Changing The Game In Afghanistan

January 22, 2014

As the sun sets on the NATO mandate in Afghanistan, the progress made thus far in that troubled country will be lost unless the United States changes the game to its advantage.  For the United States to obtain a Bilateral Security Agreement (BSA), which has been elusive thus far, current U.S development assistance offers the best leverage available.  Longer term, properly calibrated development assistance also represents America’s best chance to align Afghan and U.S. enduring interests in support of an eventually self-sustainable government.    As such, Washington should immediately freeze development assistance in Afghanistan, to the greatest extent possible, until the BSA has been signed by the Karzai government.  Once the BSA has been signed, the U.S. must also completely recalibrate the way it provides development assistance in Afghanistan going forward to focus on conditionality tied to very specific goals, metrics and measureable progress.

The Impact of Not Acting Quickly

With continued American financial and military backing, the Afghan National Security Forces can deny al-Qaeda safe havens and prevent the Taliban from overthrowing the Afghan government.    A U.S. official familiar with the latest National Intelligence Estimate (NIE) recently said that, “In the absence of a continuing presence and continuing financial support,” the intelligence assessment “suggests the situation would deteriorate very rapidly.”  In fact, this does not take it far enough. If the U.S does not change the game soon to obtain a signed BSA, time will run out, troops will leave, financial assistance will evaporate, and Afghanistan could quickly return to a state worse than when we arrived, especially if the Afghan National Security Forces collapse in on themselves due to political pressures, lack of pay, hedging behavior, or a combination of the three.

As we watch the impact of America’s premature departure from Iraq, the United States should be keen to refrain from going back to that playbook.  Even a modicum of success will take time, money and partnership.  The U.S. needs to fundamentally change its approach, starting immediately with the BSA.

Freeze Development Assistance to Obtain a Signed BSA

The U.S. and Afghanistan are currently at a stalemate in negotiating the BSA.  The United States has been setting and adjusting deadlines, using the threat of a complete troop withdrawal as its primary leverage.  President Karzai is using delaying tactics, citing a desire to wait until the next Afghan President is elected in April, and demanding an end to night raids, as well as U.S. support for a thus far elusive peace deal with the Taliban.  It is unlikely Karzai will sign the agreement on the U.S. timeline.  The question becomes: how can the U.S. quickly change the game to achieve its interests and promote a sustainable government?

The answer is quite simple and tangible: focus negotiations in the near-term on development assistance (money).

The United States should immediately implement a freeze of development assistance, to the greatest extent possible, until the BSA has been signed by the Karzai government.  Karzai does not believe the U.S. will ultimately remove its troops from the country.  Consequently, he does not believe that U.S. financial support for the country is in jeopardy. As a result, he will keep adding conditions to the BSA until he feels some sort of measureable consequence, and a freeze on development assistance will be felt immediately. Government salaries will stop being paid, development projects in the provinces will come to a halt, ministries will stop receiving capacity-building funds and government operations will be significantly impaired.  Pressure on Karzai to sign the BSA will mount from actors within Afghanistan, such as members of the Loya Jirga (who have already endorsed the BSA), businesspeople, government officials, and the public.  The United States will regain its negotiating credibility and there will no longer be doubt about whether the U.S. is serious about the zero option.  Afghanistan will experience what it will be like if the U.S. is not there to support their financial needs.  Additionally, the U.S. will still have troops in place to deal with any unexpected contingencies associated with the decision to freeze development assistance.  It will be nice, for a change, to have the Afghan government seeking U.S. support, instead of the U.S. having to beg for the opportunity to help build a sustainable country.

There is only limited downside to this approach.  If the U.S is really moving toward implementing the zero option, development assistance will decline anyway.  Negotiators might as well use it, while they can, as leverage to achieve their objectives.

Longer Term, Recalibrate Development Assistance to Create a Sustainable Government

Since 2002, according to the Congressional Research Service, the U.S. has allocated/appropriated well over $20 billion in development assistance to Afghanistan, and close to $90 billion in total assistance, which also includes Afghan Security Forces Funding.  While there have been many development-related successes (education, healthcare, essential services), there have also been a number of failures, including unsustainable projects, unintended consequences and some enabling of corruption.  However, one of the most fundamental mistakes over the last decade in the delivery of U.S. development assistance in Afghanistan has been not ensuring donated funds are spent in a way that directly promotes American interests.  This longer term “game” also needs to change.

