[Senate Prints 112-21]
[From the U.S. Government Publishing Office]




112th Congress 
 1st Session                COMMITTEE PRINT                     S. Prt.
                                                                 112-21
_______________________________________________________________________

                                     

 
                        EVALUATING U.S. FOREIGN 
                       ASSISTANCE TO AFGHANISTAN

                               __________

                        A MAJORITY STAFF REPORT

                      PREPARED FOR THE USE OF THE

                     COMMITTEE ON FOREIGN RELATIONS

                          UNITED STATES SENATE

                      One Hundred Twelfth Congress

                             First Session

                              June 8, 2011

                                     




                  U.S. GOVERNMENT PRINTING OFFICE
66-591                    WASHINGTON : 2011
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                COMMITTEE ON FOREIGN RELATIONS          

            JOHN F. KERRY, Massachusetts, Chairman          
BARBARA BOXER, California            RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   MARCO RUBIO, Florida
JIM WEBB, Virginia                   JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire        JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware       JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois          JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico                MIKE LEE, Utah
             Frank G. Lowenstein, Staff Director          
       Kenneth A. Myers, Jr., Republican Staff Director          

                             (ii)          
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                            C O N T E N T S

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                                                                   Page
Letter of Transmittal............................................     v


Executive Summary................................................     1


Why Foreign Assistance to Afghanistan Matters....................     5


President Obama's Foreign Assistance Strategy for Afghanistan....     6


Using Development Dollars to Support COIN........................     8

    COIN Theory and Stabilization................................     8

    Agriculture and the Challenges of Stabilization..............    10

    Consequences of Stabilization on Local Communities...........    12


The Challenges of Spending U.S. Aid Dollars......................    13

    Political Versus Development Timelines.......................    14

    Limited Contractor Oversight.................................    15

    On-Budget Versus Off-Budget Funding..........................    18

    Capacity Building Using Technical Advisors...................    21

    Transitioning to Afghan Ownership............................    23

    Fiscal Sustainability for the Afghan Government..............    24


Case Studies.....................................................    25


Case Study A: Success of National Programs With Local Buy-in--The 
  National Solidarity Program and Basic Package of Health 
  Services.......................................................    25

Case Study B: Issues of Sustainability--The Performance-Based 
  Governors Fund.................................................    28


Recommendations..................................................    29


Annex--Academic Literature Review: Development and 
  Counterinsurgency..............................................    31

                               Appendixes

APPENDIX I: Total U.S. Assistance to Afghanistan by Fiscal Year..    34


APPENDIX II: USAID Funding by Province in Afghanistan, FY 2009-
  2010...........................................................    35


APPENDIX III: USAID Funding by Province in Afghanistan, FY 2011..    36


APPENDIX IV: USAID/Afghanistan: Capacity Development Programs 
  With GIRoA.....................................................    37


APPENDIX V: Capacity Building Programs in Afghanistan--INCLE.....    38


APPENDIX VI: Letter From Deputy Secretary of State Thomas R. 
  Nides to Chairman John F. Kerry on June 6, 2011................    39


APPENDIX VII: Letter From USAID Administrator Rajiv Shah to 
  Chairman John F. Kerry on June 1, 2011.........................    41

                                 (iii)
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                         LETTER OF TRANSMITTAL

                              ----------                              

                              United States Senate,
                            Committee on Foreign Relations,
                                      Washington, DC, June 8, 2011.
    Dear Colleagues: This report takes a close look at how the 
United States is spending civilian aid dollars in Afghanistan 
to make sure we are pursuing the most effective strategy in 
support of our national security objectives. We spend more on 
aid to Afghanistan than any other country and the environment 
in which the State Department and U.S. Agency for International 
Development (USAID) operate is difficult and dangerous. With 
the upcoming transition to an Afghan security lead in 2014 and 
the increased responsibilities our civilians will absorb from 
the military, we have a critical planning window right now to 
make any necessary changes to support a successful transition.
    This report is meant to continue a close working 
relationship between the Senate Foreign Relations Committee and 
the Obama administration on ensuring that our assistance 
programs in the region meet their objectives. Given this 
committee's jurisdiction to conduct oversight of the State 
Department and USAID and the levels of funding in Afghanistan, 
I asked the committee's majority staff to conduct a thorough 
review of U.S. civilian assistance. This report is the product 
of two years of staff research and travel. It is intended to 
provide constructive and timely guidance for administration 
officials at every level who are working to guarantee that our 
taxpayer-financed aid to Afghanistan is spent in the most 
effective and efficient manner possible.
            Sincerely,
                                             John F. Kerry,
                                                          Chairman.

                                  (v)


                        EVALUATING U.S. FOREIGN 
                       ASSISTANCE TO AFGHANISTAN

                              ----------                              


                           Executive Summary

          The Senate Foreign Relations Committee has been at 
        the forefront of examining progress in Afghanistan. 
        This report--which is the most comprehensive 
        congressional investigation to date of our foreign 
        assistance to Afghanistan--continues that effort. 
        Building on 2 years of staff research and travel, the 
        report focuses on funding appropriated by Congress to 
        the State Department and the U.S. Agency for 
        International Development (USAID) in the Function 150 
        account. It does not cover U.S. military aid, such as 
        the Commander's Emergency Response Program (CERP), 
        which we believe deserves closer scrutiny. 


          The committee provided a draft of this report to the 
        State Department and USAID. In a response letter to 
        Chairman John F. Kerry on June 6, Deputy Secretary of 
        State Thomas R. Nides underscored the importance of 
        sustainability and expressed support for our 
        recommendation to develop a multiyear assistance 
        strategy. His comments are reproduced in Appendix VI. 
        USAID Administrator Rajiv Shah acknowledged the need to 
        do more to spend our aid money effectively in 
        Afghanistan and provided several recent examples of how 
        USAID is addressing the issues raised in this report. 
        His comments are reproduced in Appendix VII.

