U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

57–385 PDF 2010

U.S. PROMOTION OF THE AFGHAN ECONOMY:

IMPEDIMENTS AND OPPORTUNITIES

HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL SECURITY

AND FOREIGN AFFAIRS

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

JULY 14, 2009

Serial No. 111–58

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

——— ———

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

——— ———

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON NATIONAL SECURITY AND FOREIGN AFFAIRS

JOHN F. TIERNEY, Massachusetts, Chairman

CAROLYN B. MALONEY, New York

PATRICK J. KENNEDY, Rhode Island

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

STEVE DRIEHAUS, Ohio

STEPHEN F. LYNCH, Massachusetts

HENRY CUELLAR, Texas

MIKE QUIGLEY, Illinois

JEFF FLAKE, Arizona

DAN BURTON, Indiana

JOHN L. MICA, Florida

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JEFF FORTENBERRY, Nebraska

——— ———

ANDREW WRIGHT, Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 14, 2009 ............................................................................... 1

Statement of:

Callear, Mildred, esq., executive vice president and chief operating officer,

Small Enterprise Assistance Funds [SEAF] and Afghan Growth Fund,

executive board member; Mohammad Usman, Ph.D., agricultural economist, former senior advisor, Ministry of Agriculture, Irrigation and

Livestock [MAIL], Government of Afghanistan; Aly Mawji, Aga Khan

Development Network [AKDN], Afghanistan country director; and Jeremy Pam, esq., visiting research scholar, sustainable development, U.S.

Institute of Peace .......................................................................................... 5

Callear, Mildred, esq. ................................................................................ 5

Mawji, Aly .................................................................................................. 35

Pam, Jeremy, esq. ..................................................................................... 25

Usman, Mohammad, Ph.D. ....................................................................... 15

Letters, statements, etc., submitted for the record by:

Callear, Mildred, esq., executive vice president and chief operating officer,

Small Enterprise Assistance Funds [SEAF] and Afghan Growth Fund,

executive board member, prepared statement of ....................................... 8

Mawji, Aly, Aga Khan Development Network [AKDN], Afghanistan country director, prepared statement of ............................................................. 40

Pam, Jeremy, esq., visiting research scholar, sustainable development,

U.S. Institute of Peace, prepared statement of .......................................... 28

Quigley, Hon. Mike, a Representative in Congress from the State of

Illinois, prepared statement of ..................................................................... 62

Usman, Mohammad, Ph.D., agricultural economist, former senior advisor,

Ministry of Agriculture, Irrigation and Livestock [MAIL], Government

of Afghanistan, prepared statement of ........................................................ 17

(1)

U.S. PROMOTION OF THE AFGHAN ECONOMY:

IMPEDIMENTS AND OPPORTUNITIES

TUESDAY, JULY 14, 2009

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON NATIONAL SECURITY AND FOREIGN

AFFAIRS,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2154, Rayburn House Office Building, Hon. John F. Tierney (chairman of the subcommittee) presiding.

Present: Representatives Tierney, Kennedy, Van Hollen, Murphy,

Foster, Cuellar, Quigley, Flake, Duncan, Jordan, and Issa (ex-officio).

Also present: Representative Bilbray.

Staff present: Andy Wright, staff director; Elliot Gillerman, clerk;

Talia Dubovi and Scott Lindsay, counsels; Brendan Culley and

Steve Gale, fellows; Adam Hodge, deputy press secretary; Catherine Ribeiro, communications director, Hon. John F. Tierney’s office; Mariana Osorio, Daniel Murphy, Ken Cummings, Cal Garner,

and Robyn Russell, legislative assistants; Anne Bodine, fellow; Dan

Blankenburg, minority director of outreach and senior advisor;

Adam Fromm, minority chief clerk and Member liaison; Kurt

Bardella, minority press secretary; Howard Denis, minority senior

counsel; and Daniel Epstein and Jonathan Skladany, minority

counsels.

Mr. TIERNEY. Good morning. I want to thank all of our witnesses

for being here with us this morning, as well as our witness from

Afghanistan. We appreciate all of the effort he has made to allow

himself to be videoconferenced in today from Kabul.

I do note that the quality of the conferencing doesn’t seem to be

quite as good as some we’ve had in the past, so there may be a

delay if we want to have an exchange on that basis. So we will

leave some time for the answers and make sure everybody hears.

A quorum is present, and the Subcommittee on National Security

and Foreign Affairs hearing entitled, ‘‘U.S. Promotion of the Afghan Economy: Impediments and Opportunities,’’ will come to

order.

I ask unanimous consent that only the chairman and ranking

member of the subcommittee be allowed to make opening statements. Without objection, so ordered.

And I ask unanimous consent that the hearing record be kept

open for 5 business days so that all members of the subcommittee

2

will be allowed to submit a written statement for the record. And

without objection, so ordered.

Today, the subcommittee will take a look at the economic dimensions of the U.S. efforts in Afghanistan. Afghanistan’s stability will

depend in large part on what the United States, our partners and

allies and, most critically, the Afghans themselves do over the coming several years to bring economic progress to a population ravaged by 30 years of war.

Observers note that the Taliban originally secured a foothold in

Afghanistan, in part, because severe poverty continually dashed

hopes for a better life. For the average Afghan, life was simply getting worse, with no good prospects for improvement anytime soon.

The Afghan government was unable to provide even the most

basic services like electricity and potable water; justice was either

slow, arbitrary or nonexistent; unemployment topped 50 percent;

and police were either absent, or corrupt. Roads and irrigation canals had fallen into disrepair; and the once-productive agricultural

base was so severely degraded that farmers, to make a decent living, chose to grow poppies rather than traditional products like

wheat, dates, and pomegranates.

In short, following the Soviet withdrawal, the Taliban offered a

different, albeit tyrannical, vision for Afghans increasingly weary of

endless conflict and growing personal insecurity. And while the average Afghan was not supportive of the Taliban, per se, the postSoviet era was so adverse economically that the Taliban were able

to find a toehold, and eventually a safe haven.

After the fall of the Taliban and the arrival of the United States

and NATO, there has been modest economic gain. Afghanistan has

experienced rapid growth on the strength of the international

donor community, especially the United States as its largest donor. More than $2.4 billion in new investment has been registered

since 2003, two-thirds of which represent public investment financed through donor aid, and one-third foreign direct investment.

As a result, in 2008, in terms of the GDP growth rate, Afghanistan

ranked 24 out of 231 countries, with a 2008 real gross domestic

product growth rate of 7.5 percent. Unfortunately, at present, this

silver lining does not obscure the dark and ominous cloud over Afghanistan’s economy.

Today, after almost 10 years, and $37 billion of U.S. taxpayer

funds, Afghanistan is still one of the five poorest countries in the

world. Transparency International rates Afghanistan as one of

most corrupt countries in the world, 176 out of 180. A 2009 World

Bank report says Afghanistan is one of the most difficult places in

the world to start a business. And in Foreign Policy Magazine’s

just-released 2009 Failed State Index, Afghanistan is rated as one

of the least stable, most fragile states, 7th out of 177.

Last year, about 18,000 Afghans applied for asylum in Europe,

nearly doubling the 2007 outward migration total. This was the

largest spike in migration-seeking for any country in 2008, and one

of the most common explanations offered by Afghans as to why

they are leaving is that people can’t find jobs.

This dismal scorecard and disturbing trend begs the question,

what has been the net effect of the U.S. support to Afghanistan to

remedy the underlying economic and social conditions that allowed

3

the Taliban to find an initial safe haven in the first place? Unless

we begin now to improve the quality of life for the average Afghan,

those dismal statistics are likely to be go unchanged and the security conditions will continue to deteriorate.

Everyone, from development professionals to counterinsurgency

experts to senior ranking Afghan officials say the shift from combat

operations, to counterinsurgency operations, to post-conflict operations is largely dependent on growing the Afghan economy. As

former U.S. Commander in Afghanistan, General David Barno, recently put it, ‘‘Only if we solve the economic problems of Afghanistan can we ever hope to win the longer war.’’

Accelerating economic development in Afghanistan is a central

feature of the new U.S. Af-Pak strategy announced by President

Obama on March 27, 2009. Reinforcing the importance of economic

development to the overall strategy, National Security Advisor

James L. Jones recently noted, that the Obama administration

wants to hold troop levels here flat for now, and focus instead on

carrying out the previously-approved strategy of increased economic development, improved governance, and participation by the

Afghan military and civilians in the conflict.

Economic development is vital for a stable, secure, and prosperous Afghanistan. In other words, we must move—and the sooner the better—from policy pronouncements on paper to concrete actions on the ground.

I have just one final note. We originally envisioned having a second panel here this morning with administration representatives,

but scheduling issues require that we reserve that prospective for

a later date, probably at the end of the summer or in the fall. By

then, we should expect that the administration’s new Afghanistan

team will have had sufficient in-country experience to better shed

light on the issues that are raised at today’s hearing.

So, with that, I refer to Mr. Flake for his opening comments.

Mr. FLAKE. I thank the chairman. He outlined pretty well, I

think, the purpose of the hearing and what we hope to accomplish

here.

What I am particularly interested in is the interplay between security and economic development. Obviously, much of the country

is too dangerous for a lot of nonprofits or others to work in, absent

security, so I am interested in your perspective on what we need

to do moving ahead, and at what point we are likely to see economic growth and investment vastly improved.

As mentioned, I’m anxious to hear the administration explain

their goals and objectives as well, and I guess we’ll have to wait

a while for that, but I look forward to your testimony. Thank you.

Mr. TIERNEY. Thank you, Mr. Flake.

Now we are going to receive testimony from the panel that’s with

us today. I will start by introducing all of them briefly.

Ms. Mildred Callear serves as the executive vice president and

chief operating officer of the Small Enterprise Assistance Funds

[SEAF], a not-for-profit manager of private equity funds investing

in small- and medium-sized enterprises and emerging markets. She

also serves on the board of Afghan Growth Finance Fund, a $25

million investment fund which provides long-term capital to startup enterprises in Afghanistan.

4

Prior to joining SEAF, Ms. Callear served for almost 20 years

with the Overseas Private Investment Corp. She holds a J.D. from

Georgetown University Law Center and a B.A. from the University

of Illinois.

Welcome.

Dr. Mohammad Usman is an agricultural economist and a

former senior advisor to Afghanistan’s Ministry of Agriculture, Irrigation and Livestock. In that role, he focused on improving Afghanistan’s agricultural policies and public resource efficiency.

Dr. Usman has performed similar work as a consultant with the

World Bank and a number of other governments around the world,

including Pakistan, India, and Egypt. Dr. Usman holds a Ph.D,

from Colorado State University.

We are happy to have you with us, sir.

