Examination of Witnesses(Questions 32-39)
MR CHRIS
AUSTIN, MR
TOM PHILLIPS
AND MS
JAN THOMPSON
TUESDAY 19 NOVEMBER 2002
Chairman
32. Welcome. Could I apologise in advance if
some colleagues come in and some colleagues leave. Ann Clwyd,
for example, is vice-chairman of the Inter-Parliamentary Union
(UK Branch), which has its AGM this morning, and so she is at
that and will be coming back, as will Alistair Burt. Tom, could
you tell us, for the benefit of the record, because I do not think
it will necessarily be immediately evident, what your role as
the UK Special Representative for Afghanistan is. I think we understand
it is an ambassadorial post but could you just explain to everyone
what you do.
(Mr Phillips) The key part of the job
is as a director in the Foreign Office for the Afghanistan Unit
and policy there; also trying to co-ordinate the Whitehall effort
and trying to be the point of co-ordination; and also seeking
to ensure that there is coherence in the international agenda
towards Afghanistan. So it is those three tiers.
33. The problem of who will answer these questions
is really a matter for you but I think this one is probably for
Chris Austin. When Chris McCafferty, Ann Clwyd and myself were
in Kabul and we were talking to the very impressive Minister for
Finance and President Karzai and so on, a line to take by then—which
was repeated on every possible occasion, pretty much—was
the fact that the amount of money that Afghanistan was receiving
in a post-conflict situation was substantially less per capita
than had been received in other post-conflict countries. For example,
for East Timor there was US$195, for Kosovo US$288, which compares
with US$75 in 2002 for Afghanistan, falling to US$42 over the
next few years. I suppose that was against a background of general
concern that the international community had pledged something
like US$4.5 billion at Tokyo. There seem to be a lot of suggestions
from the Afghanistan Aid Co-ordination Authority that they are
going to need something more like at least double that, if not
more. Also, of the money that had been pledged at Tokyo, which
was really for reconstruction, a lot had been eaten into by the
fact that the refugees returning had been faster than they had
expected, there had then been a whole number of immediate humanitarian
demands, food aid needs, which had not necessarily been accounted
for. Is there going to be enough money to do what is needed to
be done in terms of the longer-term reconstruction of Afghanistan?
(Mr Austin) There are a number of other issues that
came up in those comments and perhaps I could try to address those
as well, Chairman. The level of aid compared to others, I know,
has been used quite a bit by the Afghans as their sort of core
script. I think it could be misleading to think that there is
a per capita amount that a post-conflict country needs in order
to reconstruct itself. The discussions that the international
community and the then Afghan authorities were having round about
December/January, at the turn of the year, were a combination
of: What does Afghanistan need over a medium-term horizon?—and
people were looking at 10 years at least—what can the country
and what can the Government absorb in the shorter term, and what
would be therefore a reasonable thing to start with for the Transitional
Authority? The majority of the pledges then made at Tokyo were
for less than five years. I think there are only five or six donors
that looked at a five-year horizon. Many were just for one year.
I think either the Afghan Co-ordination Authority or the Ministry
of Finance between them have averaged the Tokyo pledges as being
over two and a half years. In terms of: Has Afghanistan got enough
at the moment? Yes, to start with, but it was only ever seen at
Tokyo as the first stage. There was then a question or a comment
that you were making about the duration. I think it is certainly
the case that Afghanistan will need substantial international
resources for at least the next 10 years and maybe beyond. I think
we are now 10 months into the Transitional Authority, getting
to the stage where the Government is beginning to determine its
priorities and to identify what the needs are more precisely,
and Tokyo was a fairly rough and ready estimate based on comparisons
of how much it cost to rebuild Bosnia and other post-conflict
countries but it was not based on thorough analysis of the situation
in Afghanistan. I think we are just beginning to get the clearer
picture of the scale of the needs, different kinds of mechanisms
which it would be useful to use and absorptive capacity. The next
stage, looking at "Will Afghanistan have enough for the next
five to 10 years?" will be a major topic of discussion at
the Development Forum that the Afghans have tentatively scheduled
for February next year, where they will lay out their plans for
the coming year/two years. I think the expectation there is that
donors would look to make multi-year pledges, as they do in other
countries. I hope that addresses the question.
(Mr Phillips) Subject to Chris's correction, this
is a question I asked myself new to the job, but, as I understand
it, the per capita comparisons can be slightly misleading because
you really need to look at what a dollar buys in a particular
situation, and that can be very different. So it is purchasing
power that matters.
