From the Ground Up: Perspectives on Post-Tsunami and Post-Conflict Aceh

5. Managing Post-Disaster Reconstruction Finance: International Experience in Public Finance Management

5 Managing PoST-diSaSTer reconSTrucTion finance international experience in Public financial Management Wolfgang Fengler, Ahya Ihsan and Kai Kaiser1 inTroducTion The past decade has presented the development community with some of its most demanding reconstruction challenges since the aftermath of World War II. The World Bank and other development partners have been involved in post-disaster reconstruction in response to the devastation resulting from the tsunami in Indonesia (Aceh), Sri Lanka, the Maldives and India, and also from the earthquakes in Pakistan and Indonesia (Yogyakarta/Central Java).The World Bank and its partners have also supported post-conflict reconstruction following peace agreements in Haiti and Sudan. All these activities came in addition to other large-scale reconstruction programmes in Afghanistan, East Timor and several other countries, most recently Lebanon. In most cases, such disasters greatly exceed available domestic resources. Consequently, international donor agencies are frequently called upon to finance reconstruction in post-disaster and post-conflict countries. In the case of large-scale natural disasters such as the Indian Ocean tsunami, private contributions were also an important part of the reconstruction programme. 80 Wolfgang Fengler, Ahya Ihsan and Kai Kaiser Spending these significant financial resources well has been a key concern in all these reconstruction episodes. Appropriate arrangements for Public Financial Management and Accountability (PFMA) are increasingly viewed as crucial ingredients to ensure that reconstruction proceeds with integrity in a timely and effective manner, while also adequately managing fiduciary risk. The international community has increasingly emphasized the performance of Public Financial Management (PFM) systems to enhance the use of domestic resources in developing countries and to underpin the scaling up and effectiveness of aid. The strengthening of country financial management systems and donor harmonization have both emerged as key priorities in enhancing aid effectiveness, including through budget support. The recent Public Expenditure & Financial Management Accountability (PEFA) performance indicator framework has focused on benchmarking outcomes as a way of promoting capacity development in the PFMA area.2 This chapter focuses on special considerations for strengthening PFM arrangements in post-disaster and post-conflict reconstruction environments that have yet to receive systematic attention.This chapter’s objective is twofold: (1) to present key features of PFM in post-disaster environments, and (2) to analyse the similarities and differences between PFM in post-disaster and post-conflict environments. The application of sound fiduciary principles is very challenging in post-disaster situations, because the need for speed often overrides more conventional mechanisms for planning and implementing budgets. In addition, post-disaster and post-conflict situations often entail the engagement of many public and private development partners, necessitating that all parties work together effectively towards the objective of reconstruction. Mitigating the risk of corruption represents a crucial element in maintaining donor commitment and supporting the legitimacy of the overall reconstruction process.3 We examine how recent PFM arrangements in six cases of postnatural disaster reconstruction — Indonesia (Aceh and Nias), Sri Lanka, Colombia, Grenada, Pakistan and the Maldives — have contributed to the management of reconstruction finance, highlighting key issues and considerations, together with a variety of approaches for strengthening these arrangements. Our approach seeks to adopt a more systematic assessment, such as comparing prioritization and sequencing of post-disaster PFM arrangements with conventional perspectives used in assessing PFM systems and processes. From a comparative perspective, this chapter also highlights similarities to and differences from purely post-conflict reconstruction, drawing selectively on examples in Afghanistan, East Timor, Haiti and Sudan. Managing Post-Disaster Reconstruction Finance 81 The chapter first sets out the basic analytical framework for post-disaster/ post-conflict responses and PFM cycles. Then it analyses recent country experiences against this framework. This chapter focuses on instances of postnatural disaster reconstruction, but also provides a comparative perspective on post-conflict situations. The final section presents some lessons on strengthening PFM arrangements for reconstruction based on the comparative experiences. Managing reconSTrucTion finance — an analyTical fraMework Post-disaster and post-conflict situations share a need to rapidly mobilize and deploy a significant level of public resources for relief and reconstruction. Whereas the relief phase is typically concerned with providing immediate support, the reconstruction phase typically involves a trajectory of returning to “normality”. Recovery management includes the implementation of capital projects (for example, housing, schools and clinics), as well as re-establishing basic public services in a sustainable manner. The reconstruction phase is also subject to the prioritization of certain types of reconstruction, such as housing, livelihoods...