    Today, the United States spends more on foreign aid in 
Afghanistan than in any other country, including Iraq. After 10 
years and roughly $18.8 billion in foreign aid, we have 
achieved some real successes.\1\ There has been a sevenfold 
increase in the number of children attending school and 
significant improvements in health care. But we should have no 
illusions. Serious challenges remain that will prevent us from 
achieving our goals unless they are addressed.
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    \1\ The figure of $18.8 billion refers to total Function 150 
assistance to Afghanistan between FY2002-2010, which excludes total 
Function 050 assistance for the Afghan Security Forces Fund (ASFF), 
CERP, and counternarcotics. See Appendix I for more details.
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    Foreign assistance can be a vital tool for promoting 
stability in Afghanistan. Given the security challenges and 
limited resources at its disposal, USAID has performed 
admirably and assumed considerable risks in support of the 
President's civil-military strategy for Afghanistan.\2\ 
However, we believe the administration can be more effective in 
how it spends aid in Afghanistan. U.S. assistance should meet 
three basic conditions before money is spent: our projects 
should be necessary, achievable, and sustainable.
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    \2\ USAID and its implementing partners have lost over 370 
personnel in Afghanistan over the last 7 years. Administrator Rajiv 
Shah, Ninth Annual Princeton Colloquium to address ``Rethinking U.S. 
Foreign Aid and Policy,'' Woodrow Wilson School, Princeton University, 
April 9, 2011.
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    The State Department and USAID are spending approximately 
$320 million a month on foreign aid in Afghanistan.\3\ In part, 
the administration has been using aid to ``win hearts and 
minds.'' For instance, roughly 80 percent of USAID's resources 
are being spent in Afghanistan's restive south and east. Only 
20 percent is going to the rest of the country.\4\ Most of the 
funds in Afghanistan's south and east are being used for short-
term stabilization programs instead of longer term development 
projects, though that balance may now be changing.
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    \3\ Conversations with senior Embassy Kabul officials, May 2011.
    \4\ For more information, see: Response to Questions for the Record 
submitted to Secretary of State Hillary Rodham Clinton by Chairman John 
Kerry, March 2, 2011, Nos. 21 and 22. Note that we include the 
``southwest'' in our calculations for USAID resource allocations in 
Afghanistan's ``south and east.'' See Appendixes II and III for funding 
breakouts by province for FY 2009-2010 and FY 2011. According to 
USAID's Rajiv Shah, ``roughly 65-70 percent of all our resources are 
being spent in those [south, southwest, and east] areas.'' Shah's 
comments are reproduced in Appendix VII.
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    The evidence that stabilization programs promote stability 
in Afghanistan is limited. Some research suggests the opposite, 
and development best practices question the efficacy of using 
aid as a stabilization tool over the long run. As discussed 
below, the unintended consequences of pumping large amounts of 
money into a war zone cannot be underestimated.
    We must understand the impact of our assistance--positive 
and negative--on the local population. For instance, we are 
investing heavily in agriculture to provide alternatives to 
joining the Taliban and discourage poppy cultivation. While 
this may be the right approach, the strategy has raised 
expectations and changed incentive structures among Afghans. 
The administration is pursuing an assistance strategy based on 
counterinsurgency theories that deserve careful, ongoing 
scrutiny to see if they yield intended results.
    Foreign aid, when misspent, can fuel corruption, distort 
labor and goods markets, undermine the host government's 
ability to exert control over resources, and contribute to 
insecurity. According to the World Bank, an estimated 97 
percent of Afghanistan's gross domestic product (GDP) is 
derived from spending related to the international military and 
donor community presence. Afghanistan could suffer a severe 
economic depression when foreign troops leave in 2014 unless 
the proper planning begins now.\5\
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    \5\ Dr. Ashraf Ghani, ``Preparing for Transition: A Policy Note on 
Development,'' policy memo sent to Senate Foreign Relations Committee 
Majority Staff, May 12, 2011.
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    The administration is understandably anxious for immediate 
results to demonstrate to Afghans and Americans alike that we 
are making progress. However, insecurity, abject poverty, weak 
indigenous capacity, and widespread corruption create 
challenges for spending money. High staff turnover,\6\ pressure 
from the military, imbalances between military and civilian 
resources,\7\ unpredictable funding levels from Congress, and 
changing political timelines have further complicated efforts. 
Pressure to achieve rapid results puts our civilians under 
enormous strain to spend money quickly.
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    \6\ According to a former development specialist at USAID's Mission 
in Kabul, the staff turnover rate in Afghanistan is more than 85 
percent a year. Rajiv Chandrasekaran, ``U.S. military dismayed by 
delays in 3 key development projects in Afghanistan,'' Washington Post, 
April 28, 2011, http://www.washingtonpost.com/world/us-military-
dismayed-by-delays-in-3-key-development-projects-in-afghanistan/2011/
04/22/AFD6jq8E_story.html.
    \7\ According to James Kunder, former USAID acting deputy 
administrator, ``it's time to focus on the underlying reason our 
fighting forces feel inadequately supported: There are a thousand 
Defense Department personnel for every one USAID employee around the 
world. Administrations and Congresses controlled by both parties allow 
this preposterous imbalance in capability to continue. This particular 
Congress has gone one better, deeply cutting USAID and State Department 
funding despite warnings from Defense Secretary Robert M. Gates and 
uniformed commanders that inadequate civilian capacity means more 
American soldiers deployed and, regrettably, more dead and wounded.'' 
James Kunder, ``Afghan Aid Efforts are Crucial to the War Effort,'' 
Letter to the Editor, Washington Post, May 3, 2011, http://
www.washingtonpost.com/opinions/afghan-aid-programs-are-crucial-to-the-
war-effort/2011/05/01/AFFhLZjF_story.html.
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    We need to take a closer look at how we are spending money 
in Afghanistan and the impact it is having on the Afghan state. 
The U.S. Government relies heavily on contractors in 
Afghanistan, but multiple reports and the recent crisis at 
Kabul Bank have raised alarms about the lack of robust 
oversight. Most U.S. aid bypasses the Afghan Government in 
favor of international firms. This practice can weaken the 
ability of the Afghan state to execute its budget, lead to 
redundant and unsustainable donor projects, and fuel 
corruption. The United States has committed to funding more aid 
directly through the Afghan Government, but stronger measures 
must first be taken to ensure greater accountability of our 
funds.
    The U.S. strategy is focused on building the capacity of 
Afghan institutions to deliver basic services. The State 
Department and USAID are currently spending approximately $1.25 
billion on such efforts.\8\ But our overreliance on 
international technical advisors to build Afghan capacity may 
undermine these efforts. Our aid projects need to focus more on 
sustainability so that Afghans can absorb our programs when 
donor funds recede.
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    \8\ The figure of $1.25 billion includes USAID estimated costs on 
capacity-building in Afghanistan (see Appendix IV) and INL current task 
order year spending on capacity-building projects in Afghanistan (see 
Appendix V).
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    The administration is taking welcome steps to improve 
oversight. We support USAID Administrator Shah's initiatives 
such as USAID Forward, which will incorporate more vigorous 
measurement and accountability tools, streamline contracting 
rules, and fund smaller, local agents of change. USAID has also 
established the Accountable Assistance for Afghanistan 
initiative (A3) to ensure dollars are not being diverted from 
their purpose by extortion or corruption. These and other 
steps, including planned improvements to USAID's acquisition 
strategy and support for third party monitoring and evaluation, 
will help ensure proper use of U.S. taxpayer funds.
    We believe additional action is needed and provide 
recommendations throughout the report. Perhaps the single most 
important step the U.S. Government can take is to work with the 
Afghan Government and other donors to standardize Afghan 
salaries and work within Afghan Government staffing 
constraints. Donor practices of hiring Afghans at inflated 
salaries have drawn otherwise qualified civil servants away 
from the Afghan Government and created a culture of aid 
dependency.
    As we draw down our troops in Afghanistan, our civilians 
will have to absorb missions currently performed by the 
military. The State Department and USAID will need adequate 
resources to ensure a smooth transition and avoid repeating the 
mistakes we made in Iraq.\9\ Transition planning should find 
the right balance between avoiding a sudden dropoff in aid, 
which could trigger a major economic recession, and a long-term 
phaseout from current levels of donor spending.
---------------------------------------------------------------------------
    \9\ U.S. Senate. Committee on Foreign Relations. Committee Print, 
Majority Staff, 112th Cong., 1st sess., ``Iraq: The Transition from a 
Military Mission to a Civilian-led Effort,'' January 31, 2011, http://
foreign.senate.gov/download/?id=C4ABBB7E-FFD6-4162-BB55-878EC62FE445.
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    There must also be unity of effort across the U.S. 
Government and international community. If we conclude that a 
civilian program lacks achievable goals and needs to be scaled 
back, no other actors should take over the effort. Too often, 
when our civilians determine that a project is infeasible, we 
simply transfer the program to other actors, such as the U.S. 
military or other donors.
    The theme echoed throughout this report is that our 
strategies and projects should meet the conditions of being 
necessary, achievable, and sustainable before funding is 
allocated. The report describes how these principles have been 
applied in practice through the cases of the National 
Solidarity Program and Basic Package of Health Services (Case 
Study A) and the ongoing effort to improve sub-national 
governance through the Performance-Based Governors Fund (Case 
Study B).
    Finally, this report offers three overarching 
recommendations for the administration to pursue a more 
effective assistance strategy in Afghanistan:
    (1) Consider authorizing a multiyear civilian assistance 
strategy for Afghanistan. The administration and Congress 
should consider working together on a multiyear authorization 
that includes: (a) a clearly defined assistance strategy; (b) 
the tools, instruments, and authorities required for a 
successful development approach; (c) a plan as to how U.S. 
funding will leverage and partner with Afghan domestic 
policies, with multilateral efforts--including the World Bank, 
Asian Development Bank, and Islamic Development Bank--and with 
private sector financing; (d) the civilian resources needed for 
a successful military draw down and transition; (e) the steps 
needed to ensure accountability, oversight, and effectiveness; 
and (f) metrics that measure performance and capture outcomes. 
The strategy should also establish benchmarks for the Afghan 
Government to fulfill its international commitments, outline 
goals for improving donor coordination, and include specific 
annual funding levels. This process would clarify the U.S. 
assistance strategy, offer greater predictability on future 
funding levels, and provide Congress with robust tools for 
oversight.
    (2) Reevaluate the performance of stabilization programs in 
conflict zones. We must challenge the assumption that our 
stabilization programs in their current form necessarily 
contribute to stability. The administration should continue to 
assess the impact of our stabilization programs in Afghanistan 
and reallocate funds, as necessary.
    (3) Focus on sustainability. We should follow a simple 
rule: Donors should not implement projects if Afghans cannot 
sustain them. Development in Afghanistan will only succeed if 
Afghans are legitimate partners and there is a path toward 
sustainability. The Afghan Government must have sufficient 
technical capability and funding to cover operation and 
maintenance costs after a project is completed. A 
sustainability strategy would consolidate our programs, 
increase on-budget aid, streamline our rules and controls, and 
pursue a limited number of high-impact programs that do not 
require complex procurement or infrastructure. We should also 
focus on raising domestic revenue, reducing aid dependency, and 
developing partnerships with the private sector to create jobs. 
Success should not be measured by outputs or the amount of 
money spent, but by the ability of Afghan institutions to 
deliver services, the Afghan private sector to generate jobs 
and grow the economy, and Afghan civil society and public 
institutions to provide avenues for citizens to hold their 
government accountable and participate in political and civic 
life. More thought should be given to the type of projects we 
fund. Our aid should be visible among Afghans, and we should 
have a robust communications strategy in place so Afghans know 
what U.S. civilian aid in Afghanistan is accomplishing.

