Stability, Security and Development

1. Stability, Security and Development GP3200 May 21, 2012 Economic Development Dr Robert E. Looney relooney@nps.edu

2. Lecture Outline • Overview of Economic Development • Key Economic Challenges in the Transition to Peace • Rules for Effective Economic Reconstruction • General Sequencing of Economy Recovery • Case Study: Economic Difficulties in Iraq • Overview of Expeditionary Economics • Application of Expeditionary Economics to Afghanistan

3. Economic Overview I • Main issue in the economic area is what is needed for successful stabilization and reconstruction • What are some of the practical problems encountered in implementing economic strategies in post-conflict settings? • What are the differences between post-conflict and other development settings? • These differences have major implications for economic objectives, goals, and metrics • What to an economist would normally be “optimal” in traditional development settings often becomes counterproductive in post-conflict settings • One way to conceptualize the economy is to depict the pillars on which a healthy economy depends.

4. Factors Contributing to Economic Health

5. Economic Overview II • Factor tree could apply either to post-conflict or normal developing settings, but with differences • relating to the relative intensity of effort on different factors, • the sequencing of those efforts • the type of aid employed and • the type of market system used • For a given country in a given situation, some of the branches will be much more problematic than others • Conceptually it is useful to think of the economic aspect of post conflict reconstruction or “economics of peace” as an intermediate phase between the “economics of war” and “normal development”

6. Economic Overview III • Economics of peace is a necessary intermediate phase in between the economics of war in which • dilapidated infrastructure and services exist, • illegal economic activities thrive, and • large macroeconomic disequilibria predominate • And normal development which can only take place under conditions of peace • During this intermediate phase, the reactivation of production has to take place • It is constrained by the need to consolidate the peace process • This process has proved particularly difficult in the post-cold war context of internal conflicts and low levels of development

7. Economic Overview IV • In just about any situation the economics of peace entails a number of necessary tasks: • Getting rid of the underground economy that thrives during wars • Finding economic activities for former combatants so as to integrate them into the productive economy • Dealing with spoilers who will be reluctant to give up profitable illegal activities • Rehabilitating infrastructure and services damaged during the war • Demining fields and roads so that productive activities can start • All these peace related activities that are fundamentally different from development ones take place simultaneously with programs to address humanitarian and development needs

8. Economic Overview V • Given the important economic and financial implications of peace-related programs, priorities need to be established early. • The reactivation of licit investment and sustainable and equitable growth requires: • The establishment of an adequate legal and regulatory framework • A functioning financial sector and • A functioning public sector • These aspects together with policies to alleviate poverty and support human development are necessary to: • to create an adequate business climate • Enable new and dynamic firms to thrive • Process particularly challenging in midst of political, social and institutional uncertainties that are legacy of the conflict.

9. Economic Overview V • Some general guidelines in applying the economics of peace: • The peace or political objectives should prevail over the economic or development ones at all times • It is critical to address the root causes of conflict and ensure country does not revert to war • Unless countries engage productively in the economics of peace to reactivate economy and engage in national reconciliation, long-term development will not have a chance. • Failing to establish the economics of peace in countries such as Iraq and Afghanistan after several years of transition resulted in security rapidly deteriorating particularly in some areas of the country

10. Economic Overview VI • As the U.S. military carried out counterinsurgency operations in Iraq and Afghanistan it became clear to them that • “military operations alone will not achieve stabilization objectives.” • Thus in areas where U.S. military is already present and environment to dangerous for civilian agencies “the military should assume the prominent role in stabilizing the economy • -- until the security environment improves enough to transition responsibility to civilian aid and development experts.”

11. Key Challenges in the Transition to Peace I • Key challenge of the transition to peace and stability is to prevent recurrence of hostilities • -- to make the transition irreversible • This entails complex political task of addressing the root causes of the conflict or crisis • Also entails improving the well-being of different groups that need to feel part of the peace process and have a stake in it • If the population at large does not perceive a peace dividend in terms of improved job opportunities and living conditions the transition will not be sustainable • Failure in either the security, political, social or economic transitions will put the other goals at risk

