Seizing Opportunities under Extreme Risks: Fragile and Conflict-Affected States
Fragile and conflict-affected countries confront some of the most extreme risks and constraints to their management that, if unaddressed, could create a vicious cycle of poverty, fragility, and conflict with far-reaching implications beyond these states. A well-balanced and collective approach to risk and opportunity can build on the progress made toward better development results going forward.
One thing that fragile and conflict-affected states (FCSs) have in abundance is the extreme risks facing their people. In these environments, consequences of risks materializing are often a matter of life and death. People living in such states make up only 15 percent of the world population, but represent nearly one-third of all people in extreme poverty, one-third of the HIV-related deaths in poor countries, one-third of people lacking access to clean water, one-third of children who do not complete primary education, and half of children dying before reaching their fifth birthday. Only eight of the 36 FCSs have so far met the Millennium Development Goal (MDG) of halving extreme poverty, according to a new World Bank analysis, and the upward trend in the number of poor in FCSs (figure) is expected to take their share in the global poor population to 50 percent by 2015, according to an OECD report. The majority of MDGs in fragile states will not be met by 2015.
The incidence of extreme risks in FCSs is matched by the prevalence of severe constraints on the ability of people to manage risk. Characterized typically by high levels of corruption, weak governance and institutional capacity, an unfavourable environment for doing business and low competitiveness (figure), these states offer limited access to functioning market mechanisms, communities, or governments that provide an enabling environment for managing risk. Three quarters of the limited foreign investment in fragile states go to only seven (resource-rich) states.
The World Bank wants to speed up. To meet the needs of clients and find new solutions to development challenges its appetite for taking risks must change. Accountability mechanisms, like the Inspection Panel, are often accused of causing staff to become risk averse – of slowing down the speed. The Panel has been set up to give people affected by Bank-supported projects an avenue for raising their concerns, knowing that the complaint will be handled by a body independent of those who man age the project. We call it citizen-driven accountability. Does this slow down speed or does it allow for speeding up because it improves the braking system? Fast cars need good brakes.
If the global financial crisis -- and the events that led up to it -- have taught us anything, it is,“No complacency with asset price booms”. We know first hand the dire consequences of bubbles, so it is clear monetary policy makers can no longer passively observe the evolution of asset prices. If an economy is to pursue macroeconomic and financial stability, they should coordinate with financial supervisors – in an economic 
