Ideas to Action:

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US Development Policy


This is a joint post with Wren Elhai

Last week, the Government of Pakistan hosted officials from the United States and more than 30 donor countries and multilateral agencies in Islamabad for the Pakistan Development Forum.  The big news from the two-day event was the announcement that the United States would  accelerate disbursement of $500 million in previously committed aid to help Pakistan meet its flood rebuilding needs.  (This pledge is above and beyond the more than $500 million the United States had previously committed to the immediate humanitarian needs from the flood.)  What officials did not announces is what the US flood aid will be used for.  My CGD colleagues Alan Gelb and Caroline Decker have recommended one proposal that the U.S. policymakers are currently considering: directing up to $500 million to finance a housing capitalization fund for flood-affected households.

The costs of the floods are enormous.  According to the World Bank and Asian Development Bank’s assessment, overall losses top $10 billion, with reconstruction needs for public infrastructure alone costing some $3 billion.   In response to these needs and to help flood victims rebuild, Ambassador Richard Holbrooke, the U.S. Special Representative for Afghanistan and Pakistan, announced that the United States will accelerate disbursement of up to $500 million of the $1.5 billion in Kerry-Lugar-Berman funds already committed for this year.  Along with Senator John Kerry, we applaud the administration’s decision.  As we explained with Nancy Birdsall in a special Foreign Policy feature last month, this flood-damaged infrastructure is now the main constraint to long-term economic growth, stability and poverty reduction in Pakistan.  We called for the bulk of the already appropriated (but mostly still unspent)  Kerry-Lugar-Berman aid to be repurposed to meet the flood rebuilding needs -- spending that we consider a smart, long-term development investment.

How best can the U.S. special commitment of $500 million support a swift, effective recovery for the flood-affected victims who need it most?    At the forum, Ambassador Holbrooke did not specify how the U.S. aid money will be used, noting only that the administration will work in “close consultation with Congress” “to ensure that U.S. assistance is aligned to Pakistani priorities.”

Our colleagues Alan Gelb and Caroline Decker have recommended one idea that the Congress and the Obama administration are carefully considering.  In the Hill’s Congress blog two weeks ago, they write that the United States could usefully provide up to $500 million to finance direct payments to the millions of flood-affected households through a housing capitalization fund.  The government of Pakistan is already distributing machine-readable, biometric smartcards called “Watan Cards” to flood-affected households—with U.S. financial support, these households could be given enough to begin to rebuild their homes, replace lost property, and recapitalize their farms. The United States is notoriously slow in moving money for traditional projects, such as rebuilding public infrastructure like roads, bridges, and electricity. Since these investments take time, the Obama administration should move quickly to finance the housing capitalization fund, which would put households’ recovery in their own hands with little delay. Gelb and Decker point out that similar systems have been used successfully in a number of developing country contexts, even in extremely difficult conditions.

The housing capitalization fund idea reflects good development practice.  It also reflects the first priority of Pakistani Finance Minister Abdul Hafeez Sheikh, as delineated in his plenary speech at the development forum last week:

“The government has approved a programme… first and foremost to get money into the hands of our citizens who have lost their livelihoods, who have lost their homes, who wish to get started.  Rebuilding their lives must become the first priority, and they have become the first priority.  The government has decided to allocate 100,000 rupees (approximately $1,200) for every family that has been affected and the amount of 160 billion rupees would be required for that, 40 billion have been allocated, and are being distributed in a transparent, fair and rigorous method.”

There is one last feature of the proposed fund that merits attention.  Were the United States to want to “brand” its aid to ensure that its support is clearly identified, the U.S.-funded cards could easily be marked with an American flag.  We can think of few aid investments better suited to the “hearts and minds” mission -- and, importantly, this approach would avoid risking the safety of U.S. aid workers.

In his statement responding to the announcement of redirected funds, Senator Kerry urged the Obama administration to “be as bold and creative as possible in responding to the needs on the ground.”  An announcement of a major U.S. financial contribution to a housing capitalization fund would be just that sort of bold, creative response.

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.