Mr. Aly Mawji—sir, I hope I pronounced your named properly—

is the country director for Afghanistan with the Aga Khan Development Network, where he manages the Network’s programs and relations with the Government of Afghanistan. He has served with

the Aga Khan Network since 1996 and has held various positions

around the world, including negotiating and operating a large-scale

humanitarian program to Afghanistan in the late 1990’s.

Mr. Mawji holds a degree from the University of London.

We are glad to have you with us, sir, and thank you, for surmounting the inconveniences imposed on you for video teleconferencing.

Mr. Jeremy Pam currently serves as a visiting research scholar

for sustainable development at the U.S. Institute of Peace. Prior to

that, he was co-director of the U.S. Central Command Assessment

Team. From 2006 to 2008, Mr. Pam served in Iraq with the U.S.

Department of the Treasury, both as a financial attache at the U.S.

Embassy in Baghdad, and as a member of the Government Assessment Team.

Mr. Pam is a retired captain with the U.S. Air Force, holds a

J.D. from Columbia Law School, an M.A. from Columbia University, and an A.B. from Harvard college.

Thank you for joining us, sir.

I want to thank all of our witnesses for being here today to share

your substantial expertise. I also again would like to thank the

folks at the U.S. Embassy in Kabul for helping us to arrange to

have Mr. Mawji testify through their facilities.

We swear in the witnesses as a matter of course on this panel,

so if you would kindly raise your right hands.

[Witnesses sworn.]

Mr. TIERNEY. The record will indicate that all the witnesses have

answered in the affirmative.

I do want to say that all of your written testimony, which we appreciate greatly, has already been put on the record by unanimous

consent. So we ask that you summarize, to the extent possible, or

supplement, if you’d like. We like to allot each witness about 5

minutes to share with us their comments, after which we will have

some questions and answers back and forth.

Ms. Callear, why don’t we start with you, if we could, and invite

you to give your remarks.

5

STATEMENTS OF MILDRED CALLEAR, ESQ., EXECUTIVE VICE

PRESIDENT AND CHIEF OPERATING OFFICER, SMALL ENTERPRISE ASSISTANCE FUNDS [SEAF] AND AFGHAN

GROWTH FUND, EXECUTIVE BOARD MEMBER; MOHAMMAD

USMAN, PH.D., AGRICULTURAL ECONOMIST, FORMER SENIOR ADVISOR, MINISTRY OF AGRICULTURE, IRRIGATION

AND LIVESTOCK [MAIL], GOVERNMENT OF AFGHANISTAN;

ALY MAWJI, AGA KHAN DEVELOPMENT NETWORK [AKDN],

AFGHANISTAN COUNTRY DIRECTOR; AND JEREMY PAM,

ESQ., VISITING RESEARCH SCHOLAR, SUSTAINABLE DEVELOPMENT, U.S. INSTITUTE OF PEACE

STATEMENT OF MILDRED CALLEAR, ESQ.

Ms. CALLEAR. I appreciate this opportunity to talk about the role

of small and medium enterprises, and what that means to Afghanistan’s long-term economic development and to the security of the

country, because we do believe that those are deeply linked and

that they’re mutually dependent on one another.

Jobs do have to be created and income has to be generated if you

want to improve security; and, in our view, we are looking at where

those jobs are most likely to come. What we are finding is that the

SME sector, indeed, is where the largest proportion of the employment base exists today; and it also provides the majority of available goods and services. So, in our view, SMEs are a very critical

part of the equation, for both economic development and security

in Afghanistan.

Industry and products need to be improved. More value needs to

be added in the country. And we think that, in fact, will come if

we can do a better job of linking up rural farmers and others in

the rural areas to more urban processing centers, distribution,

warehousing, and other facilities that are needed to take those primary products and add the value that will ultimately bring economic growth to the country.

SEAF has done this type of investing in 25 different funds, 290

individual investments all throughout the emerging markets. We’ve

been around for about 20 years. So, although we recognize that Afghanistan has some very unique challenges, we think that many of

the challenges that small companies face throughout the emerging

markets are, indeed, very similar; and we believe that you’ve got

to approach this whole exercise not wearing your not-for-profit hat,

but with a lot of commercial discipline. Because, in the end, only

a commercially successful company is going to have long-term economic benefits for the country.

So a little over a year ago, in 2008, SEAF created Afghan Growth

Finance as a nonbank financial institution in Afghanistan. We are

providing growth capital anywhere from $50,000 to $2 million. So

we are well above micro finance, but we are far below what the average target size for some of the larger projects might be. We are

making medium- to long-term loans. We’ve got a fair amount of

flexibility on how we can structure those loans, so that the companies can pay out of their cash-flow.

So far, we’ve committed $5 million to 10 different loans. We expect $10 million to be committed by the end of this calendar year,

which would mean that we have effectively placed half of the $20-

6

something million that we have at our disposal through cooperation

with OPIC, through a risk credit facility they’ve made available to

us.

The funds are being used to purchase machinery, to establish

processing and manufacturing facilities, and to provide working

capital. And what we’re finding is that there is, in fact, a strong

demand for the loans, because the commercial banking sector is not

reaching this level of company.

What we also are finding is that the benefits go beyond just the

financial benefits to the enterprise itself. We’ve done a fair amount

of analysis in terms of what that developmental impact is in other

parts of the world, and what we’re finding is that Afghanistan is

very similar and in some cases the benefits are even stronger. But

what we have found is that every dollar that you invest into a

small company, in fact, generates an additional $12 in benefits to

the broader stakeholder community. And that means customers,

that means employees, it means government through taxes, it

means suppliers, it means others in the broader community.

What we’re seeing in Afghanistan is that, after a year in operation, some of the companies that we have funded have been able

to increase their employment by as much as 50 percent; they have

increased their wages by as much as 30 percent, and they have

taken what are largely unskilled employees and trained them and

provided them with a skill set that makes them much more marketable in the future.

We have invested in several companies in the agribusiness sector. We’ve got a licorice root and extract processor that is exporting

to China. Dried fruit and nuts that were manually being processed

and sorted, now we’ve helped them acquire production equipment,

so they’ve got a processing line. Their daily production is 20 times

what it was, their gross sales are up 400 percent, and we’ve helped

them find a new export market in China. And we’ve also got a

raise in export in the agribusiness sector. So we calculate that a

thousand or more suppliers and farmers and input providers are

now linked into these three or four agribusinesses that we’ve funded.

And, of course, the other message that is out there is that there

are ways to make a good living, as an alternative to poppy cultivation.

We’ve got two companies that are producing construction inputs

in-country. So instead of importing circuit panel boxes and metal

pipe, they are being fabricated locally in Afghanistan, going into

construction projects, so that more value again is being created in

the country. The overall cost of the construction is going down,

you’re getting training in terms of the workers, and you’re seeing

better prices overall, in terms of the projects that are being built.

We have a renewable energy company that’s quite interesting.

They are producing wind and solar panels; and they have a new,

unique design that is being deployed for the Afghan police in their

border posts. They are doing it on a pilot basis now. They’ve got

five under way. If that’s successful in replacing diesel generators,

we could see in the future that this company will be able to expand

to 70 or 80 additional posts, which we think is a wonderful story,

7

not only for the economic benefit of this production and design in

Afghanistan, but obviously from an energy standpoint as well.

We have a technology and Internet service provider that’s providing cheaper, more reliable access to the Internet, outreaching to

schools, hospitals, government, military, to a whole range of institutions that will make good use of it.

In the media area, we’ve got an Afghan-language local broadcasting program that we are funding through a media company. And

they’re also broadcasting to the United States and to the EU, so

the Afghan perspective is getting out to the rest of the world.

Now, of course, there are challenges. You’ve mentioned many of

them. I think one of the comments I would make on the challenges,

whether it’s security or the lack of infrastructure, is that SMEs do

have ways of being very flexible and adaptable. They are less visible in terms of being targets, whether it’s targets for corruption or

targets for terrorism, they’re not the big, high-profile entities that

will gain a lot of publicity, and so they tend to be left alone a lot

more regularly. But they are serious issues that all of our companies are dealing with.

The other thing they deal with is an untrained work force. What

that means is they have to invest in that work force; and, overall,

we’re finding that is, in fact, what’s happening. And they are taking low-skilled employees, they are training them, they become

more productive, the wages go up, and then, overall, what we are

finding is that you’ve got a low-skill base that’s being raised and

you’ve got wages that are growing. And as the work force is trained

and companies become more productive, they increase, with capital

as well. They are able to increase that overall size of the work

force.

Mr. TIERNEY. Thank you. Do you want to wind up for us? We are

going to get to questions and answers, too; and I am sure we will

cover a lot of this.

Ms. CALLEAR. Absolutely.

So I think really, at the end of the day, lack of financing does

remain a challenge, but more than capital is needed. It’s a partnership. It’s technical assistance. It is a variety of support. And we

think that, overall, working with OPIC and others in the U.S. Government, we hope to expand the program; and we think that our

initial year has been quite successful and had very good results.

Mr. TIERNEY. Thank you very much.

[The prepared statement of Ms. Callear follows:]

8

9

10

11

12

13

14

15

Mr. TIERNEY. Dr. Usman.

STATEMENT OF MOHAMMAD USMAN, PH.D.

Dr. USMAN. Chairman Tierney, Ranking Member Flake, and the

members of the subcommittee, first of all, I want to thank you for

giving me this opportunity to share some of my insights on this

issue.

The agriculture sector has the potential to reestablish its historical role in nurturing growth and development in Afghanistan. However, as you mentioned, in the last 30 years, agriculture went

through devastating effects. Most of the infrastructure of agriculture, which are rooted in research and irrigation systems, seed

multiplication farms, and laboratories, have been completely destroyed. And as a result of all these are now gone. We once enjoyed

food sufficiency, and now we have a chronic food deficit.

And the farmers, due to economic pressures, and pressures from

the drug lords, have reverted to poppy production. Afghans lost a

share of fruit and nut exports in the international markets. If the

economy, of which agriculture is a vital component, would not be

improved, the current situation of $14 of import for every $1 of export could not be continued without considerable food or aid, or revenue from the illegal crops.

In 2006, the Ministry of Agriculture, with the help of donors, established a comprehensive national development agricultural plan.

And the plan priorities of agriculture have been identified: food security, expansion of high-value horticulture crops, production of

livestock, and cultivation of natural resources.

Unfortunately, the master plan has not been fully implemented,

due to the position of some donors insisting that: the development

plan should be initiated at the community and village level, that

extension and research should be conducted by the private sector,

that current NGO’s’ operation arrangements should continue, and

that the focus should be on rural poverty alleviation, instead of focusing on increasing farm production. While these positions have

merit and are necessary, especially in the long run, such efforts are

not sufficient or useful in establishing the solid foundation necessary for agriculture to develop.