12. Key Challenges in the Transition to Peace II • Problem: as experience as shown the planning, management, coordination and financing aspects of the transition are highly burdensome • Given the poor state of countries coming out of protracted conflicts, the international community has had to provide assistance at each stage in the transition • Financial aid • Technical assistance • Capacity • Other problems limiting effectiveness in prost conflict reconstruction include: • inadequate mandates, insufficient expertise, misguided policies and misplaced priorities on the part of the donor community • poor governance and lack of policy ownership and government legitimacy at the national level • These factors have plagued, to different degrees all recent experiences at post conflict reconstruction

13. Key Challenges in the Transition to Peace III The Need to Consider Situation and Progress in Other Areas 1. The Security Transition • The transition from war and violence to public security is a necessary condition for embarking in economics of peace. • Some have recommended putting security first since all recovery will prove futile in a chronically insecure environment • Resources squandered at best; at worst, they will be hijacked by violent power seekers • Others argue that economic initiatives will not succeed in the absence of security since insecurity lower the return on projects and distorts domestic actors incentives • In last decade plenty of evidence that (SIGIR) that U.S. investments particularly large ones have gone to waste as a result of lack of security.

14. Key Challenges in the Transition to Peace IV The security transition (contd.) • Does not mean that reactivation of economic activity can wait until security is established throughout country • Always some kind of economic activity that can prosper even in unstable condition • People need to eat and trade and hence some of these activities will have to take place even in insecure areas • In Afghanistan and Iraq inefficiencies and lack of progress with respect to economic reconstruction and national reconciliation were critical in the deterioration of security conditions in 2006 • U.S. military should keep in mind that some employment creating, services providing, infrastructure rehabilitating, or other welfare-improving reconstruction projects have succeeded in conflict areas – and been security enhancing • At same time some activities could be conflict creating if they are opposed by local community, favor particular groups over other or impose western beliefs or customs.

15. Key Challenges in the Transition to Peace V 2. The Political Transition • Political transition involves the passage from dictatorship towards a more inclusive system based on rule of law and respect for human an property rights • Implications for U.S. Military – devolve substantial de facto political and economic power to locally elected authorities such as Community Development Councils (CDC) • The CDC (Afghanistan) could then make decisions and allocate reconstruction funds, which the U.S. military would provide according to communities needs and priorities • Decentralized approach could create broad class of local leaders that can spend funds responsibly at the community level • Communities then have a positive expected stake in defining the new political system • Hopefully, this type of decentralization could broaden support for the regime and reduce dependence on foreign forces.

16. Key Challenges in the Transition to Peace VI • 3. The Social Transition • Involves a process of national reconciliation in countries divided by ethnic, religious, sectarian, political, ideological and/or economic cleavages • U.S. military should remember that any action they take with regard to economy is likely to enhance or go against the need for reconciliation • Every step should be considered carefully since reconciliation between former enemies has proved key to preserving peace and stability • At same time, reconciliation programs have economic and financial consequences that might seem like a distraction from the need to create economic opportunities • Not the case: the rebuilding of a mosque might contribute to stability more as confidence building measure the community more than a productive investment may –if this is what the community has set its priority • Bell for Adano message?

17. Multi-Pronged Transition From War to Peace

18. Key Challenges in the Transition to Peace VII The Economic Transition • The economics of peace entails a process of effective reconstruction with the objectives of creating short-term productive opportunities so that: • People can have a peace dividend in terms of better living conditions • Consolidating peace and minimizing the chances of relapse • Putting the country in a path of long-term development so that it can avoid dependency • Fundamentally different environment than the Marshall Plan which took place in industrial countries • with solid economic and political institutions and educated labor forces • countries coming out of an interstate war

19. Key Challenges in the Transition to Peace VIII Economic Transition (contd.) • Reconstruction today fundamentally different: • Countries coming out of civil war or other internal chaos • Countries requiring special efforts at national reconciliation so that the warring groups can live in peace • Under such conditions economic reconstruction requires broader definition to include not only • rehabilitation of physical infrastructure and services but also • modernization or creation of basic macro and microeconomic institutional and policy framework • Functioning institutions necessary for effective policy making and for the productive utilization of large volumes of aid • Without such a framework it will be difficult to create a market economy and reactivate investment and broad based economic growth

20. Key Challenges in the Transition to Peace IX Economic Transition (contd.) • Reconstruction activities at the national level involve the design of policies and institutions, often with the support of the IMF, World Bank, USAID or other agencies • At the community level, the U.S. military can support and/or finance reconstruction through a number of activities ranging from • Provision of improved seeds and fertilizer to boost yields for small farmers • The provision of seed capital, technology and infrastructure for the promotion of new enterprises • Building up human resources in health and education is key to reactivating the economy • In doing so should be kept in mind that building schools and clinics will be wasted unless teachers, health workers and equipment are available • As security allows, U.S. military should search for support from civilian experts, UN agencies as well as NGOs.

