Afghanistan: The Failing Economics of Transition
July 20, 2012
In the next two and a half years the US and its allies plan to hand over security and other responsibilities to the Afghan government in a process labeled “Transition”. One of the major challenges facing the US and its allies during this time is helping Afghanistan prepare for significant cuts in military and development spending, which have long driven the growth of Afghanistan’s fragile economy. These cuts, along with the country’s fractious politics and persistent insecurity, threaten to derail progress made in recent years. Getting the economics of transition right is critical if Afghanistan is to have a chance of creating a reasonable level of post-2014 security and stability.
The Burke chair has developed an analysis of the key economic challenges to transition. This paper is entitled Afghanistan: The Failing Economics of Transition, and is available on the CSIS web site at http://csis.org/files/publication/120720_Afghan_Failing_Econ_Trans.pdf.
The paper shows that a successful transition depends as much on economics as on politics, governance, and security. It also warns that planners and policymakers must approach economics with a level of integrity that has been sadly lacking to date. Transition planners and managers need to be honest when the data and sources are in conflict, biased, or based on poor reporting. Too often, data is presented as credible when in fact the uncertainties render it unacceptable for use in planning.
Policymakers need to stop spinning claims of progress driven by uncertain methodologies, uncertain databases, or analytic structures that are not related to any other aspect of data collection and analysis. They need to stop creating modeling dependent on at least one variable that is uncertain or lacking in credibility to be useful in planning and analysis. They need to stop confusing the direct and indirect effects of wartime and aid spending with legitimate economic growth and domestic revenues.
The need to address corruption, the steady outflow of capital, and the inability to determine what portion of spending is actually spent in – and stays in – Afghanistan. They need to address the fact that informal, black market, and narcotics-related economic activity is a major part of the Afghan domestic economy. They need to stop making absurdly optimistic assumptions about the “New Silk Road,” future domestic revenues and exports, and the other techniques being used to promise progress that cannot happen.
At present, no official source of economic data and analysis – US, allied, Afghan, or international – meets these basic tests of professional integrity. Worse, most analyses make no explicit effort to deal with security and the fact that the nation is still at war, assess the possible economic consequences of any peace, or break out the very different impacts of transition in areas that are dependent on foreign spending and the market economy versus subsistence or purely domestic activity.
There is often the tacit assumption that the nation will be at peace, and that the impact of transition on war zones will be the same as the rest of the country. Credible transition planning cannot be based on systematic dishonesty and omission of key variables, and it must be based on explicit statements of the range of uncertainty in the data and whether it has a major impact on a given policy, program, or funding effort.
Focusing on the Realities of Future US and European Spending
Regardless of what donor countries have said at past conferences or say in the future, it is nearly certain that the Afghan government cannot obtain the level of aid it requested at the Bonn Conference, particularly over a period that extends so far beyond 2014. It is also clear that any aid that focuses on development – rather than the much broader problem of ensuring stability during transition – will fail.
As has been shown earlier, many US and European actions have already begun to look like a cover for an exit strategy from Afghanistan. It is clear that the transition effort is driven not so much by improvements in Afghan capabilities but by the waning Western interest in committing massive resources to a struggle that appears unwinnable. Military spending is already dropping sharply and will drop again in FY2013. Appropriations for development aid from the US, the largest aid donor, dropped from $3.5 billion in FY2010 to about $2 billion in FY2011. Aid to support democracy, governance and civil society dropped by more than 50%, from $231 million to $93 million. Aid for "rule of law" programs dropped from $43 million to $16 million.
Other countries are cutting their civil and military aid programs, and some NGOs have already had to eliminate key programs or withdraw from the country.
Unfortunately, the time lag between US appropriations and disbursements – and allied pledges and actual spending – will make the impact of such cuts even worse during transition. The past rises in appropriations and pledges, and the spending impact in Afghanistan of the surge in US forces means actual disbursements peaked in 2011 and 2012, sharply increasing the problems of coming spending cuts in 2013-2015.
