CIAO DATE: 05/05

War Economies in a Regional Context: Overcoming the Challenges of Transformation

Executive Summary

This policy report distills key findings from research commissioned by the International Peace Academy's program on Economic Agendas in Civil Wars (EACW) on the regional dimensions of war economies and the challenges they pose for peacemaking and peacebuilding. Drawing from analytical research as well as case studies of Afghanistan in Central Asia, Sierra Leone in West Africa, and Bosnia and Herzegovina in Southeast Europe, a number of key issues concerning the political economy of regional war economies and lessons for more effective peacebuilding were identified:

• The notion that internal conflicts have economic "spill over" or "spill into" effects on neighboring states needs to be extended and deepened. Policymakers should work to develop a more comprehensive understanding of the interstate impacts of civil conflict that gives greater weight to systemic cross-border networks and less to potentially 'one-off' transborder phenomena.

• Peace processes suffer from a state-centric bias. It is not enough to encourage the participation of key neighboring states in peace negotiations. Rather, mediators and other representatives of the international community must endeavor to incorporate non-state local and regional actors, particularly participants in regional formal and informal economies, into the peacebuilding process. This entails taking account of the interests and agendas of such actors at the war termination stage, as well as ensuring their inclusion in subsequent aid, training, and rebuilding initiatives.

• Regional conflict complexes pose particular challenges to the management of conflict and to post-conflict peacebuilding. Ignoring the regional dimensions of a conflict may simply create a balloon effect, whereby corruption, instability, and conflict is displaced from one country to another neighboring country. In developing strategies to cope with regional conflict complexes, policymakers should note that the interplay of military, political, economic, and social networks fosters a self-reinforcing conflict dynamic that requires a multifaceted and comprehensive approach.

• Contrary to many common perceptions, certain informal regional economic activities that are presently ignored or criminalized may actually be brought into the service of peacebuilding and reconstruction. Policymakers should, at the outset, distinguish between those activities and actors which pose an immutable threat to peacebuilding aims and those which may actually contribute to social and economic stability. The latter may include shadow networks capable of being incorporated into the formal economy, natural resource industries supported by foreign investment, and also small-scale informal economic activities and trade networks, particularly where these are traditional and not wholly infiltrated by combatants.

• War economies are extremely flexible and resilient and may continue to operate after the official end of violent conflict. Spoilers marginalized by the peace process will continue to exploit weaknesses in the informal sector through regional networks and the support of dispossessed populations to expand their power and challenge the authority of the post-conflict order. These actors require a complex policy approach, the aim of which should be to alter the social function of these actors with an eye to ultimately reintegrating the resources at their control, whether derived from natural resource exploitation or the trade in illicit goods. Strategies may include coopting spoilers with a view to reintegrating them into the formal economy, criminalizing warlords and seeking to bring them to justice, fashioning national and regional policies of Keynesian economic development, or settling on a default policy of benign neglect where the other strategies may not be implemented. This set of policy options may be augmented by general efforts at improving regulatory effectiveness through region-wide economic development programs to address transnational shadow networks, the creation of regional regulation that identifies specific conflict commodities plaguing a region, and improving sanctions regimes, with a focus on robust monitoring and implementation, a firmer UN Security Council commitment to report sanctions violations, and the imposition of secondary sanctions.

• Security should not be seen as existing only at the level of the global or the national. In fact, in a post-conflict situation, marginalized populations living along borderlands often rely on illicit networks and other shadow activities for survival. In the absence of formal coping mechanisms, these borderland regions may be seized by those who resist peace. Unless policymakers supplement capital-centered reconstruction policies with more comprehensive national approach that addresses borderland insecurity, continued insecurity could threaten peace.

• The set of economic policies relied upon by the donor community and international financial institutions (IFI's) do not treat war transformation as distinct from economic crises unaccompanied by violence. To secure a lasting peace, it is necessary to understand that policies aimed at privatization, foreign direct investment, and deregulated marke may have debilitating effects on peacebuilding. The specific needs of war-torn societies include the establishment of a functioning state with the capacity to control its finances, social programs and institutional decision-making, policies which acknowledge the role that shadow economies play, and greater support for regional approaches security and development.

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