21. Rules for Effective Economic Reconstruction I • Each country will end up with a different strategy for economic reconstruction at the national and local level depending on • Factors that are particular to their economies • On the level of international support the country can manage to attract and • On the specific time frame • Despite the specific nature of each case, both good and bad lessons from the experiences of last two decades have enabled the identification of a number of rules or guidelines as key to effective reconstruction • Ignoring these rules has often led to misguided policies and misplaced priorities which have been directly associated with setbacks and even to the collapse of the peace process in many countries.

22. Rules for Effective Economic Reconstruction II • Rule 1: Economic reconstruction not development as usual • During the multi-pronged transition, the over-riding goal in economics is to create stability -- avoid a return to conflict. • Critical activities in this regard include: • delivery of emergency aid for former conflict zones; • the disarmament, demobilization, and reintegration (DDR) of former combatants; • the return of refugees and internally displaced groups; • the reform of the of the armed forces and creation of a national civilian police • may also include rebuilding of houses and other economic assets destroyed in the conflict and the clearance of mines • Because these peace related activities have important financial consequences an should be given priority in budget allocations, the peace (political) and development (economic) objectives often clash. • In this regard the peace should prevail at all times – must avoid reverting to war at all costs

23. Rules for Effective Economic Reconstruction III • Rule 2: Policymaking following crisis is distinctly different from normal development and it should be tailored to such differences • Policymaking in post-conflict settings fundamentally different than under normal development in four ways: • Differences in time horizons over which economic policies can be planned (short-term vs. medium- and long term) • The amount of aid (sharp spikes vs. low and stable flows) • The treatment of different groups (preferences vs equal treatment for all) and • The involvement of the international community in national affairs (intense and intrusive vs. non interference in national affairs)

24. Economic Issues in Post-Conflict Settings II • Economists seeking to advise in post-conflict circumstances must adjust their thinking substantially: the usual paradigms of “good economics don’t necessarily apply • These differences are at the heart of bitter disagreements between some development economists and the World Bank and International Monetary Fund (IMF). • The IMF’s central policies include the desire to establish sustainable fiscal and monetary conditions and external balances which often leads to the adoption of austerity measures. • Makes sense for the long term but can be the wrong prescription if the economy has completely collapsed as in a post-conflict situation • In the long term such austerity measures as not printing money, cuts in public spending, high interest rates, and credit constraints are necessary to keep down inflation and decrease debt • But in the short term interveners in post-conflict settings must do the opposite so that people can start getting paid and money can start flowing through the system.

25. Economic Planning in Normal vs. Post-Conflict Settings

26. Rules for Effective Economic Reconstruction IV • Because the overriding objective of post-crisis situations is to avoid reverting to war or aggravating social conflicts • The second rule is that economic policy making should be geared towards • 2a: Adopting emergency policies without delay • Under normal development, economic policies and programs aimed at addressing economic stagnation, backwardness, weak institutions poor human resources, poverty etc are planned with a medium and long-term time horizon in mind • No such luxury exists following crisis • Need to respond immediately to homeless populations, hunger and diseases as well as all other immediate needs created by the crisis • These policies often distort and have other unintended consequences on medium and long-term development

27. Rules for Effective Economic Reconstruction V • Delays in approving disbursement of funds in the immediate transition to peace and misguided priorities • – reflecting the development as usual approach of multilateral and bilateral development organizations • – have often impeded effective reconstruction. • 2b: Giving priority to crisis affected groups. • Instead of treating equally all groups with the same needs should favor reconstruction (or political) principle which justifies giving special treatment to groups most affected by the crisis – even in the presence of others with similar needs. • For peace to be long lasting reconstruction policies hold be targeted toward decreasing grievances of those groups most affected by conflict • Much of the assistance here has been temporary jobs with NGOs etc

