The Battle for Pakistan

by Shuja Nawaz

  This was ironic, since in the eyes of the vice-president of the United States, Joseph Biden, Pakistan ranked much higher on the value chain for the US. Biden was visiting Kabul two months after the 2008 elections.

  As Karzai urged Washington to help root out Taliban sanctuaries in Pakistan, implying that more pressure needed to be exerted on Pakistani leaders. Biden’s answer stunned Karzai into silence. Conveying the views of Barack Obama’s incoming administration Biden stated: ‘Mr President, Pakistan is fifty times more important than Afghanistan for the United States. 15

  If only others in the US administration and Congress saw things as clearly as Biden! There was little strategic vision behind the US policy in the region. It lurched from year to year, from commander to commander. The military called the shots.

  Pakistan’s Accounts of US Aid

  The Pakistanis kept close watch on the nature and quantum of US aid, using financial legerdemain in the Ministry of Finance to employ US financial flows as a fungible source for supporting its Balance of Payments. Interestingly, this attracted the attention of both the Pakistan Army, which complained that it was not getting the entire amount allotted for its operations and the US Congress. Former State Bank Governor, Ishrat Husain, disputes this, since the SBP would capture all the transferred dollars, and deposit the rupee equivalent into the relevant military accounts.

  Tables 1 and 2, based on US data provided to the Ministry of Finance of Pakistan, give a panoramic view of US financial flows to Pakistan over the period 2001–2011 and then beyond 2012, including the requirement for FY2019. In the first period, 2001–2011, the trend is upwards. In the second period from 2012 onwards, the trend was declining. Indeed, aid stopped in 2018 following President Trump’s Tweet.

  Overall, in the first period ending 2011, the total flow was $22.29 billion, while in the period 2012–2015 it was only $15 billion. Civilian assistance during the first period, up to 2011, was $7.626 billion, compared with only $3.296 billion in the second period and dropping to a projected $226 million in FY2019. Meanwhile, military assistance dropped from $3.405 billion to $1.72 billion from the first to the second period. CSF that were not aid but reimbursements for Pakistani expenditures in support of the US-led military operations in the region totalled $8.650 billion in the first period, dropping to $4.574 billion in the second period ending 2016 and were projected to drop to $336 million in 2019, by which time President Trump had stopped all payments to Pakistan. An abiding concern in the US was that no one had a clear idea where the US funding was going and what effect it was producing inside Pakistan as well on the US war effort. Congress took the lead in launching a critique of the US lack of a clear strategy for Pakistani aid.

  Table 1. The Upswing: US Assistance to Pakistan 2001–2011

  (US$ Millions)

  Source: A. Wajid Rana, former Secretary, Ministry of Finance of Pakistan, based on US Data.

  Table 2. The Downswing: US Assistance to Pakistan 2011–2018

  (US$ Millions)

  Additional CSF in FY2013 and FY2014 = $1118.

  Source: A. Wajid Rana, former Secretary, Ministry of Finance of Pakistan, based on US Data.

  Notes for both tables:

  This funding is ‘requirements-based’; there are no pre-allocation data.

  Includes $312 million ‘global train and equip’ funds for FY2006–FY2009 as authorized by Section 1206 of the National Defense Authorization Act (NDAA) for FY2006, within which $100 million from the FY2008 and FY2009 funds went to train and equip Pakistan’s paramilitary FC.

  Congress authorized Pakistan to use the FY2003 and FY2004 ESF allocations to cancel a total of $1.5 billion in debt to the US government. Also includes $17 million in Human Rights and Democracy Funds from FY2002–FY2007.

  P.L.480 Title I (loans), P.L.480 Title II (grants) and Section 416(b) of the Agricultural Act of 1949, as amended (surplus agricultural commodity donations). Food aid totals do not include freight costs.

  Includes $286 million in Development Assistance appropriated from FY2002–FY2008.

