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U.S. Aid to Musharraf is Largely Untraceable Cash Transfers

By Spencer Ackerman

11/09/07 "TPMmuckraker" -- -- After Pervez Musharraf declared martial law this weekend, Condoleezza Rice vowed to review U.S. assistance to Pakistan, one of the largest foreign recipients of American aid. Musharraf, of course, has been a crucial American ally since the start of the Afghanistan war in 2001, and the U.S. has rewarded him ever since with over $10 billion in civilian and (mostly) military largesse. But, perhaps unsure whether Musharraf's days might in fact be numbered, Rice contended that the explosion of money to Islamabad over the past seven years was "not to Musharraf, but to a Pakistan you could argue was making significant strides on a number of fronts."

In fact, however, a considerable amount of the money the U.S. gives to Pakistan is administered not through U.S. agencies or joint U.S.-Pakistani programs. Instead, the U.S. gives Musharraf's government about $200 million annually and his military $100 million monthly in the form of direct cash transfers. Once that money leaves the U.S. Treasury, Musharraf can do with it whatever he wants. He needs only promise in a secret annual meeting that he'll use it to invest in the Pakistani people. And whatever happens as the result of Rice's review, few Pakistan watchers expect the cash transfers to end.

About $10.58 billion has gone to Pakistan since 9/11. That puts Pakistan in an elite category of U.S. foreign-aid recipients: only Israel, Egypt and Jordan get more or comparable U.S. funding. (That's only in the unclassified budget: the covert-operations budget surely includes millions more, according to knowledgeable observers.) While Israel and Egypt get more money, Pakistan and Jordan are the only countries that get U.S. cash from four major funding streams: development assistance, security assistance, "budget support" and Coalition Support Funds. Pakistan, however, gets most of its U.S. assistance from Coalition Support Funds and from budget support. And it's those two funding streams that have minimal accountability at best.

The "budget support" package is the lion's share of U.S. economic assistance to Pakistan -- and it's not spent in conjunction with any U.S. agency. "It's a cash transfer," says Lisa Curtis, a South Asia analyst at the Heritage Foundation who used to work on the South Asia desk at the State Department and for Sen. Richard Lugar (R-ID). "That goes directly to the Pakistani treasury." It totalled around $200 million each year until earlier this year, when Rep. John Tierney (D-MA) plucked $75 million of out of it and put it in an education fund for USAID to administer. In theory, budget support is supposed to free up the treasuries of the four countries that receive it for investing in their national infrastructure. But in practice, recipients can do with it whatever they like. "The notion is it gives them greater flexibility on how to use the money," explains Craig Cohen, vice president of the Center for Strategic and International Studies. "The trade-off is accountability."

In Pakistan's case, the only oversight is an annual agreement, known as the Shared Objectives statement, whereby top State Department and Treasury Department officials receive from Musharraf deputies -- usually Prime Minister Shawkat Aziz -- an explanation of how Musharraf intends to spend the money. The agreement is reached entirely in secret. "A good question is what are the objectives we're basing this budget support on," Cohen says.

Accountability also suffers in the Coalition Support Funds. According to Rick Barton of CSIS, who spearheaded perhaps the most comprehensive report on the murky world of U.S.-Pakistan ties, Pakistan has gotten over $6 billion in Coalition Support Funds since 9/11, with disbursements rising to total about $100 million a month. This, too, is a direct cash transfer. "The Coalition Support funding is basically a sort of a handshake deal between militaries," Barton says. "We don’t have good sense where it goes. ... we don't ask a lot of questions, and we don't have a lot of record-keeping. "

Only about ten percent of the $10.58 billion since 9/11 has gone toward development aid and humanitarian assistance, according to the CSIS report -- even after Pakistan suffered a devastating earthquake in October 2005. "Close to 90 percent goes to the military-led government," Barton says. "Some of it is directly into the military, and the other pieces go into the Musharraf government."

In Pakistan, the military runs not just the government, but major sections of the economy as well. Joshua Hammer recently reported for The Atlantic that the Pakistani military owns large stakes in the country's "banks, cable-TV companies, insurance agencies, sugar refineries, private security firms, schools, airlines, cargo services, and textile factories." Mainlining largely untraceable money into the Pakistani treasury helps this system perpetuate itself -- even as widespread public discontent, from both moderates and radicals, boils over. It also sends the signal that the U.S. prefers to have relations with Pervez Musharraf rather than the Pakistani people.

"The whole orientation of policy and assistance provided since 9/11 is that he's the indispensable leader," says Cohen. "And the money runs through the central government and that leader."
 

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