[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
  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


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      LYNN A. WESTMORELAND, Georgia
JIM COOPER, Tennessee                PATRICK T. McHENRY, North Carolina
GERALD E. CONNOLLY, Virginia         BRIAN P. BILBRAY, California
MIKE QUIGLEY, Illinois               JIM JORDAN, Ohio
MARCY KAPTUR, Ohio                   JEFF FLAKE, Arizona
ELEANOR HOLMES NORTON, District of   JEFF FORTENBERRY, Nebraska
    Columbia                         JASON CHAFFETZ, Utah
PATRICK J. KENNEDY, Rhode Island     AARON SCHOCK, Illinois
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
------ ------

                      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         JEFF FLAKE, Arizona
PATRICK J. KENNEDY, Rhode Island     DAN BURTON, Indiana
CHRIS VAN HOLLEN, Maryland           JOHN L. MICA, Florida
PAUL W. HODES, New Hampshire         JOHN J. DUNCAN, Jr., Tennessee
CHRISTOPHER S. MURPHY, Connecticut   MICHAEL R. TURNER, Ohio
PETER WELCH, Vermont                 LYNN A. WESTMORELAND, Georgia
BILL FOSTER, Illinois                PATRICK T. McHENRY, North Carolina
STEVE DRIEHAUS, Ohio                 JIM JORDAN, Ohio
STEPHEN F. LYNCH, Massachusetts      JEFF FORTENBERRY, Nebraska
HENRY CUELLAR, Texas                 ------ ------
MIKE QUIGLEY, Illinois
                     Andrew Wright, Staff Director

















                            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


  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 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 post-Soviet 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 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.
    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.

 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-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, 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:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    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 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:]

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    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.
    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 
second-largest 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. 
assistance 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:]

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    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-for-profits, 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 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 multi-input 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 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 corruption. 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 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:]

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    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 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 $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 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 self-sufficiency 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.
    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?
    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 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 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?
    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, 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 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?
    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?
    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 infrastructure 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 percent 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 
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 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 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:]

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