             Why Foreign Assistance to Afghanistan Matters

    Foreign assistance is critical to advancing U.S. policy 
interests overseas. When implemented effectively, it can play a 
valuable role in promoting security, building governance, 
fostering economic development, and supporting civil society. 
Development can help consolidate military gains and support our 
diplomatic efforts, which is why both President George W. Bush 
and President Obama elevated development to accompany defense 
and diplomacy in their respective national security strategies. 
The goal of our assistance in Afghanistan is to create the 
conditions for a more stable, democratic government capable of 
resisting attempts by Al Qaeda and other insurgent groups from 
returning and establishing safe havens from which to launch 
attacks on the U.S. homeland.
    The administration's fiscal year 2012 request for 
Afghanistan includes roughly $3.2 billion in foreign aid.\10\ 
This funding level reflects the pivotal role the State 
Department and USAID are expected to play to help consolidate 
our military gains and ensure a successful transition. It gives 
our Embassy and USAID Mission in Kabul the necessary resources 
to build basic Afghan capacity.
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    \10\ Department of State, Congressional Budget Justification, 
Foreign Operations, Annex: Regional Perspectives, Fiscal Year 2012, pp. 
604 and 864.
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    Our military leaders, including General David Petraeus, 
strongly support this request.\11\ It represents a roughly 22-
percent decrease from FY 2010-enacted levels, which we believe 
is a responsible reduction. The cut reflects our shared desire 
to find the right-sized footprint in Afghanistan, which will 
provide needed civilian resources without engaging in long-term 
nation-building.
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    \11\ On March 4, 2011, General Petraeus wrote to Senator Graham 
about the dangers of further cuts to the State Department budget. He 
stated that the proposed cuts will ``undermine our plans for a 
conditions-based transition to Afghan lead and our long-term goal of a 
stable and peaceful Afghanistan. During this [transition] period, [the 
State Department] will shoulder important responsibilities for economic 
development and national and subnational governance capacity-building, 
which includes support for ministry development, rule of law, and long-
term economic development and infrastructure projects. Without a fully 
resourced [State Department] role, the hard-earned progress our 
troopers have made could be put at risk . . . Indeed, as we look beyond 
2014, it is clear that the State Department will shoulder the lion's 
share of requirements to support our enduring commitment to 
Afghanistan. The funding required to build that capacity must start now 
and continue for the foreseeable future.''
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    We support the President's FY 2012 request and recognize 
the value of foreign assistance in achieving our national 
security objectives. However, we believe the administration can 
be more effective in how it spends money in Afghanistan. As we 
begin the transition process to Afghan-led security and as our 
civilians absorb more tasks from the military, our civilian 
assistance strategy must focus on what is necessary, 
achievable, and sustainable.  While the U.S. Government will 
continue to support the government and people of Afghanistan 
with foreign assistance after our troops come home, in the 
words of USAID Administrator Shah, we must provide assistance 
``in a way that allows our efforts to be replaced over time by 
efficient local governments, thriving civil societies and 
vibrant private sectors.'' \12\
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    \12\ Administrator Rajiv Shah, Testimony before the Commission on 
Wartime Contracting in Iraq and Afghanistan, Washington, DC, April 1, 
2011, p. 4, http://www.wartimecontracting.gov/docs/hearing2011-04-
01_testimony-Shah.pdf.
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                 President Obama's Foreign Assistance 
                        Strategy for Afghanistan

