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CGD in the News

August 21, 2012

Not So Great Expectations (Foreign Affairs)

Nancy Birdsall, Milan Vaishnav, and Danny Cutherell wrote an op-ed for Foreign Affairs about what foreign aid can and cannot do in the Arab world, based on some lessons learned from US development efforts in Pakistan.

The following op-ed originally appeared in Foreign Affairs:

Shortly after assuming the presidency, Barack Obama set his sights on reorienting the United States' relationship with Pakistan. For decades, Washington had been a fair-weather friend to Islamabad, eager to work together when its own security interests were at stake, but otherwise indifferent to Pakistan's domestic challenges. But recognizing that the fates of South Asia and, ultimately, U.S. security are inextricably linked with Pakistan's stability and prosperity, Obama signed into law the Enhanced Partnership for Pakistan Act (the Kerry-Lugar-Berman bill) just a few months into his first term. The bill authorized up to $7.5 billion in aid to Pakistan's civilian government over five years and was meant to usher in a new era of partnership and bolster democracy.

Nearly three years later, reality has set in. The partnership, although initially energized by the late Richard Holbrooke, Obama's special envoy to Afghanistan and Pakistan, was hamstrung from the outset. The problems do not stem only from the U.S. drone campaign and the covert raid that killed Osama bin Laden, nor is Islamabad's failure to take on difficult domestic reforms solely to blame. The problems are also due to the United States' inability to insulate medium-term development investments from diplomatic and security pressures and its overreliance on a complicated and creaky foreign aid system to administer development programs.

Even as officials at the White House, in the State Department, and at the U.S. Agency for International Development (USAID) cope with the problems of doing development well in Pakistan, they are in danger of repeating the mistakes made there in yet another civilian aid ramp-up. This time, Washington plans to use aid for political and economic development in the Arab Spring countries: Egypt, Libya, Tunisia, and, perhaps, a few more players to be named later. The administration's starting point is a request earlier this year that Congress establish the $770 million Middle East and North Africa Incentive Fund. The initiative is a vaguely defined plan to "support citizens who have demanded change and governments that are working to deliver it." Pakistan has several lessons for future U.S. engagement with the countries of the Arab Spring.

First, it is fruitless to assume that U.S. civilian assistance provides serious leverage for democratic or other reforms, particularly when a recipient's civilian government exists in the shadow of a dominant military. The cardinal rule of Pakistani politics is that the military chooses the piece of the budget pie it wants. Civilian agencies are left to fight over the crumbs. U.S. assistance has not changed that fact; it did not strengthen the civilians' hand with the military, nor did it induce it to undertake politically costly reforms such as raising energy prices. It is naive to imagine that threats to revoke U.S. civilian aid -- a small portion of GDP directed to specific projects -- carry much weight with Pakistan's military intelligence establishment or even with the civilian government. The same would be true in Egypt. Civilian aid might help get the United States a seat and a voice at the policy table on difficult technical issues. But it cannot -- on its own -- coax change where there is no political will.

Second, it is unwise to spend aid dollars without general agreement among administration officials, and with Congress, on why those dollars are being spent. An enduring source of tension within the U.S. government is the disagreement between its foreign policy and development arms about the main goal of U.S. economic assistance. The White House, U.S. diplomats, and many in Congress want an early and visible return. They are motivated by a desire to improve the United States' standing in the short run. Those in the development community want investments to improve governance over the long haul, independent of their immediate visibility and impact. In some cases, the two objectives overlap. In many others, they are at odds. The absence of a shared vision is further compounded by confusion about who is in charge of U.S. development policy, an issue that was further muddied by the creation of the special envoy for Afghanistan and Pakistan at the State Department, and which could haunt the department's new office of Middle East Transitions.

