Can Pakistan survive without US aid?
by Murtaza Haider on February 15th, 2012

Several policy-makers, politicians, and development professionals in the west believe that the economic survival of Pakistan rests on handouts from the United States. Often American legislators ridicule Pakistan for willingly accepting American dollars in charity, but not delivering on American demands in return.

The Westerners are not alone in believing that Pakistan’s survival rests on handouts from the US. While speaking on Canadian TV earlier this week, Raheel Raza, a Canadian of Pakistani origin, argued the same. “Ever since the inception of Pakistan the United States has given Pakistan aid without which it cannot survive,” said Ms. Raza.

The US economic and military assistance to Pakistan indeed has a long history stretched over decades during which several American governments have poured billions of dollars into Pakistan. The question, however, is to determine first why Americans aided Pakistan and second what was the money intended for. And even more importantly, one should determine if indeed Pakistan’s economic survival rests on American aid.

The British newspaper Guardian maintains an active database documenting six decades of American aid to Pakistan. The data is compiled by Wren Elhai of the Center for Global Development in Washington, DC. The database reveals that since 1948 the US assistance to Pakistan has largely been for civilian purposes. Of the $61.7 billion in total assistance (in constant 2009 dollars) provided to Pakistan between 1948 and 2010, $40.4 billion were provided for economic assistance and $21.3 billion in military assistance. The economic assistance to Pakistan peaked in the early 60s when in excess of $2 billion annually were provided to Pakistan.

Since 1982, the United States has provided $17 billion in military assistance compared to $13.5 billion in economic assistance. This has largely been a result of covert and overt American military operations in Afghanistan that began in late 70s. And while there has been a slowdown in economic and military assistance between 1992 and 2001, the US revived its economic and military assistance to Pakistan after 9/11. In fact, since 2002 the US military assistance to Pakistan at $13billion dollars is two-times the economic assistance it provided to Pakistan. The dramatic increase in military assistance to Pakistan in the recent past has contributed to the weakening of democratic and civilian institutions in Pakistan, while it has helped strengthen military’s grip on the socio-political spheres in Pakistan.

One cannot consider military assistance as a favour to Pakistanis. In fact, the US military assistance has been instrumental in reinforcing Pakistani armed forces against the civilian governments. The American military and economic assistance offered to General Zia in early 80s and later to General Musharraf since 2002 are examples of how American funds have strengthened military dictators against civilian setups in Pakistan. Notice in the above graph how the US assistance has largely been absent in the 1990s when parliamentary democracy prevailed in Pakistan.

In 2010, the US economic assistance to Pakistan equalled $1.8 billion. While the amount is indeed large, however on a per capita basis, this translates into a mere $10.3 for the 180-million Pakistanis. Should we believe that Pakistan’s survival has rested on a mere $10.3 per person in civilian assistance from the United States?

Some fact-checking is indeed in order. Pakistan is a $175 billion economy. Since 2002, the US has provided on average $825 million annually in economic assistance to Pakistan. On the other hand, Pakistani expatriates have remitted on average $1 billion each month in 2011, making remittances an order of magnitude higher than what the US has been providing to Pakistan. I would argue that Pakistan’s economy owes much more to what the expatriates contribute than what comes in charity from the United States.

While I remain grateful to American taxpayers who have contributed billions of dollars to Pakistan, for instance, American help with the rescue and relief efforts after the floods in 2011 is indeed commendable, I must also point out that the American wars in the region have played havoc with Pakistan’s economic and social infrastructure. According to the Government of Pakistan, the direct and indirect costs from Nato’s war in Afghanistan, which began on October 07, 2001, has reached over $68 billion. These economic losses are an order of magnitude higher than what the US has offered in economic and military assistance to Pakistan. And who to account for the 36,000-plus Pakistanis who have perished as a result of the Nato’ war efforts in the region. A fair compensation would require the US to engage the United Nations to verify Pakistan’s claims and then reimburse Pakistan in full for proven claims.

