Likely cuts in US aid
By Shahid Javed Burki
Monday, 10 Oct, 2011
AS the political system in the United States grapples with the popular demand to cut government expenditure and reduce the burden of debt the country carries, one outcome is clear.
America will be less generous towards its foreign friends. What kind of impact this will have on Pakistan? Pakistan, by some counts, is now the second largest recipient of aid from Washington. Israel is the largest beneficiary. Before the government of President Hosni Mobarrak was overthrown, Egypt was in the second place. Israel receives $3 billion a year from Washington.
Under the Kerry-Lugar Bill signed into law by President Barack Obama in 2009, Pakistan was supposed to get $1.5 billion a year as economic assistance. Additional amounts are to be provided to the military for assistance it provides the US for the American operations in Afghanistan. The military is also to get help to improve its capacity to fight terrorism.
Before discussing the impact on Pakistan, I will briefly discuss America`s aid politics .Democrats and Republicans don`t agree on most things but there is agreement between them on reducing the amount of money the US spends on foreign aid. For the fiscal year that started on October 1, the Obama administration proposed spending of $59 billion on international affairs, $6 billion more than spent in the earlier year.
In financial year 2010, the first year of the Obama administration, expenditure for this item had increased to $55 billion.
Most of this was spent by the State Department which, through the Agency for International Development (AID), provides economic assistance to the countries Washington wishes to help.
In the US political system, on matters of government spending, the executive branch proposes while the legislature disposes. At this time both parts of the US Congress, the House and the Senate, are inclined to be far less generous in providing foreign assistance than the amount asked for by the Obama administration.
The House appropriations subcommittee which is now controlled by the Republicans has cut $12 billion from the administration`s request. Its proposed amount of $47 billion has $39 billion for State Department`s operations and aid and $7.6 billion for what is described asthe `contingency account for Iraq, Afghanistan and Pakistan.` Even the Senate version of the budget seeks a cut of $6 billion in the Obama proposal. This part of Congress is still in the hands of Democrats, President Obama`s political party.
The proposed declines in spending on foreign operations will bring it down to 0.95 per cent of the federal budget. In 1985, the share of foreign operations had reached two per cent fueled, in part, by the first war in Afghanistan when the United States was closely aligned with Pakistan and Saudi Arabia to expel the Soviet Union from Afghanistan. The proportion declined to about 0.9 per cent in the 1990s after the collapse of the Soviet Union.
There was another spike after 9/11 when the United States embarked on an effort to `win the hearts and minds` of the people in the Muslim world. There was a belief that one way to stop the attraction of the country`s youth for extremist groups in the Muslim world was to quicken the pace of economic development in the countries in the area. Pakistan was to be a major beneficiary of this effort.
It would be fair to conclude that the United States` foreign aid is motivated by the country`s strategic interests rather than by the desire to help the less developed parts of the world. Strategic consideration motivates in particular the Republicans, the party that is now at the forefront of the move to reduce government expenditure.
According to one assessment, `the Republicans attach conditions on aid to Pakistan, Egypt and the Palestinians, suspending the latter entirely if the Palestinians succeed in winning recognition of statehood at the UN. However, one of the largest portions of foreign aid -more than $3 billion for Israel-is left untouched in both the House and Senate versions, showing that even in times of austerity, some spending is inviolable.
The presence of a strong domestic lobby for Israel in the United States helps a great deal in securing assistance from the country. This is what Israel is able to do and what the Indians have begun to do. All one needs to do to understand how weak is Pakistan`s situation in the US is to pick up any mainstream newspaper any day and read the coverage on Pakistan.
While the clear intention behind the Kerry-Lugar legislations was not to link the flow of economic assistance on conditions that would not reflect the US`s strategic interests, there is now considerable pressure on the Obama administration to reverse course.To take one example of thispressure: In a recent article in The Washington Post, the authors John Podesta and Caroline Wadhams suggest that aid should be used to get Pakistan into line with American interests. `If Pakistan cannot bring insurgent elements to the negotiating table, and present a plan for a political settlement or a desired outcome, the United States should begin by labelling the Haqqani network a terror group. Other options include cutting all military assistance to Pakistan, and coordinating among international and regional allies to more sharply contain and isolate Pakistan.
The article is important since Podesta, one of its authors, is an important figure in Obama`s political party. He was the head of the transition team appointed by Barack Obama after the winning the elections in 2008.
Washington has as yet to do the arithmetic to understand how much leverage it carries in terms of the economic and military assistance it provides Pakistan.
Cutting military aid would do much more damage than reducing economic aid. The first two years of the five-year period covered by Kerry-Lugar should have produced $3 billion worth of capital flows to Pakistan. That hasn`t happened. The total amount of help Pakistan has received is a fraction of that amount.
Even if the entire $1.5bn a year were to be disbursed in net terms excluding the amounts spent on administering aid and also the large amounts charged by the US consultants who work on the various projects Washington is supporting the amount is more like a billion dollars a year.
Since those who have studied the US aid effort in Pakistan have concluded that it is poorly managed, the impact on growth is perhaps no more that 0.14 per cent of GDP. If Pakistan were to lose the entire pledged aid, its impact on growth will be very small.
The other way of looking at the impact of aid is to calculate the contribution it makes to meeting the financial gap the country has because of the difference between the value of imports and exports the `trade gap`and the amount needed to service outstanding foreign debt. This gap is of the order of $15 billion a year. If the full amount of American aid were to be disbursed, it would amount to only six to seven per cent of the total financial gap.
The conclusion from this brief analysis is that aid flows don`t provide the kind of leverage the United States thinks it has on Pakistan to do what is in Washington`s interests. What Islamabad should be keeping in view is its own strategic interests.
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