How donors control our development policy

DONORS concluded last week’s Pakistan Development Forum (PDF) meeting on a note of cautious optimism. Their customary kudos for the government’s economic reforms aside, many were also visibly concerned about the growing incidence of poverty despite the apparent gains in macroeconomic stability.

IMF representative Klaus Enders reportedly reminded the government of the “intolerable levels” of poverty which in his view reflected, among other things, low public expenditures on human development. The World Bank remained sceptical of the government’s ambitious poverty reduction targets since “the absolute levels of spending foreseen did not match the outcomes sought”.

At the root of these apprehensions is the pervasive fear in the development community that the newly elected government will squander the macro stabilization achieved under the military-led regime. Donors need not worry though. Not only has our hapless prime minister repeatedly assured them of the “continuity of reforms,” economic policy planning in Pakistan remains largely outside the purview of elected authorities. Imported Citibank and World Bank officials, backed personally by the country’s powerful military ruler, continue to call the shots on the economic front.

No matter who is in power, the sad truth is that the socially disruptive levels of poverty and unemployment in Pakistan are not merely the result of ‘slippages in reform implementation.’ What donors conveniently forgot to mention during PDF 2003 — and no one from the government side dared point out — was the sharp and sustained contraction in development expenditures since the early 1980s when Pakistan first signed structural adjustment loan (SAL) agreements with the IFIs.

Consistent with the neo-classical dogma that the state roll back its productive activities, government after government was forced to curtail public spending ostensibly to reduce fiscal deficits.

While deficits continued to be around the high seven per cent mark throughout the 1990s, expenditure cuts severely restricted the ability of governments to deliver social services or spend on human development.

Evidence shows that this most intensive period of structural adjustment also coincided with increased poverty and worsened income distribution as real wages and household incomes declined as a result of wage and employment freezes, public sector retrenchments and subsidy withdrawals.

Besides, real GDP growth and investment fell, inflation remained high, saving and investment rates stagnated while imports and government consumption surged. In addition, debt in absolute terms, the debt/GDP and debt service/ export ratios also increased.

With such a disastrous track record, it must take some nerve on the part of the IFIs to blame the government for not doing enough to reduce poverty. No one in our officialdom — not even the most ardent advocates of the IMF-Bank variety of economic reforms — disputes the need for increased allocations for human development priority areas.

But forced to cut corners, exactly where will the government find these extra resources? Are donors willing to match their holier-than-thou rhetoric with additional financing?

Dwindling aid commitments and the deteriorating terms of external assistance suggest otherwise. For instance, the share of grants as a proportion of overall aid shrunk drastically from around 80 per cent in the 1950s and early 1960s to 12-15 per cent during the 1990s. This is not all. The average rate of interest on external loans and credits too has skyrocketed while average maturity periods have declined sharply.

With stagnant export earnings and domestic revenues, the only way for Pakistan to repay loans is to borrow more, thus driving itself deeper into the debt trap. The net value of foreign aid transfers turned negative in 1996-97, and again in 1999-2000/2000-01 as debt repayments registered a steep rise.

Put simply, we paid back more forex for debt retirement than we received as aid. Besides, a lion’s share of aid is tied to specific projects and purchase of donor country goods and services.

Tied aid not only increases procurement costs but also undermines local production, investment and employment structures since donors typically use aid to finance their investments, hire their own nationals as “consultants” or create markets for subsidized imports.

Worse still, geo-political considerations rather than the nature of the political regime or the policy performance of governments still determine who gets how much donor money. For instance, the European Union admits rather frankly in its Pakistan Country Strategy 2002-2006: “...there has been a major re-orientation by the donor community towards Pakistan in view of its support to the coalition against terrorism.”

It is no surprise that successive governments in Pakistan have hedged their bets on the country’s geo-strategic importance to side-step politically difficult reforms.

While donor decisions are typically shrouded in secrecy, press reports suggest that endorsement by the United States has been key to IMF bailouts of Pakistan. In early 1999, for instance, new IMF lending worth $1.56 billion was approved only after Washington decided to ease non-military sanctions in light of a deepening economic crisis triggered by Islamabad’s nuclear testing.

The post 9/11 circumstance under which Pakistan’s bilateral creditors offered a unique $12.5 billion ‘debt reprofiling’ agreement on almost the entire stock of bilateral debt too was highly special.

