World Bank-led meeting on Afghanistan causes concern in Pakistan

17 January 2002

By Shahid Husain, Freelance journalist, Karachi, and Charlotte Carlsson, Communications & research officer, Bretton Woods Project

6 December 2001 – Promises of unlimited funding for reconstruction and heroic statements on peace and reconciliation were common at the three-day conference “Preparing for Afghanistan’s Reconstruction” in Islamabad. But independent economists and activists in the host country were more sceptical about the new influx of money and donor influence in the region.

The World Bank, the Asian Development Bank (ADB) and UNDP organized the conference, held 27-29 November 2001 in the Pakistani capital. At the concluding session, Mieko Nishimizu, World Bank Vice President for South Asia said: “What I have heard, particularly from the Afghan voices … gives me great hope that we have the beginning of a true partnership led by the Afghan people”.

Regional concerns

While acknowledging the role for the international community to help rebuild a war-torn country, Kaiser Bengali, managing director for the Karachi-based think tank Social Policy Development Centre, pointed out the need to look at the development of the region more broadly. He also said these partnerships need to be scrutinized closely.

Despite the fact that the meeting was held in Pakistan, there was a feeling that little effort had gone into involving Pakistani officials, NGOs and businesses interested in reconstruction in the region. Instead the focus was entirely on forging new partnerships between the international donor community and the Afghan people.

According to Bengali, senior officials from the Pakistani Ministry of Finance made a token presence at the meeting where around 200 delegates met behind closed doors. “Perhaps this is an indicator of things to come. If foreign companies will monopolize the entire bounty of reconstruction contracts in neighboring Afghanistan, the discontent will breed among the Pakistani middle class and business community. This is a recipe for militancy and extremism in the future,” he feared.

Serious “spill-over effects”

“The good news is that hundreds of Afghans in urban areas are now liberated from the rule of Taliban, perhaps the most totalitarian government in the world,” commented Stephen Zunes, a senior policy analyst and Middle East editor for Foreign Policy in Focus. “The bad news is the [re-emergence] of war lords, opium magnates and ethnic militias.”

Recently the prices of opium and heroin on the Pakistan-Afghan border dropped by around Rs 15,000 (US$ 250), per kg because hoarders started disposing of stocks, fearing they may be destroyed. Other unofficial trade consists of consumer goods and an uncontrolled exploitation of natural resources such as timber, gems, marble and granite. This has resulted in extensive deforestation and environmental degradation of the region.

A recent World Bank study (2001) on Afghanistan’s trade relations with neighbouring countries found that Afghanistan’s exports and re-exports were substantial – in the order of US$ 1,227 million in 2000, of which nearly $1,100 million were smuggling goods. These figures have decreased since 1996 when unofficial exports to Pakistan were estimated to exceed $2 billion.

Smuggling, narcotics, terrorism, extremism and movement of people tend to undermine revenue collection, governance and the effectiveness of economic policies in neighbouring countries, particularly Pakistan.

Events following the September 11 attacks have dealt Pakistan a sharp economic blow, estimated to cost the country at least US$1billion this year alone. This figure could rise if the situation in Afghanistan is not resolved in the short term. World Bank lending to Pakistan in FY 2001 was US $374 million and has been slated to increase during the current fiscal year.

Detailed data needed

Before any serious reconstruction can take place, more detailed information is needed on requirements for housing, schools, medical facilities etc. There is little reliable up to date data on Afghanistan’s economy. “Even population estimates are at best guesstimates,” commented Bengali of Social Policy Development Centre. “Under these circumstances, the somewhat heroic statements being made on the reconstruction of Afghanistan amounts to nothing more than playing to the gallery,” he continued.

The most precise population estimate in Afghanistan comes from 1979 when the total population of the country was estimated at 14 million. At present the population in-country (not including refugees in Pakistan and Iran) is estimated at 18-20 million. Before the war about 85 per cent of the population lived in rural areas, including 1.5 million nomads. Social and other services (such as education and health) were largely limited to the relatively small urban sector.

Baseer Naveed, President of the Pakistan Peace Coalition stressed that “rehabilitation work must be conducted under the auspices of the United Nations and must be strictly monitored.” He referred to previous instances where a number of NGOs emerged in northern Pakistan to take care of some three million Afghan refugees, but where bad coordination and the lack of joint donor strategies led to “billions of rupees going down the drain.”

Costs of reconstruction

That the price tag for reconstruction of Afghanistan is going to be high is clear. It also needs to be “combined with a massive development effort” according to the World Bank’s Afghanistan approach paper. However, the paper does not state a precise figure as it claims it would be “premature to put a price tag on reconstruction needs before making a detailed assessment”.