28. Rules for Effective Economic Reconstruction V • International community has generally failed in supporting post-conflict countries in creating sustainable jobs in the private sector through promotion of local entrepreneurship and new start-ups • Active policies to promote such opportunities though credit, training and technical support are imperative • The provision of subsidies directly to firms for the hiring o crisis-affected groups has yet to be tried but could be promising • 2c: Maximizing the impact of aid and avoiding corruption • Foreign aid exhibits sharp spikes right after crisis as the media attention focuses on the plight of victims – can reach 50 to 100 percent of gross national income (GNI) • By contrast, aid during normal development fluctuates much less and remains at much lower levels (of between 3 and 5 percent of GNI)

29. Rules for Effective Economic Reconstruction VI • Many problems associated with aid: • Large and short-lived spikes, • the improvised way in which funds are channeled, • the country’s low absorptive capacity, and • weak institutions of the countries • All put special pressure on both governments and donors to utilize aid more effectively and to avoid corruption at the time of the transition to peace • 2d: Reining in the international community and ensuring national policy ownership • Because of large volume of aid, and foreign troops in crisis affected countries – inevitable that political involvement of international community in affairs of these countries is intense and intrusive • Level of involvement would be considered interference and would be unacceptable under normal development

30. Rules for Effective Economic Reconstruction VII • Because of this, national ownership which is key to successful implementation and sustainability of reconstruction policies, is difficult to achieve • Policies should not be imposed from abroad or even by un- representative elites within the government • Up to national leaders to design policies, establish priorities and build broad support for them at national and local levels • National ownership, national capacity and ingenuity and national consensus building essential elements to sustain the peace. • The key challenge in this regard is to ensure that economic policies are conflict sensitive – tailored to do minimal harm to the fragile peace and to rein in the spoilers.

31. Rules for Effective Economic Reconstruction VIII • 3: Keep it simple, keep it flexible, and keep it possible • Despite scarce human resources, technical capabilities and infrastructure, countries on the transition form war must establish as soon as possible an appropriate environment for investment, production and trade. • Unrealistic and counterproductive to create a framework • that is to complex and • requires resources that it does not have, and may not exist for a long time • At same time countries should avoid policies that may be optimal for countries during normal development – • independent central bank and • other restrictive monetary or fiscal policies that may limit options to implement and finance key peace-related programs

32. Rules for Effective Economic Reconstruction IX • Since the establishment of clear and stable property rights is a precondition for investment policymakers need to address this issue head on • Many situations can be very complicated: • In El Salvador and Guatemala, combatants and their supporters occupied lands during many years of conflict the issue was backward looking • Involved establishing whether land titles existed in past and if so who held them • However once a sovereign government made a decision property rights were likely to remain fixed into the future • Property rights difficult to resolve since decisions involved numerous parcels of land in areas of conflict and registries had to be modernized and updated. • In such cases policymakers need to be flexible and realistic about what is possible and look for technical and financial assistance to improve the registry so they can resolve titles as soon as possible

33. Rules for Effective Economic Reconstruction X • The legitimacy of the government or other plicy-making body will determine what is possible in economic policymaking • A weak international government or a United Nations or foreign occupying administration, should not attempt to implement policies such as • Privatizing natural resources • Creating property rights • Or any other major legal, institutional or regulatory changes • If doing so may incite political resistance even during peacetime • Failure to comply with Rule 3 has led to a number of setbacks and reconstruction efforts around the world • The simpler and more flexible the framework fore economic policymaking the more successful reconstruction will be • Often best to start with less ambitious goals and with more implemental projects and then expand as the situation takes hold.

34. Rules for Effective Economic Reconstruction XI • Rule 4: Create an appropriate yardstick to measure success • Given that in post-conflict reconstruction: • the political objective should always prevail over that of development, and • that optimal economic policies are not always attainable or desirable • A different yardstick should be used to measure success. Success should not be measured: • in terms of the number of jobs created, • the number of people taken out of poverty, or • by indicators of economic growth inflation – as is under normal development • Policies and projects must be judged by whether they contribute to peace and reconciliation -- rather than on purely economic grounds or merits. • In this regard the yardstick should be more qualitative than quantitative.