Tony Worthington
34. When I heard about Tokyo and the meeting
there in order to assemble funds, I thought that was overwhelmingly
about reconstruction. Is it true that less has been going on reconstruction
than one would expect and more going on food. What is that doing
to calculations about the next step?
(Mr Austin) You are right that predominately the expenditures
in 2002 have been for what is broadly defined as humanitarian
aid. I think there is a definitional issue there that it is important
to recognise. It is probably hard to reach agreement on it, but
the Afghan Government at the Implementation Group Meeting referred
to $600 million of the $1.2/1.3 billion disbursed this year as
having gone through UN agencies, NGOs, and the kind of presumption
is that that is humanitarian, emergency needs, food aid for the
most vulnerable, but it also includes the money that went through
UNICEF that got three million children back in school, it includes
money that went through NGOs for rehabilitating water supply and
irrigation and so on, so some of those things under a different
lens would be defined as the building blocks for a recovery process.
We had assumed, and I think many other donors had assumed at around
the time of Tokyo, that Afghanistan would continue to have large
numbers of vulnerable people for some time, and so the challenge
then, which I think still holds, is to manage provision of assistance
to the most vulnerable people in a way that does not create dependency
and in a way that builds the foundations for longer term development:
so you move from food handouts to cash for work, so that people
have the means to improve themselves rather than being dependent
on a food aid handout. That transition process is still going
through. I think Afghanistan has come a long way in 2002 in terms
of the political process, setting the parameters for economic
and social development through the national professional framework,
but there are still something between four and six million who
are going to be dependent on emergency shelter and emergency food
and that process is continuing. We had thought at the start of
the year that perhaps three-quarters of the money in 2002 would
be needed for emergency-type stuff and the balance would be setting
the foundations. I am hopeful that that balance will begin to
shift, but there is quite a bit in the middle that could be defined
either as humanitarian or reconstruction. The definitions get
a bit blurred in the middle.
35. Mr Brahimi used, famously, this expression
that he wanted the UN organisations to "leave a light footprint"
and this to be Afghan led. Do you think that was the right approach?—in
this sense, that people would want to see immediate change, particularly
in terms of reconstruction. I am thinking particularly about water,
with the water system completely destroyed. How do you hand over,
to an authority that has nothing in terms of people, resources,
skills, that responsibility? Would it not have been better to
have said, "Right, there are a limited number of areas where
we have to prove we are doing something quickly"?
(Mr Austin) I think that is what has happened. Through
UN agencies, through NGOs, including ones that DFID supported,
a number of quick impact, quick recovery activities have been
undertaken. I saw some examples of this in the Shomali Plains,
which I think members of the Committee who visited may also have
seen. These were opportunistic, sort of supply-led. There is a
local NGO or there is a UN agency that is able to have access
to a particular area. The needs are massive. Whatever you do is
going to be of benefit in its own right. Let's make a start and
make things happen and not wait for a long period of strategising
or whatever. The challenge in that context is to avoid setting
up a sort of parallel structure where either NGOs or UN agencies
become the permanent suppliers of services, the permanent providers
of rehabilitation support. This is what the UNAMA is trying to
do now. It is looking to create either single UN offices in the
province—and I accompanied the Secretary of State when she
met the team in Kandahar for the South—or ideally have UN
staff seconded to provincial level administrations or provincial
level representatives of line ministries, to carry on the work
that has already been done and the immediate activities but to
continue it through the Afghan institutions so that they begin
to develop their own capacity to direct where things should happen
first.
36. I am not talking about opportunistic things;
I am talking about strategic things. To get crops going you need
good irrigation systems. You need to do that not just locally
but nationally. You need, I assume, a huge amount of money to
be spent on reconstructing the roads. Is anything like that emerging?
(Mr Austin) On irrigation first, perhaps to clarify
what I meant by opportunistic, the activities that we financed
happened in areas where NGOs were able to have access and where
they were operating and we had quite a job to identify effective
implementing partners to be able to do activities. I will admit,
it was not part of a strategic plan, but then agriculture in Afghanistan
is not managed on a large scale commercial basis. Most vegetables
and wheat production is for subsistence use, with maybe a little
bit of local market. On roads, certainly the national infrastructure
has been seriously damaged by 20-odd years of relative neglect
and then the effects of war and bombing. A number of major proposals
have now or recently been announced with international financing
from a range of sources, and that work is starting but it will
take a long time. It will take a level of resources that will
require both IFI lending and also probably some private sector
investment.
