Drawing on evidence from Africa – especially Ethiopia and Uganda – the authors of this volume draw conclusions about economic policy in the aftermath of civil war. A sample of conclusions follows. Civil wars differ from international wars. They are informal, often have no clear beginning and end, weaken rather than strengthen the authority of the state, and leave two unreconciled armies to be demobilized within one territory. Civil wars erode the institutions of civil society, leading to a decline in the stock of social capital, which takes some time to restore. Private investment and government revenue are slow to recover, and military expenditures are not easily reduced. As a result, there is little or no peace dividend in the short run. The period of transition to peace is a particularly suitable time for radical policy reform, despite the high degree of polarization typical in countries engaged in civil war. And speedy reform, far from increasing uncertainty, is likely to reduce it. The peace dividend comes as a gradual recovery of confidence induces repatriation of financial and human capital. Such confidence can be boosted by the early sequencing of investment-sensitive policy reforms and by preserving low inflation through direct consumer price index targeting. Finally, aid can permit accelerated rehabilitation of the infrastructure (especially transport networks) needed to return to a market economy.