    In March 2009, President Obama's initial interagency review 
of U.S. policy toward Afghanistan and Pakistan found that ``a 
complete overhaul of our civilian assistance strategy is 
necessary,'' which would require ``a significant change in the 
management, resources, and focus of our foreign assistance.'' 
\13\
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    \13\ ``White Paper of the Interagency Policy Group's Report on U.S. 
Policy Toward Afghanistan and Pakistan,'' March 2009, pp.1-2, http://
www.whitehouse.gov/assets/documents/Afghanistan-
Pakistan_White_Paper.pdf.
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    Congress appropriated approximately $2.8 billion in FY 2009 
and $4.2 billion in FY 2010 funds for Afghanistan to increase 
our civilian presence in the field, build the capacity of 
Afghan institutions, and support military operations.\14\ 
According to U.S. Ambassador to Afghanistan Karl Eikenberry, 
these budget increases properly funded ``a mission that in past 
years was poorly defined and underresourced.'' \15\ Former 
Special Representative for Afghanistan and Pakistan (SRAP) 
Richard Holbrooke led an interagency effort that resulted in a 
``whole-of-government'' approach.
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    \14\ These figures refer to total 150 budget function assistance in 
FY 2009 and FY 2010. For more information, see: Appendix I.
    \15\ Ambassador Karl W. Eikenberry, Testimony before the Senate 
Committee on Armed Services, December 8, 2009, p. 2, http://armed-
services.senate.gov/statemnt/2009/December/Eikenberry%2012-08-09.pdf.
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    Today, the focus of U.S. assistance in Afghanistan is to 
build the capacity of Afghan institutions and promote economic 
development in order to create jobs and weaken popular support 
for the insurgency. Secretary of State Hillary Clinton has 
argued that this approach is ``far from an exercise in nation-
building'' because it aims ``to achieve realistic progress in 
critical areas'' and is aligned with our security 
objectives.\16\ The goal is to transition to an Afghan lead for 
security responsibility by the end of 2014.
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    \16\ Department of State, Office of the Special Representative for 
Afghanistan and Pakistan, ``Afghanistan and Pakistan Regional 
Stabilization Plan,'' Updated February 2010, p. 2, http://
www.state.gov/documents/organization/135728.pdf.
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    To accomplish this mission, the State Department and USAID 
dramatically increased the number of civilians on the ground in 
Afghanistan from 531 civilians in January 2009 to about 1,300 
today, with approximately 920 in Kabul and 380 in the 
field.\17\ The number of civilians is expected to peak at 
roughly 1,450 by mid-2014, according to Embassy officials. But 
overall funding levels peaked in 2010. This means that the 
Embassy will have more civilians in the field with fewer 
resources in 2014, just as the security transition is in full 
swing.
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    \17\ Department of State, Office of Inspector General, ``Report of 
Inspection,'' Report Number ISP-I-10-32A, February 2010, p. 11, http://
oig.state.gov/documents/organization/138084.pdf.
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    Safely maintaining civilians in Afghanistan is costly. 
According to senior Embassy officials, each U.S. civilian costs 
about half a million dollars. This figure covers training, 
salaries, and travel expenses but excludes security costs 
covered by the military, which civilians will have to absorb as 
we begin drawing down troops. It also excludes the cost of 
emergency protection details (EPD) that transport our civilians 
in theatre. An EPD for an Ambassador in Kabul, for instance, 
can cost approximately $8 million a year.\18\
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    \18\ Conversation with senior Embassy Kabul officials, April 2011.
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    In light of funding constraints, the State Department and 
USAID may want to consider a smaller civilian footprint--a 
``civilian ebb''--that gives priority to the key aspects of the 
civilian mission that are necessary, achievable, and 
sustainable.
    President Obama's review of our assistance strategies in 
the region resulted in a profound change in the coordination of 
U.S. foreign assistance to Afghanistan and Pakistan. 
Traditionally, USAID leads our foreign assistance efforts with 
policy guidance from the State Department. Under the 
President's new strategy, SRAP housed at the State Department 
in Washington, DC, is charged with overseeing all civilian 
operations. The Embassies in Kabul and Islamabad have followed 
suit by establishing new Assistance Coordinator positions 
staffed by senior Foreign Service officers to oversee the aid.
    The migration of foreign assistance responsibilities from 
USAID to the State Department was intended to increase 
coordination among government agencies, reduce stove-piping, 
and ensure that development supports U.S. foreign policy.
    This ``whole-of-government'' approach has succeeded to some 
degree. For instance, Embassy Kabul's Coordinating Director for 
Development and Economic Affairs (CDDEA), led by an Ambassador-
level coordinator, supervises the work of 14 sections and 
agencies at the U.S. mission, including USAID, the U.S. 
Department of Agriculture, the Treasury attache, the Federal 
Aviation Administration, and the Department of Transportation. 
Similarly, the Embassy's Rule of Law Directorate, a civilian-
military effort led by an Ambassador-level coordinator 
supported by senior military officers, coordinates and 
supervises agencies working on rule of law and law enforcement 
programs. These include USAID, the State Department's 
International Narcotics and Law Enforcement (INL) Bureau, the 
Department of Justice, the Drug Enforcement Administration, the 
Federal Bureau of Investigation, the U.S. Marshals Service, and 
the Department of Homeland Security. Both these functions have 
served the U.S. Ambassador and Embassy Kabul in their efforts 
to coordinate our development and assistance programs.
    However, this new approach has also added multiple 
Ambassador-level officials at the Embassy in addition to the 
SRAP, created new layers of bureaucracy, diminished USAID's 
voice at the table, and put decisionmaking on development 
issues in the hands of diplomats instead of development 
experts.

               Using Development Dollars To Support COIN

    The U.S. counterinsurgency strategy (COIN) in Afghanistan 
calls on the military to secure key areas--``clear'' and 
``hold,'' while USAID and its counterparts follow up with the 
``build'' and ``transfer'' phases. The goal is to provide 
security, strengthen local government institutions, and build 
critical infrastructure, such as roads, schools, and clinics. 
In theory, these steps can improve lives and weaken popular 
support for the insurgency.
    This past year saw a marked shift in resources from Kabul 
to the regional, provincial, and district levels in nearly all 
of the 34 provinces, particularly in the south and east where 
the U.S. military surge is concentrated. The shift responded to 
the need for increased civil-military cooperation at the 
provincial and district levels to hold territory cleared by 
military operations.
    Roughly 77 percent--or about $1.65 billion--of USAID's 
total FY 2009-10 resources are being spent in Afghanistan's 
south and east. In FY 2011, according to USAID projections, 
roughly 81 percent--or about $872 million--will go to these 
regions.\19\ Most of the funds in Afghanistan's south and east 
are being used for short-term stabilization programs instead of 
longer term development projects. Given these levels and the 
trend lines indicating increased funding for the south and east 
as a percentage of total FY 2011 funds, our stabilization 
strategy deserves closer scrutiny.\20\
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    \19\ Response to Questions for the Record submitted to Secretary of 
State Hillary Rodham Clinton by Chairman John Kerry, March 2, 2011, 
Nos. 21 and 22. Note that we include the ``southwest'' in our 
calculations for USAID resource allocations in Afghanistan's ``south 
and east.'' For more information, see: Appendixes II and III. According 
to USAID's Rajiv Shah, ``roughly 65-70 percent of all our resources are 
being spent in those [south, southwest, and east] areas.'' Shah's 
comments are reproduced in Appendix VII.
    \20\ See Appendixes II and III.
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    Stabilization projects are designed to respond to urgent 
humanitarian and reconstruction requirements in areas of 
instability. Practitioners in the field argue that 
stabilization is not development and that stabilization 
projects, if pursued over an extended period, can have negative 
consequences. Working closely with provincial reconstruction 
teams (PRTs) and district support teams (DSTs), USAID plans to 
shift from stabilization to transitional development as 
security improves.
    This section examines the theory guiding our stabilization 
efforts and our agricultural investments. It also considers the 
consequences of our stabilization strategy on the local 
population.


