Economic Aid to Pakistan?

WASHINGTON – Secretary of State Hillary Clinton was in Pakistan just recently on a mission aimed at showing US political good will and steadfast support for the country’s economic development agenda. Building on top of an already substantial 5 year aid package totaling about 7.5 billion approved last year, Clinton announced an additional 500 million to be delivered to Pakistan. So, it seems that we have more money going to a deserving critical partner in a conflict where we need to succeed in order to defeat al Qaeda and recreate regional stability. Is this good news? Well, unfortunately much less than it may appear. 

Serious money?

First of all let’s place this multi-year aid package in context. Even in this world in which we have gotten accustomed to figures exceeding hundreds of billions or trillions to measure almost anything worth noticing, (Wall Street losses, General Motor and Citigroup bailout, federal stimulus package, TARP program, Fannie and Freddie, you name it), a foreign aid package totaling several billions, especially if aimed at a developing country in which American dollars should go much farther, seems respectable. It seems an amount large enough to foster credibility for US policies towards our embattled ally, Pakistan, facing a hardened insurgency in a large area right at the border with Afghanistan; along with ongoing fundamentalist violence across the rest of the country. But is this package really big enough to make a difference in Pakistan? It is sizable yes; but probably not that meaningful, given the reality of a very large and still poor nation.

Pakistan at a glance

Pakistan is a huge country, almost twice the size of California, with a population of about 177 million, and this is more than half the US population of about 300 million. In the words of the US Government (CIA World Fact Book):


“Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes and low levels of foreign investment”.

Sure enough, the same document also points to progress in getting more people out of poverty in recent years. And yet the script continues by stressing the systemic constraints of an underdeveloped economy still largely dependent on low value textile exports. Furthermore, Pakistan is a young country in which 40% of the population is composed of children under 14, while half the population is illiterate, with 2 girls out of 3 having no access to schools.

The economy

If we look at the economy as a whole, Pakistan has a GDP of 168 billion, if measured according to official parity, or a higher one of 449 billion if we look at purchasing power parity. This national wealth, though, divided by the huge number of people, gives a paltry per capita GDP of 2,600 a year, placing Pakistan at number 170 out of 227 countries listed. Not rock bottom, but close. And, if one considers large income disparities, with great wealth in the hands of very few, the conditions of the poor are clearly a lot worse than this average would suggest.

Can this aid make a difference?

So, Pakistan is a country twice the size of California, with more than half the population of the US, with an under developed economy, widespread poverty, millions of children without schools and thus little hope for their own future economic advancement; all this compounded by lack of basic services, such as potable water. A recent study indicates that up to a third of the population, (this is more than 50 million people), lack access to safe drinking water. As a consequence, 630 children die, every day, from diarrhea. 

Corruption and bad governance

Last but not least, Pakistan has a traditionally clannish and elitist power structure, with a proven record of corruption and decision-making processes ruled by the imperatives of patronage as opposed to real public policy considerations. (A recent Google search for “Pakistan corruption” gave almost 6 million entries! Yes, almost 6 million, a popular subject, it seems). Corruption and bad governance is another serious impediment to development.

Add violence to the mix

In all this, let us not forget the primary reason for US involvement in Pakistan: the festering wound of violent fundamentalism that has made several areas, especially the North West of the country, almost completely impenetrable, while it has reduced overall security in other areas, including Islamabad, the capital city, often targeted by terrorist attacks.

Clearly, a perception of widespread insecurity in an embattled developing country engaged in a counter insurgency while fighting terror groups is of no help in an overall effort to encourage investments and new enterprise –largely the purpose of the US aid package.

US: not so good at delivering value through aid programs

Beyond all this, quite apart from these Pakistani internal problems, just to make things worse, we have to add that the US Government has a pretty bad record in successfully delivering value for money through aid packages. American foreign aid mechanisms are complicated, bureaucratic, process driven, risk averse and quite often inefficient. This is in part because it is objectively very difficult to design and implement good programs. But, aside from that, lack of effectiveness  is due to the low morale of an understaffed USAID (US Agency for International Development) bureaucracy, weakened by massive defections of skilled personnel over many years.

