Select Committee on International Development Minutes of Evidence


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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