The Panel welcomes this rich and thought provoking report and the opportunity to share some of its impressions. The subject—how to manage support by the donor community to LICUS—is of major importance, given the number of fragile states, the hardships endured by their inhabitants, and the spillovers to neighbors, as well as the fact that in certain instances such states may form a breeding ground for terrorism.

The Bank and other members of the international donor community have grappled for
several years now with the question of how to help LICUS emerge from their frequently
desperate situations. Given the defining characteristics of LICUS, weakness of governance, institutions, and policies, and the outcome of earlier research and experience that financial assistance against such a background tends to be ineffective, it was clear that useful engagement with these countries would require a new framework. The Bank is to be commended for having played and for continuing to play a
leading role in developing such a framework.

The Panel was impressed by the methodology of the IEG report. It believes that the right questions have been asked and that the combination of analysis, common sense, and the underpinning of findings by wide-flung surveys has resulted in highly relevant lessons and recommendations. To no small extent this is also thanks to interaction with management that has clearly been fruitful.

While one may argue in general with a rush to evaluate before the necessary data are available, in this case an evaluation with a carefully restricted scope is very useful. The report is right to point out that the question of ultimate effectiveness of Bank interventions cannot yet be addressed.

However, in our language, effectiveness in the more limited sense of whether the Bank has been doing what it says it wishes to do and whether this can be done better is worth examining now, as is the question of the relevance of the formal determinants of LICUS and of their performance. Addressing these questions rigorously is essential to assess later, when adequate data are available, whether the approach chosen delivers acceptable outcomes in the use of scarce development resources.

The Bank has made commendable progress in its engagement with LICUS and in the
performance of closed projects (see chapter 2 and appendix Q). However, the donor
community has shifted the goal posts for intervention with the relatively recent, intensified, and explicit focus on state building and, where relevant, conflict prevention. This shift is logical in the context of the problems posed by LICUS. The Panel agrees with IEG, however, that the Bank needs to undertake major efforts to fit in with the new focus.

While the narrowing of the focus to state and peace building should induce the Bank to move away from overly broad reform agendas, which "do not augur well for effectiveness," the Bank's effectiveness in the area of governance and capacity building needs to be improved. IEG is right to recommend that the Bank spell out concrete strategies and policies for this purpose. That, at the country level, strategies need to be underpinned by internalized socio/political analysis may appear self-evident, but in practice proves to be difficult. Without such analysis, Bank engagement as well as
that of other donors runs the risk of being ineffective and wasteful of resources. Without wishing to attribute responsibility, the recent experience in Timor-Leste appears to illustrate the point.

IEG also rightly stresses that capacity building must be a major part of state-building programs and that the Bank's track record indicates a need to strengthen the design and delivery thereof. The lesson that country ownership and absorptive-capacity constraints apply as much to knowledge products as to financial products does not make the challenge any easier. The Panel is convinced that unless weaknesses in state and capacity building are overcome, future outcomes will be disappointing, distorting
judgments on the usefulness of multilateral and bilateral donor support to LICUS.

The joint responsibility of donors in the areas of state building and conflict prevention and across the range of issues involved in supporting LICUS once again leads to an obvious lesson: the need for donors to coordinate to provide more effective support jointly and severally. And once again the simple lesson is difficult to translate into systematic practice at the country level. Yet, as IEG's report brings out, the failure to do so can mean the difference between a whole that is larger or smaller than the sum of the parts, between effective and ineffective support.

The Panel agrees with IEG on the importance of further work on criteria by which to identify LICUS and on the need for a break-down by business models. Similarly, performance indicators require elaboration in order to determine the kinds and amounts of support to be given. Post-conflict LICUS are already treated very differently from the others, and have proven to be fertile recipients of certain kinds of financial aid. Careful specification could also strengthen decision-making vis-à-vis resource-rich countries. Moreover, without such criteria and indicators, monitoring and evaluation will not have at its disposal the toeholds needed for learning adequately from experience and for timely adjustment of country strategies.

The Panel agrees with the lessons drawn on how to improve the Bank's internal organization to meet the challenges posed by LICUS more effectively. Criteria for successful performance of staff in LICUS, where the traditional criteria only partly apply, need to be elaborated. Also, IEG's point is well taken that the selection of people for work on LICUS must take account of their willingness and ability to communicate and
collaborate effectively inside the Bank and with other donors and the recipients.

The Panel has high regard for how the Bank has immersed itself in the challenging and risky area of support for LICUS. It welcomes the positive interaction between practice and evaluation, as evinced in the present report. In the Panel's view, IEG's comments are balanced and its recommendations sensible. Implementing them will not be easy, but is necessary to improve the effectiveness of Bank support to LICUS, as well as
that of other donors. We would be surprised if further progress based on inescapable realities does not materialize. Such progress is all the more necessary because the tipping point between success and failure with equal effort lies much closer to failure in LICUS than in other countries. Adoption of the eminently practical lessons and recommendations of IEG can shift the tipping point onto more favorable terrain. The possibility of emergence from extreme fragility of the state and the associated misery of its inhabitants will be greatly enhanced.