A Better Bargain for Foreign Aid to Pakistan

By C. Christine Fair
Saturday, May 30, 2009

The Obama administration pledged more than $100 million in aid last week to Pakistanis fleeing the fighting between the Taliban and the military in the Swat Valley. All told, since 2001, the United States has spent about $12 billion to help Pakistan. Yet last month, Secretary of State Hillary Clinton declared Pakistan a "mortal threat" to international security.

Washington needs to strike a far better bargain for its billions.

Faced with a Taliban offensive and the threat of Pakistan's nuclear arsenal falling into jihadists' hands, the United States is proposing to spend an additional $1.5 billion each year until 2013 on civilian aid programs and to increase funding for Pakistan's security forces. Last month in Tokyo, international donors pledged $4 billion to help Pakistan.

U.S. officials and the public want to know whether these massive sums will be spent wisely. "We've sent money in the past," House Foreign Affairs Committee Chairman Howard Berman (D-Calif.) told an interviewer this month. "It has been stolen."

How can the United States ensure that the new funds won't disappear into the pockets of well-connected kleptocrats and their cronies instead of helping Pakistanis in need? First, it's important to understand how so many billions have been spent for so little apparent positive effect.

One likely reason is that aid itself corrupts and corrodes. Foreign aid lessens the requirement for a government to forge a bond with its citizens by raising revenue and redistributing those funds as services. Such a social contract is fundamental to Pakistan's emergence as a robust democracy that provides for its people.

Some estimates suggest that of 180 million Pakistanis, fewer than 1.5 million pay taxes. Pakistan should be encouraged to reform its tax code and commit to collecting what is owed -- even from recalcitrant politicians, savvy business executives, feudal landlords and other well-connected tax evaders.

The massive infusion of foreign aid has also allowed Pakistan to avoid having to choose between guns and butter. Such choices define the democratic process. But successive Pakistani governments have successfully wagered that chronic instability and the imminent dangers of terrorism and nuclear black-marketeering would leave the world with no choice but to bail them out, regardless of their failures.

The world needs a smarter way to help Pakistan. There is little time: The government in Islamabad has developed a sense of entitlement to international assistance.

Yet ensuring transparent and effective assistance is more than just fiscally responsible. It is critical to securing the support of the Pakistani people.

During several trips to Pakistan in recent months, I have heard from many citizens that they believe Washington is deliberately aiding corrupt people and institutions to ensure that Pakistan remains a vassal state beholden to Washington.

There is a better way: a well-structured trust fund administered by a trusted body such as the World Bank. A similar fund operates successfully in Afghanistan. This trust fund should require Pakistani entities to contribute to their own aid programs, develop a robust plan for execution and adhere to international accounting standards. Information on expenditures should be transparent and available to all, especially Pakistanis.

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