engaging fragile states - Woodrow Wilson International Center for ...

same country. In some areas, support can be given to local government that is perceived
to be legitimate and responsible. In other areas where that is not the case,
financing should go through NGOs or the private sector and not through the
government. Development agencies often tend not to differentiate enough within
countries.
Another key to improving the business climate for investors is to start policy
and legal reforms and to improve the ongoing policies and institutions of economic
governance. The Doing Business reports of the World Bank reveal that the
legal and bureaucratic environment for doing business in developing countries is
poor compared to other countries. If a reform-minded government is in place, a
stroke of the pen can deliver visible benefits quickly. In Mozambique, for example,
a controlled market system required people to line up just to buy cabbages in the
market. However, after a simple assistance program suggested that the price of
cabbage and other vegetables could be freely set by the market, it did not take long
for a vegetable market to thrive. In sophisticated countries where the institutions
are still intact, effective reforms can be more difficult to identify. Still, a wide
range of things can be done, some of which are not very difficult as long as they
take into account that local interests will try to block the changes.
Such reforms should not let perfection become the enemy of doing some good.
Urgent tasks include expenditure control, receipts management, and indirect taxes
such as border taxes and sales taxes. More complicated tasks, such as reforming
the income tax or building the capacity of the finance ministry, can be deferred
until after the simple things are done and a more stable internal environment is
secured. For example, flat tariff rates of ten percent on everything with no differentiation
among the goods coming in is simple to administer, and it is easier for
controlling corruption because invoices can be checked quickly. In sum, very special
attention needs to be given to the specific content and timing of economic policies
during the transition from initial aid to private sector growth.
Responding to Fragile States: Lessons From Recent Experience | 91