Holbrooke wins the war … against USAID

Monday’s announcement of $500 million of new aid programs in Pakistan marks a victory for Richard Holbrooke and others who want to move aid distribution away from the U.S. Agency for International Development and its contractors and place the money more directly into the hands of the Pakistani government and Pakistani organizations.

During her stopover this weekend in Islamabad on her way to Kabul, Secretary of State Hillary Clinton revealed the details of a host of projects that will receive a huge tranche of U.S. taxpayer funds. The money represents a large portion of this year’s allotment of the $7.5 billion, five-year commitment to Pakistan codified in the Kerry-Lugar-Berman aid bill signed by President Obama last fall.

Clinton showed her Pakistani hosts a series of maps that detail where key investments will be made in Pakistan’s ailing energy, water, and health sectors. By giving a larger portion of the money directly to the Pakistanis and focusing on big-ticket, high-profile projects that ordinary people can see, Clinton is hoping to prove to Pakistanis that their initial negative reaction to the aid legislation was misplaced.

“Of course there is a legacy of suspicion that we inherited. It is not going to be eliminated overnight,” Clinton said. “It is however our goal to slowly but surely demonstrate that the United States is concerned about Pakistan for the long term and that our partnership goes far beyond security against our common enemies.”

Clinton announced the first phase of a water project spread over seven locations and costing $270 million, the second phase of the U.S. Signature Energy Program for Pakistan costing $60 million, the first phase of a three-year, $28 million Signature Health Program for Pakistan, and several other initiatives as part of the implementation of the “strategic partnership” the two countries began last March in Washington.

Holbrooke is the administration’s point man for the aid and has been to Pakistan 14 times during this administration. He is traveling with Clinton this week, as is USAID Administrator Rajiv Shah. Holbrooke’s drive to place increasing amounts of U.S. assistance directly into Pakistani hands, rather than filtering it through USAID and its contractors, has been going on for some time and has provoked resistance at the aid agency and among firms that rely on its largesse.

Last October, a senior USAID official wrote to Policy Planning director Anne Marie Slaughter to protest Holbrooke’s moves and argue that USAID and its contractors should maintain their traditional role as managers of the aid funds. But Holbrooke has been effective in shifting aid away from USAID and its corporate partners, based on his contention that the agency’s involvement creates waste and prevents local partners from developing indigenous capacity.

“For example, all our women’s programs in Afghanistan and Pakistan used to be done through contracts with companies, usually in the Washington area. And that didn’t make any sense to me,” Holbrooke told reporters last week before leaving for his trip. “So we phased out most of it except for some accounting purposes and took the money reserved for women’s programs and turned it over to the ambassadors for a fund which would be more flexible and which would eliminate the amount of money that’s diverted in overhead, which was 15 to 25, 30 percent – really very enormous waste of taxpayers’ money.”

There are some reports that Holbrooke is also at odds with key lawmakers, such as Senate Foreign Relations head John Kerry, D-MA, over the shifting of funds directly to Pakistan and outside the purview of USAID. Kerry has written to Holbrooke to seek assurances that the money won’t just be wasted or stolen on the Pakistani side.

On this point, Holbrooke said that he is not in disagreement with Kerry; Kerry simply wanted assurances the money would be accounted for on the Pakistani side and Holbrooke believes he has given Kerry such assurances.

“John Kerry and I see eye-to-eye on it,” Holbrooke said. “There’s an assumption here anything that goes to the government automatically disappears into a corrupt maze. That’s not the case with these aid funds. These are not a large part of the overhang. This is not where the corruption lies, in my view. I think there’s a lot of data to support that. And there’s very good oversight.”

Shuja Nawaz, the director of the South Asia Center at the Atlantic Council, said that while Holbrooke has won the bureaucratic battle on the U.S. side over how the money should be distributed, the next test will be if the Pakistani government can prove it is competent enough to handle the responsibility.

“There was a commitment on the part of Holbrooke that the government would be involved in receiving the money rather than the money going through the U.S. contractors,” he said. “The victory was achieved a while ago; this is now the implementation of that plan.”

If the Pakistanis can prove that they can manage the funds to the satisfaction of Kerry and others, that could set a precedent whereby Pakistan’s government and NGO community could attract more direct aid and foreign direct investment. As for the oversight, the U.S. and Pakistan reached a compromise whereby Pakistani auditors will be used, but they will be vetted and supervised by the U.S. government.

Holbrooke’s drive to get more of the money into Pakistani hands will increase the effectiveness of the aid bill, Nawaz argued, acknowledging that skepticism of the U.S. pledges of a long term commitment to Pakistan remain.

“This is a change on the part of the U.S. for how they do business. It’s not going to alter public perceptions overnight,” said Shawaz, “But clearly, the interactions between the Holbrooke team and the Pakistanis are bearing some fruit.”