What Is Aid

Transfer of capital, goods, or services from one country to another. Foreign aid may be given in the form of capital transfers or technical assistance and training for either civilian or military purposes.

Foreign aid to Pakistan

History of U.S. aid to Pakistan

Over the past half century, the U.S assistance to Pakistan has been transactional and intermittent. Not surprisingly, this on-again, off-again history of U.S. assistance has left the Pakistani people and their leaders with serious concerns about the depth and reliability of the U.S. commitment to their wellbeing. As a result of a 1954 mutual defense assistance agreement, the United States provided nearly $2.5 billion in economic aid and nearly $700 million in military aid to Pakistan between 1954 and 1964. Since the United States first began its aid program to Pakistan, our assistance has come in many forms from a number of different agencies. Throughout the report, I have broken down our aid assistance into two broad categories: wide-ranging economic aid and purely military aid. It is important to note that the category of economic aid has historically included large amounts of Security Support Assistance, or SSA, as well as other security-related loans and grants. The Indo-Pakistani conflicts of 1965-1971 led the United States to suspend nearly all aid to Pakistan, as well as to India, assisting them almost exclusively with economic aid for the next 15 years$1.45 billion in economic aid, compared to only $26 million in military assistance from 1965-1971; $1.1 billion in economic aid, and only $2.9 million in military assistance from 19721979. In 1979, the Carter administration suspended all aid to Pakistanexcept for food aidbecause of Pakistans development of a uranium enrichment facility. With the invasion of Afghanistan by the Soviet Union, U.S. assistance again increased dramatically, and this high level of aid continued throughout the 1980s as Pakistan became the intermediary and central staging ground for covert U.S. support to anti-Soviet forces in Afghanistan. Aid rose from around $60 million in economic and development assistance in 1979 to more than $600 million per year in the mid1980s. In total, the United States provided more than $5 billion in aid$3.1 billion in economic assistance and $2.19 billion in military assistancefrom 1980 until 1990. While the United States pumped large amounts of aid into Pakistan and Afghanistan to help defeat the Soviets, concern within the United States about Pakistans nuclear ambitions led Congress in 1985 to pass the Pressler Amendment to the Foreign Assistance Act. The amendment named after former Republican Senator from South Dakota required the president to

certify that Pakistan did not have a nuclear weapon for the fiscal year in which aid was to be provided. Throughout the 1980s, former Presidents Reagan and George H.W. Bush certified that Pakistan did not; however, in 1990 George H.W. Bush refused to confirm that Pakistan did not have nuclear technology, and as a result most economic and all military aid was cut off. Aid to Pakistan dropped dramatically from 1991 to 2000. In that period, the U.S. provided less than $500 million$429 million in economic assistance and $5.2 million in military assistance. The United States also blocked major military equipment delivery, including approximately 28 F-16 jets that Pakistan had already purchased. Pakistan continued to receive only a small amount of economic assistance, mostly in the form of food aid and counternarcotics support. Aid to Pakistan was further restricted after its 1998 nuclear tests and General Musharrafs 1999 coup. As mentioned before, this inconsistent history has led many Pakistan leaders to see the United States as a fickle ally. This was especially true after the withdrawal of the Soviet Union from Afghanistan in 1988 and the end of the Cold War when many leaders in this country mistakenly concluded that Pakistan had lost much of its strategic and geopolitical value. Aid levels reflected this belief. They dropped from $726 million in 1988 to $24 million four years later after George H.W. Bush refused to certify Pakistan did not possess a nuclear weapon.
Current U.S. aid to Pakistan