Based on my thorough review of the general political and economic situation in Afghanistan and potential problems with its agricultural sector, I would strongly recommend that these six actions

must be taken immediately. These actions proved to be successful

in Afghanistan during the 1970’s; and, with appropriate modifications, they will solve the agriculture situation once again today.

First, the overriding objective of any project and program should

be to enhance government credibility in assisting its citizens. Right

now the government lacks visibility in the rural areas especially.

While all parties in agriculture should work in a coordinated and

coherent way, the government must play a leading role in the implementation of investment program? It is imperative that donors

and NGO’s take a back seat position by limiting their involvement

to advisory functions, institution building, project design, and the

establishment of proper accounting, monitoring, and reporting systems. Through this arrangement, transparency and accountability

16

would improve, government visibility would be strengthened, and

the expenditures of the NGO’s on security would be reduced.

Second, a coordinated effort by all parties should be made to

strengthen the nation’s research in extension capacities. Re-activate seven strategic research centers to serve as the hub of change

for agriculture. The extension cadre will need to be strengthened,

to disseminate improved practices to the farmers and to convey

farmers’ problems back to the researchers for resolution.

Third, it is strongly recommended that a viable regional agricultural credit system must be established, in order to gain farmer

support, and to enable the farmers to finance modern technology to

meet their needs.

Revitalization of the Agricultural Development Bank, with its

past proven record, must be considered for channeling credit and

deposits to the farmers.

Fourth, improving irrigation efficiency, and the rehabilitation of

the irrigation system with the expansion of irrigation areas is very

important. Afghanistan receives about 75 billion metric cubes of

water in the form of rain and snow yearly, just 20 billion metric

cubes of which is used mainly for agriculture, with water-use efficiency of about 25 percent. With efficient forms of irrigation techniques in farm water management, this water use efficiency could

be doubled.

In addition, agrable land in Afghanistan is about 3.3 million hectares. However, with proper investment, it could be increased to 5

million hectares.

Prior to the Russian invasion, there were several new projects in

the investment pipeline, such as Khush Tepa, diverting water from

Amu Darya, and irrigating 600,000 hectares, which was halted due

to political unrest. These projects need to be reconsidered for investment.

Fifth, farmers should be encouraged to organize themselves in

production, marketing, processing, and water use associations.

Six, consideration should be given to procurement of food and rations for foreign military and civilian personnel locally.

Thank you, sir.

Mr. TIERNEY. Thank you very much, Dr. Usman.

[The prepared statement of Dr. Usman follows:]

17

18

19

20

21

22

23

24

25

Mr. TIERNEY. Mr. Pam, we would be happy to hear your remarks.

STATEMENT OF JEREMY PAM, ESQ.

Mr. PAM. Chairman Tierney, Ranking Member Flake, members

of the subcommittee, thank you for inviting me to appear before

you today. I am pleased to have the opportunity to participate in

this important hearing in U.S. promotion of the Afghan economy.

I know your time is limited, so let me start with a summary.

I recommend that we adopt an approach to economic development and governance assistance to Afghanistan emphasizing three

pillars: an orientation toward Afghan public finance and budgets as

a strategic focal point for the entire civil side effort; two, the collaborative development, with relevant Afghan experts, of road

maps, setting out a few high-impact programs in key sectors, such

as agriculture; and, three, a greater use of catalytic financial instruments, to share risk with Afghan entrepreneurs.

The written testimony I’ve submitted places the significance of

the Afghan economy in the context of a broader legitimacy crisis of

the Afghan state that has, at least three other, and arguably more

important, dimensions: security, namely, the state’s inability to

protect the population; political, the reluctance of a critical mass of

Afghans to identify politically with their government; and governance, the government’s difficulty performing basic governmental

functions and delivering essential services.

I thought the centrality of legitimacy to the current crisis was

worth discussing at some length in my written testimony first, because it helps explain why past United States and international

civil side assistance to Afghanistan has had so limited an impact

as to be, in Secretary Clinton’s word, ‘‘heartbreaking.’’ If the problem is legitimacy, Afghan actors failing to do things Afghans expect

them to do, then it shouldn’t be surprising that international civilians trying to do those things directly—the default international

approach—for reasons I discuss in my written testimony, has not

worked as a solution.

As an aside, please note that all of my comments relate to the

civilian and not the military effort, although I suspect there are

points of overlap, when noted military expert like John Nagl publish op-eds with titles like ‘‘We Can’t Win These Wars on Our

Own.’’

The second reason it’s worth framing things in terms of legitimacy is that seeing the Afghan crisis as a problem of legitimacy

explains why improving the situation requires us to adopt approaches that deliberately structure international efforts in ways

that improve Afghan legitimacy, by helping Afghans implement

their priorities through their institutions, despite the many frustrations and inefficiencies of such an approach. This legitimacy analysis leads directly into the three-pillar strategic concept for civil side

assistance that my colleagues, Dawn Liberry of USAID, Clare

Lockhart of the Institute for State Effectiveness, and I developed

this spring, which my written testimony describes in further detail,

and which was also referenced by Patrick Cronin, of the Institute

for National Security Studies at NDU, in his May 19th testimony

to the subcommittee.

26

As already mentioned, these three pillars are: an orientation toward Afghan public finance and budgets as a strategic focal point

for the civil side effort; the collaborative development of new road

maps for key sectors; and a greater use of catalytic financial instruments to share risk with Afghan entrepreneurs.

I will return to the public finance pillar in a moment, but there

is more on all three pillars in my written testimony.

More important for this discussion is the common idea underlying the concept as a whole, the requirement to use Afghan institutions or business enterprises as the focal point for international assistance, which should better ensure that our efforts are aligned

with Afghan policy or business priorities and is consistent with Afghan institutional capacity, thus increasing the likelihood that the

efforts will both be sustained by Afghans, and contribute to resolving the underlying legitimacy crisis.

My discussion thus far has emphasized explaining all of the current crises in Afghanistan, the limitations of past civil side international assistance, and the rationale for the alternative approach

we’ve recommended, solely by reference to the Afghan situation

and the dynamics of international assistance; in other words, without bringing recent experience of any other country into it.

I would like to now conclude by describing briefly how the U.S.

experience in Iraq reinforces both the general component of this

analysis and the feasibility and effectiveness of the particular solution proposed.

While Afghanistan and Iraq are, indeed, apples and oranges in

many respects, perhaps no more so than in public finance and economic terms, where Afghanistan ranks near the bottom in terms

of wealth and human capital indicators and Iraq has the secondlargest proven oil reserves in the world; but the Afghanistan and

Iraq efforts do have one major factor in common—us. In both countries, the same United States and U.K. civilian and military organizations operate according to broadly similar organizational dynamics, setting the stage for the same kinds of misalignment with

local country priorities and institutional capacity, and the same

tendencies toward a fragmented international effort.

Indeed, I am sure you will all recall that in 2004, 2005, and

2006, the Iraq effort was routinely condemned as seriously, perhaps even fatally, hindered by coordination challenges between civilians in the military, between different civilian agencies, and,

most importantly, between the U.S. efforts and the Iraqis themselves. I think that stories about those coordination challenges are

familiar to us from both efforts.

Both official audits and journalistic accounts produce story after

story about how the left hand didn’t know what the right hand was

doing, and all of the ways in which this was undermining our efforts to get to the point when the Iraqi Government and economy

could stand on their own. As it happened, the little appreciated but

significant factor in addressing some of the most important coordination problems and improving the effectiveness of our efforts to

support Iraqi self-governance was the belated recognition of the

strategic importance of Iraqi public finance, particularly budgets.

This led to a significant shift in emphasis across the U.S. assistVerDate 11-MAY-2000 17:09 Aug 24, 2010 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 U:\DOCS\57385.TXT KATIE PsN: KATIE
27

ance effort toward helping Iraqi officials, at both national and provincial levels, execute Iraqi budgets.

As recounted in the Capstone report of the Special Inspector

General for Iraq Reconstruction, ‘‘Hard Lessons,’’ in 2006, most

Americans in Iraq were still focused on spending U.S. money,

largely independent of Iraqi government institutions. Consequently, in many cases, there was a lack of sufficient Iraqi participation in deciding how or what to reconstruct and ensuring that

projects could be maintained afterwards.

The end of 2006, however, saw ‘‘the rise of budget execution as

a U.S. civilian and military priority.’’ By mid-2007, the standard for

useful expenditure of U.S. funds had largely shifted to, ‘‘If it can’t

be done by Iraqis, we probably shouldn’t do it. What is better is a

project that takes 60 days instead of 30 days, but is done by Iraqi

managers, and is sustainable by the Iraqis, and that their operations can support.’’

By mid-2008, the Iraqi public finance and budgets had become

such a central organizing principle to the U.S. effort that the Embassy and Multinational Force Iraq created a civil military Public

Financial Management Action Group [PFMAG], chaired by the senior civilian and military leaders responsible for governance and the

economy and incorporating the participation of dozens of U.S. organizations working on the civil side in Iraq, in order to ensure that

all civilian and military personnel, whether working with ministries from Baghdad or with provinces from Provincial Reconstruction Teams, would make assisting with the execution of Iraqi budgets a paramount civil administration mission priority.

By the end of 2008, in an independent U.S. Institute of Peace

study, the PRTs had concluded, ‘‘The budget execution role is critical to the U.S. mission in Iraq and is the primary strategic justification to continue the PRT program.’’

I hope it goes without saying that nothing I have just said should

be taken as suggesting that an approach having worked modestly

in Iraq, is by itself, a reason to adopt it in Afghanistan. Indeed, I

limited my written testimony to Afghanistan in order to avoid any

such implication.

However, if we believe that there are some common, daunting

challenges to finally establishing an effective civil assistance effort

in Afghanistan, which have as much to do with the international

challenges of providing effective assistance in this kind of environment as with Afghanistan, we might find some value in the idea

of public finance as a strategic focal point. And in the broader idea

of deliberately structuring our assistance to better align our civil

side efforts in Afghanistan with Afghan priorities and institutional

capacity, I believe that by strengthening the ability of Afghanistan

state institutions and the private sector to recover from the current

crisis of legitimacy, and stand to a greater degree on their own,

such an approach would advance our national interest and greater

stability in this region.

I thank you, Mr. Chairman, for giving me the opportunity to testify today. I look forward to any comments or questions you may

have.

Mr. TIERNEY. Thank you, Mr. Pam. We appreciate your remarks.

[The prepared statement of Mr. Pam follows:]

28

29

30

31

32

33

34

35

Mr. TIERNEY. Mr. Mawji, again, we thank you for joining us from

afar; and we look forward to hearing your remarks, sir.

STATEMENT OF ALY MAWJI

[NOTE.—The following testimony was delivered via videoconference.]