However, looking at reconstruction efforts in other parts of the world indicates the costs involved. In the West Bank and Gaza, a total of US$ 3 billion of reconstruction assistance was proposed in the first two years for a population of less than two million people and with some basic infrastructure intact. In Lebanon, reconstruction costs were in the range of US$ 400 million per year over a 10-year period. UNDP estimates reconstruction of Afghanistan will cost US$ 7-12 billion for the first five years alone.

The World Bank proposes an external mechanism to manage reconstruction in the form of a trust fund “administered by an organization which has the capacity to provide professional approaches to assistance strategy formulation, project appraisal, financial management, procurement, environmental and social safeguards and donor coordination.” In other words, it proposes an important role for its own institution, matched by an internal reconstruction agency of the government, “staffed largely by Afghan professionals”. The paper does not address regional concerns or the roles of neighbouring countries.

According to a World Bank communiqué, the focus of the Islamabad meeting was to listen to “knowledgeable Afghans” to guide reconstruction efforts “led by the people of Afghanistan themselves through their legitimate and recognized leaders.” However, at the time of the conference, delegates of Afghanistan’s political groups and future leaders were busy following the UN-led meeting in Germany that resulted in an agreement to establish an interim government under Hamid Karzai.

The conflicting timing of the two meetings didn’t seem to bother the organisers in Islamabad. William Byrd, World Bank Acting Country Manager for Afghanistan, pointed out that: “We do not begin this work on a blank slate. We will be building on… the analytical work that the Bank and partners have been producing in recent years and on international experience with post-conflict reconstruction elsewhere.”

The reconstruction strategy proposed by the World Bank intends, among other things, to continue and scale up the better existing programs of service delivery by NGOs in the lack of a functioning public sector. It also aims to “restarting private sector-led growth” for the country while keeping the bureaucracy and public administration to a minimum.

World Bank role disputed

The serious need for international financing for reconstruction stands in contrast to what critics fear will be a “reborn colonialism” where coalition interests dominate strategies drawn up by the IFIs. If seen as illegitimate, outside interventions may cause strong reactions. “Efforts led by pressures from a US-led coalition … would not bear fruit and the outcome would not be much different from the [government] that existed after the withdrawal of Soviet forces,” maintained Tauseef Ahmed Khan, an assistant professor at Federal Government Urdu College, Karachi.

The role of the IFIs in the security, peace and post-conflict sector is debated. An article in the Conflict, Security, Development Journal (1:1, 2001) claims that a governance approach to the security and reconstruction sector is well within the mandate of the Bretton Woods institutions. Peace and security has also been defined as a global public good and, as such, should receive financing from global sources. These two strands of thought argue that the World Bank, IMF and regional development banks have an important role to play in this sector.

Nonetheless, a recent report funded by the Swedish Ministry for Foreign Affairs (Financing Global Public Goods, 2001) recognizes that “decisions to provide loans and credits to other nations are inherently political and cannot be separated from the larger policy framework of international relations.” The report also says that while multilateral development banks (MDBs) play a significant role in detecting signs of instability or conflict, the strong position of large regional member states in the Board might make it difficult for MDBs to engage in an effective post-conflict dialogue.

This issue was debated at a seminar held in Stockholm, hosted by the Swedish Ministry for Foreign Affairs in October. One participant stressed that “banks have no role to play” in conflict situations because their loan financing is too expensive in a volatile situation. It suggests that grants and aid should be the main source of financing until the basic institutional structures are re-established under UN auspices. Others agreed that the World Bank role in a conflict area should be very limited. “Political value systems underpin everything,” commented Fransisco Sagasti of the UK-based Institute of Development Studies and one of the authors of the study on Financing Global Public Goods. “There are no technical answers to political questions.”

According to the Bank, however, short-term priorities for Afghanistan’s reconstruction in need of financing include:

  • agricultural recovery and food security,
  • livelihood generation for returning refugees and displaced people,
  • provision of basic services to communities,
  • rehabilitation of Afghanistan’s main road network,
  • de-mining programs,
  • short-run employment generation through public works programmes,
  • expanding key social services like education and health with a focus on reaching girls and women, and
  • human capacity mobilization for infrastructure and public administration.

The Islamabad conference agreed that the most important resource is the Afghan people themselves. “If you support them in ways that they understand and in ways that make sense to them culturally, you will be surprised how quickly they will put this to work,” commented an Afghan participant.

For the international donor community, this needs to be a guiding principle for interventions in the region as a whole – particularly during this politically sensitive time when developments in Pakistan and other neighbouring countries will be pivotal to the long-term reconstruction of Afghanistan.

Links and further reading:

After 11 September: Towards a new multilateralism Bretton Woods Update 25

Special report: Afghanistan’s Future Financial Times

World Bank Aghanistan site

Agreement on Provisional Arrangements in Afghanistan (Bonn Agreement)