Third, a consensus in Washington on why the United States should spend aid dollars should be matched by a consensus on which activities those dollars are for. What has been missing in Pakistan -- and what the United States cannot afford to get wrong in the Middle East -- is a coherent strategy for deploying aid dollars that has buy-in across U.S. government agencies and in the countries themselves. In Washington, the assistance strategy for the Middle East should be sold to Congress as risky, but worth the risk. It should also be sold as limited in generating leverage on tough political and diplomatic issues. It should clearly articulate the goals of U.S. assistance, how policymakers will monitor progress, and how discrete U.S.-financed development projects might contribute to achieving those goals.

More important, assistance should not be the principal tool for engagement with the post-Arab Spring regimes. Rather, the strategy should focus on initiatives to expand trade and support private sector investment, and should reflect collaboration with the World Bank and the European Bank for Reconstruction and Development (EBRD), both active in Arab Spring countries, on helping countries with labor, tax, and competitive reforms they so desperately need.

Fourth, Washington should have lower expectations about its own ability to manage a significant civilian surge. In hindsight, the Obama administration and those on Capitol Hill greatly overestimated the readiness of U.S. civilian agencies to rapidly expand the scope of their operations in Pakistan. Human resource constraints, evident from the start, abound: one-year posts for diplomats who cannot bring their families, harsh restrictions on leaving the embassy compound, and a frequently unhelpful (and occasionally hostile) host government have all played their parts. Those facts on the ground, combined with the stifling reporting requirements imposed by Washington that have become standard fare for development programs, have further limited the United States' agility. And, on top of all these constraints, sat the State Department's mandate that half of all U.S. aid be channeled through local (Pakistani) entities. The directive was a well-intentioned but overly ambitious operational shift in a country with deep governance problems. U.S. civilian agencies do have a large, established presence in Egypt (although less so in neighboring countries), but Washington would be wise to ramp up operations gradually and invest now in developing a cadre of Arab Spring hands.

Fifth, Washington should leave logos behind. When you do a good deed for a friend but insist that your friend wear a sign advertising your virtue, you defeat your purpose. In Pakistan, branding has often driven U.S. development priorities, rather than the other way around. It is understandable that Washington has a deep interest in ensuring that the government -- as well as the American taxpayers -- gets credit for the assistance it provides. But using salability as a litmus test ensures that many worthy projects will not be pursued. Policymakers thinking about Egypt should keep in mind that credit flows to the benefactors of good, well-designed development projects, not to those with the flashiest donor agency symbols.

The United States has considerable resources and expertise upon which it can draw to help the leaders of the Middle East and North Africa's transitional democracies. Yet to do so effectively requires U.S. policymakers to recognize both the strengths and weaknesses of the United States' development machinery. The United States can and should exploit its expertise across its public and private sectors, but it should not always pair that expertise with massive bilateral aid packages. Even when aid does begin to flow, it need not flow only -- or primarily -- through U.S.-managed programs. Other donors and institutions are often better placed to deliver assistance, and pooling resources with them reduces the burden on recipient country officials. Finally, instead of obsessing about getting credit for American largesse, U.S. policymakers should ensure that they support good ideas -- even when pioneered by others.

With access to resources, technology, and technical expertise, the United States has much to offer the countries of the Arab Spring. But, as the case of Pakistan shows, the United States' power and abilities have clear limits. The country that prospered by skillfully exploiting the concept of comparative advantage would be well served by returning to its roots.

Read it here.

August 13, 2012

Making KLB Effective (Dawn)

Nancy Birdsall, Milan Vaishnav, and Danny Cutherell wrote an op-ed for Dawn about CGD's recently released report More Money, More Problems: A 2012 Assessment of the US Approach to Development in Pakistan.

The following op-ed originally appeared in Dawn:

October marks the third anniversary of the Kerry-Lugar-Berman (KLB) bill.

Few people in America are familiar with KLB — the US legislation that authorised $7.5bn in development assistance to Pakistan between 2009 and 2014 — but it’s become a household phrase in Pakistan.

