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A recent Foreign Affairs article by Stephen Krasner suggests that the United States should withdraw all military and civilian assistance from Pakistan in response to the countries increasingly volatile relationship.   CGD President, Nancy Birdsall, takes a more measured response and calls for a renewed focus on U.S. support to private sector growth in Pakistan.

This is a joint post with Milan Vaishnav, and Danny Cutherell

On December 8th, CGD hosted its first Pakistan study group meeting since the release of its June 2011 report on the U.S. development strategy in Pakistan. Our focus was on how the United States could better support the private sector, especially small business, in Pakistan.  That discussion—and our ongoing conversation with study group members, Pakistan experts, and CGD colleagues—provided the basis for our sixth open letter (authored by Nancy) to the Obama Administration, available on our website.

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We feel that a renewed focus on U.S. support to private sector growth in Pakistan is particularly timely for several reasons.  First, there’s clearly a need. Pakistan’s economy is suffering from a range of pressures, from energy shortages to a lack of foreign investment to steadily increasing prices of staples like sugar and flour. A more robust private sector will help Pakistan ease some of these pressures, including in the short run by creating new jobs for a rapidly growing and relatively unskilled young population.  Second, promotion of trade, investment and productive infrastructure are all things the United States can do well, and has done in the past, both in Pakistan and elsewhere. Third, with U.S.-Pakistan relations at an all-time low, support to Pakistan’s private sector is less likely to be interpreted as a cynical attempt to buy allegiance of the government to U.S. security objectives. Finally, from the perspective of a skeptical U.S. Congress, working with the private sector has the distinct advantage of working directly with the Pakistani people rather than with and through the government.

Here are the three recommendations we made.

  1. Expand market access to Pakistani goods, but drop attempts to create Reconstruction Opportunity Zones (ROZs). Increased bilateral trade through better access for Pakistani goods to U.S. markets would be a huge boon to several key industries in Pakistan, and would have a negligible impact on U.S. manufacturing. However, the idea of creating reconstruction opportunity zones in places like Khyber Pakthunkwa and FATA – which apparently remains a priority for the administration—is unlikely to have a significant impact on bilateral trade. What’s worse, this focus on the troubled north-west will reinforce the idea that America’s sole focus is on its own short-term security in contrast to the stated KLB objective of “supplementing Pakistan’s efforts in building a stable, secure and prosperous Pakistan.”  Instead, the United States should cut tariffs across the board for Pakistani imports.
  2. Task OPIC, in partnership with USAID, with establishing a new facility for small business lending in Pakistan. Although micro-finance institutions like Khushali Bank and NRSP now provide individual entrepreneurs throughout much of Pakistan with financial services, there are few incentives for banks to extend finance to small and medium enterprises (SMEs). A USAID-OPIC partnership could provide a combination of loan guarantees and technical assistance (to both lenders and borrowers) that would help to fill this gap. Similar funds that have been established jointly by OPIC and USAID in Palestine, Egypt and Jordan provide a precedent for this, although the program would need to be adapted for the Pakistani context.
  3. Publicly signal U.S. commitment of resources—diplomatic, financial and technical—to get the proposed Diamer-Basha dam project off the ground. Pakistan’s energy shortages are far more complicated than a shortfall in electricity production (as Nancy previously pointed out here). However, the Diamer-Basha dam will help to ameliorate one aspect of the country’s electricity shortages, and U.S. support might help to jump-start more international investment in productive infrastructure in Pakistan.

An important footnote: This letter differs from our previous open letters to the Administration in that it is addressed to Deputy Secretary of State for Management and Resources Tom Nides, rather than the Senior Representative for Afghanistan and Pakistan (a position currently filled by Ambassador Marc Grossman following Richard Holbrooke’s untimely death).  This was a calculated decision on our part.  This post’s authors—and the members of the study group—have the sense that Secretary Nides has de facto taken over day-to-day responsibility for the Pakistan development portfolio at State.  For us and for the expert members of our study group, however, the lack of clarity about who is actually in charge of the U.S. government’s development policy vis-à-vis Pakistan, at this late date in the Obama Administration’s first term, is alarming.   Until there is an identifiable senior-level official  in charge of the development program in Washington and Islamabad, and accountable to U.S. taxpayers and the Congress (for more on what sort of person that ought to be, go here), the U.S. civilian engagement program in Pakistan will continue to lack coherence and direction, confusing Pakistanis and Americans alike.

We look forward to continuing this conversation with members of the administration as we follow these issues.  We’d also like to hear back from you.  Read the letter and send us an email, or reply in the comments below.

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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 does not take institutional positions.