Tim Eaton
V – Lessons from other countries
Successful peace agreements usually include provisions to reduce economic disparities between communities and foster economic development. But settlements can fail to deliver their full benefit if institutional capacity for implementation is low or if ‘vertical’ economic inclusion is lacking.
The combination of ongoing conflict, competition for control of state resources, administrative over-centralization and a lack of sustainable development is not unique to Libya. Modern political settlements in various countries have included a range of economic provisions to tackle such problems, and may offer lessons for policymakers engaging with Libya. Such provisions have included:
- formulas for resource revenue-sharing;
- reconstruction funding;
- land reform;
- employment programmes; and
- debt relief.
Analysis of political settlements from other countries and contexts illustrates that such agreements have been broadly successful in ensuring economic inclusion and avoiding further outbreaks of violent conflict in the short term, but that they have enjoyed fewer successes in delivering long-term stability, equitable development and sustained economic growth.
Where they have supported wider economic development, the economic provisions of political settlements have provided some kind of socio-economic peace dividend. For example, revenue-sharing in the Aceh Peace Agreement in Indonesia is considered to have prevented a relapse into conflict by addressing economic marginalization and reducing support for separatism.
The Good Friday Agreement in Northern Ireland unlocked significant EU and UK financial investment that improved economic conditions across Northern Ireland. This helped reduce the economic disparity between communities and created a shared incentive to maintain peace.
In Liberia and Sierra Leone, debt relief and international aid enabled post-war governments to redirect financial resources towards essential services, infrastructure and employment programmes.
The latter two examples also reflect a further ingredient that is often critical to the sustainability of peace deals: in both Liberia and Sierra Leone, two countries dependent on external rents, the mobilization of financial resources was accompanied by aid conditionality mandating governance and institutional reforms. This was to ensure that aid was used effectively.
However, as Libya is an upper-middle-income country with abundant natural resources, the threatened withholding of access to external financing does not carry the same leverage as it might elsewhere. Consequently, a different approach is advisable if Libya is to meet the challenges of providing long-term stability, equitable development and sustained economic growth.
Such an approach should focus on leveraging Libya’s reliance on access to dollar transactions in the international financial system. Ultimately, all of Libya’s international oil export revenues must be routed through this system. Thus, an emphasis on ensuring that Libya and its international commercial partners are fulfilling financial compliance requirements is the greatest source of leverage possessed by the US and its international partners.
For this leverage to be effective, sustained engagement between the international community and Libyan stakeholders is required. Evidence from other contexts suggests that roadmaps for the implementation of agreed economic provisions must be realistic and retain buy-in from parties to the conflict.
Failure to meet such criteria – for example, due to a lack of institutional capacity or to the privileging of vested interests – would likely result in limited or incomplete implementation of economic provisions in any agreement.
Similar risks are illustrated by the challenges that later emerged around the Aceh Peace Agreement – despite its success, in many respects – in Indonesia.
The agreement contained complex economic components, including provisions for the establishment of special autonomy status, which allowed the province to retain a larger share of tax revenues and control over public spending through a process of fiscal decentralization, along with provisions for resolving land disputes, compensating displaced persons and restoring property rights to those affected by the conflict. Yet, Aceh had a bureaucracy ill equipped to handle post-conflict reconstruction and development, and this complicated the peace deal’s adoption.
Another example of implementation and governance challenges can be found in the Comprehensive Peace Agreement between the government of Sudan and the Sudan People’s Liberation Movement. The agreement, signed in 2005, contained economic provisions that were instrumental in maintaining peace during the transitional period prior to South Sudan obtaining independence in 2011.
However, weaknesses affecting implementation, transparency and economic diversification limited the success of efforts to improve petroleum sector governance, attract foreign investment and stimulate economic development. The new government of South Sudan struggled to enact the necessary legislation and regulatory mechanisms, and this impeded the implementation of the peace agreement’s economic components ahead of independence.
As a result, most of the money or investment that was supposed to have funded South Sudan’s post-2011 transformation never reached its targets. It is alleged that much of the funding that did arrive was siphoned off by certain leaders.
A final lesson for Libya, from the wider MENA region, is that so-called ‘horizontal’ economic inclusion – in the form of power-sharing deals unaccompanied by accountable economic governance – may sow the seeds of medium- and long-term economic collapse.
In the case of Lebanon, the 1989 Taif Agreement rebalanced economic and political power horizontally among sectarian elites and their associates, but ‘vertical’ inclusion – beyond the elites, stretching to their constituents in the general public – was not seriously attempted. Consequently, this redistribution resulted in the entrenchment of clientelism in economic decision-making. Ministries too often became fiefdoms for political elites, facilitating corruption and inefficiency rather than fostering national economic recovery.
By the late 2010s, Lebanon’s debt-to-GDP ratio had become one of the highest in the world, leading to financial instability and an eventual economic collapse in 2019–20. In other words, the very policies designed to stabilize Lebanon’s economy after the war of 1975–90 ended up creating conditions for financial crisis decades later.
A similar story is perceptible in Iraq, where politically sanctioned corruption has undermined governance, posing significant obstacles to reform. Exploitation of the al-darajat al-khasa system of ‘special grades’ – whereby political parties vie to appoint loyalists to senior civil service positions – has allowed some appointees, protected by their political patrons, to control resource allocation within ministries and state institutions, diverting funds to benefit the parties with which appointees are affiliated.
Billions of dollars have been lost to inefficiency and fraud in this way, limiting the impact of reconstruction programmes. Protests over economic conditions, unemployment and corruption have erupted frequently, indicating that Iraq’s economic peace provisions have largely failed to create inclusive growth or stability.
In conclusion, the examples in this chapter reveal how the success of economic components in peace agreements depends on countervailing external pressures, long-term commitment, and robust institutions to generate tangible benefits for the population. Without these factors, even well-designed economic policies risk being undermined, leading to renewed instability.
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Tim Eaton is a senior research fellow in the Middle East and North Africa Programme at Chatham House. His research focuses on the political economy of conflict in the Middle East and North Africa (MENA) region, and on the political economy of the Libyan conflict in particular.
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