South Asia Research and Analysis Studies

Myth and reality of American aid
Khalid Iqbal

Since 1950s, Pakistani governments, both military and civilian have been fatally addicted to US financial assistance. Pakistani rulers have always been ready to bend backwards to receive another dose of US aid. Hillary Clinton and Admiral Mullen were certainly not short of affirmatively nodding audience during their recent visit to Pakistan.

However, at a common man’s level, sponsors of anti-Pakistan strictures on American aid like congress-men Glenn, Symington, Pressler, Brown, Kerry-Lugar etc are house-hold names in Pakistan, reminding the nation of chequered history of American sanctions and strings.

American perception has it that Pakistan is almost at the brink of bankruptcy and it is the US assistance that is providing the lifeline for sustenance. Direct and indirect beneficiaries of American aid in Pakistan faithfully work overtime to strengthen this feeling amongst the Pakistani public as well, however statistics speak otherwise. Ishrat Husain, a former governor of State Bank has recently opined that US aid does not help the government’s precarious fiscal situation in any meaningful way as only ‘12-15 per cent of the total amount is channelled for budgetary support…Assuming that whole $3 billion (per annum) in economic and military is disbursed fully, this accounts for less than seven per cent 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.’

It seems that every American Congressman and Think Tank has an opinion on what the US should do with its aid to Pakistan. There have been calls to freeze all assistance to Pakistan as well as calls to stay the course. Nearly three out of four Americans back cuts. Many of the loudest voices in Congress have been for attaching additional strings to the aid.

As regards significance of the aid, World Bank data shows that during the previous five years, net Official Development Assistance (ODA) from all sources to Pakistan has averaged less than 1.5 per cent of its Gross National Income. Per capita aid from all sources in 2009 was US$14 only! These facts do not point towards any meltdown if the American aid is withheld.

Shahid Javed Burki, a former World Bank Vice President is of the view that ‘cutting of civilian aid would have only a 0.14 percent impact on Pakistan’s GDP growth’. “As long as the multilateral aid continues, it won’t impact Pakistan’s economy,” says Sartaj Aziz, a former finance minister. Out of $ 1.5 billion per annum authorisation by Kerry-Lugar-Burman Act, actual disbursements have been $275 million and $676 million during 2009 & 2010 respectively. This includes flood relief donation of $500 million. Therefore, it would be naďve to presume that withholding of US assistance is so significant that it would result into strategic collapse. But the real concern for Pakistan’s solvency would be loss of support from international lenders like the World Bank and International Monetary Fund (IMF); both look towards the US before deciding. IMF may deny the bailout request until a last-minute nod by the White House.

On numerous occasions, American aid has been used as carrot and stick to entice Pakistan to do the American bidding. The carrot has been the promise of additional financial aid while the stick has been the threat of withholding of already sanctioned aid. Financial experts in Pakistan have pointed out that out of the lump sum assistance sanctioned by the US, only a fraction reaches the national exchequer; bulk is siphoned off as consultancy charges to the US appointed agents and overseers.

A candid estimate puts losses to Pakistan’s economy due to its participation in war on terror around US$ 70 billion. The US has provided $20.7 billion to Pakistan since 2002, which makes about 0.1 percent of the American treasure spent on war on terror over the same period. A little more than two-third of $ 20.7 billion went to military use, the remainder to civilian. The biggest head, consuming $8.9 billion, is “Coalition Support Funds.” Washington sanctioned this amount for Pakistan’s military as compensation for services rendered on behalf of the US military. However, a sizeable portion of it remains un-remitted. The US is getting obnoxiously stingy on reimbursements of this fund, rejecting 44 percent claims in 2009, as compared to 1.6 percent in 2005.

The uncertain environment that arose as a sequel to ‘Operation Geronimo’ has compelled Pakistan to launch an aggressive outreach plan for mobilizing alternative contingency sources. China and Russia are particularly alarmed by the renewed American unilateralism. Both are increasingly sympathetic towards Pakistan’s predicament and are deeply concerned about fresh US inclinations towards unilateralism. Russian and Chinese reactions to the Abbott Abad raid spared the Pakistani establishment from rampant criticism.

Pakistani President’s recent visit to Russia was interesting. Though the visit was already planned, the timing appeared promising for Pakistan. Russia has been increasingly uncomfortable with India’s rapprochement with the United States and realizes the potentially damaging implications of India’s diversification of foreign relations for Russo-Indian partnership. Pakistan has now taken centre stage in Russia’s efforts to play a more active role in Central and South Asia as Moscow braces for the drawdown of American led coalition forces in Afghanistan. Moscow now sees Islamabad as part of solution to region’s problems. Recent visit of Colonel General Alexander Postnikov, Russian Ground Forces Commander-in Chief, to Pakistan indicates that Pak-Russian relations are moving ahead on sound footing.

On the heels of Presidential visit to Russia, Pakistani Prime Minister visited China. Most glaring outcome of this visit was handing over of the management of Gwadar port to China. The Statesman, reported while quoting the Press Trust of India that the Chinese government has warned Washington “in unequivocal terms that any attack on Pakistan would be construed as an attack on China,” and advised the US government “to respect Pakistan’s sovereignty.” Iran is ready to provide oil on deferred payments and electricity on competitive prices. We can always count on Saudi Arabia, UAE and other friendly countries for economic support.

Economic assistance from developed to developing countries always accompanies strings of various kinds. American aid to Pakistan is no exception; however it has become a highly touchy matter due to differing perceptions about its hidden agenda. Perpetual dependency has resulted in relegating Pakistan to a client state or a ‘rental commodity’. America has been able to accrue an unbalanced influence over Pakistan’s policy resulting into a subservient association.

Pakistan’s military leadership needs to re-evaluate the necessity of American military hardware viz. a. viz the incremental erosion of our national sovereignty. Though American systems are far ahead in technological superiority, we need to look towards recent Indian decision of declining American offer of F-16 and F-18 aircraft and going for alternative sources of supply. If India can do without American hardware, we can also live without it.

Now, it is time for the Pakistani nation to carry out a reality check, take a fresh stock of the cost benefit asymmetry and make a distinction between reality and myth of American aid.