CSS Forums - Red flags raised by US Senate Foreign Relations Committee

By Shaheen Sehbai

WASHINGTON: On the eve of billions of dollars of Kerry-Lugar money beginning to flow to the PPP government, Senator John Kerry, Chairman of the Senate Foreign Relations Committee, has raised several red flags, asking critical questions about accountability and almost warning that significant portions may end up in accounts of the corrupt elite.

In a strong indictment of the present system in Pakistan, Senator Kerry has written a long seven-page letter to special US envoy Richard Holbrooke dated May 25, 2010 (a brief part of which was reported a few days later by the Boston Globe). Kerry says: “The danger is much greater than merely the possibility of a portion of the funds being poorly spent.”

Kerry’s letter reveals that more than 50 per cent of the KLB funds would go in 2010 directly to the Government of Pakistan or local partners.

“The potential for misuse is significant enough to raise warning flags about the pace of funnelling funds through institutions without a strong track record of transparent, accountable, and effective money management or significant experience in the successful delivery of projects,” Kerry points out in his letter.

“I am writing with regard to our Pakistan assistance strategy for fiscal year 2010, which totals $1.458 billion excluding supplement 2010 funding,” Kerry begins, pointing out that during the past weeks, the foreign relations committee staff had engaged in an in-depth review of how money would be spent sector wise in Pakistan.

The News has obtained the full text of Kerry’s letter to Holbrooke, which deals in detail with the issue under separate headlines including ‘Leverage and Sustainability’, ‘Transparency’, ‘Accountability’, ‘Priorities’, ‘Visibility’ and ‘Public Diplomacy’.

Under ‘Transparency’, Kerry points out that the administration should be as transparent and specific as possible about how US funds will be spent in Pakistan. “To date, this process is still largely opaque to the broader public, including our Pakistani friends and partners. This lack of transparency can generate suspicion and distrust.”

Today, Kerry writes, the public has little access to detailed planning on how the funds will be spent. This creates confusing and unnecessary speculation in Pakistan.

In a significant proposal, which may be hard to sell in Islamabad, Senator John Kerry has suggested that the Pakistani civil society should be engaged in monitoring the use of funds.

The portion on ‘Accountability’ raises the most critical points and expresses general fears that the money may not be spent but siphoned off by the corrupt elite. “Channelling so much of the money through untested institutions so quickly could serve to confirm these suspicions,” he says.

Following is the text of the letter and the observations of the committee:

“The Honourable Richard Holbrooke, Special Representative for Afghanistan and Pakistan, US Department of State:

Dear Ambassador Holbrooke: I am writing with regard to our Pakistan assistance strategy for fiscal year 2010, which totals $1.458 billion excluding supplement 2010 funding. Since the passage of the ‘Enhanced partnership with Pakistan Act of 2009 (the Act) this fall, the Administration has moved quickly to evaluate areas of need in Pakistan and come up with a multi-year funding strategy. I appreciate how much time and effort has gone into these efforts under Ambassador Robin Raphel’s leadership, particularly for the USAID Mission in Islamabad, which has had to dramatically increase its staffing and development assistance in a short period of time.

“During the past weeks, the committee staff has engaged in an in-depth review of how money will be spent sector by sector in Pakistan in fiscal year 2010, the first year for which Kerry-Lugar-Berman funds have been appropriated. I wanted to take this opportunity to share with you some observations that have resulted from these briefings with State and USAID officials and other conversation we have had with Pakistani and American partners. I hope your team in Washington and Islamabad finds this feedback constructive in helping shape our Pakistan assistance strategy for FY 2010 and outlying years.

“Thank you for your continued attention to these important matters. I look forward to our ongoing dialogue on how we can best enhance our partnership with Pakistan.

Sincerely, John F. Kerry

“Senate foreign relations committee observations on civilian assistance funding to Pakistan for FY2010:

(1) Leverage and Sustainability: We understand, given past experiences donors have faced in many countries, that the Administration may have limited ability to induce reform of economic policy and governance in Pakistan. We are realistic about this. At the same time, we want to underscore that the Act was passed by Congress to support Pakistan’s long-term development progress, on the grounds that doing so is the best investment in the long-term security of the United States and Pakistan. We encourage the Administration to make maximum use of the significant leverage provided by this Act.

“To achieve long-term progress instead of short-term fixes, we encourage the Administration to think strategically about how we can best encourage policy and institutional reforms across each sector so that Pakistanis see long-term and sustainable benefits as a result of US assistance. We should ensure that US funds serve as a multiplier of Pakistani resources, rather than a disincentive for the Pakistani government to invest in its own budget, especially in areas like health, education, and the provision of basic services. Otherwise, the programmes we fund may not be sustainable for Pakistanis when US funding decreases.

