COMMENT: The aid that failed — II —Jamil Nasir
Donors will give aid to the government as far as a dominant majority of the people is mired in poverty. This implies that for a corrupt government or ruler, poor people are an asset
The composition of aid indicates that it has skewed towards security-related aid especially in the past one decade, implying that it is not the people of Pakistan who are the direct beneficiaries of US aid. The aid money does not stay with the people of Pakistan. It is either dissipated in the air as the smoke of fired bullets or goes back to the US to buy arms, F-16s, missiles and technical expertise. Hence further vindication of the point that the people of Pakistan are not an important variable in the determination of US aid, rather it is the US interests in the region that matter.
Fourth, aid has been transactional in nature. For example, security-related aid is provided for the specific expenditures made by the army in connection with the war against terror. According to a report in The Wall Street Journal, Washington has rejected more than 40 percent of over $ 3.2 billion filed as claims by Pakistan for the period January 2009 to June 2010, for military gear, food, water, troops housing and other expenses. The US denial rates have gone up from 1.6 percent in 2005 to 38 percent in 2008 and 44 percent in 2009, the report says.
Fifth, there have been problems in the release of aid money. This uncertainty in release has implications for economic planning based on aid money. Furthermore, delayed releases reduce the value of money in real terms, as a dollar today in hand is better than a dollar tomorrow. Sixth, US aid suffers from inadequacy. Based on the meagre amounts of development and economic aid, it is almost impossible to initiate any meaningful programme for poverty reduction and development on a sustained basis.
Besides the motivation and nature of aid, another important question related with the phenomenon of aid is whether the aid has achieved its avowed objectives. Has the security-related aid enhanced the security of Pakistan or, for that matter, of the US? Has economic aid helped in mitigating the economic woes of Pakistan? The answers to these questions are certainly not in the affirmative. Pakistan feels more threatened today as compared to one decade ago, both internally as well as externally. Bomb explosions, suicide bombings and drone attacks are a direct blow to its security.
As regards the developmental impact of aid, the results are not much different from other countries that remain reliant on foreign aid. Regarding African countries where the per capita development aid is much higher than that of Pakistan, the remarks of Dr Dambisa Moyo, author of Dead Aid are very pertinent when she says that it is difficult even to mention the name of a single country, anywhere in the world, that has meaningfully reduced poverty and spurred significant and sustainable levels of economic growth by relying on aid. On the other hand, an aid-based strategy hurts more than it helps by encouraging corruption, creating dependency, fuelling inflation, creating debt burdens and disenfranchising the people. According to Moyo, open-ended commitments with no end in sight (as in the case of Pakistan) have failed to deliver.
Insufficiency of aid is another chief reason for its ineffectiveness. The amount of aid has been so low that it was almost impossible to give a big push to economic development and growth. The corruption that is often attached with aid is another cause of its inefficacy. Aid may bring some change in the lives of the poor if it reaches the poor, which, in turn, means that it should not go to poor (in governance) governments.
Moreover, aid creates distortions in the incentive system. For example, development aid is given by donors for poverty reduction. The donors will give aid to the government as far as a dominant majority of the people is mired in poverty. This implies that for a corrupt government or ruler, poor people are an asset. The government, in such a situation, will have little incentive to put in serious efforts for poverty reduction. In our case, lacklustre efforts at domestic revenue generation can partly be traced to the distortion created by aid in the incentive system.
The moral of the story is simple. We should reduce our reliance on aid. Chronic aid addiction has never solved the problems of poverty reduction and economic growth. The sooner we wean ourselves off of aid dependency, the better. Even if we keep on receiving three rupees on a daily basis, it will not bring any positive change in our lives.
Saying goodbye to US aid does not mean that we should adopt isolationist policies or attain autarky. It is neither desirable nor possible in this age of globalisation. The point is that, instead of a transactional and exchange relationship based on economic aid, both the US and Pakistan need to evolve a broad-based relationship. Such a relationship should be based on mutual respect, trust and strict adherence to the sanctity of the sovereignty of Pakistan. Decreasing our dependence on aid will also provide us with room for more political choices. Our dependence on US aid better serves the US interests as it makes arm-twisting easy. Though US legislators are talking about cutting off aid, US policy makers will never desire that Pakistan walk away, at least in the near future as about 80 percent of fuel and other goods supplies for NATO troops transit through Pakistan. Moreover, Pakistan has got a crucial role to play in the stability of the region. The uneasiness we are currently experiencing in our relations with the US is merely a war of nerves.
Our strategy should be to gradually reduce our dependence on economic aid, if it is not immediately possible, and at the same time improve our terms of engagement with the US. Improving trade relations (through market access to Pakistani goods) and people-to-people contact may be two important ingredients of the new terms of engagement. The policy of putting all our eggs in one basket has never been a good one. Besides developing new terms of engagement with the US, we need to improve our relations with other countries, especially with our regional partners, including India. Moreover, we need to put our house in order by making serious efforts at revenue generation by taxing the rich and the elite, and tackling corruption and governance issues effectively.
The writer is a graduate from the Columbia University in Economic Policy Management. He can be reached at email@example.com