The Need for Realism About the Resources to Come
The first step in adequate economic transition planning, therefore, is to be far more realistic about probable aid resources. There is a clear need for a coordinated effort by the US and other donors to determine what level of civil and military aid is credible over time, to coordinate as much as possible, and to work with the Afghan government to provide a more realistic basis for planning. Both Afghan aid requests and outside pledges need to be brought to more realistic levels, and plans need to be made which reflect these realities.
The US and other current donors also need to avoid relying on other powers as a “solution” for their own unwillingness to spend. Pakistan has no money and serious problems of its own. Russia, China, India, and Iran will not provide the necessary level of support to the Afghan government and will not always pursue policies in line with US and European goals. The US and its allies also need to be more honest about describing conferences as a form of success when only results on the ground actually count. Louise Hancock, Oxfam's Afghanistan policy officer described the Bonn conference as follows: “It’s been another conference of flowery speeches: big on rhetoric and short on substance.”
Meaningful Planning for Real World Resources
The second step is to develop detailed plans at the national level for both the civil and military aspects of transition that reflect a far more realistic assessment of the Afghan economy, the limits to Afghan civil governance, and the need to fund effective and affordable Afghan national security forces.
Even with the best and most realistic plans, transition will not be easy and may well fail to produce a stable Afghanistan. Nevertheless, it seems likely that more realistic goals and funding plans could accomplish a great deal. For all of the problems listed in this analysis, US, IMF, and World Bank working studies do seem to indicate that continuing flows of affordable and carefully focused US and European aid that focused as much on jobs and economic stability as development could lead to a stable transition.
However, such a transition depends on the progress of the overall US, NATO, and Afghan government effort in Afghanistan. There needs to be continued progress in defeating the insurgents and building up Afghan forces’ effectiveness as they replace the US and ISAF in most of the country. Afghanistan must improve governance, reduce corruption, and achieve greater political stability if it is to cease making it easy for insurgents to contest government authority. Pakistan’s role in abetting and providing sanctuary to militant groups further threatens transition; this does not look to change anytime soon.
Time remains short, however, when it comes to crafting realistic plans to mitigate the economic impact of future cuts in military and aid spending and making the most of the limited assets available to the Afghan government and economy after 2014. Too much time, effort, and money has already been wasted.
Goals need to be far more modest, and the US and Europe must begin to act immediately. There are less than three years left before the end of transition in 2014, and there are no magic bullets that offer rapid growth and prospects for stability before 2020. This means creating a meaningful action plan that Congress, the media, area experts, and the American people can debate and commit themselves to supporting no later than Congressional approval of the FY2013 US budget. If President Obama cannot provide such a plan within several months, and then win the support necessary to implement it, any hope of salvaging lasting success in the war will vanish.
The Need for An Effective and Coordinated International Effort
The third step – and one where past experience indicates that real world progress may be impossible – is for an effective international body to replace UNAMA. This body would be mandated to work with the Afghan government and key Afghan factions at the regional and local levels to actually coordinate development planning and spending, and find ways to ensure it actually reaches the Afghan people and meets their needs
The weaknesses and corruption in the Afghan central government are not fixable before 2014 or in the medium term thereafter. Cutbacks in PRTs, NGOs presence, and aid staffs will further complicate the problem. The money that remains cannot be effective if it continues to be spent on a nation-by-nation, NGO-by-NGO, and compartmentalized military and civilian basis. There is a desperate need for coordination and reform, for someone and some organization to be in charge of overall planning and management for the aid effort. There is a desperate need for expanding the realism and depth of the World Bank effort, and for creating a UN body that can actually do its task.
The obvious need is to abolish UNAMA in its current state, create a UN body that can actually do the job, give the World Bank a major role in the field, and use aid conferences to get donor states to both coordinate spending through such a body and regulate NGOs.
It does not take much vision, however, to predict that Tokyo will be another hollow shell, that no real coordination will take place, that UNAMA will continue to be a dysfunctional mess, and that even the US internal effort will remain a poorly planned and coordinated mix of “golden silos” where the talk of integrated civil-military efforts never goes beyond concepts to reality.