January 28, 2002	Monday	Ziqa’ad 13, 1422

The United States has decided to set up the offices of the USAID in Pakistan. This is good news. Even better is the news that the about-to-be-set-up office of the United States Agency for International Development will start its operations in Pakistan with special focus on primary education and public health.

And that it is going to be a long term function covering a period of ten years is all the more a welcome news. And it is heartening to note as well that rural areas which constitute over 65 per cent of Pakistan would be the main focus of attention of the USAID’s health and education assistance.

It was following the refusal of President Papa Bush in late 1990 to certify that Pakistan did not possess nuclear weapons that the offices of USAID in Pakistan were closed down along with complete stoppage of all American economic and military assistance to Pakistan. The USAID had functioned in Pakistan under one name or the other ( it was even called Village Aid at one point in time!) and at various high and low levels throughout the 1960s, 1970s and 1980s until they were closed down in 1990 after having remained highly active in the preceding decade that had marked very close Pak-US economic and military relations as the two had joined in a war against the Soviet Union in Afghanistan.

However, when the Aid offices closed down in the late 1990, there was nothing on the ground by way of socio-economic projects which could be shown as the manifestation of such high level of US economic assistance to Pakistan for ten long years. One, however, recalls to have seen two well documented reports prepared by the USAID in those days, one on energy and the other on edible oil. The first one had created a sort of panic in the country because it had concluded that unless something was done very quickly to overcome the massive load shedding that had begun in the country by early 1980s, the wheels of industry would soon come to a complete stop and agriculture would also suffer massively.

It was mainly on the basis of this report that Pakistan was seen subsequently rushing into high cost thermal power projects in the private sector. The second one was also equally panicky as it had concluded that within a few years Pakistan’s bill for importing edible oil would shoot beyond 3 billion dollars. Since commodity assistance under PL480 had also stopped following the decertification by the US President, local production could start and the balance was met from cash imports which remained highly economical because of decline in international prices of edible oils. So, the import bill for edible oil never went even beyond one billion dollars in all these years.

Another thing that happened during the last ten years of USAID in Pakistan (1980 to 1990) was that Pakistan’s shipping industry was totally destroyed because all the aid which came to Pakistan in kind under the US rules had to be transported through the US flag ships. The cost of shipping was deducted from the economic aid and our own ships remained anchored at our ports idling and losing their legitimate business.

It is never a good policy to find fault in aid. If you don’t want it you can always refuse it. Still, since beggars can not be choosers it is a wise policy to critically appreciate the past arrangements with the hope that some of the problems faced by the recipient would be looked into sympathetically by the donors when similar arrangements would be resumed. Therefore, it is in this spirit that the first arrangement with the American aid is being recalled here.

The second arrangement ( between 1980-90) is too fresh to need any recalling at this juncture. US economic aid to Pakistan in the shape of technical assistance and PL480 had begun in 1952. But a strategic meaning to this relationship was accorded by the Mutual Defence Agreement signed between the two countries in 1954. This opened the way for large scale military and economic assistance. During the first three years (1955-58) economic assistance had totalled 500 million dollars or 2.8 per cent of GDP. The real value of the US military assistance in the late 1950s probably approached that of the economic assistance, which greatly relieved the pressure on Pakistan’s own fiscal resources. The nominal value of this assistance was around 100 million dollars annually for ten years, but this definitely understates the real value of this assistance because the prices at which the military equipment was transferred were deliberately kept low. The military assistance had the effect of increasing the effective defence budget by at least 50 per cent in the second half of 1950s. The defence spending in that period was in real terms significantly below the level in the first half. By the late 1950s, defence spending had been reduced to about 25 per cent of the total central government expenditure, thanks largely to the US military assistance. In the second half of 1950s, the bulk of imports of food grains were financed by the concessional PL 480 assistance from the United States. This reduced the urgency of increasing domestic food grain production and compounded the neglect of agriculture. And it was between 1958 and 1965 that the country experienced what in the words of USAID were its ‘take-off’ years but which actually was the time when Pakistan truly became addicted to external aid. Most of the military equipment which Pakistan received during the decade of 1960s was almost free of cost. The whole armoured division was raised during this period when Pakistan received a huge quantity of second world war vintage Patton tanks. During the same period the country also received a number of squadrons of F-86s. One entire military cantonment was established in Northern Pakistan at Kharian by the US aid during this period. Within the second five-year Plan period ( 1960-65) the US provided 55 per cent of all aid received by Pakistan, covering 35 per cent of government’s development budget and 45 per cent of its import bill. Several factors had made this remarkable expansion possible.Expenditure on Indus Basin works replacement, which amounted to 1.5 billion dollars during the 1960s alone, were financed either directly by foreign assistance or indirectly by counterpart funds generated by the sale of PL480 commodity assistance. The availability of 800 million dollars of non-project assistance during 1960-65, nearly 90 per cent from the US, was the second major factor in expanding foreign flows. A key element was the multi-year agreement in October 1961 on an expanded PL 480 programme with the US, totalling 621.5 million dollars for the remaining period of Second Plan; more than half the amount was for wheat imports and about 20 per cent was for vegetable oil imports. The US support for Pakistan’s industrialisation efforts consisted of expanded capital assistance for infrastructure development, increased technical aid to ease ‘skills shortage’ and PL480 concessional sales, which generated local currency for public investment and made it easier for Pakistan to finance industrialization href="#top">