Widespread outsourcing

This lack of in house professional resources has made USAID almost totally dependent on contractors to implement programs. This outsourcing requires oversight. And so programs are top heavy on administrative mandates, monitoring and endless reporting. All this means that a huge chunk of the allocated aid programs budgets is used to pay for procedures and the fulfillment of established protocols, as opposed to implementation. In the end, after subtracting all administrative costs, contractors expenses and profits, not much money is left for actual aid delivery. It is true that Secretary Clinton has placed development programs very high on the list of US foreign policy priorities and thus better results are to be expected down the line. Still, while reform is welcome, it is altogether unlikely that any changes being worked on now will have a short term impact on increased aid effectiveness to Pakistan. 

Huge gap between needs and amounts of aid

If we take all this together –the amount of money versus the needs of an enormous, poor country, coupled with the systemic inefficiencies that have plagued the delivery mechanisms from the US side– it should be clear that these aid packages announcements, however well intentioned they may be and however significant the figures may appear, have mostly a political, feel good objective.

Aid is a way to reaffirm political support for the leadership in Islamabad. But, as far as concrete impact is concerned, not much there. And this means that there is also very little political benefit in terms of increased of US popularity among ordinary Pakistanis; most of them untouched by US aid programs.

Supporting Pakistan is a good objective, the tools are modest

It is perfectly understandable that the Obama administration is trying and will try anything within its powers to shore up, help, support, you name it, this technically democratic Pakistani government, (in principle at least a big step ahead compared to the previous military government).

But it is also clear that Pakistan needs are gigantic, the amount of money provided by US tax payers, relative to needs, altogether modest; while the effectiveness in delivering results not at all a sure thing, given still unresolved systemic problems in effectively delivering aid. In short: problems enormous; money inadequate; aid delivery mechanisms inefficient.

The US has become much poorer

And, if all this were not enough, US policy-makers will not be able to indefinitely dance around the basic fact that America is running out of money.  Indeed, this effort at showing good will towards Pakistan, a crucial ally in the uncertain conflict against fundamentalism, via foreign aid, is taking place in the middle of a US economic crisis that is likely to turn into an economic realignment of historic proportions from which America will emerge as a diminished and far less competitive power on the world scene.

Simply stated, there is no more money, while we have to deal with crushing levels of debt, public and private. Unless the US will be able to engineer a major, fundamental turnaround of its domestic economy, a turnaround that will recreate leadership in key high value sectors and, along with that, reestablish long term international competitivenss –a possible development, but not at all a sure thing– America has run out of gas.

Debt and more debt everywhere

The US is now and will be saddled for several years, (even if we choose to believe the more benign scenarios), with levels of debt that have put America in the same boat of impoverished European spendthrifts, (at least in terms of ratios of public debt to GDP). In the meantime, efforts notwithstanding, the US economic engine is sputtering, now moving forward yes; but not fast enough to generate the vast amounts of fresh new wealth that will be needed to get us on a path of new investments, new employment generation and eventually sustainable levels of debt.

The deficit debate: cut foreign operations

And public awareness of this huge debt issue has created alarm. A Recent TIME magazine poll indicates that the public is concerned with high levels of federal expenditures in the midst of all this debt. Americans want cuts. And where should we cut first? Yes, you guessed it: the war efforts in Iraq and Afghanistan, (55% want this), and the overall defense budget (46% in favor).

Only small minorities would advocate cuts in politically ultra-sensitive entitlement programs such as Social Security, Medicare or education, even though the real money is there. Polls may change, of course; they always do. But it is difficult to believe that a country with a stubborn almost 10 per cent unemployment, a country in which half of minority children do not graduate from high school and in which access to public universities is becoming more and more difficult will choose to cut social spending and start cheering expensive, protracted and uncertain foreign and security policies. Policies whose value to American security, (regardless of intrinsic merit), beyond a small circle of policy experts, is not at all well understood by the public at large. 

So, in the end, the 7.5 or 8 billion dollars for Pakistan, as problematic as this aid is in terms of achieving anything worthwhile with it, defies gravity. It is not supported by the national fiscal realities and it has little, if any, public opinion support.

Do not expect more of the same in the years to come.

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