Mr. MAWJI. Thank you very much, Mr. Chairman; and thank you

for the opportunity to be able to share some of our experiences here

in Afghanistan with you.

May I, at the outset, also, coming from the field, pay tribute to

the large number of soldiers here who are fighting on under very

delicate circumstances, and my condolences and prayers to the families of those young men and women who have lost their lives in

recent days and in the past.

The Aga Khan Development Network is founded and chaired by

His Highness the Aga Khan. It essentially works in three pillars:

the social, cultural, and economic. The social and cultural pillars

are predominantly not-for-profit organizations, whereas the economic is a for-profit organization.

There is often confusion as to why we run for-profits and not-forprofits, but, for us, investment in the economic side of things is as

important if we want to try and establish best practices, if we want

to try and raise incomes, dual capacity, and so on and so forth. We

draw no profits from these economic investments, even though they

are for-profit companies, and these profits go back into social and

cultural development as a cycle.

I welcome the opportunity to share with you some of our experiences here in the field, and to draw some conclusions of what we’ve

learned from the large investments of over $700 million across

three pillars over the last 7 to 8 years. And if I might say, I find

myself kind of trying to walk with one foot in a bucket of hot water

and the other foot in a bucket of cold water, and I’ll explain why

in a second. And perhaps I can turn to the bucket of hot water

first.

I would like to say that Afghans are inherently very entrepreneurial people. That is what has allowed them to survive 23

years of war. It’s what has allowed them to rebuild Afghanistan in

terms of businesses and so on since the war. And with that comes

a huge amount of hospitality and warmth. And after 23 years of

war in this country, there really is total devastation; and this devastation is not only just institutionally, but it’s also in terms of the

country. And I think we should not be shortsighted, but we’re going

to need a long and a very sustained engagement in Afghanistan if

we are to make progress.

The second point I would make is that our focus and experience

has shown that today we’ve got to move away from what I would

sometimes call the ‘‘country of Kabul’’ to the country of Afghanistan. There is a lot of effort being placed in Kabul, in processes

such as the Afghan National Development Strategy and so on,

which is government-led, and which is important, but I think we

have to ask ourselves, how does this translate in the field and benefit communities, people, and a society of lives in Afghanistan?

And, at this point, I would like to underline the huge importance

of civil society. Civil society is not trusted in this country. It’s seen

36

as something that’s been perhaps under the scheming of financial

resources that’s being available in Afghanistan. Yet we see civil society as part of the private sector that plays a huge bridge between

people and government, plays a key role in implementing the principle of democracy and state transparency that is accountable to

citizens. Civil society creates an environment through which various segments of the population can take part in the process of decisionmaking.

In true home-grown programs like the National Solidarity Programme, we are essentially molding what has been traditional Afghan civil society and their leadership, the shuras as they call

them, and modernizing it, getting them to prioritize. What are the

key concerns around their community? How are they going to implement it? How are they going to be accountable toward developing their societies?

And, therefore, I think the importance of civil society and the private sector is something that needs to be recognized and enforced

in the Afghan conflicts, particularly as we look at the bridge from

moving from policy and government services to delivering on the

ground.

And let’s not be mistaken, while we all appreciate that Afghanistan is a sovereign state and we need to build the institutions of

the state, it’s going to take a while to do away with institutions;

it’s going to take a while to get the right kind of capacity to deliver.

And we have seen over the last 4 or 5 years how ministries have

crumbled, how corruption has come to set in, how Afghanistan’s development budget has never been able to expand more than 40 or

45 percent per annum. And that, for us, should be a wake-up call

in the way that we approach Afghanistan.

The next point I would make is that we tend often to talk about

sectors, and we say we need to invest in agriculture, we need to

invest in water, we need to invest in X, Y, and Z, which I think

is absolutely right. But I think what we also need to understand

is that where the rubber hits the road, where you start working

and engaging with communities, you need to bring in what we in

the Aga Khan Development Network call MIAD, which is a multiinput area development system, where you’re looking at bringing in

a package of interventions that are relevant, that come together in

a way that is relevant and in an equation that actually affects the

societies in which we are trying to operate. That calls for us to really look at provinces where the enabling conditions exist and ask

ourselves, what is the political profile of these provinces? What are

the economic opportunities? What are the social development needs

and opportunities? And mesh them in an equation, bringing in a

multi-input system that is relevant.

To date, I think we have been extremely busy in Afghanistan.

We go in and say we’re doing lots of work in agriculture, or we’re

doing a bit of work in microfinance. Roles are sometimes confused

in provinces between the PRT, between civil society actors, between

government, because there’s no clear vision that really binds people

together in a coherent fashion.

The next point I would make also is we need to continue to encourage public-private partnerships. Today, we are running a hospital with the French Medical Institute for Children, which has

37

just received the first-ever in the history of Afghanistan, as far as

we know, ISO EPPP with the French government, with the Afghan

Government, with two French NGO’s and the ATVN. And we are

able to deliver quality health care in the government; and we need

to encourage much, much more of the PCPs, which have shown

success.

Let me quickly turn to some of what I have addressed in the testimony; and that is, you know, my other foot, which is in the cold

bucket; and let me return to the business side of things.

If you look at the whole business angle, I mean, we spent a year

doing research before we held the Enabling Environment Conference in Afghanistan that really asked the deep questions, what

is impeding civil society and business to go forward in Afghanistan? And you see, there is a road map that came out which has

been submitted as part of the testimony.

But, you know, the issues are very, very clear. There is very

weak policy enforcement. Creating policy and enforcing policy is a

huge problem. In a recent survey done by the World Bank, they

said 14 percent of the people surveyed report unpredictability of

the laws, even though they exist, and poor provision of electricity.

If we are going to try and rebuild Afghan’s economy, there is no

way that it can be cost effective if the cost of energy is so extremely

high that the final cost of production makes it untenable in the region. So the major investments in infrastructure, water, power,

roads, and so on.

Crime and security has become a major issue. Corruption is a

phenomenal issue. I recall a young Afghan-American lady who had

set up a business in Afghanistan, who made a statement as we

were doing research for the Enabling Environment Conference; and

she said, Aly, I went to the Ministry of Finance four times to pay

my taxes, my income taxes, but nobody could tell me where I could

pay these taxes. And then she said, finally, somebody said, I’ll help

you pay your taxes, but you need to pay me to help you pay your

taxes, in which case she was paying corruption to pay her taxes,

and this is completely bizarre.

Access to land has become a critical issue. Let me give you an

example. An earlier colleague talked about the importance of

microfinance. We have seen microfinance become extremely successful. We have $100 million out in loans. We find there is 98 to

99 percent repayment of these loans. But when people hit a certain

ceiling where microfinance is not enough, and they want to increase their businesses into small and medium enterprises, none of

the banks are willing to give them the loans, because they have no

collateral.

And what is collateral for Afghans today? It’s land. But they

can’t use this land as capital because the land registration rights

in Kabul are so corrupt that no banks will trust it. And there is

a need for a whole land reformation and re-registration process,

which is not difficult to do, but should be part of the priority that

we address in the international community and the Afghan Government as outlined in the road map.

In the World Bank survey, 84 percent of the respondents said

that the court system in Afghanistan is corrupt and unfair, and the

Attorney General’s Office has often been associated with high corVerDate 11-MAY-2000 17:09 Aug 24, 2010 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 U:\DOCS\57385.TXT KATIE PsN: KATIE
38

ruption. Now, I can’t validate this, but this is what the feelings and

the perceptions and the experiences of Afghan businessmen are in

Afghanistan.

Business licensing and permits are also such issues.

If I were to conclude, Mr. Chairman, I would like to look at a

few broad things that I think are completely fundamental sine qua

nons as we look ahead and if we want to address the kind of issues

that you made, quite rightly, in your statement in terms of the

challenges that lay ahead of us.

No. 1, I strongly encourage that we put in resources to address

the issues outlined in the Enabling Environments Conference road

map, which are clear, and to push the Afghan Government to be

able to prioritize these in a systemic fashion so that we can start

addressing the primary concerns of private-sector development in

Afghanistan.

No. 2, in the wake of what is a really highly insecure time in Afghanistan, where it is quite unlikely we are going to get huge

amounts of foreign direct investments coming into the country, we

would really propose that we take a hard look at local Afghan businesses. How can we really enable Afghan businesses to flourish

within the context and the constraints that they’re working in?

No. 3, work to rebuild and strengthen the institution of government. And in this I would strongly recommend that, in the interest

of one who demonstrates progress very quickly, is that we identify

five or six key ministries that are absolutely critical for us in order

to deliver to the people of Afghanistan. And we can give conferences of those ministries to help them develop the kind of vision

that’s necessary and to implement the vision at that point.

Fourth, invest and encourage and nurture and build civil society.

Because civil society is already demonstrating a tremendous role in

Afghanistan, as it has in many, many countries around the world.

A wider investment in water and power and other infrastructure.

We need to work hard at enabling regional opportunities, and we

have focused on agriculture in Afghanistan as one of the key priorities. Let’s not forget that Afghans will use 77 percent of the food

that they actually produce. If you really want to rebuild the economy, Afghanistan should become traditionally what it was when it

was thriving, and that was a land bridge in the Silk Route.

So how do we open up the corridor between Pakistan, Iran,

Tajikistan, Uzbekistan? We’ve had three regional economic cooperation conferences now on Afghanistan, and I’m sorry to say

we’ve made extremely little progress in terms of tangible outcomes.

The seventh point I will make is the equity of development investments. So far, if you look at Afghanistan, a recent survey

shows that those areas that are most insecure, whether it’s high

military action, has received the largest amount of development assistance with the least amount of output. Whereas those provinces,

like Bamian, for example, where we’ve had the most amazing conditions for success, has received the least amount of development

assistance.

I think we need to readdress that balance, because if there’s one

other thing we have learned in our experience, it’s that success stories spread very, very quickly in Afghanistan. And if you want to

get three or four provinces and make them into success stories at

39

a provincial level, you would speak volumes to those insecure areas

in the south to which you could respond to them in faith, you could

create those conditions where it is profitable and stable. We would

be able to help you to get to that point.

I would like to conclude by just drawing on a quote by the European Ambassador in Afghanistan, who I thought made a very interesting statement the other day wherein he said—his name is

Ettore Sequi—when he said, ‘‘As long as Afghan institutions are

perceived as being able to provide those basic services that the

state should deliver to people—a clean and effective public administration, a functioning and fair justice, an effective police, a sound

system of education, job creation capacity, economic opportunities,

etc.—the confidence of Afghans in their own institutions will increase, leaving less room for insurgency propaganda and appeal.

It’s the institutional dimension of security which is key for an enduring security. It is this perspective that will be crucial to

strengthen and better coordinate programs already in place in

these fields, and in particular justice, the rule of law, etc.