  CSF is Defense Department funding to reimburse Pakistan for logistical and operational support of US-led military operations; it is technically not foreign assistance. Figures in the CSF row reflect actual payments by appropriation year and not appropriations themselves.

  The FY2013 NDAA disallowed reimbursements to Pakistan for the period of FY2012 during which the US military’s GLOC and ALOC across and over Pakistan to Afghanistan were closed by the Pakistani government (November 2011–July 2012).

  The FY2015 NDAA authorized up to $1 billion in additional CSF to Pakistan, $300 million of which was subject to Haqqani Network–related certification requirements that cannot be waived by the administration. The FY2016 NDAA authorizes another $900 million, with $350 million ineligible for waiver. The FY2017 NDAA authorizes a further $900 million, with $400 million ineligible for waiver. In August 2016, the Pentagon announced that certification for FY2015 would not be forthcoming. A decision on FY2016 certification was pending.

  Congressional Critique

  A report from the House Committee Oversight and Government Reform, Subcommittee on National Security and Foreign Affairs, Majority Subcommittee Staff, 16 chaired by Rep. John F. Tierney, criticized the poor tracking of US flows once they reached Pakistani hands.

  Specifically examining the flow of CSF, the Tierney report was also sweeping in its criticism of aid to Pakistan which had become ‘the third largest recipient of United States military and economic support’ by 2008.

  According to this report,

  . . . much of this financial support has been ad hoc, lacking suitable accountability, arguably ineffective in some respects, and not guided by a long-term strategic plan. Problematic are the military reimbursements to the Pakistani military by means of presidentially supported and congressionally appropriated Coalition Support Funds.

  It went on to state that

  . . . there is a credible critique that the program looks like a rental arrangement designed to get Pakistan to undertake operations in the United States’ rather than Pakistan’s interests.

  In other words, congressional critics, rather than Pakistani leaders were seeing Pakistan as a hired gun!

  Reviewing CSF payments under three headings—accountability, effectiveness and diplomatic strategy—the Tierney report found the US approach wanting on all fronts. The report suggested reducing the total quantum of CSF payment, reducing it

  . . . back to the relevant Pakistani military components under the current Coalition Support Funds program. This should be examined, and if there is excess funding once the program is phased out into more appropriate long term, strategic funding platforms, this excess funding should be redirected to these other critical bilateral priorities:

  Establish significant funding to support Pakistan’s efforts to enhance law enforcement and justice-sector capacity, something increasingly seen as vital.

  Provide robust funding for education, health, energy, economic, and institution-building that is delivered in a manner that would be visible and meaningful to all segments of the Pakistani populace. It should be a high priority to fund the ‘democracy dividend’ proposed by Senators Joseph Biden (D-DE) and Richard Lugar (R-IN) to the new democratically-elected Pakistani government and serve as a powerful signal that the United States does, in fact, favor democracies.

  The Tierney Report then added a need for a policy shift that never took place in the decade that followed:

  Now is the time to fundamentally rethink the complexion of the US relationship with Pakistan, including the various flows of financial support. It is now more than seven years after 9/11 and beyond time for the US to shift from temporary reimbursement and assistance programs to a strategic relationship with Pakistan, its institutions, and its people. 17

  Even the Trump administration failed to come up with a viable and sustainable plan to replace the old arrangement with one that would serve both the US and Pakistan’s interests, witho
ut blowing up the relationship.