35. Rules for Effective Economic Reconstruction XII • An additional problem in measuring success in conflict-affected countries relates to scarcity and distortions in the data • Makes empirical research measuring impacts very difficult – often hard to choose between competing projects because not sure which will provide the most benefits • Rule 5: Aid should be channeled through the government to support a national integrated reconstruction strategy. • Post-Conflict aid has largely proven to be ineffective and expensive • By channeling a large part of aid through their own projects, based on their own agendas and priorities and utilizing their own contractors and inputs, donors have created a fragmented strategy • Rather than promoting an integrated one under the government’s leadership • It has also facilitated corruption and led to unsustainable projects.

36. Rules for Effective Economic Reconstruction XIII • As Rule 5 indicates for reconstruction aid to be effective and cost-efficient it has to be largely channeled through the government budget • Only this allows for a well-integrated strategy based on national priorities • “The best way to build capacity is not to del with dozens of different programs devised by individual donors, but to have donors fund programs that are well-coordinated on the basis of Afghan priorities and with an Afghan lead” • Only a tiny portion of aid is channeled through the Afghanistan Reconstruction trust Fund (ARTF) • The U.S. government only channeled $150 million in 2010 or 3% of its economic reconstruction aid through ARTF • Although the general rule, there are emergency situations where no time to go through normal process • In such cases funding could be distributed at local level possibly through Community Development Councils (CDC)

37. Rules for Effective Economic Reconstruction XIV • Rule 6: Humanitarian and reconstruction assistance should not be combined into one: Disbursement of reconstruction aid should not be delayed • Humanitarian aid – provision of food, shelter etc is short run assistance • However by affecting relative prices and discouraging labor supply, domestic production, and the building up of domestic capabilities, continuation of this type of aid over extended period threatens self-sustainability and creates aid dependencies • As a result it makes effective reconstruction and an eventual move towards normal development more difficult • Although food aid another safety nets can save lives, they will increase food dependency and hurt domestic production • Should be phased out as soon as possible • Similarly provision of health and education should also be put on a sustainable basis as soon as possible.

38. Rules for Effective Economic Reconstruction XV • Since reactivating production and job opportunities is an urgent challenge in countries transitioning from war – • What kind of assistance will be most effective in creating productive capacity and local capabilities? • Only reconstruction (or economic) aid • Targeting investment opportunities that use local capabilities can increase productive capacity • Its economic impact will depend on: • How productively the aid is invested • Whether the investment is sustainable and • The impact it has on the labor market, on the exchange rate (Dutch Disease), on reactivating production and trade, and on protecting the environment

39. Rules for Effective Economic Reconstruction XVI • Rule 6 for effective reconstruction is that the disbursement of reconstruction aid should not be delayed while • waiting for the country to have the right conditions in terms of political leadership, governance, institutions and human capacity • in the meantime humanitarian aid continues to be disbursed • A serious problem with aid in Afghanistan and Haiti has been the exorbitant and disproportionate humanitarian aid that has led to strong aid dependencies • At same time reconstruction aid should not be allocated to projects that are not likely to survive or be sustainable – large infrastructure projects in Iraq • Reconstruction aid cannot follow a piecemeal approach of having a donor build a school here, another one a road there etc what is happening in Afghanistan • Schools and clinics without teachers and health providers will not help the country

40. Rules for Effective Economic Reconstruction XVII • Reconstruction cannot follow either the policy of spending as much as possible in many projects, hoping that some will stick • To be effective reconstruction aid needs to be provided in an integrated manner and taking account of local conditions and local needs and priorities. • The differential impact between humanitarian and reconstruction aid has become blurred with the same agencies, NGOs or military forces often providing both and with the two often under the same command in UN and US-led operations. • Summing up: • Countries coming out of war or major disasters have found it very difficult to create productive economies -- jobs • The resulting unemployment– particularly of the young and uneducated has been one of the most serious obstacles to peace and security • Failure at reconstruction has required large amounts of non-productive resources for foreign military and peacekeeping operations. • Effective reconstruction is key to avoiding aid dependencies

41. Summary: Rules for Effective Reconstruction

42. General Pattern of Economic Recovery I Possible to Outline Normal Pattern of Economic Recovery • When levels of violence fall, economies tend to go through similar (although not identical) stages as economic growth resumes (Figure) • Some policies like short-term job creation projects are more effective during the initial stages of recovery • Refugees are returning or local businesses have not yet been reestablished • In contrast, larger scale infrastructure projects are usually better suited for later stages • After supply chains have been reestablished • Local and national governments are in better shape to plan, contract and manage major projects. • The first stage is rapid growth • Since World War II, nearly every country in which the U.S. has conducted stability operations has experienced an initial period of rapid economic growth once violence declined