Last week we released a new report, More Money, More Problems, evaluating KLB’s progress to date. In short, the bill has failed to live up to its creators’ expectations and the US must alter its approach if the programme is to continue. But bilateral development cooperation is still important to improve the lives of millions of Pakistanis and enable better relations between the two countries. There are steps that Pakistan can take to help ensure US assistance is effective.

But before lambasting the US for not accomplishing what it set out to do, it’s important to recognise the context in which KLB is being implemented. The last three years have not been good ones for the US-Pakistan relationship. From Raymond Davis to Salala (not to mention that little episode in Abbottabad), a series of diplomatic dust-ups have opened a widening rift between the two countries. Given the circumstances, in some ways it’s surprising that the US assistance programme still exists at all.

As critical as the report is of US efforts, one of its underlying assumptions is that US-Pakistan development cooperation should continue. The lives of Pakistanis can be improved by adding megawatts of power to the national grid and by improving entrepreneurs’ access to credit — areas where the US can help. And the development programme also provides a more neutral channel for engagement between the two countries. As the political-military relationship encounters inevitable bumps in the road, development offers a channel for working together — a channel that, importantly, relies on collaboration between civilians in both governments.

In order for KLB to achieve its potential, however, both countries must do more to ensure that dialogue around development continues. They must redouble their efforts to make sure that money spent on development achieves its intended result.

At the end of the day US assistance, on its own, cannot alter the fundamental realities of Pakistan’s political economy. Decades of failed reform efforts highlight the limits of donor leverage. Yet, US assistance can act as a catalyst to bring about modest change. In order for this to be possible, however, the US must acknowledge its shortcomings as a development actor and Pakistan must recognise its role in helping get the KLB programme back on track.

There are three steps the government of Pakistan can take to help the US help Pakistan. First, Pakistan needs to insist that the two countries agree on a limited set of metrics to measure Pakistan’s overall development progress. These should be more than direct outputs of aid projects. Rather, they should reflect a shared view of what development can do, and which outcomes should be pursued over the next several years. One of the biggest failures of the current US approach is the lack of overarching vision. The best American civilians have been able to do is identify five ‘priority’ sectors to organise its activities in Pakistan.

Within each sector, however, Pakistanis are clueless about the end goals of US assistance, and US officials have struggled to construct a compelling narrative.

In Pakistan, mentioning ‘indicators’ immediately raises red flags about ‘conditionality’ or ‘benchmarks’. Yet without clear objectives, aid will continue to be evaluated using the only available (but largely unhelpful) metric: aid dollars spent. We know, of course, that aid spending alone does not guarantee positive development impact. The government of Pakistan must exercise leadership and either take ownership over development programming to ensure that it is a joint, highly focused effort, or reject it outright.

Second, Pakistan must recognise America’s limitations as a development actor. The US — like all donors — is simply better at some things than others. Acknowledging this central truth also requires a dose of humility on the part of American civilians.

The same country that can conduct targeted drone strikes in remote Waziristan is not, it turns out, the most effective agent for strengthening primary education in southern Punjab.

The US has a comparative advantage in using its development funds on energy, innovation, higher education programmes and supporting the private sector. Pakistan can help US civilians by identifying sectors or projects where US support is most needed, and by discouraging US programmes where other donors would do a better job.

Pakistan should also encourage donors to pool resources through multilateral channels that can be directed to specific sectors or programmes, and led by donors who have the best expertise and experience.

Finally, both countries bear a degree of responsibility for managing expectations for what development programmes can actually achieve. The Obama administration needs to communicate to Congress that aid will not buy Americans love, rein in the Pakistani military or force crucial reforms on energy or tax collection. Pakistan, for its part, should also scale back its own expectations. There are still far too many people inside Pakistan who believe a miserly Obama administration has total control of $7.5bn but is holding back in order to punish Pakistan. In reality, US development budgets are approved on a yearly basis by Congress; KLB merely represents an intention, not an iron-clad contract. The administration has to make the case to Congress each year that Pakistan deserves the money.