The nature of development aid business is such that large sums of donated money in fact return to the donor country in the form of contractual payments to consultants and manufacturers. I recall listening to the former World Bank president James Wolfensohn in 2004 at the 16th Annual Bank Conference on Development Economics in Washington DC where he offered his candid views about how development aid was misspent by donors. In 2003-04 development aid was estimated at $58 billion of which $14 billion were pocketed by the consultants alone.

The billions of dollars in US military assistance to Pakistan are no different which in fact help sustain the defense economy in the US. Pakistan ends up buying US-made weapons and fighter jets from the very military assistance it receives from the US, and money it borrows from international lenders.

I also recall listening to Hans von Sponeck, the former head of UN operations in Iraq who resigned in February 2000 to protest against UN sanctions. He explained in an interview in Islamabad how aid agencies prefer spending aid money on brick and mortar, and not on developing human capital. Furthermore, aid funds are often abused because of cost overruns. Consider the mismanaged construction of the waste water treatment plant in Fallujah, Iraq. An audit by the US Special Inspector General revealed that the plant was to be built for $35 million to serve a population of 100,000. Years later, the partially built plant served only 38,400 people after American contractors had spent over $108 million. Latest estimates suggest that the waste treatment plant would consume another $87 million before it will be completed in 2014.

In the proposed budget for 2013, the Obama administration has set aside $2.4 billion in spending related to Pakistan. $800 million out of the $2.4 billion are earmarked for counter intelligence in KP and Fata and for other security operations. $200 million have been earmarked for discretionary spending by the US diplomatic missions in Pakistan. While it appears that huge sums of money will again flow to Pakistan, the reality is that often the planned funds never reach Pakistan. Consider the
Kerry-Lugar-Berman bill (The Enhanced Partnership with Pakistan Act, 2009) that set aside a total of $7.5 billion in assistance to Pakistan spread over five years. The disbursement under the bill was to begin in 2010. However, the funds have not yet been appropriated. At the same time, the US legislators continue to chastise Pakistan for taking US funds (hitherto not provided) but not delivering in return!

Earlier this week, Pakistan’s parliament unanimously passed a resolution condemning the US Congress for conducting hearings about the insurgency in Balochistan. The resolution stated: “the house rigorously condemns and does not accept the hearing by the US congress and considers any such attempt an open intervention in state’s sovereignty and its internal affairs.” Parliamentarians of all political complexions, who were deeply incensed by the US intervention in Pakistan’s domestic affairs, set aside their differences in passing the resolution. I believe that Pakistan’s Parliament should now pass another resolution stating that it will not receive any additional charity from the United States. Knowing that there have always been strings attached to the funds that came from the US, the Parliamentarians should therefore consider US economic and military assistance to be a violation of Pakistan’s sovereignty.

Refusing aid and other assistance is a prerequisite for Pakistan’s economic recovery. The billions of dollars in aid have distorted markets in Pakistan and have subsidised the civil and military elite. Pakistan’s foremost economists, such as S. Akbar Zaidi and others at the Planning Commission in Islamabad, have argued for a secession of aid as a precondition for restructuring Pakistan’s economy to make it self-sufficient over time.

Pakistan’s elite and middle class have to rise to the occasion to help resuscitate the faltering economy. Pakistanis have to pay taxes so that their government can refuse aid from others. Unless Pakistanis demonstrate the willingness to carry their own weight by paying taxes, there is no hope of an honourable existence for Pakistan in the community of nations.


Murtaza Haider, Ph.D. is the Associate Dean of research and graduate programs at the Ted Rogers School of Management at Ryerson University in Toronto.
source: Can Pakistan survive without US aid? | Blog | DAWN.COM

Listen to Nancy Birdsall (the founding president of Center For Global Development) in a conversation on 14th Feb herself admitting that the US aid to Pakistan only makes up very little of Pakistan's annual budget. That also proves that Pakistan can do without the US aid. Get Nancy Birdsall talking in the following podcast.
http://traffic.libsyn.com/cgdev/Nanc...2012_final.mp3

Regards