* In the health sector, for instance, where spending in Pakistan is only 0.6% of GDP (one of the lowest figures in South Asia) and where other major donors like the British and Canadians have recently pulled their funding because of the lack of structural reforms, we are investing a significant portion of funds (approximately $181.4 million in FY2010). While the health ministry recently announced it would increase the health budget to 5% of GDP over the next five years, it will likely be a challenge to achieve this given the tough economic climate in Pakistan. The infusion of US funds could paradoxically act as a deterrent for the Pakistani government to invest its own funds in this area if it can rely instead on outside donors.

* In the energy sector, we are pleased to see the Administration pay particular attention to the ongoing energy crises Pakistanis face. However, as we engage in this sector, we must avoid past donor mistakes and work alongside major donors who are already active. The Asian Development Bank (ADB) and the World Bank have been working in the energy sector in Pakistan for more than two decades. With a great deal of money, continuity, and coordination, they have been pressuring the Government of Pakistan to make exactly the same institutional and pricing reforms but the same problems persist, decades and hundreds of millions of aid dollars later. We must pay careful attention to sequencing if we have not first tacked these critical policy issues we dramatically decrease the long-term effectiveness of our larger infrastructure investments.

* Going forward, we should examine previous donor efforts to avoid past pitfalls, understand political limits on the ground, and value to existing reform efforts on the ground. We hope the Administration will build on the long-standing leadership and work of the major multilateral partners like ADB and the World Bank to have a coordinated approach that better leverages our collective resources with the Pakistan government. The Pakistani government will also need to take advantage of the domestic energy crisis and calls from its own people for relief to find the political will necessary to resolve the energy crisis if we are to make any real progress.

* In the education sector, the Pakistani government has a goal of raising its annual budgetary allocations to 7% of GDP by 2015, a figure that may not be achievable given economic constraints. When our sizeable contribution in this sector is combined with other donor resources and increases in Pakistani government contributions (we are spending approximately $334.4.66 million in FY2010) State and USAID suggest a target of 4% of GDP by 2015 is feasible. However, even with projected increases in the Pakistani government’s spending on education, donors, who now provide about 14% of Pakistan’s education budget, would need to pay about 37% by 2014-15 to meet this target, according to USAID figures. While donors may be able to meet this need for the next five years, we must examine what would happen in 2015 if donor funds do not continue at this accelerated rate. What plans are in place to help the Pakistani government transition to a more satiable investment in this sector? Past donor experience in this sector is frankly disappointing. Key lessons from past donor experiences suggest that more money may not buy results in the social sectors, and that as much emphasis need to be placed on spending money well and focusing on key institutional reforms needed to sustain change. (2) Transparency: We appreciated the December 2009 “Pakistan Assistance Strategy Report” that laid out in concrete terms how Kerry-Lugar-Berman funds would be spent over a five-year time period. We urge the Administration to build on this approach by being more proactive and transparent with the broader public both in the United States and Pakistan — on how funds will be spent annually by providing programme descriptions and plans and sharing commitments and actual disbursements. This transparency has been lacking so far.

Much has been made here and in Pakistan about the impact the Act could have on the bilateral relationship. Yet today, the public has little access to detailed planning on how the funds will be spent. This creates confusing and unnecessary speculation in Pakistan, and limits the potential of the policy community and allies at home. The Administration should be fully transparent about how it will spend funds in Pakistan. Given that Act is the centrepiece of our civilian engagement with Pakistan, without greater transparency, this valuable policy tool could lose much of its impact.

For instance, the Administration could create an easy-to-navigate website that provides detailed planning, objectives, and disbursement information; it could consult with the Pakistani Embassy in Washington on programme plans and announcements and it could engage Pakistani civil society in monitoring the use of funds. This would help demonstrate both the seriousness of purpose the United States brings to this endeavour and our commitment to the Pakistani people.

(3) Accountability: The Administration has adopted a strategy whereby US assistance to Pakistan should go through local Pakistani institutions to the greatest extent possible, in order to build Pakistani capacity and avoid the “Beltway Bandit” approach that characterized US assistance to Iraq and Afghanistan. This is a goal we support, if done right and on an appropriate timeline. On March 5, Senators Kerry and Lugar sent a letter to State and USAID laying out the potential pitfalls if we do not have a sound transition strategy in place.

As stated in the letter, we are concerned that that too much money funnelled too fast to the Pakistani government or local Pakistani groups may jeopardise US funds. For instance, there may be issues of absorptive capacity or inadequate monitoring and oversight.

