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Is Afghanistan the Graveyard of Foreign Aid?

June 26, 2012

The United States finds itself at a critical juncture with respect to Afghanistan. President Obama and NATO allies have recently made agreements to terminate combat operations next year and completely withdraw all military forces by 2014. This year alone, the American presence in Afghanistan will be reduced by 23,000 troops, leaving only 68,000 troops in the country. In addition to reducing troops, much of the foreign aid to the country will also be decreased. The impact of this could be monumental, considering the vast quantities of aid flowing into the country now.

As the United States withdraws from Afghanistan, developmental assistance will play a growing role in the country.

To put it mildly, Afghanistan is addicted to foreign aid. According to the World Bank, 97 percent of Afghanistan’s Gross Domestic Product is “derived from spending related to the international military and donor community presence.” The United States has borne a lion’s share of the cost, spending $400 billion on military operations and $51.8 billion on a conglomerate of foreign assistance programs. Should international donors suddenly reduce the amount of aid given, an economic collapse within the country almost certain. Although the vast amounts of resources have led to some developmental progress, Afghanistan is by no means able to stand on its own two feet.

Compounding the problem is the rampant corruption ingrained within the government. Transparency International ranked Afghanistan the 4th most corrupt nation in the world, coming in behind only Myanmar, North Korea, and Somalia. There’s little doubt as to why they received such a high ranking: the trafficking of narcotics remains a lucrative business and government officials can easily be paid off. Combined, bribery and the trade of opium correspond to an astounding half of the nation’s licit GDP.

Regretfully, U.S. foreign assistance has found its way into the mix. In 2010, the House foreign aid appropriation subcommittee nixed $4.5 billion in foreign aid to Afghanistan after discovering that several officials were stuffing suitcases with U.S. funds and flying out of the country.  In the handling of aid, corruption is “pervasive” and present on an “overwhelming scale.” The government almost never prosecutes officials, even in cases of fraud, despite overwhelming evidence. As a result, foreign aid is stolen with impunity; politically connected shareholders have made off with nearly $1 billion dollars of illegal loans, financed to a large degree by USAID.

The problem of corruption has spilled over to the private sector as well. Government paralysis in establishing the rule of law has given rise to Criminal Patronage Networks (CPNs), groups comprised of individuals, businesses, and groups that pursue control of key economic assets and institutions. These groups have had a chaotic influence on the Afghan economy, diverting customs revenues at border crossings and points of entry, stealing private and public lands, and illegally using public and private financial institutions.  Such conditions have created and atmosphere of uncertainty, stunning private investment. Despite a vast wealth of mineral deposits, Afghanistan has struggled to attract investors due to the unwelcoming business climate. A study by the World Bank found that only 8% of Afghanistan’s GDP was private investment.

It is imperative to understand that corruption is not the root cause Afghanistan’s governmental problems, but rather a symptom of internal dysfunction that stems from weak governmental structures. Unlike more mature democracies, Afghanistan is missing several layers of elected government, including district, municipal and regional councils. Without direct accountability to an electorate, local officials are appointed by the central government and maintain their power by appeasing the officials above them. This concentration of power places an excess of power into the hands of the central ministries with insufficient checks and balances. Because of this structure, the bulk of developmental assistance is funneled through centralized ministries. Unfortunately, the efficiency rate of funds reaching their intended target within the regime is a meager 37 percent.

Afghan President Hamid Karzai be a key part of the future success or failure of developmental assistance.

In addition to addressing the channels of aid distribution, Afghanistan needs to take a stronger stance in the fight against corruption. President Hamid Karzai has recently remarked that “corruption has reached a peak” in Afghanistan, reiterating his commitment to fight political graft and bribery. However, his words have been little more than political rhetoric: to date, his administration has yet to prosecute a single high-level corruption case. If there is not a certain degree of risk associated with illegal practices, they will almost certainly continue unchecked. If Afghanistan does not demonstrate a commitment to fighting corruption from within, aid funds will continue to be misused, enriching a small elite.

As the American military presence diminishes in size, it will be necessary to ensure that developmental assistance is better used to foster economic growth and stability. The clock is ticking.

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