The George W. Bush administrations expansive assistance to Pakistan in the wake of September 11 has been severely skewed toward military assistance. Of the over $11 billion dollars given to Pakistan since FY2002, 72 percentor $8.1 billionhas been given in security-related aid. This includes Coalition Support Funds (or CSF, funds to reimburse Pakistan for its counterterrorism activities), Foreign Military Financing, and other military assistance. Meanwhile, only 23 percentor $3.1 billionhas been given as economic-related aid. This imbalanced assistance has neither increased Pakistani nor American security. Moreover, a lack of oversight measures for CSF funds have allowed the Pakistani military to continue its history of underinvestment in counterinsurgency training and capabilities for the regular army and the paramilitary Frontier Corps, in favor of maintaining its traditional focus against its perceived regional rival India. Financial aid to Pakistan since 9/11 from U.S Between 2002-2010, Pakistan received approximately 18 billion in military and economic aid from the United States. In February 2010, the Obama administration requested an additional 3 billion in aid, for a total of 20.7 billion. Western officials have claimed nearly 70% (roughly $3.4 billion) of the aid given to the Pakistani military has been misspent in 2002-2007. However U.S-Pakistani relationship has been a transactional based and U.S military aid to Pakistan has been shrouded in secrecy for several years until recently .Furthermore a significant proportion of U.S. economic aid for Pakistan has ended up in back in the U.S., as funds are channeled through large U.S. contractors. A U.S.

lawmaker also said a large sum of U.S. economic aid has not left the U.S. as it spent on consulting fees and overhead cost.

Recommendations

U.S. aid and economic assistance The United States heavy financial investment in Pakistans military since 9/11 has neither improved security nor won over the Pakistani people. According to the Pew Global Attitudes Project, less than 20 percent of the people in Pakistan held a favorable view of the United States in 2007 and 2008. Moreover, such an approach has largely neglected development in the country. This underinvestment in human security in Pakistan has contributed to an unsustainable situation in the country. Military and economic aid Year Military (USD in billions) Economic (USD in billions) 2002 1.36 2003 1.500 2004 1.200 2005 1.313 2006 1.260 2007 1.115 2008 1.435 2009 1.689 2010 1.232 2011 1.685 Total 11.740 billion 1.233 for 2002 to 2004 1.233 for 2002 to 2004 1.233 for 2002 to 2004 .338 .539 .567 .507 1.366 1.409 unknown 6.08 billion

Provide financial and economic support during Pakistans economic emergency. The United States should encourage Pakistan to continue working with the International Monetary Fund to avoid defaulting on its foreign debt. Moreover, the United States should take the lead in convening an international conference to bring together donors and investors to assist Pakistan during its financial crisis and to provide a basis for its long-term economic stability. The Friends of Pakistan group summit, scheduled to take place in Tokyo this April, will offer key players such as Saudi Arabia, China, the United Arab Emirates, Japan, the European Union, the international financial institutions, the United Nations, and other key actors the opportunity to coordinate their assistance to the government of Pakistan for the purpose of resolving its current economic crisis. If needed, the U.S. government should also provide additional food aid to Pakistan through the United Nations World Food Program as part of a longer-term U.S. and international investment in agricultural production, and pass the Reconstruction Opportunity Zone legislation to allow indigenous Pakistani industries to develop their own capacity to build Pakistans economy through access to American markets. As part of the broader reform of the U.S. foreign aid and civilian diplomatic system needed to counterbalance years of underinvestment in our nonmilitary capabilities, The United States should create a comprehensive interagency development strategy for Pakistan. The United States must work with the Pakistani government and local civil societyalongside other bilateral and multilateral donorsto craft a development strategy in Pakistan that addresses Pakistans urgent economic crisis and the deeper sources of Pakistans under development. The United States should leverage additional assistance from the international community, and pursue a plan that is regional in scope, and in particular, linked to efforts in Afghanistan. An effective development strategy for Pakistan cannot be realized, however, without serious efforts to redress some of the many constraints on the effectiveness of the U.S. aid system. My colleagues at CAP and I, along with many other experts in and outside of government, have repeatedly called for such an overhaul as a key means to developing all elements of American power to the fullest extent of their effectiveness.

Impact
Over the last three decades, aid has added around one percentage point to the annual growth rate of the bottom billion. One percentage point has made the difference between stagnation and severe cumulative decline. Aid can make progress towards reducing poverty worldwide.