Despite the unfulfilled expectations thus far, the United States should remain fully committed to its KLB promise to support the creation of a strong, economically vibrant Pakistan with an accountable, democratic government. This is in the interests of Americans as well as Pakistanis. Yet it’s clear that the US faces severe constraints in its ability to be an effective development actor in Pakistan.

There are certainly reasons to be critical of US development efforts in Pakistan and serious changes need to be made, but Pakistan too shares the burden for improving US efforts. Even though the US is spending billions to help Pakistan, ironically it is Pakistan that must help the US in order to help itself.

Nancy Birdsall is the president of the Centre for Global Development; Milan Vaishnav is an associate with the Carnegie Endowment for International Peace; Daniel Cutherell is a policy analyst at the Centre for Global Development. They are authors of the report More Money, More Problems: A 2012 Assessment of the US Approach to Development in Pakistan.

Read it here.

January 6, 2012

Cementing Corrupt Political Relationships (Wall Street Journal)

Research fellow Milan Vaishnav and non-resident fellow Devesh Kapur's paper on concrete and corruption in India was featured on the WSJ's Review blog.

From the article:

Problem: How do you quantify illegal campaign contributions in India? One solution: By tracking the rise and fall of real-estate developers’ use of cement.

That huge sums flow, off the books, to Indian politicians at election time is well known, although difficult to document. As in the United States, elections in the world’s most populous democracy are growing ever more expensive, and campaign financing there is highly privatized and unregulated. Two researchers hypothesized that political payoffs would be substantial enough to cause a liquidity problem for some companies. They decided to focus on real-estate developers, who are especially beholden to state-level politicians, who hold great power over land-use decisions. Since India lacks fine-grained data about construction trends, the researchers looked for a proxy — and settled on how much cement was consumed by companies (cement being the “indispensable ingredient in Indian construction).

They looked at monthly cement consumption from April 1995 to March 2010, in 17 Indian states, representing more than 90% of the population. Indeed, in the month of a state election, cement consumption declined by 12-15%. The amount of the drop was larger, 38%, when a state election coincided with a national election—two sets of politicians would have their hands extended — and larger in heavily urban states, which have richer contracts to be won. The declines were also larger in the case of scheduled elections (as opposed to those caused by no-confidence votes), which fit the authors’ thesis.

The authors statistically ruled out other possible causes of the consumption declines, and they noted that cement production wasn’t affected.

(Why wouldn’t the construction firms “smooth” their political expenditures by spreading them even across the year, rather than waiting for an election month? Economic theory might predict such behavior, the authors said, but politicians would not be interested in creating payment plans for illegal contributions: They’d want lump sums.)

Source: “Quid Pro Quo: Builders, Politicians, and Election Finance in India,” Devesh Kapur and Milan Vaishnav, Center for Global Development Working Paper (December)

Read it here.

November 6, 2011

Why Pakistan Told the IMF to Get Lost (The Nation)

Nancy Birdsall, Milan Vaishnav and Danny Cutherall's op-ed piece on the IMF was featured in The Nation.

From the Article

Several weeks ago, Pakistan indicated that it would say “thanks, but no thanks” to more than $3 billion in loans from the International Monetary Fund (IMF), as internal political issues proved stronger than the need for Pakistan to bring in much needed money. But while this incident says much about the conflict going on within Pakistan’s ruling bodies, it also shines light on the flawed American strategy of trying to use economic aid to ensure better behaviour from Pakistan’s military and intelligence services.