                     COIN THEORY AND STABILIZATION


    Our stabilization strategy assumes that short-term aid 
promotes stability in counterinsurgency (COIN) operations and 
``wins hearts and minds'' by improving security, enhancing the 
legitimacy and reach of the central government, and drawing 
support away from the Taliban. It presumes that the 
international community and the Afghan Government have shared 
objectives when it comes to promoting longer term development, 
good governance, and the rule of law.\21\
---------------------------------------------------------------------------
    \21\ ``Winning Hearts and Minds in Afghanistan: Assessing the 
Effectiveness of Development Aid in COIN Operations,'' Report on Wilton 
Park Conference 1022, March 2010, p. 1, http://usacac.army.mil/cac2/
coin/repository/
Assesing_Effectiveness_of_Development_Aid_in_COIN_%281_Apr_10%29.pdf.
---------------------------------------------------------------------------
    These assumptions may not be correct. In March 2010, a 
conference at Wilton Park in the United Kingdom brought 
together leading experts on the role of development in 
counterinsurgency. The conference report found ``a surprisingly 
weak evidence base for the effectiveness of aid in promoting 
stabilization and security objectives'' in Afghanistan.\22\
---------------------------------------------------------------------------
    \22\ Ibid.
---------------------------------------------------------------------------
    The key is to understand the root causes of insecurity, 
which may differ in each province and district. Take the case 
of the United Kingdom's stabilization program in Helmand 
province between 2006 and 2008. According to a recent Tufts 
University study, the stabilization model adopted by the 
British during this period assumed that poverty and a limited 
government presence were fueling the negative perceptions of 
governmental authorities and international development 
projects.\23\ Field research, however, suggests that local 
residents in Helmand are more concerned about the lack of 
security and poor governance.\24\ Taliban intimidation and 
rampant insecurity beyond the main towns of Lashkar Gah and 
Gereshk have deterred the population from cooperating with the 
government. Poor governance has exacerbated these trends, 
allowing the Taliban to exploit the grievances of politically 
marginalized groups.\25\
---------------------------------------------------------------------------
    \23\ Stuart Gordon, ``Winning Hearts and Minds: Examining the 
Relationship Between Aid and Security in Afghanistan's Helmand 
Province,'' Feinstein International Center, Tufts University, April 
2011, https://wikis.uit.tufts.edu/confluence/pages/
viewpage.action?pageId=44797077.
    \24\ Ibid.
    \25\ Ibid., p. 6.
---------------------------------------------------------------------------
    Administrator Shah agrees that ``we must strive to uncover 
the true drivers of instability in a region, based . . . on 
local perspectives . . . What we've found is that it is 
generally not the case that a lack of schools or roads drives 
conflict. Often the situation is far subtler, having to do with 
local power dynamics or long-held grudges.'' \26\ Our aid 
strategy cannot assume that poverty or unemployment alone fuel 
the insurgency. For example, according to the World Bank, 
poverty rates in the insurgency-plagued Helmand and Kandahar 
provinces are less than 30 percent. By contrast, in the more 
peaceful central and northern provinces, poverty rates run from 
between 42 and 58 percent in Bamyan and Ghor to upward of 58 
percent in Balk province.\27\
---------------------------------------------------------------------------
    \26\ Administrator Rajiv Shah, ``Insights,'' USAID Frontlines, 
December 2010/January2011, http://www.usaid.gov/press/frontlines/
fl_jan11/FL_jan11_insights.html.
    \27\ ``The World Bank in Afghanistan,'' International Development 
Association Results, May 2011.
---------------------------------------------------------------------------
    In a recent study of the drivers of political violence, 
USAID found limited evidence linking poverty and low education 
to support for radical groups.\28\ Development aid can have 
violence-reducing effects when used to help local governments 
deliver basic services, but achieving this in Afghanistan 
remains challenging.\29\ Providing legitimate employment 
opportunities may be part of the solution, but the literature 
is inconclusive.\30\
---------------------------------------------------------------------------
    \28\ ``Dampening Processes of Radicalization at the Individual and 
Societal Level,'' Development to Counter Insurgency, USAID Evidence 
Summit, 2010, pp. 5-6.
    \29\ ``Disrupting the Formation of Groups Willing to Employ Terror 
and Other Political Violence to Achieve their Aims,'' Development to 
Counter Insurgency, USAID Evidence Summit, 2010.
    \30\ For a review of the literature on development and 
counterinsurgency, see Annex.
---------------------------------------------------------------------------
    Security and governance matter. Development spending can 
strengthen the government and weaken insurgents in areas that 
are secure and enjoy good governance. It can also have the 
opposite effect when security and governance are poor or 
absent. As historian Mark Moyar observes:


        . . . the United States spent more than $100 million 
        repairing and upgrading the Kajaki hydropower plant to 
        provide electricity to Helmand and Kandahar provinces, 
        but last year half of its electricity went into areas 
        where the insurgents control the electric grid, 
        enabling the Taliban to issue electric bills to 
        consumers and send out collection agents with medieval 
        instruments of torture to ensure prompt payment. The 
        consumers in these places use the power for the 
        irrigation of fields that grow poppies, which in turn 
        fuel the opium trade from which the Taliban derive much 
        of their funding.\31\
---------------------------------------------------------------------------
    \31\ Mark Moyar, ``Development in Afghanistan's Counterinsurgency: 
A New Guide,'' Orbis Operations, March 2011, p. 5, http://
smallwarsjournal.com/documents/development-in-afghanistan-coin-
moyar.pdf.


    Aid carries risks and demands a sophisticated understanding 
of the local context, patterns of insurgent recruitment, and 
organizational structure of violent groups. Otherwise, our 
resources can inadvertently raise local tensions, cause 
infighting among local groups, and exacerbate rent-seeking 
behavior among corrupt actors.\32\
---------------------------------------------------------------------------
    \32\ ``Disrupting the Formation of Groups Willing to Employ Terror 
and Other Political Violence to Achieve their Aims,'' Development to 
Counter Insurgency, USAID Evidence Summit, pp. 7-8.
---------------------------------------------------------------------------
    Given the conflicting research on the effects of aid in 
promoting stability, more analysis is needed before we continue 
investing a significant amount of our aid in conflict zones.