It will also be necessary to actively and substantially support the

strengthening of management in the administrative capacity of the

Afghan public administration.

I would only add to that we look at strengthening the goal of the

private sector in helping to deliver services for the government and

the people of Afghanistan.

Thank you.

Mr. TIERNEY. I thank you very much, sir.

[The prepared statement of Mr. Mawji follows:]

40

41

42

43

44

Mr. TIERNEY. I think the testimony here this morning has been

excellent and very helpful. I notice that we didn’t keep anybody

within the 5 minutes, and I think that’s fine. I think we all benefited from it.

Mr. Mawji, you win the prize because you couldn’t see me

fidgeting when you got to the 5-minute point, so we were able to

get all of your information in, which was quite helpful. We appreciate that.

Let me start the questioning section, if I can.

I thought Mr. Pam framed this situation—and others also

touched upon it quite well—on this crisis of legitimacy concept.

And it was helpful to put it in that frame.

Mr. Mawji, when you were talking about that issue and about

prioritizing different projects, can you tell me what your view is of

Mr. Pam’s comments, that he thought one way to best prioritize

them would be to work through the public budget, in other words,

to work with the Afghan Government’s budget, allowing them to

set the priorities, and then working through that, as opposed to

each NGO or other entity trying to go off on their own deciding

what they thought was important?

Mr. MAWJI. I would completely comply with the view that we

need to work within the government priorities. There’s no question

about this. And I think those priorities are not rocket science. They

are in health. They’re in education. They’re in rural development.

What I do fear, though, is that there is a role to be played or investments to be made to help deliver those services. So I think we

do need to look at a concurrent and parallel process. And that’s not

to create a parallel system. It is to invest in the state, to build its

institutions, its capacity, its thinking, but also then to empower

civil society, the private sector, and others to be able to deliver

some of those services, either through government funding or otherwise.

Mr. TIERNEY. Thank you.

Mr. Pam, I would like your reaction to that, first of all, but also

the additional question, what about the corruption issue? We’ve all

touched upon it here, and I think everybody has a concern that the

investment might not get where either the governmental budgeting

process of Afghanistan wants it to go or where individual investors

want it to go.

Mr. PAM. Well, let me start by addressing the previous comment.

I think that the suggestion that government efforts to deliver

services take advantage of all of the capacity that exists in Afghan

society, including Afghan NGO’s in places where the government

doesn’t reach, I think that is perfectly consistent with using public

finance as a focal point for our efforts. I think that ties into the

second pillar of the three-pillar approach of these new sector road

maps which would create new national programs, sort of on the

model of the National Solidarity Programme, which is a national

program in the sense that there is a ministry in Kabul that is responsible for it, but it’s implemented through, in many cases,

through nongovernmental entities down at the village level. And so

you’ve got to marry up the formal governmental structure with

whatever capacity exists in Afghanistan, whether it’s at the formal

45

or the informal level. And I think you’ve got—the answer to that

will be context-dependent.

But I think what we’ve got to avoid is saying that, because a

ministry in Kabul doesn’t have officials that allow it to reach all

the way down to a particular province or municipality or district

or village, we should therefore give up on a state’s structure and

devote our efforts to parallel internationally funded efforts that go

directly to NGO’s at the district. I think there are ways of combining the two, but we can’t give up on the public process if we want

to address the underlying legitimacy crisis, which is, at bottom, a

crisis of what the state can do.

On the corruption point, quickly, I think it’s a central point; and

I don’t want to suggest for a moment that there are simple answers

to it.

The suggestion that we place a greater emphasis on the Afghan

budget, which entails greater United States and international financial support for the budget, greater use of budget support, for

instance, is a risky proposition. And I think that one would do that

as part of a multi-step process which would also involve some intensive technical assistance work, assessing the quality of the public finance systems. The World Bank and the IMF have already

done a tremendous amount of work on those systems; and my

sense from them, in general, is that those systems are actually in

decent shape, but obviously the United States would want to hear

that directly and see that directly and do some work preparing the

national budget and then, if there’s going to be a degree of fiscal

decentralization, subnational budgets to receive additional money.

Some money will be lost, but some money is lost when it’s done

through parallel systems, too.

The argument is that, only by putting money through their system and concentrating our efforts on making that system work—

which it will only do imperfectly at the beginning—will we ever get

to the point where there is a functional system that can respond—

that can perform all of the functions that the quote from the EU

Ambassador just described.

Mr. TIERNEY. Thank you very much.

Mr. Flake.

Mr. FLAKE. Thank you, Mr. Chairman. I appreciate the testimony.

Regarding the question of security, is the situation improving

over the past several months in terms of, particularly, agricultural

production and the need for outside investment? But in so many

areas of the country we have difficulty operating, or at least other

organizations outside of government.

Mr. Usman, do you want to address that? Is that situation improving?

Dr. USMAN. Yes, sir. I think it is improving, but I want to come

to, if I may, the question of corruption a little bit.

You see, once, according to a rough estimate, our Ministry of Agriculture had something like 11,400 or 11,500 staff. However, at

this time, probably the Ministry of Agriculture system has something like 4,000 to 5,000 staff. And the salary of these people are something like $50 or $60 or $80 maximum, and rent and everything else in the Kabul area is

46

$100, $200. Then to expect that these people could live on that salary, it is impossible.

It is a symptom—I am not critical of NGO’s, but NGO’s are paying lucrative salary allowances to their staff. There is a sort of jealousy we’ve developed with the NGO’s. NGO’s actually get the

cream of the experts of the government staff at their employment.

I was thinking of that. I said, OK, if from this 5,000 pool that

we need in the Ministry of Agriculture supposedly, then probably,

based on a good selection criteria, we should supply them with

some sort of hardship allowances and put some tough sort of requirement there; and I think they would function best. According

to my experience, when the Agricultural Development Bank functioned properly in the region, it was a successful bank.

The bank was giving, compared to the rest of the employees of

the government, some 50 percent more salary to their staff and

good selection area and good selection character. And all the staff

were working perfectly, and they were sort of appreciating the jobs,

and the corruption reduced.

Mr. TIERNEY. Our apologies. These are notices with regard to

what is going on, on the floor of the House. So we’ll wait 1 second,

and then they will stop, and we will give you extra time.

Dr. USMAN. OK. If we are completely sort of ignoring that—OK,

there is corruption. Therefore, we do not want to deal with it. In

the Ministry of Agriculture, while I was there, we wanted to align

our financial system with international accounting procedures. For

6 months, I was looking for an expert to come and fix the system.

An expert was not available. And then the ministry for some reason, had something like $3 million. They gave it to SAO, if I remember correctly, for a 35 percent fee, to spend it on their accounting procedures.

Therefore, accounting, bookkeeping, financing, reporting need a

lot of work. And I know it is difficult, but we have to do it. We have

to reconstruct the system.

As far as agriculture is concerned right now, you know, as I said

in my written testimony, that the crop production per hectare is

something like 1.6 to 2 tons per hectare. And for the dry land,

which is around 4.5 million hectares of the dry land, this is 0.6. In

the regions, they are getting 4.5 from irrigated and 2 tons from dry

land. This is for staple foods like wheat. But we have to work on

reducing the cost of production. Otherwise, we cannot compete with

the neighboring countries.

In 2002, Afghanistan was supposed to have a bumper crop, but

similarly several of the neighbors had more bumper crops, and the

farmers would not even bother to go and harvest the crop.

Therefore, research—bringing back the research, bringing back

the extension system is really, really necessary, putting the engineer expert along with the ministry expert to complement each

other.

Mr. FLAKE. Thank you.

Mr. Pam, with regard to so much emphasis on public finance

going through the Afghan government, for a body like this, the U.S.

Congress that has to appropriate the money to the extent that we

are talking about direct assistance, there is a point at which you

simply say we cannot tolerate so much money being drained off

47

with significant corruption. But you seem to be making the point

that we have no choice, that we have to funnel through that system

and not through a parallel system.

But, I mean, give us some guidance here. What kind of strictures

or mandates or whatever can we put in place? And if they are not

met, what are our choices at that point? Because it is a difficult

thing, I can tell you, to sell foreign aid in general. But when a significant chunk of it will be drained off, it is tough to just accept

that as a matter of doing business.

Mr. PAM. I understand, Congressman. I think I would give three

answers to that question.

The first is what the alternative is. We have been in Afghanistan

for 8 years. The chairman gave a figure for the amount of money

that has been appropriated to Afghanistan during that time. It has

been a very large number. The question is, what results have we

received for that investment? It is my sense that there is a broad

consensus that we haven’t received a very good return on that investment by the U.S. taxpayer. This is why Secretary Clinton said

that looking at the effort, looking at the results achieved was

heartbreaking.

And I mentioned the Iraq case, because that is another case that

has happened contemporaneously with our investment in Afghanistan where we appropriated—Congress appropriated $20 billion,

$40 billion for civil side assistance and it produced very poor results.

Now—so the advantage of that investment thus far has been

greater accountability. We appropriated it through the standard

modalities for foreign assistance, which meant that it went to U.S.

agencies who used U.S. contractors who were used to the U.S. rules

for accounting for the money. The problem with it is that, too often,

the investments made with that money were not synched up with

Afghan priorities and institutional capacity in such a way that it

moved the Afghan government toward greater capacity and selfsufficiency and self-governance. In other words, further toward a

point at which we could eventually scale down our presence, both

military and civilian.

So the first point is what the alternatives are. I am suggesting

that business as usual has not worked very well. I think this is

consistent with the President’s new strategy for Afghanistan and

Pakistan, which calls for a new approach.

My second point is what the approach that I am recommending

would entail. Again, I am not suggesting that we simply transfer

all the money that we would have appropriated through the systems we know and trust directly into the Afghan budget, by no

means. I think this is something that has to take place, has to be

done gradually. And I think it is already—the first steps of it may

already be in motion.

There have been some cases where intensive work with particular ministries has given our agencies comfort that ministry is now

ready to receive a greater degree of budget support. And I think

USAID’s work with the Ministry of Health is one of the examples

there. But my argument is that we need to do that on a broader

scale, and doing that is something that will require intensive technical assistance in public financial management.

48

Fortunately, we are not starting from scratch. As I said, the

World Bank and the IMF have been working on this since 2001,

have produced reams of documents about it. There are detailed assessments of how—the state of the system and the confidence that

we can have in it.

And we have a further advantage in that we appear to be in the

process of sending over a significant number of additional civilians

and/or military reservists to focus on civilian side assistance. Many

of those people could be used to help enable this public finance

focus, stationed at every level of the Afghan government, given sufficient training in public financial management, and they could

help us track it.

But the point is that the money has to go through the Afghan

institutions, with us on the outside helping the institutions work,

rather than going through us on the outside providing the benefits

to the Afghans.

Mr. TIERNEY. Thank you very much. Thank you, Mr. Flake.

