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International: Post-conflict aid compounds corruption

Source
Posted
Originally published

April 6, 2011

SUBJECT: Aid and corruption in post-conflict states.

SIGNIFICANCE: Aid disbursements are a key element of post-conflict interventions, since promoting economic growth is considered integral to the consolidation of peace. However, aid can also increase corruption and imperil the goal of peace-building: strengthening state capacity to manage conflict peacefully. Aid that is delivered through the state may strengthen the state, but increase corruption; aid that is delivered around the state may protect against corruption, but weaken the state.

ANALYSIS: Aid to post-conflict countries is substantial, sometimes as much as or more than Gross National Income (GNI). According to the World Bank, official development assistance to Democratic Republic of Congo (DRC) was 99% of GNI in 2003 and to Liberia 186% of GNI in 2008. Because conflicts are often driven by economic factors, this aid is partly intended to increase state capacity for sound macroeconomic management and thus to prevent the recurrence of conflict.

Corruption boost. However, little attention has been paid to the potential unintended consequences of such high levels of aid, including an increased incidence of corruption. Post-conflict countries are at particular risk of corruption thanks to a combination of factors:

Contextual factors. Factors that engender corruption during peacetime are magnified after conflict. These include weak state institutions; vague or nonexistent economic regulations; weak monitoring, enforcement and punitive capabilities; low or unpaid wages; the existence of criminal networks; and weak absorptive capacity. Large-scale infrastructure projects, decentralisation, privatisation and reorganisation of natural resource exploitation -- tasks that are also highly susceptible to corruption and are often undertaken after conflict -- aggravate these factors.

Aid windfalls. Aid windfalls often lead to heightened corruption. Where national resource mobilisation is weak, as in post-conflict countries, influxes of aid make rents suddenly available in a resource-scarce environment. This gives opposing groups something to compete for, and the desire to maximise gains can boost incentives for corruption.

Political competition. Post-conflict countries are characterised by continued division, competition and evolving alliances. Actors may try to appropriate aid monies in order to strengthen their positions in the post-war political order.

Aid through the state. Aid that is disbursed through the state can help build government capacity, but can also aggravate these risks of corruption:

Direct budget support, where aid flows into government coffers, gives governments the responsibility for budgeting, expenditures and fiscal stability, which is presumed to help them develop capacities for sound economic management. This, in turn, is expected to prevent future conflict by ensuring the equitable distribution of resources.

However, budget support also decreases donors' leverage because they are less able to monitor how aid money is spent, leaving it open to misappropriation based on nepotism, ethnicity, religion or political affiliation.

To overcome this problem, donors often attach conditions to aid. However, aid conditionality tends to be ineffective in reducing corruption:

Because of the fungibility of aid, donors' ability to control recipient government spending is limited, and non-compliance with conditions is almost always perceived to be less costly than compliance.

Moreover, studies have shown that donors do not withhold aid where recipients engage in corrupt practices, suggesting that aid conditionality is not only ineffective but also rarely enforced.

Indeed, powerful nations want to be seen to be acting in the face of violent conflict, and aid provides an easier alternative than more coercive responses, such as sending troops. Donors may also worry about possible 'spillover effects' and therefore want to promote a minimal level of stability. Not providing aid can also entail domestic costs for donors, as political opponents and interest groups demand action. Donors are thus unlikely to halt aid flows even where it contributes to corruption.

Aid around the state. Given the risks of corruption associated with aid after conflict, some donors bypass governments when giving aid. In practice, this means disbursing funds to UN agencies, contractors, non-governmental organisations (NGOs) and civil society actors for specific projects. However, while project aid increases donor control over how money is spent, it also undercuts efforts to build state capacity in the aftermath of conflict:

Because they provide an alternate source of resources, aid windfalls take the pressure off governments to establish indigenous systems of tax collection and other revenue mobilisation. If government officials are not included in the design and implementation of post-conflict programmes, that pressure will diminish even further, thus hindering efforts to build state economic management capacity.

If international actors dictate macroeconomic policy, select projects, and supply a large share of GNI, the post-conflict government is likely to lose legitimacy in the eyes of the population as it will be perceived as failing to take charge of economic matters.

Ultimately, aid dependence can develop, which will undermine governance, institutions, and legitimacy even more; this in turn can encourage corruption, launching a vicious cycle.

Obstacles to fighting corruption. Donor efforts to alleviate these risks and incentives for corruption are hampered by the strategic and institutional imperatives that they face. Anti-corruption initiatives may also jeopardise the tenuous political and economic processes unfolding in post-conflict states:

Relative benefits. Low-level corruption may entail 'benefits', relatively speaking, in the immediate aftermath of war:

Aid may be appropriated for petty bribery, which can facilitate minor bureaucratic matters, such as obtaining permits, initiating commercial ventures or circulating freely in the country, and thus may help to jumpstart the post-war economy.

Patronage networks can be used to create political alliances and thus enhance political cohesion, while 'buying off' spoilers may reduce conflict risks in the short term. For example, rebel groups in the eastern DRC have made deals over access to mines and mineral profits with government troops in exchange for not being attacked.

Aid 'securitisation'. Anti-corruption efforts may also conflict with the security considerations of donors:

As aid has increasingly been used to achieve donors' national security goals, it has been directed towards actors who threaten to disrupt peace-building efforts or to areas that are highly unstable. However, this means that aid favours people and places where absorptive capacity is low and risks of abuse are high.

On the other hand, avoiding them would mean giving up donor security priorities. For example, the US Commander's Emergency Response Program (CERP) in Iraq and Afghanistan, which encourages the military to view money as a 'weapon,' has been criticised for funding militants rather than those who have remained peaceful and who may be economically efficient.

Bureaucratic pressure. Anti-corruption initiatives are also impeded by the 'disbursement culture' of many donor organisations. Donors are evaluated on the amount of aid disbursed rather than tangible outcomes. Moreover, money not spent in one fiscal year is usually lost in the following one. Withholding funds because they trigger corruption then is often less of a priority than 'moving the money'.

CONCLUSION: Despite the constraints they face, donors cannot be seen to tolerate corruption. They face the challenge of working creatively to balance between the imperatives of state capacity and economic governance. Effective aid distribution will depend on donors phasing in aid after war to limit the opportunities for corruption generated by aid windfalls, and carefully mixing budget support and project aid. Republished on ReliefWeb with the permission of research and consulting firm Oxford Analytica Ltd. Copyright 2007 Oxford Analytica Ltd. All rights reserved.

Oxford Analytica
Republished on ReliefWeb with the permission of research and consulting firm Oxford Analytica Ltd. Copyright 2011 Oxford Analytica Ltd. All rights reserved. For additional information, please visit Oxford Analytica (https://www.oxan.com) or write to enoel@oxford-analytica.com