We understand that over 50% of FY 2010 funds are likely to go directly to the Pakistani government or local Pakistani implementing partners. The Administration has instituted some accountability mechanisms, but their effectiveness is yet to be determined. According to USAID, these include pre-award assessments to determine the strengths/weaknesses of the current financial and managerial systems in place. For any agreement with the Pakistani government, a separate bank account will be established, so that all US government funds can be tracked and accounted for through USAID audits. But the potential for misuse is significant enough to raise warning flags about the pace of funnelling funds through institutions without a strong track-record of transparent, accountable, and effective money-management — or significant experience in the successful delivery of projects.

The danger is much greater than merely the possibility of a portion of the funds being poorly spent. If significant portions of the Kerry-Lugar-Berman funds are, for example, siphoned off to private bank accounts, political support for continued appropriation of the money could evaporate in Washington and Pakistan. Among the Pakistani population, there is already a fear that the funds will merely enrich the corrupt elite. Channelling so much money through untested institutions so quickly could serve to confirm these suspicions. Moving forward, we encourage the Administration to closely coordinate its strategy with major donors like the ADB and World Bank, who have led many of the accountability, transparency, and anti-corruption initiatives on a range of sectors since they have operated in Pakistan. We can learn from many of their experiences and avoid repeating past mistakes. It also helps us calibrate what is realistic and possible in the context of Pakistan assistance.

(4) Priorities: According to the December 2009 “Pakistan Assistance Strategy Report,” the three key objectives of our assistance are to:

* Improve the Pakistani government’s capacity to address the country’s most critical infrastructure needs;

* Help the Pakistani government address basic needs and provide improved economic opportunities in areas most vulnerable to extremism; and

* Strengthen Pakistan’s capacity to pursue economic and political reforms that reinforce stability.

The report correctly identifies the critical priorities as articulated by senior Pakistani government officials. Energy shortages, weak social services, a crippled judiciary, and a host of other economic and political ills continue to weaken the Pakistan state. In translating these priorities into annual funding strategies, we urge the Administration to work closely with the Pakistani government and Pakistani civil society actors so that our annual spend plans actually reflect both what is possible on the ground and what is really needed.

* For instance, more focused attention may be needed on the criminal justice sector and addressing rule of law issues, which is a major source of concern for Pakistanis. For FY 201, $22 million will be spent on rule of law issues with more than $45 million planned over the next five yeas. We understand USAID is currently doing a study on specific court needs and demand for justice at the grassroots level from which it will design a new rule of law programme. Given how pressing criminal justice reform issues are, we appreciate this is an area that will require considerable partnering with the Pakistani government and civil society actors and a well thought out strategy for reform. We hope this is an area where we can demonstrate some tangible progress to Pakistan.

* We urge the Administration to be very clear on how it is addressing water issues across different sectors, which we understand is a top priority yet not at all defined in the materials the Committee received. Without any details on how water issues are to be, or could be, addressed to promote public health, access to energy, agricultural development and in infrastructure improvements, we are unable to assess the Administration’s objectives.

(5) Visibility: As the Administration develops its proposals for high visibility projects such as in the energy sector, we continue to urge USAID and State to consult with Congress and Pakistani stakeholders during the development phase, rather than waiting until key decisions have already been made. As of now, it is still unclear what these projects are and how they will be chosen. A careful balance will need to be struck between high visibility projects that would be costly but of huge symbolic significance (i.e. building a major hydro-electric dam) and low visibility projects in several sectors that might quietly serve more people and have immediate delivery impact (i.e. a large number of micro-hydro or other small-scale power generation plants). Longer-term investments in social sectors such as education and health should also not be overlooked in the effort to deliver quick impact, high visibility projects.

(6) Public diplomacy: The Administration needs a clear strategy for how to most effectively manage expectations with regard to the funding. Pakistanis need to better understand the purpose of the aid, how the money is really being spent, which entities are receiving funds, and how progress will be measured. We need to be clear about what our goals are and what is achievable so that we are not seen to over-promise and under-deliver. We understand State has a new communications plan for Pakistan, and we welcome these efforts, which are long overdue. We would like to see a specific communications strategy within this broader plan for how Kerry-Lugar-Berman funds will be spent so that Pakistanis understand our objectives and our commitment to this partnership.”

Responding to Kerry’s warnings and apprehensions, Holbrooke’s deputy Dan Feldman said a few days later that the State Department would make sure that transparency and accountability is maintained concerning the aid being offered to Islamabad.

“We’re always open to ways to operate in a manner that enhances sustainability, transparency, and accountability, as Senator Kerry has called for, and which are already core precepts that we have built into our assistance programmes,” he was quoted as saying.