by Meredith Watkins
On September 18th, Ralph Chami, Assistant Director in the Institute for Capacity Development at the International Monetary Fund, shared lessons and stories from his notable career in a public lecture titled Macro Policy for Fragile States: What Really Works?. His lecture was based upon his forthcoming book Macroeconomic Policy in Fragile States, to be released this spring.
During his 21-year career with the IMF, Chami has led teams of economists in offering macroeconomic policy advice to the governments of fragile countries, including Egypt, Libya, Somalia, Sudan, South Sudan, and Yemen. As Mission Chief for Libya and Somalia, Chami worked closely with Libyan officials throughout the Gaddafi era and the Arab Spring. “I saw Libya go from a rich country, to a country in transition, to a fragile state, to a failed state,” Chami said.
In his presentation, Chami offered a broad overview of the definition of fragility and what characteristics make fragile states unique. He highlighted that while fragile states come in all income sizes, there are a number of commonalities they share, including high levels of poverty, rising numbers of lethal conflicts, elevated levels of corruption, small tradable sectors, and a less profitable banking sector, all of which have a negative effect on the country’s economic activity.
As a result, Chami noted that these countries are often not engaged in meaningful national macroeconomic planning. “If you can’t survive the short run, it’s a waste of time for them to talk about the medium term or long term,” Chami said.
Chami explained that escaping the fragility trap is not easy, and those countries that have successfully pivoted from fragility have done so through a combination of time, political will, and proper macroeconomic policy. In terms of policy, he recommended prioritizing formulating a public sector budget, strengthening governance of the central bank, and improving the private financial sector as a way to get these countries headed in the right direction.
However, he emphasized the danger in to taking a one-size-fits-all-approach in these environments, as a misstep in economic policy could lead to state failure. He stressed the importance of tailoring policy advice to the unique circumstances, institutions, structures, and timelines that exist in each individual state. “Every fragile state is fragile in its own way,” he said.
This lecture was sponsored by the Department of Economics and the Duke University Center for International and Global Studies.