Effective development assistance will be critical for Afghanistan to become a sustainable country: it is critical to the Afghan people, to ensuring alignment with overall U.S. objectives, to creating a long-term sustainable government and to near-term security.  A number of other factors are key to success (ISAF troop levels, actions of neighbors, negotiations with the Taliban, etc.), but financial assistance is the one tangible item that can be felt (or not felt) on an immediate basis.  The bottom line is that we should know exactly what we are getting in return for every dollar we spend, and the Afghan government leadership should understand that U.S. assistance is not a blank check if conditions are not met.

After Afghanistan’s new President is elected in April, virtually an entirely new government administration will be established. In Afghanistan, the President appoints ministers, provincial governors and district governors, meaning that there will be tremendous civil service turnover at the senior levels across the country. This will be a perfect opportunity to completely revisit, and gain alignment on, the way the U.S. provides long term development assistance in Afghanistan.

I offer a few guiding principles for a new approach to development assistance:

Implement Strict Conditionality with Metrics.  Right now, a lot of development assistance is ad hoc and its overall utility is difficult to measure. After the BSA is in place, policymakers should ensure there are specific and measurable criteria in place for the continuation of assistance, and plan for how adjustments will be made if criteria are not met. A conditionality approach will ensure U.S. and Afghan alignment on development assistance spending and that there is a mutually beneficial return on investment.

Increase Funding Through Afghan Systems.  Afghans need to continue to build a sustainable public financial management system.  To this end, the U.S. should seek to fund more directly through Afghan systems, rather than independently through parallel structures.  To the extent that more funding can be moved “on budget,” it will give Afghans an opportunity to utilize their own system, so that when the U.S. departs, an effective system will be in place.

Donors also need to prevent unintended distortions to Afghan systems.  For example, when the international community hires Afghan workers to support their capacity-building programs, they normally pay well above market salary rates.  This distorts the system by incentivizing many Afghans to work outside their historical professions.  For instance, an Afghan doctor that knows English may work with a donor in the financial field.  This deprives Afghanistan of that individual’s medical expertise.  Donors should aggressively reduce the salaries paid to Afghans working in support of the international community, in order to normalize the system.

Spend Only Where There Is Already Security.  U.S. COIN efforts in Afghanistan rested in part on the notion that development spending could help to turn insecure environments into secure ones.  This might have worked in isolated instances, but there is little comprehensive evidence of a direct causal link between development assistance and increased levels of security.  Now that Afghanistan has a baseline level of security and the Afghan National Security Forces are in the lead, the U.S. should spend only in environments that are already secure.  This will provide incentives to maintain security where it already exists, and to create security where it is challenged. Afghan officials who want development assistance will be incentivized to do what is needed to provide a secure environment.

Consolidate Donor Funds. ISAF has a campaign plan that dictates military strategy/operations, but many countries pursue their own bilateral aid assistance/programs.   It is disjointed, and allows the Afghan government to play donors off one another.  Bringing as much aid as possible into umbrella trust funds (or some other mechanism) will streamline the delivery of aid, ensure that it is aligned with campaign objectives and ensure it is sustainable from an Afghan perspective.  Talking with one voice will also help from a negotiating standpoint.

Provide More Assistance Directly To The Provinces. One of the bigger issues in Afghanistan is that funding flows from the center out to the provinces. This creates a situation where local governors and other provincial authorities have very little direct impact on meeting their own constituents’ needs. As a result, there is limited incentive to govern effectively at the sub-national level. For a time, this was a necessary arrangement. But given that there will soon be a new government in place (with a significant turnover in the civil service), now is a good time to launch a new set of aid and funding streams directly to provincial authorities.  This funding needs to be a meaningful amount that is also accompanied by real and measurable criteria for whether or not aid will be provided.  While the funding can be initially provided by the U.S., it needs to be implemented in conjunction with the Afghan government (on their budget and using their systems).  The central government needs to embrace the overall approach and facilitate the process; otherwise, it will end up being a parallel process and will not be effective.