For the past three years, Pakistan has had an IMF programme backed by a loan of more than $11 billion. Of this, the IMF has so far released almost $8 billion in several tranches-each dependent on Pakistan’s civilian government making progress on key tax and energy sector reforms. Over a year ago, as progress on those reforms stalled, Pakistan asked for — and received — more time to comply with promised changes and collect a final $3.6 billion tranche. But at the end of September the Minister of Finance announced that Pakistan would not continue the IMF programme at all, and he has since emphasised that Pakistan would work on its own “home-grown” reform programme. Though Pakistan can go back to the IMF anytime (and indeed there were rumours recently that it would), the civilian government clearly wants to avoid locking itself into another IMF programme involving promises for reforms that it will not be able to fulfill.

Why would Pakistan, which has benefited this past year from high agricultural prices, but nonetheless is battling serious revenue problems and rising inflation, turn down big IMF money — and while pressing ahead with its own reform package, avoid seeming to seek a fresh new round of IMF money?

Read it here.

November 4, 2011

Pakistan and the IMF (Foreign Policy)

Nancy Birdsall, Milan Vaishnav, and Danny Cutherall's op-ed piece on Pakistan and the IMF was featured in Foreign Policy's AFPAK channel.

From the Article

Several weeks ago, Pakistan indicated that it would say "thanks, but no thanks" to more than $3 billion in loans from the International Monetary Fund (IMF), as internal political issues proved stronger than the need for Pakistan to bring in much needed money. But while this incident says much about the conflict going on within Pakistan's ruling bodies, it also shines light on the flawed American strategy of trying to use economic aid to ensure better behavior from Pakistan's military and intelligence services.

For the past three years, Pakistan has had an IMF program backed by a loan of more than $11 billion. Of this, the IMF has so far released almost $8 billion in several tranches-each dependent on Pakistan's civilian government making progress on key tax and energy sector reforms. Over a year ago, as progress on those reforms stalled, Pakistan asked for -- and received -- more time to comply with promised changes and collect a final $3.6 billion tranche. But at the end of September the Minister of Finance announced that Pakistan would not continue the IMF program at all, and he has since emphasized that Pakistan would work on its own "home-grown" reform program. Though Pakistan can go back to the IMF anytime (and indeed there were rumors recently that it would), the civilian government clearly wants to avoid locking itself into another IMF program involving promises for reforms that it will not be able to fulfill.

Why would Pakistan, which has benefited this past year from high agricultural prices, but nonetheless is battling serious revenue problems and rising inflation, turn down big IMF money -- and while pressing ahead with its own reform package, avoid seeming to seek a fresh new round of IMF money?

Pakistan walked away from the IMF because a weak coalition government simply could not deliver sufficiently on the reforms it had promised, despite the apparent desire of the country's economic policy team to do so. Attempts by the civilian government to lower subsidies or raise taxes have been met over the past year with street protests and threats of further upheaval, and unsurprisingly, resistance on the part of the legislature.

Read it here.

August 4, 2011

Study on Poll Funds Says Cement Sales Linked to Elections (Indian Express)

Non-resident fellow Devesh Kapur and visiting fellow Milan Vaishnav's study on builders and campaign election finance was featured in an article in The Indian Express.

From the Article

Cement consumption in India is related to the electoral cycle. There is a significant drop in cement purchase during the four-week campaign period prior to election day, especially in the case of Assembly elections, with the biggest dip in Andhra Pradesh and the smallest in Delhi. This slowdown speaks of an off-the-books builder-politician quid pro quo.

These are the provocative findings of a new study that turns the spotlight on one channel of the opaque and understudied field of illicit campaign finance. In a yet-to-be-published paper, titled ‘Quid Pro Quo: Builders, Politicians and Election Finance In India’, Devesh Kapur, who teaches political science at the University of Pennsylvania, and Milan Vaishnav of Columbia University track the black money flows in the construction and real estate sector.

The authors attempt to empirically describe and quantify the under-the-table compact between politicians and builders. The quid pro quo goes like this: Politicians park their illicit assets with builders because “they require a place to invest these assets where they can avoid public scrutiny while earning a decent return”. Builders rely on politicians for discretionary policy favours.

Read it Here.