43. Timing of Post-Conflict Economic Growth Program Emphasis

44. General Pattern of Economic Recovery II • During the first period of recovery: • Trade expands and refugees return as security improves • Usually a huge increase in imports of consumer goods from aboard • People reconstruct their homes and towns, return to farming and start new businesses • Often an influx of foreign assistance contributes to a rebound in economic activity especially in the service sector as demand increases for restaurant meals and translators • At this time U.S. Army units may support • short-term public works projects like road repair, cleaning out irrigation systems, and restarting electricity supply • Army engineering units may play a role at this stage in overseeing public-works projects or repairing roads and bridges • However the activities of the local inhabitants, not foreign donors are the key drivers of growth.

45. General Pattern of Economic Recovery III • After a year or so of rebound the local economy is likely to enter a second stage • More successful local businesses begin to make larger investments in expanding their services • Trucking companies invest in new trucks • Warehouses and storage facilities are constructed • Small scale hosing and retail developments are built • Construction takes off as both demand and prices for cement, gravel, timber and other building supplies rise • Farmers make longer term investments – orchards destroyed in Afghanistan • Local entrepreneurs and some foreign investors, usually of local descent, offer new services, like cell phones or satellite dishes • In this stage some of the most effective assistance strategies focus on improving the investment climate and creating an environment where private enterprise can thrive.

46. General Pattern of Economic Recovery IV • At this second stage: • U.S. Army personnel may be engaged with local communities in identifying priority local projects • Best projects are those that can be contracted and managed locally and that reinforce stability and enhance the legitimacy of the local government • In some cases this engagement with local communities can take place while conflict is still raging as has been the experience in Afghanistan and Iraq. • In successful stability operations the economy transitions to a third stage • in which the expanding private sector increasingly demands better services • foreign investors may finally become an appreciable force in the economy as they invest in telecommunications networks, banking distribution centers, mines and even manufacturing plants

47. General Pattern of Economic Recovery V • Third stage of recovery (contd.) • Local and national governments begin to develop the capacity to improve and expand the educational and public health care systems • Donors focus on working with local and national governments to improve government operations, the provision of public services and the regulation and operation of the financial sector • Demand for electricity and transport are likely to be rising sharply • For the first time large-scale infrastructure projects like new power plants, dams, ports, or railroads become truly feasible • Lending from international financial institutions may begin to replace grant aid • At this stage U.S. Army units should focus on transferring remaining responsibilities for economic and infrastructure development to civilian agencies. • Not all areas of the country will be at the same stage at the same time. As violence ebbs and flows, economic activity will ebb and flow with it.

48. Reconstruction During Conflict Deviations from the Normal Sequencing of Recovery • The normal pattern described above usually assumes little in the way of a major insurgency or large-scale violence in most parts of the country after the initial stabilization. • A more realistic setting is where major occurrences of violence, crime, and insecurity linger at the second stage, complicating and constraining the reconstruction process • Both the Iraq and Afghan cases are good examples. • Iraq also illustrates the problems that develop when a comprehensive S&R strategy, relevant for the situation at hand, is not in place from the beginning.

49. Introduction: Iraqi Economy • Understanding the condition of the Iraqi economy is central to: • Explaining the staying power of the insurgency/militias/gangs • Designing efficient reconstruction strategies • Identifying projects and investments at the local level • Creating the foundation for a viable self-sustaining economy • Incorporating the country’s diverse populations into a modern nation-state • With time, economic factors likely to be more important in determining the eventual outcome in Iraq – need for jobs and a better life key to the country’s future

50. Pre-War Iraqi Economy • In the 1970s, Iraq was set to dominate the Middle East, with oil, industrialization, agriculture, and a large population • However, by 2000, after several wars and sanctions: • The oil sector made up at least 75% of GDP; much of the agricultural sector had been destroyed and the industrial sector was in decline. • There was a distorted pricing system, widespread inefficiency and waste, and a stagnant agricultural sector • 50% of the population was under 24 years of age. • There was widespread unemployment -- up to 50% • 60% of the population depended on food rations • There were macroeconomic imbalances, such as high inflation • The shadow economy made up at least 35% of GDP, with a large criminal economy and rampant corruption