Mr. Foster, you are recognized for 5 minutes.

Mr. FOSTER. With unanimous consent, I would like to enter this

into the record. This is a document which is volume one of the Afghan Judicial Reports.

Mr. TIERNEY. Without objection, so ordered.

Mr. FOSTER. Which my father was involved in producing in 1975

and 1976, where he essentially rode circuit in a Land Rover to the

local—whoever it was who was in charge of making legal decisions

at the time. And I recommend it to anyone that—it is very sobering

reading to understand the huge chasm that exists between a modern functioning western legal system and what was in place at

least in 1975 and has probably gone backward, is my guess, because of the wars and the time period.

So my questions to Mr. Pam and Mr. Mawji are, what is the

structure of the Afghan legal system today, and what are the useful alliances that could be encouraged to build a functional legal infrastructure? Are the alliances with Western or Islamic countries

going to be more valuable in this? And if Islamic alliances are the

best, with whom? Where are the Islamic partners that might have

high-functioning legal systems that could be most easily culturally

adapted to Afghanistan?

Either one.

Mr. PAM. Well, I will answer briefly. I am a lawyer, but I have

never worked on legal issues with respect to Afghanistan.

I would just say that I think you raise an excellent point in distinguishing between, and asking the question of whether Islamic—

technical assistance on the legal system might be more effective

coming from Islamic lawyers than from Western lawyers. And I

think that is—the larger point there—we face a decision generally

in providing assistance of whether we want to—our goal is to set

it up to look like our system—which in many cases implies a Herculean effort, because they are coming from very different starting

points not only in terms of economic development but culturally, religiously, legally—or whether we want to focus on what is there

and what other resources are much closer to what is there in order

to produce incremental improvements.

Mr. FOSTER. Mr. Mawji, did you hear the question?

49

Mr. MAWJI. Yes, I heard the question; and I think it is an excellent question.

I think we have to divide the legal system or the rule of law into

various parts. I think there are certain parts of the legal system

which we can associate with internationally. You know, do we have

a policy for investment? Do we have a policy for trade? And so on

and so forth.

I think when the Islamic issues come in is when it comes into

conflict resolution amongst communities, amongst personal wealth,

and so on. And the constitution of Afghanistan certainly makes

provisions for the Islamic system to be used under different interpretations of the faiths—for example, the Salafi and the Shia.

Now, while there might be particular areas that need to developed specific to this case, but in the context of why there is Islamic

law or how it has been used in Islamic countries, I think we need

to draw on countries like Malaysia, for example—Malaysia is an

extremely progressive Islamic state—some countries like Bahrain

in the Middle East, who has also sort of made progress. And I

think your point is extremely valid, because we should welcome or

draw in the inputs of these countries in trying to help Afghanistan

shape its legal system.

Mr. FOSTER. Mr. Mawji, I was interested also in your discussion

of the difficulty of obtaining clear title to many plots of land as

being an impediment to economic development. I remember my father talking about a plot of land that was claimed by six different

people, and they have been arguing about it for generations as to

who actually owned it. And it strikes me there may be an opportunity for us to make a contribution by actually establishing a central data base of who owns what. This is a sort of technical project

that the United States actually could help out with. And then, of

course, you would have to go through and make all the independent educations. And I was wondering if you thought that was a

promising avenue for United States or foreign assistance.

Mr. MAWJI. I would agree with you, sir. I think that is an extremely needed area in Afghanistan. Land registration or land

ownership goes under the title deeds here. They call them

Khawalas. And you have a huge set of issues. You have corruption

and faith Khawalas. You have had two administrations in Afghanistan, the Taliban and the pre-Taliban. And a lot of refugees have

moved over to Pakistan. Iran’s land was taken over by the Taliban,

resold, and new Khawalas given.

And the system of land rights amongst families here: Your father

would then pass it on, divide the land equally amongst children,

and there is often disputes amongst children as to how much land

is owned by who because there is no clarity of documentation.

And I think any effort that can be made regarding trying to bolster up the municipality and other areas of governance, is very valuable. The Ministry of Urban Development should look at land administration, so that it becomes a credible document from which

they can turn land into capital.

Mr. TIERNEY. Mr. Murphy, you are recognized for 5 minutes.

Mr. MURPHY. Thank you very much, Mr. Chairman.

I missed the opening remarks, so, Mr. Chairman, I don’t know

if you mentioned this, but, Dr. Usman, in our trip that Chairman

50

Tierney and myself and a few other members of the committee took

earlier this year, we heard stories about farmers who were spending more money paying customs, charges, paying tariffs, paying different forms of extorted payments as they transported their goods

through the country to whatever port the goods were going to, to

an extent that it essentially canceled out the benefit of producing

the good in the first place, which was consequently driving people

to the illicit trades in which they were not responsible for the

transport of those goods.

Can you talk a little bit about where we stand today in terms

of the difficulty of transporting agricultural products throughout

the country and what we need to be doing as a government in

terms of trying to make that process easier?

Dr. USMAN. I think the situation from the time I was there has

been, as I heard, improved a lot. And generally, the observations

that you had, were true. But especially in the case of Buddhist

trades, supposed trucks that are taking fruits through Pakistan,

and several times the truck is unloaded and loaded. By the time

it reaches India, its cargo is completely—especially grapes—rotten.

And lately there has been some agreements to improve the situation.

And one of the things that implicitly I indicated in my testimony

was that these farmer associations, producer associations, marketing associations have to be firm, because farmers in Afghanistan

are small and weak. That way, through their association and in direct contact with the final customers, then they will find a sort of

political pressure, which they can utilize to see these things improve. And at the present time, we have something like 1,000 of

these associations, but they are so weak financially, technically,

that they could not stand and fight for their benefit. I think it

needs both from the government side and from the grassroots side,

and we have to mobilize the people.

Thank you.

Mr. MURPHY. Let me ask a more general question to the panel,

and that is this: I think whether we are talking about our military

or diplomatic or economic progress in countries in which we occupy,

benchmarks continue to be a problem in terms of trying to identify

our levels of success. So as you look 5 years out, maybe even 10

years out, to the Afghan economy, what are the benchmarks for

success that we should be looking at to try to decide whether our

investment there has made the kind of gains that we hope? What

are the indicators that we need to be looking at in a 5- or 10-year

timeframe that help us understand the success or failure of our

mission there?

Dr. USMAN. I think the benchmark from, let’s say, agriculture—

80 percent of the population lives in the rural area, and their life

is directly and indirectly connected with agriculture—the benchmark there would be productivity in agriculture.

Supposed, we have 95,000 hectares of land which is devoted to

orchard. If we see that the benchmark is to double that hectarage,

and according to the expert, even the present orchard could be increased, yield could be increased or could be doubled, if that would

happen, if the production of wheat per hectare reached the level of

neighboring countries, then we are really successful on the national

51

level. Not on the small project here and there, that would be temporary and not long-lasting sorts of indicators that would make

that country stand on its feet.

Thank you.

Mr. MURPHY. Mr. Pam or Ms. Callear.

Mr. PAM. Well, I would like to, with your permission, interpret

your question more broadly than just benchmarks for the economy,

but benchmarks appropriate to the civilian side effort more broadly.

The benchmark that I—in my written testimony—suggest is

budget execution performance. Which is to say how much they are

spending through their system. It is—obviously, just merely spending money is a very gross measure, as we know. But in my experience, using a metric like that would have the benefit of focusing

the Americans working in the country who are supposed to be

building the capacity of the Afghan institutions, focusing them on

ways to improve that specific element of performance. And it is

something that everyone understands.

And if the number will start out low—I think there was a reference in previous testimony to the Afghans only being able to

spend 40 percent of their development budget. Those numbers,

numbers like that, are common in the developing world. Budget

execution is a problem in every emerging market.

But you start with a number like that, you give the effort, the

objective, the task of doing what is necessary to improve that number so that money does flow more effectively through the system

with less leakage and producing more results at the end. And I

think what you end up with is both a more focused and effective

U.S. effort on the one hand, and an Afghan government which is

producing more results on the other.

Mr. MURPHY. Thank you.

Mr. TIERNEY. Thank you, Mr. Murphy.

I look at the testimony of all of the witnesses and I see one common tie about credit, availability of credit.

Mr. Usman spoke about it, about enhancing government credibility with better credit in the agricultural realm on that.

Mr. Pam talked about the need to better use Afghan capacities,

that there was plenty of entrepreneurial spirit out there, but capital was a problem on that.

Mr. Mawji talked about expanding significantly the outreach of

a broad range of financial services throughout the country.

And, Ms. Callear, you talked about it as well and talked about

the Afghan Growth Fund and expanding the capital flow to small

and medium enterprises in Afghanistan.

So let me start with you, Ms. Callear, because we haven’t heard

enough from you. Does the infrastructure exist to increase that

flow of capital? Is there enough structure there, for the writing of

these types of loans to the administration of the loans? What about

security or collateral on those loans? And just round that out for

anybody to comment. What would a well-run enterprise fund look

like if we decided to go in that angle?

And then, at the end, I will ask Mr. Pam to talk a little bit about

his comment that enterprise funds have failed elsewhere.

Ms. Callear, can you help us there?

52

Ms. CALLEAR. Yes. Well, we are certainly—I think what we are

finding is a surprising level of demand. So there are—as many

have said, there is a real entrepreneurial culture. But what has

been missing is the ability to really apply that desire in a very

practical way, because access to capital has been lacking.

But it is more than just the capital. It is also providing the various other kinds of support. We were talking about the need for

proper accounting and so on. So it is a business-building effort that

requires capital, but also various types of technical support.

And I think we have also said it is important to make sure that

the reach is beyond Kabul. We are trying at a limited way to do

that. I think, in order to reach some of the other areas, we would

certainly need some additional support. But it is a very important

thing. Because I think otherwise, in answer to one of the other

questions, a lot of the potential economic benefit is being left on the

table because you are not doing the value addition in country. You

are exporting raw product, or you are not getting the distribution

to the places where it needs to go.

So the demand is there. It is challenging. But these challenges

are not all unique to Afghanistan. And I think in terms of what is

needed, whether it is an enterprise fund or more—for larger investments or more smaller investments, it is the combination of the

capital and technical assistance, and then trying to structure it all

in a way that is culturally sensitive in an Islamic culture, as well

as dealing with the constraints that one has in the legal system.

But there are ways to do it, and you can get good repayment rates

at the micro finance level, and we found at the SMA level, as well.

Mr. TIERNEY. Dr. Usman, what would that loan situation look

like in Afghanistan, that might be different than a Western loan?

Ms. Callear just mentioned that it might be good to be culturally

sensitive in the way that we are getting this money out to the entrepreneurs, and the terms in which it is distributed. How might

that differ from what we, in the West, would consider a loan prospect?

