Pakistan and US aid
By Shahid Javed Burki
Tuesday, 06 Oct, 2009
DIRECTLY or indirectly the United States has been involved in helping Pakistan develop its economy. It is good to acquaint ourselves with the history of this involvement in order to prepare for what is likely to come.
The strategy of growth adopted by Pakistan in the early days of independence was a reaction to some of the measures adopted by India in dealing with its new neighbour. One element of this strategy was that it forced the country to industrialise quickly by seeking to become self-sufficient in the production of basic manufactured goods.
But the strategy needed finance of which Pakistan had very little. It turned to America for help, first indirectly and then much more directly. A deep relationship of mutual dependence was to develop between the two countries. This relationship was underlined by four wars — the Korean War, the Cold War, the war against the Soviet occupation of Afghanistan and the war against terrorism. Pakistan played a role in each one of these which meant that America’s relations with the Pakistani military became an important part of the dealing between the two countries.
According to a newspaper account, “a searing report by the US Government Accountability Office last year said that the Bush administration had relied too heavily on the Pakistani military to achieve its counterterrorism goals, and had paid too little attention to economic assistance”.
The US Congress has passed an act for aid to Pakistan that will triple the amount of economic assistance the latter has received in the last few years. Large sums were provided since 9/11 to the government headed by President Pervez Musharraf. Most of the $11bn worth of aid went to the military as compensation for the help it was giving to the Americans in their operations in Afghanistan. Some assistance was also provided for building the country’s capacity to undertake counterinsurgency measures. This was something relatively new for the defence forces in Pakistan since their preoccupation up until now was to protect the country’s borders against possible attacks by India.
This time around, the US is committing itself to helping Pakistan to improve the lives of its citizens. This is being done as a part of the belief that unhappy people are potential insurgents and there are many of those in Pakistan. In this context Washington has come to two correct conclusions.
One, the country with some 170 million people subscribing to the Islamic faith and located in the world’s most sensitive area is too important to be left to its own devices.
Two, given the previous involvement of the United States in Pakistan when Washington abandoned Islamabad suddenly because its own purpose had been fulfilled, there is a suspicion in Pakistan that this time as well the engagement will be there for as long as Afghanistan needs attention. Once the US chooses to downsize its presence in that country for whatever reason, interest in Pakistan will also be lost.
To convince the Pakistani citizenry that this will not happen the Americans are willing to commit themselves for a longer period of time.
The US is now keen to draw a sharp distinction between economic and military aid.
It is the former that concerns me today. According to newspaper reports, the United States has several concerns as it rebuilds its economic presence in Pakistan. It wants to ensure that there will be not a great amount of leakage from the money likely to flow to Islamabad. There are two types of leakages and both give foreign aid a bad name. The first is the amount of money that stays behind in the country that provides assistance.
This is not a new concern. The extent of money that never goes to the recipients can be large. Some estimates were made decades ago by the Organisation of Economic Cooperation and Development (OECD) on the basis of a methodology developed to estimate what was called “tied aid”. Having concluded that the proportions can be large, the OECD went on to develop rules that bilateral donors were expected to follow.
In spite of these rules, the proportion remains large. In an interview given to The New York Times, Shaukat Tarin, Pakistan’s finance minister, said that “foreign contractors absorbed up to 45 per cent of the assistance in the past years”. The proportion can be much larger if aid has a provision that only the goods manufactured or commodities produced by the aid giver can be procured by the recipient.
The other leakage occurs through corruption in the recipient countries. According to the above cited newspaper report, “Obama administration officials are debating how much of the assistance should go directly to a government that has been widely accused of corruption”. However, bypassing the government and giving aid directly to non-government organisations may appear to be attractive over the short-term but would be very counterproductive over the long-term. What the United States should be turning its attention to right away is to build the institutions of government rather than ignore them.
This poses an important question. How should the government be strengthened? For an answer we may look to Pakistan’s own history. In the 1960s when a great amount of money was to be spent on building “replacement works” under the Indus Water Treaty President Ayub Khan had signed with Jawaharlal Nehru the Indian prime minister, the government in Pakistan turned to the Water and Power Development Authority to implement the projects.
Wapda did an extraordinary amount of high quality work over a constrained period of time. It was able to recruit the best talent available in the country, reward it well but hold it to high accountability standards. In business school literature Wapda-type organisations are called “special purpose vehicles” which governments set up in order to implement special programmes and projects. This is precisely the route the US should follow in developing some of the sectors on which it should concentrate.