-World Bank system".[174]
It is of course paramount that post-conflict countries in arrears
are able as soon as possible to have access to the considerable
funds at the disposal of the IMF and the World Bank. We are, however,
concerned that the only escape offered to them is through the
taking on of more debt. If a trust fund of donors was able to
service Rwanda's debts for a three year period it should also
be possible for donors to clear past debts. There is a need for
similar initiatives to that in Rwanda to ensure that IMF and World
Bank programmes can begin promptly.
109. We have made clear that the most important requirement
for post-conflict countries is simply long-term and large scale-development
activity, working to eliminate poverty, in particular through
concentration on the social sectors. There are, however, as we
quoted above, also needs peculiar to post-conflict countries which
donors should consider. Rwanda again provided a telling example.
On a visit to Butare University, the scene of terrible massacres,
we were told of the effect of the genocide on the educated population,
and in particular on the number of teachers and professionals
in the country. We were told that the emphasis of DFID was very
much on the provision of primary education and DFID were unwilling
to provide assistance for secondary and tertiary education. The
Rwandans made the point that without teachers trained through
the secondary and tertiary systems primary education would be
very constrained. This appears to us to be a prime example of
where the ordinary emphasis of donor intervention should be tempered
by sensitivity to the local situation. We recommend that DFID
provide assistance to the Rwandan Government for its secondary
and tertiary education systems. This is an essential element in
the provision of education for all. Moreover, if equitably administered
it might well be the means of furthering reconciliation between
the communities in the country.
100 
