What to Do About U.S. Aid to Pakistan -- Nancy Birdsall and Arvind Subramanian

February 14, 2012
The debate over U.S. foreign assistance in Pakistan has grown hotter lately, with Stanford political scientist Stephen Krasner arguing in Foreign Affairs that the United States should get tough by threatening to halt aid to Pakistan to force the country into cooperating better on security matters. CGD president Nancy Birdsall responded with an article in Foreign Policy. Drawing on the recommendations of a 2011 CGD study group report, Beyond Bullets and Bombs: Fixing the U.S. Approach to Development in Pakistan, she argued that U.S. development assistance should be focused on helping to create a stable, prosperous Pakistan—goals that are in America’s own best interest and would be ill-served by trying to use the aid as a bargaining chip.Not everybody at CGD agrees. In this week’s Wonkcast, Nancy is joined by senior fellow Arvind Subramanian, an aid skeptic, who has his own ideas about how to foster stability and growth in Pakistan—some of which don't involve the United States at all.“We should not try to use civilian aid as a bribe for short-term interests,” says Nancy. “The fundamental reason for aid in Pakistan, is to strengthen the civilian government in the hope that Pakistan will become a stable, successful state that responds to its own citizens. We need to think of this as a long-term strategic purpose.”Arvind’s starting point is different. He doubts that aid is much help in promoting development and worries that it may be counterproductive and undermine the government’s accountability to its own citizens.“What is it about Pakistan that makes us believe that aid is going to work any differently there?” he asks.Nancy responds that the amount of money the United States gives in development aid to Pakistan, about $1 billion a year, is only about 3 percent of Pakistan’s domestic budget, too small to significantly skew accountability—or to offer much leverage. However, it could result in significant improvements in key development outcomes in some parts of the country, such as reduced infant mortality or improved education in populous provinces like Punjab and Sindh. (Military assistance, at $1.5 billion a year, is significantly larger.)Arvind is unconvinced.“I think Nancy would agree that we don’t really know who finally controls the money we send,” he says. “If you think that the powerful vested interests of the military are the eventual controllers of the money, then I would be doubtful that we can say with any confidence that this is money that will only do good and no harm.”While Nancy and Arvind disagree on how effective aid in Pakistan can realistically be, they find common ground as the discussion continues, agreeing that the United States should not use aid as a lever and citing history as proof.They also ultimately agree that the aid we do provide could be disbursed in ways that tie it much more closely to results, for example, through Cash on Delivery (COD) Aid. Using this framework, Nancy explains, aid money would be used for incremental payments for mutually agreed-upon goals, such as more children learning in schools or  reductions in maternal deaths.Nancy also suggests involving the Overseas Private Investment Corporation (OPIC), an agile U.S. government institution with a strong track record, in a modest program to support small and medium businesses in Pakistan. In addition, to further encourage private-sector growth and employment, she says, the United States should cut tariffs on Pakistani imports, an area where Europe has moved more quickly.I recall that Arvind has proposed a highly creative solution to spurring Pakistani growth: extending India’s IT boom to Pakistan.“Why not get the Indian IT sector to invest in Pakistan and try to make Pakistan a hub for some of the IT-based services that India provides?” he asks.  There’s no reason why with some training Pakistan couldn’t also provide such services, he says, and encouraging this would ultimately be in India’s interest because it would help to create a more stable Pakistan, less interested in going to war with India. (Sound far-fetched? Listen to the Wonkcast and then decide!)We end the Wonkcast on a point of agreement between Nancy and Arvind—one that surprises me. The development problem in Pakistan will best be solved with a regional approach, they agree, and both see potential for the United States to act as a catalyst, as it has attempted to do in the Middle East. (Given the mixed record there, I'm not so sure! Listen to the Wonkcast to hear them make the case.)For more on U.S. development in Pakistan, see CGD’s initiative page here. I’d like to thank Alexandra Gordon for serving as producer and recording engineer, and for helping to draft this post.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.