One could not agree more with Mr. John Wall, the World Bank country director for Pakistan and Afghanistan, when he says that “good governance takes eternal vigilance — it has to be earned every day.” But why is it that those who preach the virtues of vigilance and integrity rarely seem to practise them.

In early 1998, relations between Pakistan and the IFIs soared when the Nawaz Sharif government initiated investigations into allegations of kickbacks and overpricing in power purchase agreements signed by the previous PPP government with mostly western independent power producers (IPPs). Many of them were backed by World Bank financing and guarantees.

After the Sharif government cancelled as many as half the contracts on charges of corruption in May 1998, it soon discovered how aid could be used as an arm-twister. The Bank issued a stern warning to the government of Pakistan to keep its legal actions separate from “the commercial and contractual issues involving IPPs.”

The government’s political motives notwithstanding, the IMF and several other PDF members, including the United States, Canada and Japan, instead of encouraging the government in its anti-corruption efforts, withheld aid and investment on the grounds that the IPP issue be resolved first.

In October 1998, an IMF mission to Pakistan was indefinitely postponed because of the lingering dispute. Similarly, in early 2001, the auditor-general of Pakistan reported embezzlement of $400

million in the World Bank-led multi-donor Social Action Programme. While the Bank swiftly dispatched an “integrity assurance mission” to Pakistan, press reports indicated that a $700 million credit line was simultaneously extended.

The bottom line is this: as long as the interests of the donor country governments and commercial firms are not threatened, recipient countries can count on business as usual. Thus politically correct buzzwords like “good governance” and “democracy” are not to be taken too seriously since they are often meant to help donors gloss over their own failures and pass the buck on to recipient countries.

There is no doubt about the need for improvements in the quality of governance in Pakistan. Rampant corruption, poor planning and implementation, low quality of public investments, inefficient resource allocation, to name a few, are serious problems. But instead of addressing these issues, external aid agencies have simply used them to bypass existing institutions in project planning, management and implementation. By taking over the critical policy functions traditionally performed by governments, they have further undermined the already weak state capacity.

Since donors now virtually control the entire development policy process in Pakistan, as elsewhere in other aid-dependent countries, the onus of bridging the gap between the good governance (less corrupt, economically sound and more democratic governments) and prescription and practice rests squarely with them.

The complex nature of Pakistan’s developmental deficits means there can be no quick fixes. Sustainable development and poverty reduction will require long-term aid commitments delivered on favourable terms and tailored specifically to the development needs of Pakistan. In other words, donors should put their money where the mouths are.

America’s new world order

THE Bush administration’s post-September 11 doctrine to use US military power to achieve national security objectives provides the underpinning for America’s New World Order. The US is now committed to use its military force to shape the world in its own lights and according to its own interests. The Iraq war was only a symptom of this new disposition; a war Washington chose to wage on its own terms to achieve its goals.

It is interesting to recall that today’s sole superpower, the United States of America, was not considered even a front-ranking nation about a hundred years ago. It was not until 1892 that the great powers of Europe agreed to raise the rank of their diplomatic representatives in Washington from minister to ambassador. However, the ascendancy of Europe did not last long as the two fratricidal wars in the first half of the 20th Century brought to an end the domination of Europe and the US emerged as the leading world power.

America did not become a global superpower by playing boy scout. Like any other big power, it got to the top and has stayed there by tenaciously pursuing its self-interests. However, it is also true that American self-interests have sometimes coincided with great benefits for mankind. The most outstanding example in this respect was the Marshall Plan of the late 1940s, the most ambitious reconstruction plan the world has ever seen, which helped reconstruct the war-ravaged Europe.

September 22, 2002, will go down as a seminal point of the 21st Century. On that fateful day the White House submitted to the US Congress the National Security Strategy that has come to be known as the Bush doctrine. The doctrine provides a sort of blueprint for the New World Order in which the United States will enjoy permanent military dominance over all other countries, allies and potential foes alike. Making no distinction between friends and enemies, the doctrine declares the US “has no intention of allowing any foreign power to catch up with the huge lead the United States has acquired since the fall of the Soviet Union.”

The tragic events of September 11 appear to have provided the needed impulse to go ahead with the plan. Defence Secretary Donald Rumsfeld saw the attacks as “opening a door” to a new hard-line US policy world-wide. National Security Adviser Condoleeza Rice says she asked her staff “to think seriously about how do you capitalize on these opportunities to fundamentally change American doctrine and the shape of the world in the wake of September 11.”