            AGRICULTURE AND THE CHALLENGES OF STABILIZATION


    As we continue our assistance efforts in insecure parts of 
Afghanistan, we need to consider whether our aid will have a 
net positive effect. This is especially true in the area of 
agriculture, which forms the backbone of our strategy in the 
south.
    The administration's ``top reconstruction priority is 
implementing a civilian-military agriculture development 
strategy to restore Afghanistan's once vibrant agriculture 
sector with support from USAID, the U.S. Department of 
Agriculture, and the Army National Guard Agri-business 
Development Teams.'' \33\ Given that approximately 80 percent 
of Afghans rely on agriculture for their livelihoods, the focus 
is on immediate job creation, particularly in the insurgency-
plagued provinces of Helmand and Kandahar. Projects include 
cash-for-work programs and longer term agribusiness and 
irrigation initiatives to increase linkages between farmers and 
markets and enhance water management.\34\
---------------------------------------------------------------------------
    \33\ Department of State, Office of the Special Representative of 
Afghanistan and Pakistan, ``Afghanistan and Pakistan Regional 
Stabilization Strategy,'' Updated February 2010, p. 5, http://
www.state.gov/documents/organization/135728.pdf.
    \34\ U.S. Senate. Committee on Foreign Relations, Committee Print, 
Majority Staff, 112th Cong., 1st sess., ``Avoiding Water Wars: Water 
Security and Central Asia's Growing Importance for Stability in 
Afghanistan and Pakistan,'' February 22, 2011, http://
foreign.senate.gov/download/?id=738A9FCF-FA1B-4ECD-9814-A1F6C5BE04D2.
---------------------------------------------------------------------------
    Since 2002, USAID has awarded about $1.4 billion for 
agricultural programs. In a July 2010 report, however, the 
Government Accountability Office (GAO) found that USAID's 
agricultural programs ``did not always establish or achieve 
their targets for each performance indicator.'' \35\ Six of the 
eight programs that the GAO assessed failed to meet their 
annual targets and the three longest running programs declined 
in performance from 2006 to 2008.\36\
---------------------------------------------------------------------------
    \35\ United States Government Accountability Office, ``Afghanistan 
Development: Enhancements to Performance Management and Evaluation 
Efforts Could Improve USAID's Agricultural Programs,'' GAO-10-368, July 
2010, Highlights page, http://www.gao.gov/new.items/d10368.pdf.
    \36\ Ibid.
---------------------------------------------------------------------------
    According to an article in the Washington Post last spring, 
USAID spent about $250 million over one year on agricultural 
programs in Helmand and Kandahar alone. In the district of Nawa 
in Helmand province, which has a population of about 75,000, 
USAID spent an estimated $400 per person. By contrast, the 
country's per capita income is about $300 a year.\37\
---------------------------------------------------------------------------
    \37\ Rajiv Chandrasekaran, ``In Afghan region, the U.S. Spreads the 
Cash To Fight the Taliban,'' Washington Post, May 31, 2010, http://
www.washingtonpost.com/wp-dyn/content/article/2010/05/30/
AR2010053003722.html?nav=emailpage. Additionally, senior Embassy Kabul 
officials estimate that our military and civilian aid combined 
represents about four times the per capita gross domestic product. 
Conversation with senior Embassy Kabul officials, May 2011.
---------------------------------------------------------------------------
    The primary agricultural program is the Agricultural 
Vouchers for Increased Production in Afghanistan (AVIPA) Plus 
project, which was designed as a $60 million national 
development program and then expanded to a $360 million 
stabilization program, primarily in Helmand and Kandahar, with 
a significant cash-for-work component. As security improved 
last summer and fall, AVIPA Plus expanded into new districts 
and an additional $89 million was added to the project at the 
request of the Agriculture Ministry to expand its seed/
fertilizer voucher program to 32 provinces.
    According to International Relief & Development, the 
implementing partner for AVIPA Plus, the project has resulted 
in 780 cash-for-work projects, employing 103,000 laborers and 
injecting nearly $27 million in wages into the economy--the 
equivalent of creating 22,500 full-time jobs.\38\
---------------------------------------------------------------------------
    \38\ Elizabeth Creel, International Relief & Development, e-mail 
message to Senate Foreign Relations Committee Majority Staff, March 30, 
2011.
---------------------------------------------------------------------------
    However, NGO representatives who have worked in the area 
for many years argue that such statistics conflate day laborers 
with full-time employment and distort labor markets. More 
importantly, these programs can generate unintended and 
potentially adverse consequences. As Rajiv Chandrasekaran 
reported in the Washington Post, the cash surge in Nawa


        is sparking new tension and rivalries within the 
        community, and it is prompting concern that the nearly 
        free seeds and gushing canals will result in more crops 
        than farmers will be able to sell. It is also raising 
        public expectations for handouts that the Afghan 
        Government will not be able to sustain once U.S. 
        contributions ebb.\39\
---------------------------------------------------------------------------
    \39\ Ibid.


    In 2011, USAID plans to scale back AVIPA Plus as it 
implements longer term development programs under the Southern 
Region Agricultural Development Program (SRADP). But linkages 
between stabilization and development projects are not 
seamless. In agriculture, for instance, plans to construct cold 
storage facilities and build farm-to-market transportation 
networks may not be completed in time to sell additional crops 
and convince farmers not to return to opium farming. Moreover, 
scaling back may mean that many who benefited from artificially 
inflated incomes, temporary work, and subsidized seed will lose 
their benefits. We should use this opportunity to measure the 
real impact of our agriculture programs on security and design 
future programs accordingly.


           CONSEQUENCES OF STABILIZATION ON LOCAL COMMUNITIES


    U.S. stabilization projects have raised expectations and 
changed incentive structures in Afghanistan, according to 
development experts in the field. ``There is no question that 
our foreign aid is distorting the economy,'' according to 
Embassy Kabul.\40\ In some cases, we have been paying Afghans 
to clean ditches and repair irrigation canals, tasks that they 
have been doing for free for generations. Community leaders 
have at times risked the ire of the Taliban to side with the 
U.S. and Afghan Governments in supporting short-term aid 
projects on the understanding that we would not abandon them.
---------------------------------------------------------------------------
    \40\ Conversation with senior Embassy officials, May 2011.
---------------------------------------------------------------------------
    To be sure, stabilization projects may yield short-term 
results, such as developing relationships with community elders 
that can provide useful intelligence. But these successes do 
not necessarily translate into the desired strategic outcome of 
winning over the local population. Too much aid can have a 
destabilizing effect on local communities that are unable to 
absorb the cash surge.
    Drawing on the work of economist Dr. Charles Wolf, 
counterinsurgency expert Dr. David Kilcullen sees two different 
trends taking place when we pour large amounts of cash into 
restive areas.\41\ On the one hand, there is a ``substitution 
effect,'' whereby development dollars shift popular support 
away from the insurgents and toward the government. But our aid 
can also have an ``income effect,'' whereby development 
programs increase the resources available to villagers and lead 
them to believe that they can improve their prospects of 
survival by entering into negotiations with the insurgents.\42\ 
Many factors can influence the outcome, and we must do a better 
job of understanding them when we design our aid programs.
---------------------------------------------------------------------------
    \41\ Meeting with Dr. David Kilcullen, President and Chief 
Executive Officer, Caerus Associates, March 21, 2011.
    \42\ On the ``income'' and ``substitution'' effects of economic and 
social development programs in counterinsurgency, see: Dr. Charles 
Wolf, Jr., ``Insurgency and Counterinsurgency: New Myths and Old 
Realities,'' RAND Corporation, p. 7, http://www.rand.org/content/dam/
rand/pubs/papers/2005/P3132-1.pdf.
---------------------------------------------------------------------------
    Snapshots from the field suggest we may not be winning over 
the local population through our current aid practices:


          Despite the considerable work that has been done, 
        including the expansion of basic social services, major 
        investments in roads and other infrastructure, and a 
        communications revolution, negative perceptions persist 
        that little has been done, the wrong things have been 
        done, what was done is poor quality, the benefits of 
        aid are spreading inequitably, and that much money is 
        lost through corruption and waste. Research findings 
        suggest policymakers should be cautious in assuming 
        that aid projects help create positive perceptions of 
        the deliverers of aid, or that they can help legitimize 
        the government.\43\
---------------------------------------------------------------------------
    \43\ ``Winning Hearts and Minds in Afghanistan: Assessing the 
Effectiveness of Development Aid in COIN Operations,'' Report on Wilton 
Park Conference 1022, March 2010, p. 3, http://usacac.army.mil/cac2/
coin/repository/
Assesing_Effectiveness_of_Development_Aid_in_COIN_%281_Apr_10%29.pdf.


    New survey research in Afghanistan lends credence to these 
findings. According to the International Council on Security 
---------------------------------------------------------------------------
and Development's May 2011 report:


          The U.S. troop surge has brought unquestionable 
        military success, with many Afghans . . . now believing 
        that international and Afghan forces are winning the 
        fight against the Taliban. However, these military 
        successes have also created ``Blowback,'' which is 
        negatively impacting Afghan hearts and minds in the 
        south . . . The negative impacts of the military 
        operations . . . and the general backdrop of news in 
        the south, give the Taliban an opportunity to 
        ``Pushback'' and gain ground by capitalizing on the 
        increasing resentment of the foreign presence within 
        the local population, which is emotionally volatile, 
        traumatized, isolated, and easily manipulated by 
        outside actors.\44\
---------------------------------------------------------------------------
    \44\ ``Afghanistan Transition: The Death of Bin Laden and Local 
Dynamics,'' The International Council on Security and Development, May 
2011, p. 6, http://www.icosgroup.net/static/reports/bin-laden-local-
dynamics.pdf.


    We need more analysis of the effects--positive and 
negative--of our aid on the local population. We are pursuing a 
strategy based on counterinsurgency theories that deserve 
careful, ongoing scrutiny to see if they yield the intended 
results.

              The Challenges of Spending U.S. Aid Dollars

    Spending aid effectively in Afghanistan is extremely 
challenging, given the security climate, abject poverty, weak 
indigenous capacity, widespread corruption, and poor 
governance. High staff turnover,\45\ pressure from the 
military, imbalances between military and civilian 
resources,\46\ unpredictable funding levels from Congress, and 
changing political timelines have further complicated efforts. 
Pressure to achieve rapid results puts our civilians are under 
enormous strain to spend money quickly.
---------------------------------------------------------------------------
    \45\ According to a former development specialist at USAID's 
Mission in Kabul, the staff turnover rate in Afghanistan is more than 
85 percent a year. Rajiv Chandrasekaran, ``U.S. Military Dismayed by 
Delays in 3 Key Development Projects in Afghanistan,'' Washington Post, 
April 28, 2011, http://www.washingtonpost.com/world/us-military-
dismayed-by-delays-in-3-key-development-projects-in-afghanistan/2011/
04/22/AFD6jq8E_story.html.
    \46\ According to James Kunder, former USAID acting deputy 
administrator, ``it's time to focus on the underlying reason our 
fighting forces feel inadequately supported: There are a thousand 
Defense Department personnel for every one USAID employee around the 
world. Administrations and Congresses controlled by both parties allow 
this preposterous imbalance in capability to continue. This particular 
Congress has gone one better, deeply cutting USAID and State Department 
funding despite warnings from Defense Secretary Robert M. Gates and 
uniformed commanders that inadequate civilian capacity means more 
American soldiers deployed and, regrettably, more dead and wounded.'' 
James Kunder, ``Afghan Aid Efforts Are Crucial to the War Effort,'' 
Letter to the Editor, Washington Post, May 3, 2011, http://
www.washingtonpost.com/opinions/afghan-aid-programs-are-crucial-to-the-
war-effort/2011/05/01/AFFhLZjF_story.html.
---------------------------------------------------------------------------
    Afghanistan is not Iraq, which had a functioning state and 
robust government and civil society institutions. After the 
fall of the Taliban, we were faced with the challenge of 
building a democratic-style government and modern economy. The 
U.S. effort began in earnest in 2009, when the administration 
and Congress recognized the need for properly resourcing the 
civilian effort.
    Ongoing development aid will be needed for the foreseeable 
future to help Afghanistan become stable. This section examines 
how we can improve our assistance strategy. As discussed below, 
we must overcome the challenges that have undermined our 
efforts, including unrealistic timelines, lack of robust 
oversight, off-budget financing, capacity-building programs 
that rely heavily on technical advisors, and issues of Afghan 
ownership and fiscal sustainability.


                 POLITICAL VERSUS DEVELOPMENT TIMELINES


    Development, when done properly, takes time and results 
cannot be measured immediately. In a country like Afghanistan, 
development will take generations. The U.S. Government has 
strived for quick results to demonstrate to Afghans and 
Americans alike that we are making progress. Indeed, the 
constant demand for immediate results prevented the 
implementation of programs that could have met long-term goals 
and would now be bearing fruit.
    As recently as last summer, Embassy Kabul believed it had a 
3- to 5-year window to accomplish its development goals. 
However, the political tide in the United States has been 
turning, with increased pressure to bring our troops home and 
draw down our military and civilian budgets in Afghanistan. 
Increasingly, the U.S. civilian strategy is linked to the 
shorter term military strategy on the ground. Resources are 
only appropriated from Congress on an annual cycle, which 
complicates efforts to undertake longer term civilian 
commitments.
    Discussions are underway on a strategic agreement with 
Afghanistan that will frame the contours of our relationship 
following the withdrawal of U.S. troops. We expect there will 
be a longer term commitment of U.S. civilian resources for the 
people of Afghanistan. But the scope of this commitment is 
still under negotiation.
    Given the emphasis on annual budget cycles in Washington 
and the lack of a multiyear authorization for Afghanistan that 
could provide a roadmap for future funding, the administration 
is again under pressure to demonstrate quick results to 
Congress. Many in Congress are fixated on ``burn rates,'' or 
how fast the money is spent and how much money is left in the 
``pipeline.'' This results in undue emphasis at USAID and the 
State Department on getting money out the door to ensure future 
appropriations at significant levels. Political pressures 
create perverse incentives to spend money even when the 
conditions are not right.
    Cutting back our foreign aid budgets is not the most 
prudent solution. As we learned in Iraq, there will be 
tremendous pressure on our civilians to absorb missions 
currently performed by the military as our troops begin to draw 
down.\47\ The State Department and USAID must have the 
resources they need to ensure a smooth transition.
---------------------------------------------------------------------------
    \47\ U.S. Senate. Committee on Foreign Relations. Committee Print, 
Majority Staff, 112th Cong., 1st sess., Iraq: The Transition from a 
Military Mission to a Civilian-led Effort, January 31, 2011, http://
foreign.senate.gov/download/?id=C4ABBB7E-FFD6-4162-BB55-878EC62FE445.
---------------------------------------------------------------------------
    Our goal should be to reduce some of the political pressure 
to spend money quickly, especially when the conditions are not 
right. Some ideas under discussion include a multiyear 
authorization bill or creating a trust fund that could disperse 
funds as needed and appropriate. We welcome further discussions 
with the administration on these and other options.