Dr. USMAN. Well, you know that in Afghanistan—let’s say, for

the example, at the time of the king—we had three or four specialized banks. There was Agriculture Development Bank, AID Bank,

and Industrial Development Bank. And I don’t know who went

there and came with the idea that this specialized banking—we

don’t have experience worldwide. This comes from Afghanistan, too.

And without actually considering the idea, we look for experience,

that actually, this Agriculture Development Bank received three

loans, from the time of the king and the time of Daoud, from the

World Bank, and they are handling it fine. The people, repayment

was picking up and the farmers were really healthy in Afghanistan, you know.

And now all—the Minister of Agriculture, everywhere they go,

the people ask, where is credit for us? And in the form of vouchers,

the government gave, I think, with the help of donors, something

like $100 million in vouchers, and collection of that is negligible.

But the people are used to getting the loan, like here, and paying

the interest and paying it back.

If you have the technical capacity, if you improve the accounting

system, improve the banking system, and especially, in agriculture,

53

if you connected these associations—farmer associations—with—

the bank board and put them to work, eventually they would become the owner of the bank. It would be a really a good system.

The system is working here. In some other countries that I have

seen, it is working. Supposedly it is working in Egypt. The Agriculture Development Bank there, they were giving $5 million a

year as lending to the farmers and to the agribusiness people, and

they were successful.

Mr. TIERNEY. Thank you, sir.

Mr. Flake.

Mr. FLAKE. Thank you.

Mr. Usman, just to followup, to what extent are the NGO’s that

are operating locally purchasing food from local vendors and farmers?

Dr. USMAN. Well, there was—for national security purposes, I

think at one time they—if I can remember correctly, they bought

something like 10,000 or 15,000 tons locally. But Hindus, so far as

I see, they don’t buy from local markets. And that is a difficulty;

but I say there are international markets right in Afghanistan. In

Afghanistan, like the soldiers are there and the foreign community

is there. Then, if we built the standards, laboratory facilities, certificates, and all the documents, then that would open up for Afghanistan products inside the country. And then later on, like

FDA, you could establish quality control checks for both domestic

and international products. Right now, the difficulty is that even

wheat is imported from Afghanistan’s neighboring countries.

Mr. FLAKE. Mr. Pam, how realistic is it to move significantly

from poppy production, over a sustained period of time? And in

that question is the problem the government—I sensed it in the

couple of visits that I made to Afghanistan. From the first visit to

the second visit, there seemed, at least with the President’s office,

less of a commitment to fight the drug war, if you will, and less

candor, in terms of what is going on outside of Kabul.

To what extent—is it going to be difficult to offer incentives?

How long is it going to take to move to—whether it’s pomegranate

or whatever else—to offer something sustainable, particularly if the

government doesn’t seem as committed as perhaps they should be

to move away from poppy production?

Mr. PAM. Congressman, I am not an expert on the agricultural

sector and that issue.

Mr. FLAKE. In terms of the government though, in terms of the

government’s commitment there, do you sense—and this goes back

to the problem of how much do we run these programs through the

government. Do you sense an increased commitment or lessened

commitment over the last couple of years to transition away from

poppies?

Mr. PAM. I am not sure. I haven’t had any discussions with the

government on that subject.

Mr. FLAKE. Dr. Usman, you look like you are itching to answer.

Go ahead.

Dr. USMAN. I think, based on my experience, the government is

fully competent to actually find alternatives to poppy production.

But we have to—you know, there is one commitment on the paper,

one actually that work would be done toward accomplishing it. But

54

the government has to build the right infrastructure to actually

conduct that activity. The infrastructure is not there.

There was at the time of the King and the time of Daoud, when

we had 26, or 24 such stations, 14 sub research and 7 main research stations. None of those research stations are working now.

You have to produce seedlings. You have to produce seedlings

somewhere. You know, it is a good idea to provide free seedling for

the farmers. But then you have to provide proper technical support

to the farmers after they grow. There is new variety of almond that

would bear fruit, I think, in 3 to 5 years. Then, with that, then you

have to teach the farmers how to do mixed farming.

But the unfortunate thing is that a lot of experienced farmers

that migrated outside of Afghanistan, they died; and they could not

pass their skills that they had to the new generation. And the government, does not have capacity and means to do it or the commitment. But we have to establish, as you said, the infrastructure for

it. The infrastructure is not there now.

Mr. TIERNEY. Thank you.

Thank you, Mr. Flake.

Mr. Kennedy, we passed you up on the first round because you

stepped out for a second. We apologize for that. We recognize you

for 10 minutes.

Mr. KENNEDY. No problem. Thank you, and thank you for your

commitment to this issue and your work. I welcome the panelists.

Just following up on that past question, it is hard for me to think

that the government is really committed to the restriction of poppy

growth when you see the enormous economic value that it provides

for the country of Afghanistan. What is currently the percentage of

poppy crop in Afghanistan as a percentage of overall poppy growth

in the world? Do you know?

Dr. USMAN. Well, I know I have my information from the newspaper, probably so does Congress. It is 92 percent or something like

that. But I think we have to give to the farmers an improved agriculture package.

And Ms. Callear was mentioning—you know, the time I was

there, even the dry fruit and nuts, which could compete with the

poppy—because in India they really appreciate and pay higher

prices for the almonds of Afghanistan—if they made a rough budgeting analysis, it was two hectares of, supposed, almond that could

substitute on a profit basis for one hectare of poppy. And with the

value added, and you would have that processing, packing, cleaning, grading right in the farmer field and involve the farmers there,

then probably it could compete on economic terms.

But, right now, 70 percent of the irrigated land is devoted to

wheat production. And with wheat, it takes one hectare of poppy

to substitute it with 14 to 24 hectares of wheat.

Then, with this divergence, there would be problems all the time;

and sometimes, for the politician, it would be difficult to convince

the people to actually apply new methods. But if you go in this

other route, then probably the government would make their argument clearly with the people.

Mr. KENNEDY. Then why are we not doing that, the nuts and the

fruits?

55

Dr. USMAN. Well, as I was saying, sir, we don’t have the infrastructure to do it—the research, the extension, the technology, the

technical know-how of the work. We have to build it.

In the last 7 years, you know, I have said that you would see in

two districts, the Hindu is involved in sort of upgrading the wheat.

But then the proper seed for it was not there to actually give to

the farmers.

Mr. KENNEDY. Well, they have done it. In Pakistan, from what

I understand, we have been working with the agricultural sector—

because Pakistan had a huge, huge poppy crop. And they have

worked very hard to try to eradicate it doing exactly what you said,

substituting with the nuts and fruits.

Ms. CALLEAR. And I can see——

Mr. KENNEDY. And they have successfully done that in many

parts of Pakistan. So—and if it takes so long to do the wheat and

the wheat is a ‘‘no-go’’ in terms of the farmers, then I think we

should just move right on to what the local people think works

best. And if it takes the infrastructure, that is what we need to do.

So I think we should listen to that message loud and clear and get

with the program.

Ms. CALLEAR. And the nut processor that we have lent funds to

is telling us that they cannot meet the demand in the Indian market for the higher-value, better-quality processed nuts. And that

goes directly to his point, that the agricultural infrastructure needs

to be there to support the production, so that when you have the

capital for the processing facility and the ability to bring that value

added back to the farmer level, you will be able to do it if you invest it at the agricultural level.

Mr. KENNEDY. What I am trying to figure out, Mr. Chairman, is

why there is a missing connection here. Why we are forcing this

wheat thing on them, when it is clear that the locals are not really

into it.

Mr. TIERNEY. If the gentleman will yield, that is exactly why

there are two parts to this hearing. One part is to talk to these

folks that are with this morning, and the second part is going to

be talking to the administration. I don’t think they can answer for

the last 7 years, but by the time they come in at the summer, the

fall, they will have to answer for January 20th until now whether

or not they are following the wiser course, or continuing on the less

wise course.

Mr. KENNEDY. Let me ask you just another question on health

care.

Dr. USMAN. And in continuation of your answer—You know, we

have 4.5 million hectares of dry land for farming. If we supposedly

gave to the farmers—provide to the farmers—technology to increase the yield, average yields from 0.6 to—dry land Afghanistan

is getting to 2 tons that the neighbor is getting it, this 4.5 million

hectares would come—would bring something like 8 to 9 million

tons of grain. Afghanistan only needs something like 6 million tons.

But that technology unfortunately, actually, is not there.

Mr. KENNEDY. Let me ask you with respect to land mines. Is

there a problem when you are doing any of this agriculture with

land mines left over from the former Soviet war?

56

Dr. USMAN. Well, I think that has been the main problem. Farmers are doing this with a lot of casualty anyhow, because of the necessity. But land mines in some parts are still there.

Mr. KENNEDY. Would it be useful for us to try to get the Physicians Without Borders, those who do the rehabilitative medicine, to

try to help do more satellite communications, so forth, help consult

with doctors there for more rehab medicine, so the farmers and the

families and the like that happen to get——

Dr. USMAN. Sure.

Mr. PAM. Could I say something on this point about agriculture?

I think Dr. Usman makes an excellent point in emphasizing the

need for infrastructure. And I think the need for infrastructure

that he is referring to it is worth noting that it’s state infrastructure. The need to rebuild an agricultural extension system within

Afghanistan is the need for a national program. This could be part

of the—this could be one of the key sectors that the road maps described.

Mr. KENNEDY. Can you get us some of the statistics on these entries as a result of land mines, and what would be your proposal

to see what NGO’s could help in terms of rehabilitative medicine

for those farmers and the like who get injured as a result? Because

I understand Afghanistan is littered with land mines, and I just

want to know what we are doing to help in rehabilitative medicine.

Mr. PAM. I wasn’t saying anything about land mines.

Mr. KENNEDY. I know you weren’t. I am asking you now, because

you are part of the Sustainable Development of the U.S. Institute

of Peace to help us with this.

Mr. PAM. Certainly.

Mr. KENNEDY. And in terms of infrastructure for health care,

there is very little drinking water and sewage. What is going on

with that for the farmer and for the population there in terms of

public health? Could you tell us about what is going on there, in

terms of building infrastructure? I mean, you can’t have much of

the farming life and community if people can’t have drinking

water.

Mr. PAM. Yes. I am afraid I can’t give you any detail on the efforts that—the water efforts in particular. But I can look into it,

along with land mines.

Mr. KENNEDY. OK.

Mr. MAWJI. Could I make a comment?

Mr. KENNEDY. Please.

Mr. MAWJI. Just a couple comments. One referring to the question on health and water. The other one also on narcotics. And just

to say that, on the narcotics side, our experience has been in Afghanistan that it is very, very difficult to compete with any kind

of agricultural productivity in the wake of just the sheer income

revenues that are coming in from narcotics.