The National Security Strategy, in a way, espouses the Monroe Doctrine on a global scale. It asserts the right to intervene wherever and whenever the US perceives that a threat of terrorism or mass destruction exists. With imperialist overtones, the doctrine gives the United States the right to not only decide who is a terrorist and which state is supporting terrorism, but also the right to launch unilateral pre-emptive strikes without even waiting for a go-ahead from the UN Security Council. This policy, which seems to underlie the New World Order, goes a long way beyond the traditional interpretation of a nation’s right of self-defence as defined in the UN Charter. It also poses a serious threat to the security of small countries from their big neighbours.

Encouraged by the US doctrine of pre-emptive strikes, New Delhi sought to claim that every country had the right to pre-emption and that Pakistan was a fitter case for pre-emptive strikes than Iraq. Realizing the seriousness of the Indian threat, Secretary of State Colin Powell had to intervene, saying: “I don’t think there is a direct parallel between the two situations.” The State Department spokesman warned that “any attempt to draw parallels between the Iraq and Kashmir situations are wrong.”

The current Middle East policy was articulated two years ago in a document, commissioned by Dick Cheney and Donald Rumsfeld, called “Rebuilding America’s Defences”. This document amply shows that the recent Iraq war did not begin or end with a bad guy equipped with the weapons of mass destruction. “While the unresolved conflict with Iraq provides the immediate justification, the need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein”, says the document.

As Hans Blix, chief of the UN inspection mission, later observed, the Iraq war was “planned well in advance,” not to find weapons but to topple the regime. The document produced by Washington and London about Iraqi purchase of uranium oxide was proved a “fabrication” and the so-called mobile germ warfare trucks turned out to be food delivery vans.

The New World Order, being projected by the Bush administration, kills the hopes of those who had thought that the world was gradually moving towards a system of international law that would allow for peaceful resolution of conflicts and disputes. Under the new dispensation, a single country intends to dominate the world militarily, intervening pre-emptively at will to eliminate a perceived threat. The United Nations has suffered a serious blow in the process. If the present US policy continues, the UN may become a rubber stamp or another League of Nations restricted to dealing with peace-keeping and humanitarian aid.

The change of regime by invading a country, as we have seen in Afghanistan and Iraq, has set precedents that may be followed in the days to come. Actually, “regime change” is an old American practice of intervening in the affairs of other countries to change governments or defend existing ones. Even a cursory look at the list will bring such names as Cuba, Mexico, Nicaragua, El Salvador, Panama, the Dominican Republic, Chile, Afghanistan and recently Iraq.

According to a study prepared by Minxin Pei and Sara Kasper of Carnegie Endowment for International Peace, the United States, since its founding, has used its armed forces abroad on more than 200 occasions. US military interventions abroad have consisted of major wars (such as the two World Wars), peace-keeping missions (as in Bosnia today), proxy wars (as in Nicaragua and Angola in the 1980s), covert operations (such as the coup in Chile in 1973), humanitarian interventions (such as in the Balkans in the 1990s), the defence of its allies under attack (such as in Korea in 1950), and one time retaliatory strikes (such as the bombing raid against Libya).

What is important to note is that most of these interventions took place when the US did not enjoy an unrivalled superpower status as today. It is not difficult to see how the world’s sole superpower, enjoying overwhelming military power and bolstered by post-September 11 domestic support and post-Iraq euphoria, will now respond in similar situations.

It makes one sad to reflect how the inspiring precepts of America’s founding fathers have been tarnished in recent years. Of course, there has been a clash between moral idealism and realpolitik in US history. There have indeed been wars of expansion and interference in other countries’ affairs. But there have also been successful anti-imperialist movements by American writers and intellectuals such as by Mark Twain and Henry James during the occupation of the Philippines by US forces.

By and large, the United States has sought to influence other nations through its democratic values and culture. Americans have never seen themselves as a militaristic people. Perhaps for the first time in US history, Washington has publicly announced its intention to claim, on the basis of its military might, global dominance and its right to act unilaterally and even pre-emptively whenever it deems that its security or vital interests are threatened. The Bush doctrine has indeed put the American presidents in the company of Roman emperors and their legions.

The writer is a former ambassador.