37. What can you say about development in the
capacity of the Transitional Administration? What concerns are
there that the money that is put in goes to proper use, that which
was intended by the donors?
(Mr Austin) On the first part of that, the Afghan
Government and a number of donors, including the UK, have been
very keen to try to build up capacity in the Afghan authorities
from a pretty low or non-existent base. We have been directly
supporting the Ministry of Finance and Central Bank, providing,
on a fairly modest level, advice to the Ministry of Public Health
and the Ministry of Rural Reconstruction. Other donors, UN agencies,
have got personnel in the central Afghan institutions at the Kabul
level, helping to develop the National Development Framework and
the Government's plans and priorities and, in the process, training
up Afghan civil servants. So there is a major task ahead on the
whole area of civil service reform. On the second part of your
question about diversion of resources, at the moment the approach
the UK has followed, which has mirrored others, has been to finance
UN agencies who may be subcontracting to NGOs or other private
sector people locally, to contract them to do the implementation
direct because they have got the capacity to do that. Or we have
provided funds through the Reconstruction Trust Fund for the Government
to manage, essentially, for their operating costs and public pay
roll at the moment but, hopefully, in due course for investment
activities. Those two things provide two things: (1) a degree
of certainty that things will happen relatively quickly, and (2)
a degree of certainty that the money will be used for the purposes
intended for next stage of Afghan's development. The next stage
of Afghan's development will be to prime the Government's own
budgets so that it can manage its finances and its spending activities
more directly.
Mr Khabra
38. The money which was given at Tokyo contains
an element of concessional lending and the Transitional Administration
is not prepared to accept that because they argue that they will
not be able to repay it. The donors are insisting that they cannot
take up large infrastructure projects in transport and telecommunications
or basic services. Should we be encouraging loans or grants? Is
it reasonable to expect Afghanistan to repay loans at this stage?
(Mr Austin) If I may update the Committee first. President
Karzai informed the Secretary of State when she was there at the
end of October that he had now decided that Afghanistan would
take loans from the International Financial Institutions within
a managed strategy. You are absolutely right that the Afghan Government
needs to take on new debt in a careful, managed way. It had always
been clear within the international community, perhaps not to
the Afghan authorities at Tokyo, that certainly World Bank and
Asian Bank pledges would be for concessional (ie, very soft) credit
terms rather than complete grant terms. What that means in practice
for Afghanistan taking an IDA credit or an Asian Development Fund
loan would be something that has a 30 year pay-back with up to
10 years' grace at one per cent interest. So the immediate debt
servicing impact on the economy is zero, but nevertheless Afghanistan
needs to take on this debt in a managed way. The level of need
that we were talking about a bit earlier is very, very large.
I think Afghanistan, to demonstrate its creditworthiness, its
place as a country to do business for private sector and for NGOs
and so on, needs to have a balanced portfolio, if you like (to
use a finance term), not just relying on grant assistance and
emergency need but managing its economy in a way where it can
take on concessional debt and leverage more resources from the
donor community but also demonstrate that it is a place where
investors can put money with confidence, knowing that they can
get a return on their investment and they will be able to repatriate
the profits.
39. The World Bank has previous experience of
debt which some of the African countries are unable to pay. Afghanistan
can also be landed into a situation like that in the near future.
(Mr Austin) I do not think it is a risk for Afghanistan
in the near future. With respect, the IMF assessment of Afghanistan's
indebtedness is that it is fairly low at the moment compared to
the HIPC (Heavily Indebted Poor Country) criteria in terms of
debt servicing to likely export areas. These are fairly bold assumptions
at the moment, but, because Afghanistan has effectively not been
part of the international community for a long time, it does not
have a large portfolio of either official or private debt. There
is a particular issue about debt aid to the Russians, previous
Soviet debt, but to the World Bank, Asian Bank, IMF, it is a very,
very small portfolio, so it is starting from a relatively clean
piece of paper but nevertheless there needs to be a cautious,
gradual process of taking on debt finance for investments that
will generate economic growth and thereby enable Afghanistan to
be able to service those debts comfortably. It is something that
the World Bank and the IMF, with the Afghan Minister of Finance,
have already been looking at and is keen to monitor.
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