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WEIGHING THE COSTS OF WAR
- Document

Any serious attempt to launch a successful campaign to achieve the millennium development goals must pay special attention to conflict affected areas. Nearly 60 countries experienced violent conflict during the Nineties. Beyond its direct cost in human lives, conflict can undermine economies, destabilize governments, damage infrastructure, disrupt social service delivery and provoke mass movements of people. More than 14 million people face hunger due to present or recent conflicts. HIV/AIDS and other infectious disease often spread ferociously in conflict-affected areas. In some militaries of Sub-Saharan Africa more than half the soldiers are HIV-positive. Maternal and infant mortality often increases substantially in war zones, with health services destroyed and childbirths during flight...

Broad policy prescriptions are difficult given the heterogeneity and complexity of war-affected economies. War aims may include depriving certain regions of essential services (Sudan). Conflict may also severely weaken governments, leaving them unable to provide services to any group (Afghanistan, Sierra Leone, Somalia). Indeed, the collapse of government without the emergence of substitute structures has led to particularly adverse human and economic war outcomes (Uganda). Countries able to reduce the human and economic costs of war, and in some cases make progress towards development targets, did so only when all households on both sides of the battle lines had access to food, basic health care and primary education (Guatemala, Mozambique, Sri Lanka).

Adequate public funding of essential services can often be maintained even with the rising military spending that accompanies war. Mozambique, Nicaragua and Sudan markedly increased per capita social spending during their conflicts. But even if cuts in social spending are necessary, they should not automatically translate into slashing basic social service budgets. Even in peacetime, these services account for only a fraction of social spending. Social spending cutbacks are often compounded by depletions in human resources, as teachers and doctors flee conflict-affected regions. And the cuts are coupled with unpredictable breakdowns in delivery mechanisms. So, flexible approaches to service provision are essential using diverse actors, such as non-governmental organizations and quasi-governmental structures...

Countries experiencing ongoing conflicts should focus on (a least) four key policy areas: maintaining fiscal revenue in wartime economies is difficult because sharply declining tax revenue often meets escalating military spending. Institutional structures used in revenue collection need to be maintained throughout the war. Tax rates prevailing before the conflict should also be maintained, in addition to levying other taxes such as on luxury items and war-related goods. Governments could also issue compulsory savings bonds as well as sell food aid to tap new revenue sources...: preventing runaway inflation is necessary because escalating inflation creates uncertainty and promotes private sector speculation...

Securing foreign exchange resources is essential because declining foreign exchange resources contribute to reductions in output...To sustain output, national and international policies should aim to finance productive imports by keeping open and assisting export markets and providing aid and loan support for such imports. National policies should also ensure that available foreign exchange resources are used to purchase essential goods, such as medicines and agricultural inputs. Import controls, such as quotas and tariffs, may be used to ensure this occurs;

Maintaining a competitive real exchange rate: conflict-affected countries face enormous difficulties in managing their balance of payments under conditions of uncertain export income and aid commitments. Policies must maintain a competitive real exchange rate to avoid disincentives to exports...

Over the past 20 years, too much development thinking and practice have confused market-based economic growth with laissez faire. Even when economic growth is based on private ownership and market forces, government policies must promote efficient and competitive national industries.

Supporting the creation of manufacturing exports, for example, can be half the battle of achieving sustained growth, especially if a country’s economic history has involved exporting primary commodities. Similarly, policies can be central to promoting labour-intensive rather than capital-intensive activities, increasing employment and, in the long run, raising productivity and lifting real wages.

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