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American aid: myth and reality

Even with limited impact, continued flow of US financial assistance serves as a reassurance to other countries and international financial institutions

By Imtiaz Gul

Friday Times June 03, 2011

"We provide more support than Saudi Arabia, China, and everybody else combined, but I will stand here and admit that I’m not sure many Pakistanis know that,” US Secretary of State Hilary Clinton said in Islamabad on May 27. She was talking to the press after meetings with Pakistan’s top civilian and military leadership. At the same time, she delivered another warning: “America cannot and should not solve Pakistan’s problems. That’s up to Pakistan. But in solving its problems, Pakistan should understand that anti-Americanism and conspiracy theories will not make problems disappear. It is up to the Pakistani people to choose what kind of country they wish to live in and it is up to the leaders of Pakistan to deliver results for the people.”

This warning got lost in the verbose pronouncements that Clinton and Admiral Mike Mullen made during their interaction with the press. The crux of the message was, if you don’t play ball, don’t expect anything from us either.

The reject-US-aid chorus from Nawaz Sharif and other right-wing parties the next day therefore came as no surprise. These leaders believe that Pakistan can survive without US aid, as it did for several years after the post-nuclear sanctions after May 1998.

Considering the influence that the US has in the international finance institutions such as the World Bank and the IMF, the demands to shun American aid altogether and get tough with Washington sound naïve and emotional. This jingoistic view is disconnected from the harsh realities of international relations as well. After directly confronting the US, an embattled Pakistan can hardly curry favour with other major countries, such as leading members of NATO.

Having said that, one also has to scrutinise the claims of billions of American dollars being “dished out” to Pakistan and figure out their impact.

US figures reveal that between 2002 and 2010, security-related funding, including the Coalition Support Funds, amounted to about $14.14 billion. That included the operational cost of the 140,000 Pakistani troops deployed along the 2,560 kilometre border with Afghanistan and training programmes for the paramilitary Frontier Corps. These figures also underscored the sharp contrast in the spending patterns in 10 years; almost two-thirds of the amount going into security-related heads, while the social sector and economic infrastructure received the remaining one-third.

The USAID and private contractors spent more than 70 percent of the funds allocated for socio-economic development on their own support infrastructure in the recipient country. Half of the money never leaves the company accounts in the USA. The same is true for such operations in Iraq and Afghanistan, and hence poor visibility of the much touted “billions of dollars being spent on the well-being of Afghans and Pakistanis”. 

This prompted the Ministry of Finance officials to seek US clarifications on how $488.537 million being provided under the Kerry Lugar Law Burmen (KLL) were being spent. 

Documents, according to a national newspaper, disclosed that the KLL provided for two modes of assistance: a) ”the budget money worth $1,025.335 million for the year 2010-11, and b) “off the budget” $488.537 million. 

Of the $488 million earmarked for “off the budget” assistance, The USA plans to spend $170 million for International Narcotics Control and Law Enforcement (INCLE), $106.387 million for Office of Transition (OTI) and $60 million for humanitarian assistance, OTI chief mission (small grants funds) and the prestigious Aga Khan University. The remaining amount of over $240 million will be spent through international NGOs and local NGOs. Pakistani authorities did not know details of this spending.

The American “Spent Plan” showed that Washington had so far obligated $1.025 billion for Pakistan after completing congressional procedural requirements. 

“If US civilian assistance is completely withdrawn, it will only have an impact of 0.14 percent on Pakistan’s GDP growth,” said Shahid Javed Burki, a former finance minister and an ex-vice president of the World Bank (The News, Karachi, April 29, 2011). He reached this conclusion after a study he conducted for the Washington-based Woodrow Wilson Centre. The calculations were based on gross aid, and around 40 percent of that amount goes to the American consultants, while Pakistan only receives approximately 60 percent. These are conservative estimates compared with how US aid is being spent in Iraq and Afghanistan, where more than 60 percent of the money remains with the American contractors and consultants.

Ishrat Husain, a former governor of State Bank recently said that American aid does not help the government’s precarious fiscal situation in any meaningful way. Only “12-15 percent of the total amount is channelled for budgetary support… Assuming that the whole $3 billion (per annum) in economic and military is disbursed fully, this accounts for less than seven percent of the total foreign exchange earnings of the country... The increase in export revenues and remittances in the current year was almost twice that amount.”

World Bank figures also show the net Official Development Assistance (ODA) from all sources to Pakistan has averaged less than 1.5 percent of its Gross National Income in the last five years.

According to Sartaj Aziz, a former finance minister, “as long as the multilateral aid continues, it won’t impact Pakistan’s economy.” Out of $1.5 billion per annum authorised by Kerry-Lugar-Burman Act, actual disbursements have been $275 million and $676 million during 2009 and 2010 respectively (including the $500 million for relief and recovery after the floods of last summer).

What the American and European public overlooks is the cumulative impact of Pakistan’s role in the counter-terror war, ie loss of domestic and foreign investments, industrial decline, flight of capital, and massive unemployment. Infrastructure losses due to the militant activities, and the army’s reaction to that are an additional factor that outsiders fail to consider. 

American aid certainly bears monetary and international political advantages. While its impact on ground may be limited, its continued flow serves as a reassurance to other countries and international financial institutions.

(The author heads the independent Centre for Research and Security Studies, Islamabad.

Email: imtiaz@crss.pk