Focus On Fiscal Sustainability.  Fiscal sustainability is a measure of a country’s ability to cover its own operating expense through the internal generation of revenue.  Recent performance suggests Afghanistan is falling short of its revenue targets, resulting in a deteriorating fiscal sustainability metric. The annual revenue collection in Afghanistan is budgeted to be approximately $2.2 billion during the 1392 fiscal year (roughly equating to 2013) and operating expenses are budgeted to be approximately $3.8 billion.    Additionally, Afghanistan is further reliant on the international community for funding of its $3.0 billion core development budget as well as billions of dollars that are ”off budget”, which the international community provides to Afghanistan to support additional reconstruction and security forces development. The fiscal sustainability ratio (revenue divided by operating expenses) for Afghanistan is approximately 58%. Customs revenue, in particular, is not meeting expectations and is likely to deteriorate further as troops continue to withdraw from the country.  The mineral extraction industry holds promise, but there is still a lot to do in this area until it can be fully realized.  It is safe to say that if security deteriorates, this sector will not develop to anywhere near its capacity.  Until Afghanistan begins to generate sufficient revenue and control operating expenses, it will never achieve fiscal sustainability, remaining dependent on others.

Unleash The Private Sector.  To make up this fiscal sustainability deficit, it is absolutely critical that Afghanistan develop a private sector, with all the associated customs and tax revenues. In the World Bank’s recent rankings of private sector performance, Afghanistan’s ranking is abysmal: #164 out of 189 economies.  This is a slight improvement from last year’s  #170 ranking, but not sufficient to achieve fiscal sustainability in any respectable timeframe.  Unfortunately, the one individual who could have put in place the policies, procedures and regulations needed to change the trajectory of the private sector is President Karzai, and he has not shown the necessary leadership in this area.  This must change. A new government, with advice and guidance from the U.S., can approach the issue with a fresh perspective.

Get Tough On CorruptionEveryone knows Afghanistan is one of the most corrupt countries in the world.  While Afghanistan will never get corruption to a level acceptable by U.S. standards, there will continue to be pessimism until the country sees measureable improvements.  Moreover, corruption poses the biggest risk to future revenue generation and development of the private sector.  Unfortunately, this is another area where performance has been abysmal and the Karzai government has failed to address.  In 2013, Transparency International ranked Afghanistan #175 out of 177 – a tie for last with North Korea and Somalia. Additionally, between 2012 and 2013, there was no improvement at all, with Afghanistan’s ranking remaining constant. It is apparent that the Afghan government is not working as an active partner in this area, either.  This should be a shocking revelation for U.S. taxpayers who have pumped billions of development assistance dollars into the country, with no required decrease in corruption indices.  This is another area where the U.S. can make further development assistance conditional on performance.

The Sun Can Still Rise in Afghanistan

The clock is ticking and the U.S. is moving toward a full withdrawal of troops, but there is still time for the sun to rise again in Afghanistan.  The most important elements of strategic success in 2014 will not be dictated by the enemy.  Success will depend on a signed BSA, the election of an effective partner as the next president and a new approach to using development assistance to build a long term sustainable government.  Afghans will have the opportunity to prove they really do want it (and need it).  They will have the opportunity to communicate their interests to their elected officials, reinforce their desire for a Bilateral Security Agreement and elect a new president they believe will put them on the path to future security and economic prosperity.  The decision is really in their hands.

While Afghanistan’s fate is ultimately in the hands of Afghans, failing to negotiate a BSA, based on U.S. interests, will also be a failure of the U.S., and we will partially be responsible for whatever comes next.  If the U.S. does not change the game in Afghanistan quickly, we may see a replay of the Iraq withdrawal, and find ourselves asking in a few years, “how did this happen?”  The sun can once again rise in Afghanistan, but only if we act soon.

 

Joe Banavige is Director of Strategy and Business Development for 3M Defense Markets Division.  In addition to a 15-year business career, he has served as a U.S. Army officer and in the Department of State and the Department of Defense.  A veteran of Operation Desert Shield/Storm, he was a civilian economic advisor to senior officials in Iraq (2006 – 2007) and Afghanistan (2010 – 2011).  The opinions expressed here are his own.

 

Photo credit: U.S. Embassy Kabul Afghanistan