The missing WMDs

THE favourite fantasy headline of British comedian Spike Milligan was: ‘Archduke Franz Ferdinand Found Alive! First World War a Mistake!’

We are unlikely to see a similar headline in any American paper soon, but in the rest of the world the continued failure of the US and British occupation forces in Iraq to find any of the ‘weapons of mass destruction’ that were the alleged reason for their invasion is both a diplomatic disaster and a joke in very bad taste.

Tony Blair ran into both phenomena and came away severely shaken when he visited Moscow recently. The British prime minister thought he had a good personal relationship with the Russian president, but Vladimir Putin is a former intelligence officer, and like his American and British counterparts he was outraged at the way the US and British governments misrepresented the intelligence they got from their own agencies in order to justify their war. Unlike the people at the Central Intelligence Agency and MI5, however, Putin was free to speak — and did he ever.

Putin openly mocked Blair for the failure of the ‘coalition’ to find any of the fabled WMD even weeks after the end of the war: “Where are those arsenals of weapons of mass destruction, if indeed they ever existed? Perhaps Saddam is still hiding in an underground bunker somewhere, sitting on cases of weapons of mass destruction, and is preparing to blow the whole thing up and destroy the lives of thousands of Iraqis.”

The Russian journalists at the press conference roared with laughter — maybe it loses something in translation — but Blair looked distinctly grim. He is going to have lots more practice at that.

Two months ago, Blair talked a reluctant parliament into supporting the attack on Iraq by warning of Iraqi WMD ready to strike on 45 minutes’ notice, and President George W. Bush warned of “mushroom clouds” if the US didn’t invade Iraq. It was all so desperately urgent, so hair-trigger dangerous, that Washington and London couldn’t wait for the United Nations arms inspectors to finish their job; they had to bypass the UN and invade right away. So many thousands of Iraqis (2,500 civilians and perhaps 10,000 soldiers) were killed, 137 US and British soldiers died, looters destroyed most of Iraq’s cultural heritage while ‘coalition’ troops stood idly by — and nobody has found any WMD.

The rest of the world never really believed the White House’s justification for war anyway. As United Nations chief weapons inspector Hans Blix said in late April, Washington and London built their case for going to war on “very, very shaky” evidence, including documents that subsequently turned out to have been faked — and with the war now over, Washington isn’t even bothering to insist that Saddam Hussein posed a threat to the United States any more. “We were not lying,” a Bush administration official told ABC News on 28 April. “But it was just a matter of emphasis.”

The real reason for the war, according to an ABC report, was that the administration “wanted to make a statement” (presumably about what happens to countries that defy US power). Iraq was not invaded because it threatened America, but because “Saddam had all the requirements to make him, from (the administration’s) standpoint, the perfect target.”

The assumption, at the White House and the Pentagon, was that everybody else could be bullied into forgetting the lies about WMD and accepting the fact of American control of Iraq. —Copyright

ONE top Indian foreign ministry official asked me the other day: “What has people-to-people contact achieved so far?” It is difficult to quantify its achievement but it has sustained hope that the two countries will one day normalize their relations because people on both sides want to live in peace. This is despite the negative attitude of their governments.

People-to-people contact means contact between ordinary men and women on both sides, the freedom to come and go, without police surveillance and without a visa — only an identity card should be required for entry.

Obviously, this will take time because the mistrust has to go first. But in the meanwhile, the so-called “elite” groups have surfaced again. They are the same old people, who, during their tenure, as military or civil servants, did their worst to spoil any attempt at conciliation. Blessed by the foreign office, they went over the same exercise for years. They will repeat the same observations when they meet again. Even their faces have become a cliche.

What I have in mind is a soft border which Prime Minister Atal Behari Vajpayee advocated when he was foreign minister (1977-79). Then Prime Minister Morarji Desai shot down the proposal on the plea that it would be an open invitation to spies to come in hordes. He did not know that spies do not use the checkpoints to enter each other’s territory. They have their own “checkpoints.”

True, borders cannot be soft until cross-border terrorism stops. Islamabad has to be convinced about its futility. Certain quarters there believe a proxy war is the only way to make India bleed. The situation has to be normal to have normal relations. Guns, open or secret, do not make for peace.

However, we should hasten the process to restore the status quo, the state of relationship prevailing before the attack on the Indian parliament.