  Overall, in 2011, the US provided $1.3 billion, some 30 per cent of total foreign development assistance, to Pakistan, followed by soft loans from the World Bank’s International Development Association, and Japan, at 21 and 14 per cent respectively. 18 It also provided indirect assistance via the Asian Development Bank and the IMF in which the US had huge shares. (China meanwhile pledged assistance, largely in the form of loans, worth $850 million.) Yet, the US–Pakistan relationship remained distrustful and constantly verging on collapse. This was largely due to the lack of a coherent and cohesive overall approach to Pakistan, with the military leading the way to satisfy its tactical aims, and Pakistan’s ability to play US needs to advantage by doing just enough to keep the flows coming while fulfilling its own regional objectives, especially vis-à-vis Afghanistan. It did so with practised ease, taking advantage of inherent weaknesses in the US aid system and the lack of a centre of gravity in decision making on foreign relations, especially with Pakistan. By 2016, the US share of ODA to Pakistan had fallen to 19 per cent, behind IDA and ahead of other bilateral donors. It totalled only $703 million out of a total of $3.640 billion ODA. 19

  The creation of the SRAP caused some confusion. This office lacked resources to back up its many proposals for the region. But it managed to cajole others to provide the funding it needed to get things done in Pakistan. The Department of State’s regional South Asia Bureau had little direct input into relations with Pakistan. So, decision making gravitated to the seventh floor and Deputy Secretary Tom Nides for a while, as he dealt directly with the Pakistani Finance Minister Hafeez Shaikh, among others, to lay the ground for sustained dialogue and to troubleshoot.

  In the White House, David Lipton, a former IMF economist who had worked on the Russia bailout at the Fund, knew Pakistan well and kept tabs. He later took that experience back to the IMF when he was made deputy managing director. Mary Beth Goodman on the Holbrooke team was the economic guru there, and later handled the Pakistan economic portfolio at the White House. At Treasury, David Cohen played a big role on the threat financing side and travelled to Pakistan frequently. Neal Wolin represented Treasury at the Deputies meetings in the White House. But surprisingly Treasury did not get visibly engaged on macroeconomic policy issues in Pakistan.

  These personalized contacts did not make up for lack of institutional mechanisms. The US Treasury had the resources available directly as well as through the international financial institutions where the US had a major share. But State and Treasury rarely coordinated. It fell to the NSC staff at the White House to bring Treasury into the game. Deputy Secretary Wolin was one key figure given the Pakistan portfolio, as was Vice-President Biden. 20 It is unclear what role, if any, the CIA had in the discussions of economic or military assistance to Pakistan or how such aid could be better deployed to meet the US war aims in the region. The main weight of managing aid flows fell to a much weakened and transmogrified USAID. It was now largely a contracting agency and lacked the heavyweight economic expertise of the past.

  Issues at USAID

  Traditionally, the Agency for International Development or USAID had a key role in formulating strategy for economic assistance. Its staff could discuss economic policymaking with Pakistan’s best and brightest on an equal footing. But, over time, US foreign aid became primarily a tool for foreign policy, not development policy in recipient nations. It had had a formidable presence in Pakistan until the sanctions of the 1990s led to the diminution of its work and disbanding of the Pakistan hands from USAID and the wrapping up of AID operations in Islamabad.

  After the 1999 coup, Pakistan came under even stricter sanctions and USAID effectively ended its presence there. But USAID had become a shadow of its former self, even in Washington. Its leadership had very few, if any, development economists at the helm. Afghanistan was a major magnet for resources and attention and this affected staffing and the selections of experts who knew that country better than they did Pakistan. Moreover, it was now a subsidiary of Department of State. As one senior USAID official told me: ‘You have a military that is interested in what they are interested in and that influences what State’s going to be interested in.’ In essence, State and USAID became tools of the DoD, whose vast resources overshadowed the money available to State and within it to USAID.

  Programmatic decisions at USAID were left to the country director and his staff. But the strategy was based on a higgledy-piggledy approach, with little direct input from Washington. Largely due to the increasing security issues, it became difficult to staff the Islamabad office with long-term experts who knew the country and would establish relations not only with those in the capital but also with those in the provinces, where the real development project work was to be done.