And, for example, we would play $2 a day just to build a canal

or a road for unskilled laborers, and the narcotics poppy growers

will pay $15 a day plus three meals to harvest the poppy in the

same construction period, during the year. And we really have to

ask ourselves, do we compete with narco wage prices?

And I fear that while the point has been made on agriculture—

and some are absolutely valid, and I do believe that the infrastrucVerDate 11-MAY-2000 17:09 Aug 24, 2010 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 U:\DOCS\57385.TXT KATIE PsN: KATIE
57

ture needs to come into play in terms of improving the agricultural

prospects—we will not be able to really address the narcotics issue

until there is a sense of consequence for the people who grow it.

And I fear there is a large amount of impunity at this point in time

and with very—we have various carrots, but very, very little sticks

to stop them.

And experience has also shown that large-scale eradication

doesn’t really help. It makes the poorer, poorer. It doesn’t affect the

rich.

So we really need to look at a multi-pronged strategy that looks

at targeted eradication, but that also looks at naming and shaming

bad actors, interdicting routes that are quite traditional—I mean,

I could tell you in areas where they operate in northeast in Afghanistan, and people—farmers are able to tell us what kind, how much

narcotics cross and at what point in the border. And the reason

they can do it is because it is such common knowledge. There is

pure impunity. There is no stick to go with narco production.

With regards to the second question on water and health care,

I have to say that the basic package of health services provided by

USAID have gone a long way in terms of reaching out to basic

health care in the villages.

The whole notion of water has been less well tackled. Yes, it is

one of the smaller investments that one makes, $100,000, $200,000

in a village or a cluster of villages, and you drop child morbidity

by 14 or 15 percent; and it is something that we have been not pioneering, but certainly advocating for, with other colleagues working

in Afghanistan, that providing basic water supplies is extremely

important. But the government also needs to look at the whole

issue of water supply in a much broader policy level and at how

we are going to tackle the needs for water in what is a very, very

diverse geographic landscape in Afghanistan, from the Pamirs and

the Hindu Kush going north-northeast, to almost a desert situation

in the south, where the solutions to the problems are going to be

very different.

Thank you.

Mr. TIERNEY. Thank you for that; and thank you, Mr. Kennedy,

for your questions. They were well placed.

One of the interesting notes that our expert on the staff here says: Of the $37 billion spent in Afghanistan, $37 billion, less than

1 percent has gone to agriculture. Less than 1 percent. And that

was 80 percent of the economy. So for all of our witnesses, I guess

the staggering point—if I can speak for Mr. Flake as well—to us

would be, who is doing the central planning here? Who is doing the

overarching view of what needs to be done that is important? Who

is deciding what projects are the ones that ought to be prioritized?

And then making sure that something is done.

I know that Agha Khan has done significant work there. They

are the largest private investor in Afghanistan. So is there any

functioning entity, comprehensive planning group that pulls all of

the NGO’s, all the private investors, all the government investors

together and says this simple thing like spending a couple hundred

thousand dollars on a cluster of villages is going to be that helpful

for public health? Who talks about the land mines and what we

might do on that effort, that talks about putting more than 1 perVerDate 11-MAY-2000 17:09 Aug 24, 2010 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 U:\DOCS\57385.TXT KATIE PsN: KATIE
58

cent of all the money that is coming in toward 80 percent of the

project? That talks about, as Ms. Callear indicates, getting more

capital into the flow.

Just from each of the four of you, very briefly, because I understand we are back in session on the floor. But what do you know

about whether or not that kind of an entity exists, what the work

has been doing or what has been planned in that regard?

I will start with you, Mr. Mawji, please.

Mr. MAWJI. It is a very, very valid question.

I have to say that there is much better, increased coordination

in recent months, particularly under the leadership of the United

Nations. And I think the United States, together with the Government of Afghanistan, has tried to look at much more concerted, coordinated mechanisms that allow us to be more accountable, but

also look at specific priorities within the rural areas.

But I have to say a caveat, because I do believe that, while there

is a lot of rhetorical thinking and coordination about it, we don’t

really, say, have a Kandahar development forum or we don’t have

a Helmand development forum or a Badakhshan development

forum that sits in Kabul, that sits in the province in a systematic

fashion and says what the tactics are that we need to bring in, and

how the investment is going to come in to make a real difference

in the quality of the people’s lives.

Mr. TIERNEY. Thank you.

Ms. Callear.

Ms. CALLEAR. I would have to say that we have worked fairly

independently in terms of what we have done. We have gotten good

support in terms of access to the credit line that we are now using

for lending through OPIC. But in terms of broad-based interaction

on the ground with the eight agencies there, there really hasn’t

been much. We try to stay in contact. But trying to figure out what

exactly you are asking, what’s that strategy, it is not——

Mr. TIERNEY. I am not saying it’s your responsibility, because I

commend the work that you do. But the fact of the matter is, commending the work that you do, you may not be doing the highest

priority work for that society. So as much as you are doing, and

as well as you are doing it, and as hard as it is, nobody has helped

you focus on what their needs are.

Ms. CALLEAR. And I think there can be more coordination, for

sure.

Mr. TIERNEY. Absolutely.

Dr. Usman.

Dr. USMAN. Yes, sir.

I actually was working in the Ministry of Planning before the

Russian invasion. And at that time, one, it was our responsibility

to see that priority is taken into consideration; and based on the

priorities, we controlled the budget and then controlled the budget

quarterly, how much they spent, how much work was accomplished. But that ministry—now I think they call it the Ministry

of Economy, and that is getting quite weaker and probably could

not do this job.

And at the time I was there, President Karzai’s government

under the proviso that came by name of his authority, they were

59

doing that job. But they didn’t have that much expertise to actually

conduct that job properly.

Now the U.N., with the help of Afghans, are doing it. I think it

is really a good step to actually create something like that, to actually see and coordinate the activity. Even in each ministry there

should be—you know, like one of the difficulties we had in Ministry

of Agriculture, there were 20 donors, and each one of them based

on their country policy, one of them going one direction, another

going another direction, another going another direction. There was

not that much coordination, and there was not that much capability to coordinate with the ministry. And I think that should have

to be done and that capacity has to be stringent at the macro level,

and also the micro and the factual level.

Thank you, sir.

Mr. TIERNEY. Part of my understanding is that Mr. Holbrooke is

supposed to be working in this effort, and we certainly want to find

out how this is going.

Mr. Pam, do you want to just wrap that up, with Mr. Flake’s indulgence?

Mr. PAM. I thank you for the question. I think it is one of the

most important questions that we have to ask, and I agree with the

way Dr. Usman has just framed it. I addressed this in my written

testimony.

When development intervention A is the priority for donor X, and

development intervention B is the priority for donor Y, and in the

case of Afghanistan you have to multiply that A through Z, double

A through double Z, to include all of the countries, all of the NGO’s

operating in the country, what you have is everyone doing A

through Z and double A through double Z and a very incoherent

approach.

Now, in theory, you could have an international body like the

U.N. Assistance Mission in Afghanistan performing that coordinating function, and UNAMA has tried. But UNAMA doesn’t have the

authority to direct the programs of individual donors.

So my conclusion is that the only way to accomplish that kind

of coordination is to fall back on the entity that has the strongest

authoritative claim to be responsible for coordinating and

prioritizing, which is the Government of Afghanistan itself. The

system worked when it was the Ministry of Planning, but the Ministry of Planning and the Ministry of Finance have both been taken

out, have been disempowered. And my recommendation to focus on

Afghan public finance and budgets is in part motivated by the desire to find a way to put them back in the loop, in order—in substantial part—to solve this coordination problem.

Mr. TIERNEY. I guess that is part of the tension that we find up

here. If we are to look at trying to put the money through the Afghan Government, because that is the way they are coordinated

around their budget priorities, and then to see that one of their priorities is to weaken those 30 agencies that would probably be best

at coordinating all of the various sorts, puts a conflict up there.

And the Karzai government in particular, having weakened those

agencies, as Mr. Mawji said, you know, having no punitive aspect

at all to those people that are transporting the opium, like not necessarily the growers but those on the chains above that, just letting

60

them get away with impunity, those kinds of decisions make it difficult for us up here to say, OK, let’s put all our eggs in that basket.

It seems to us it is going to take a lot of work, particularly where

Dr. Usman had testified earlier, a lot of that human capacity no

longer exists. They are either moved out of country for fear of their

physical condition, or their families have been killed in some of the

conflicts, or have gone because there were no jobs—nobody was

taking advantage of their skills and moved on.

Mr. PAM. May I just throw in one more?

Mr. TIERNEY. One more frustration? Go ahead.

Mr. PAM. Well, a potential part of the problem, which is—I understand your reservations about putting all your eggs in a basket

that you have finite confidence in. But this is why I think that part

of the solution might lie with fiscal decentralization.

And, in my terms, creating multiple entities that have budgets

and that have some—that are closer to the people and that have

responsibility for providing some of the—performing some of the

governmental functions, providing some of the essential services,

that then creates a competitive environment where we are not solely reliant on the national government. Neither we nor the people

of Afghanistan are solely reliant on one government, and instead

can sort of go to multiple governments and try to encourage at

least some of those governmental entities to perform.

Mr. TIERNEY. And I guess that focuses even more importance on

the number of civilians and the nature of the civilians’ experience

that the President has recommended sending in, as well as members that the international community is sending in.

Mr. Flake.

Mr. FLAKE. No further questions. Just to comment.

I think you hit on the most relevant point here. There seems to

be testimony and need—and we have heard this again and again

and again—I think, for greater coordination. And so I am very anxious to hear the administration’s plan, come the fall. I hope that

they are monitoring this hearing to get a taste of your testimony

and what you have said here. So thank you.

Mr. TIERNEY. Thank you, Mr. Flake. Thanks for your participation in the hearing and your ideas.

I want to thank all of our witnesses. Mr. Mawji, thank you from

afar. We have really benefited from having your expertise and congratulate you on the work that your agency is doing in Afghanistan

and elsewhere.

And the witnesses that are here today, thank you very, very

much for both your written testimony, your conceptualizing of this,

helping us frame the questions as well as some of the answers and

your time spent here this morning.

I agree with my colleague, Mr. Flake, that we really want to grill

the administration on where they are or where they are going on

this. I think we might expand it out, too, as to where some of the

international organizations are playing in this. Where is the U.N.

in terms of coordination? What other international agencies might

be playing a role in that? Or at least if Mr. Pam says that nobody

seems to have the authority to do it, who has had the best capacity

61

to step up and suggest that we all volunteer to work together and

set up some framework up for that?

Thank you very much. We are privileged by your testimony and

appreciate it a great deal. Meeting adjourned.

[Whereupon, at 11:56 a.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Mike Quigley and additional information submitted for the hearing record follow:]

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

Æ