After having done so, New Delhi should take stock of cross-border terrorism which from all accounts is less than before. The Pakistan parliamentarians came to India a bit too soon. The government distanced itself from them, not because it was unwilling, but because it was unprepared. It wanted to let the fallout from Vajpayee’s initiative settle down.

Indeed, a request was made to defer the visit by a few days. But some among the organizers on both sides did not agree to it. Their contention was that they wanted to utilize the presence of Indian parliamentarians in Delhi before the adjournment of the two houses on May 9. The Pakistani parliamentarians reached on the 8th night.

However, when the visit was mooted three months ago, the purpose was to create some movement in the otherwise static situation. Indian parliamentarians were to go to Pakistan first but this did not materalize.

MPs from both countries can cross over through any checkpoint without permission and without a visa under the SAARC rules. None knew then that Vajpayee would say at Srinagar that he wanted to have a dialogue with Pakistan. His observation provided the much-needed momentum. By the time the parliamentarians arrived the PM had initiated the thaw. The general impression is that the parliamentarians came as a follow-up to Vajpayee’s initiative. This is not factually correct. Theirs was an independent visit, planned much earlier. Nonetheless, it has further helped soften the rigid position the two sides had taken.

The response to the parliamentarians in Delhi, Mumbai and Kolkata was electrifying. They were hard-pressed for time to attend the functions which people wanted to arrange in their honour. They themselves were touched by the love and affection shown. What it really means is that the natural reaction of the Indian people towards the people of Pakistan is that of closeness. They are sick and tired of the distance which has been growing for the last 55 years. People’s attitude in Pakistan, which I visited three months ago, is no different.

When just a speech by Vajpayee and a telephone call from Pakistan Prime Minister Jamali can change the entire climate, it is obvious that the hostility is a forcibly contrived thing. People on both sides want to be friends. Their desire for proximity will force their governments to sit across the table soon.

Unfortunately, the BJP’s spokesman has thrown cold water on all the optimism that Vajpayee has generated. The spokesman runs down those who arranged the visit of parliamentarians. He used the sneering phrase “pseudo secularists” about the organizers. It indicates that the party is far from happy over their visit.

In fact, a battle is raging within the party on making up with Pakistan. Both the “pseudo-secularists” and the PM are on one side furthering the cause of building relations with Pakistan. The criticism may well be the party’s polite tick-off which the prime minister must have noted.

The BJP is the ruling party. It should not be seen taking conflicting postures in public. It cannot commend the PM’s initiative on the one hand and criticize those who invited the parliamentarians over on the other. The effort is to strengthen the initiative. If the BJP’s criticism is serious, the talks are doomed. How far is it willing to give up its anti-Pakistan stance which the party believes adds to its votes? Hindutva as a poll plank may sound the death-knell of rapprochement. Can the party afford to give up its fundamentalist stand before elections are over in four states this year and the general elections in 2004? That is the question.

Pakistan’s problem is different: How far is the fauj (armed forces) prepared to give up the territory it has occupied in the political field?

Real power lies with General Pervez Musharraf. For more than four decades, the armed forces have been an arbiter in Pakistan. Are they willing to vacate that position? The military faces another problem: if there is a settlement there will be demands for a drastic cut on defence spending. Is the fauj prepared for it?

Will the National Security Council which has the three service chiefs as its members be adequate for the military to safeguard its interests? It is difficult to imagine it at this point of time. Still this is the scenario which will take shape one day. The armed forces will have to go back to the barracks. The pressure of public opinion will make it happen.

India, too, is under pressure. There is increasing realization that the majority of its problems stem from its relations with Pakistan. The enthusiasm with which the parliamentarians were received shows how anxious the people are to bury the hatchet. In fact, people in both countries seem to be ahead of their governments.

Maybe, wide and frequent contact will throw up a solution of Kashmir as well. The first requirement is to open borders to all those who want to visit each other’s country How to facilitate and sustain the contact is the core of the problem.

Since everyone is talking about roadmap these days, let the Line of Control (LoC) be the “line of peace,” as Zulfikar Ali Bhutto suggested to me in an interview before the Simla conference. The onus of maintaining it will be on Islamabad because the terrorists are using its territory to cross into India.

People-to-people contact has to reckon with the reverses. But it is heartening to see a few who ask for the impossible and strive for it.

The writer is a leading columnist based in New Delhi.