Advantages of Foreign Aid

Foreign economic assistance is very important for economic development of Pakistan. The advantages or benefits of such assistance are as under: 1. Foreign Loan Bridges Saving Gap and Balance of Payments. In Pakistan due to low national income and poverty, per capital income is very low hence rate of savings is very low. Low savings rate cannot help in capital formation and economic development. Similarly imports are greater than exports therefore there is always deficit in balance of payments. Foreign loan, aid not only bridges domestic savings gap but also helps in overcoming balance of payments problem. 2. Development Requirements are Met Pakistan wants to develop agriculture, industry; power and natural resources of the country but due to lack of foreign exchange, required technology could not be imported. Foreign aid and loan facilities help Govt. to import the required technology and basic raw material with which different sectors of economy can develop and due to utilization of modern machines productivity is enhanced. Thus productivity of various sectors of economy increases. 3. Establishment of Modern Economic and Social Infrastructure Economy of a country cannot grow without the presence of economic infrastructure i.e., availability of gas, power, transport and communication. Similarly social infrastructure (i.e., education, training and health facilities), is also essential. These infrastructure facilities require local and foreign capital, which is very limited in Pakistan. Foreign aid helps government to establish these infrastructures. When construction and other development activities are started in the country, these generate employment opportunities for the people. 4. Level of Technological Increases With the help of foreign aid which is in the way of technical collaboration or project aid, modern machines are used, which produce super quality goods in greater numbers. Hence by using goods of high quality consumers are benefited. 5. Meeting Emergencies Foreign aid helps Pakistan in emergencies. Whenever there is an earthquake, flood or some other natural calamities, Food Aid program provides Pakistan different types of food items such as wheat, dry milk etc. 6. Defense Modernization Pakistan wants to modernize its defense capabilities, which can only be possible provided

foreign aid is available. Modern Fighter Planes, F-16 and other modern warfare technology can only be secured with the help of foreign aid and loan, as Pakistan do not have sufficient foreign exchange to finance this crucial requirement of the country. 7. Increase in Tax Revenue When foreign loan is utilized for established of industries and social overheads then economic activities grow, goods and services are produced, foreign trade is increased, all these factors increase Govt's income through different tax sources.

Disadvantages of Foreign Aid Foreign economic assistance and Foreign Aid result in the following disadvantages. 1. Increase in Foreign Aids Debt Servicing Pakistan has already borrowed too much foreign loans and is still borrowing. Now in order to pay interest Pakistan is. Thus debt burden is continuously increasing. 2. Increase in Production Cost In results in the increase in the cost of project because of interest, heavy remuneration and other fringe benefits, which are given to foreign experts. 3. Habit of Dependence on Foreign Loan and Misuse of Aid Aid receiving countries including Pakistan do not exert and do not make policies to develop their economy with their own domestic resources. They do not pay attention for development of technology. They just become entirely dependent on others. Major portion of aid particularly commodity aid is misappropriated by the concerned Government officials. 4. Exploitation by Donor Countries Sometimes loan giving countries interfere in the defense and foreign affairs of Pakistan. Thats why it is said that there are always political strings attached to the bilateral loans. 5. Commodity Aid Discourages Domestic Agriculture Output When aid is in terms of commodity such as wheat etc, which many times is provided at a very nominal price, discourages local production of that commodity because of higher cost of production within the country. This situation discourages local agricultural production. 6. Dependence of Imported Raw Material from Donor Country If donor country has assisted in establishing imported substitution industry then raw material for the industry will have to be imported from loan given country otherwise industry will not continue its production because particular raw material is not available locally. This causes heavy foreign exchange burden on economy.

7. Project Tied Loans for Less Priority Projects Sometimes a donor country may give project tied loans for those projects which for the time being may not be on the priority list of borrower and may not be very much feasible. In this way donor can burden the economy of borrower country because principal amount as well as interest has to be paid while project is not needed and is not worth while. 8. Savings Investment and Balance of Payments Gaps Pakistan is obtaining foreign aid for bridging gap between domestic savings and investment and also to improve balance of payments position but till now it has not been able to accomplish this task, rather both gaps are continuously increasing. 9. Proportion of Tied Aid and Severity of Hard Terms Increased As the time passes by, it is becoming difficult for Pakistan to obtain foreign aid. The donor countries have increased terms of aid by raising rate of interest and the repayment period has reduced. Too much sureties and guarantees are not demanded from Pakistan by donor countries.