  When Gregg Gottleib arrived in Pakistan in 2012, he was the first director to sign up for a two-year stint. Some of his staff continued to sign up for multi-year stints, as did some regular State personnel. But the challenges were manifold. AID was rebuilding its operations in Pakistan. Since 2008, it had had to deal with a new US administration and an expanded aid programme. The AID staff essentially had to ‘jam $1.2 billion into a machine that really managed $100, $150, maybe $200 million [a year]’. The money started stacking up. A major reason on the US side was the need to follow the long and detailed project identification and approval procedures designed for more ‘normal’ country environments while operating in a country that had enormous security issues and urgent needs. As Gottleib put it:

  You have to maintain all the elements of a mission as if you were in Malawi, a relatively peaceful country, rather than Pakistan, a country in a security crisis zone]. I think we ended up with a whole lot of mistakes because we tried to rush into this. Plus we had the disadvantage of Holbrooke [the SRAP] saying ‘Now give half your money to the local organizations.’ Which in itself isn’t bad. But you can’t give a group that’s been managing a million dollars $40 million, right? We ended up with a number of programs that basically didn’t work.

  The tussle between State and AID continued to bedevil AID operations too. As a junior partner in Pakistan, AID officials had to listen to the Coordinator for Aid Programmes in Pakistan appointed by State in August 2009 to assist the SRAP. 21 The coordinator, Amb. Robin Raphel, an old Pakistan hand, knew Pakistan, its movers and shakers and its systems well, but was not a development economist and therefore may have been unable to make the powerful economic case for the types of investments that would lay the ground for sustained and sustainable growth. Going along to get along seemed to be the guiding principle for both the US and Pakistani officialdom.

  According to Gottlieb, the mantra was: ‘You don’t get a billion dollars to do development. You get it to do politics.’ Resolving these disputes became a necessary part of AID’s mission even before it got involved with its Pakistani counterparts. Raphel got into trouble with her own authorities in later years when news leaked that she was under investigation for having become too close to the Pakistanis and possibly spying for Pakistan. Her security clearance was withdrawn. After a prolonged period of suspense and tension for her and her family, the US government quietly closed its inquiry. 22

  ‘I give a lot of credit to Ambassador [Rick] Olson,’ recalls Gottleib. ‘When I got there, we sat down and talked and I said to him “What do you want?” He said, “I want the [in]fighting to stop.” Olson gave AID freedom to operate fairly autonomously at the day-to-day level. That quelled the battles with State personnel.

  The other issue was the rising expectations of Pakistani counterparts who saw the $7.5 billion promised to Pakistan under the KLB bill over five years as manna from heaven. By their calculations, they were expecting $1.5 billion a year. Only the Pakistan embassy in Washington understood the difference between appropriation and authorization; few inside the Pakistani establishment at home understood the US process. ‘From the very beginning it was pretty clear that the $1.5 billion wasn’t coming . . . If you look at the appropr
iations, it started at $1.2 billion and just continued downward . . . You look at the latest one, the 2018 proposed budget $200 million.’ 23 This was hard for Pakistanis to comprehend. On the US side, there were complications also. Pakistan would demand faster movement of resources. An estimated $2 billion of the $7.5 billion KLB funds remained undisbursed in 2009.

  Dan Feldman, who had been a long-standing member of the SRAP team and eventually became SRAP himself, performed as the external facing part of the team in the earlier years. He recalls Foreign Minister Hina Rabbani Khar exhorting him to ‘Speed this up. You need to brand better. You just need to give it [American aid] to Diamer Bhasha [dam]’ and so on. He conceded:

  There are so many things that they were likely right about. But there are also just fundamental barriers to effectiveness from Pakistan . . . First of all, I think the expectations for Kerry–Lugar–Berman were way too high and unrealistic . . . [Further, Pakistan] needed to demonstrate each year that they deserved the appropriation. What were we spending on? How was it being used? And then obviously the [Pakistani] military took such an adversarial position against it at the very outset, which really undercut support for it in the United States at the very beginning.

  Feldman added that the question in American minds was: ‘If we are going through all this effort to try to move this amount of assistance [Over $1 billion a year], why is the military ginning up acrimony about it?’ 24