                      LIMITED CONTRACTOR OVERSIGHT


    The U.S. Government relies heavily on contractors and 
subcontractors in Afghanistan for aid projects. Contractors 
support direct-hire personnel, implement assistance projects, 
and address U.S. Government workforce shortfalls.
    From FY 2007 to FY 2009, USAID obligated about $3.8 billion 
to 283 contractors and other entities, including more than $2 
billion (53 percent) to 214 contractors, $1.1 billion (nearly 
30 percent) to 53 cooperative agreement partners, and $625 
million (17 percent) for 17 grants. Two contractors--Louis 
Berger International and Development Alternatives Inc.--
accounted for about $1 billion, or more than half the total of 
USAID's contracts.\48\
---------------------------------------------------------------------------
    \48\ Special Inspector General for Afghanistan Reconstruction, 
Quarterly Report to the United States Congress, October 30, 2010, pp. 4 
and 21, http://www.sigar.mil/pdf/quarterlyreports/Oct2010/Lores/
SIGAR4Q_2010Book.pdf. See also: Special Inspector General for 
Afghanistan Reconstruction, ``DOD, State, and USAID Obligated Over 
$17.7 Billion to About 7,000 Contractors and Other Entities for 
Afghanistan Reconstruction During Fiscal Years 2007-2009,'' Audit 11-4 
Contract Performance and Oversight, October 27, 2010, pp. 9-17, http://
www.sigar.mil/pdf/audits/SIGAR%20Audit-11-4.pdf.
---------------------------------------------------------------------------
    During this same time period, the State Department's Bureau 
of International Narcotics and Law Enforcement (INL) obligated 
about $2.3 billion to four contractors, with DynCorp 
International accounting for more than 80 percent of INL's 
total obligations.\49\
---------------------------------------------------------------------------
    \49\ Ibid.
---------------------------------------------------------------------------
    Contractors run the gamut from companies who implement 
USAID programs to individual experts who serve as technical 
advisors within Afghan institutions and ministries, as Deloitte 
representatives did at the Afghan Central Bank.
    While there are many good reasons to use contractors in 
Afghanistan, there are also reasons for concern. The case of 
the Louis Berger Group Inc. (LBG) is instructive. A New Jersey-
based engineering consulting firm that accounted for over a 
third of USAID's total contract obligations in Afghanistan 
between FY 2007 and FY 2009, LBG recently admitted to 
submitting ``false, fictitious, and fraudulent overhead rates 
for indirect costs . . . [resulting] in overpayments by the 
[U.S.] government in excess of $10 million'' from 1999 to 
2007.\50\ Such instances of fraud undermine our reconstruction 
efforts in Afghanistan and highlight the need for vigorous 
oversight of our war-zone contracts.
---------------------------------------------------------------------------
    \50\ David Voreacos, ``Berger Group Pays $69.3 Million for Iraq 
Overbilling,'' Bloomberg Businessweek, May 5, 2011, http://
www.businessweek.com/news/2010-11-05/berger-group-pays-69-3-million-
for-iraq-overbilling.html.
---------------------------------------------------------------------------
    In addition to the risk of contractor fraud, the use of 
large numbers of contractors raises other significant 
opportunities for waste and mismanagement. By contracting with 
U.S. and international contractors at western prices (the 
``primes''), donor funds can be lost to corruption through 
multiple subcontractors over which the U.S. Government has 
little to no control (the ``subs''). Projects may be built at 
costs substantially less than the amount originally paid, using 
substandard materials and methods. Poor security conditions and 
a lack of contracting officers overseeing contactor performance 
could deter site visits to confirm whether the project was 
properly built, or even built at all. Afghanistan is littered 
with abandoned or half-built structures.
    Multiple reports have raised concerns about the lack of 
robust contractor oversight. The GAO finds ``oversight 
inadequate at times, thus raising questions about the agencies' 
ability to ensure accountability for multibillion dollar 
investments.'' \51\ The Special Inspector General for 
Afghanistan Reconstruction (SIGAR) warns that ``the large U.S. 
investment in Afghanistan remains at significant risk of being 
wasted or subject to fraud and abuse.'' \52\ The bipartisan 
Congressional Commission on Wartime Contracting in Iraq and 
Afghanistan is particularly critical of overall U.S. Government 
assistance, noting that ``tens of billions of taxpayers' 
dollars have failed to achieve their intended use in Iraq and 
Afghanistan.'' \53\
---------------------------------------------------------------------------
    \51\  Jacquelyn Williams-Bridgers, United States Government 
Accountability Office, ``Key Issues for Congressional Oversight,'' 
Testimony before the Subcommittee on State, Foreign Operations, and 
Related Programs, Committee on Appropriations, House of 
Representatives, March 3, 2011, Highlights page, http://www.gao.gov/
new.items/d11419t.pdf.
    \52\ Special Inspector General for Afghanistan Reconstruction, 
Quarterly Report to the United States Congress, October 30, 2010, p. 
vi, http://www.sigar.mil/pdf/quarterlyreports/Oct2010/Lores/
SIGAR4Q_2010Book.pdf.
    \53\ Commission on Wartime Contracting in Iraq and Afghanistan, 
``At What Risk: Correcting Overreliance on Contractors in Contingency 
Operations,'' Second Interim Report to Congress, February 24, 2011, p. 
7, http://www.wartimecontracting.gov/docs/CWC_InterimReport2-
lowres.pdf.
---------------------------------------------------------------------------
    Part of the problem is a lack of qualified contracting 
officers, contracting officer's representatives, and 
acquisition staff. Currently, USAID has approximately 85 
Foreign Service contracting officers serving worldwide with 
three or more years of experience. Ten are serving in 
Afghanistan and USAID plans to increase this number to 18, 
which is an improvement from 2007 when there were only three 
contracting officers in Afghanistan.\54\ However, this increase 
will not likely be sufficient to provide adequate oversight of 
contractor performance in Afghanistan. According to Maureen 
Shauket, USAID's Director of the Office of Acquisition and 
Assistance, in order to meet the U.S. Government's civilian 
average ratio of number of dollars per contracting officer, 
USAID would have to send nearly its entire overseas workforce 
to work only in Afghanistan.
---------------------------------------------------------------------------
    \54\ Kate Beale, USAID, e-mail message to Senate Foreign Relations 
Committee Majority Staff, April 21, 2011.
---------------------------------------------------------------------------
    Compounding the problem is the difficulty of getting 
contract staff with the right technical backgrounds to serve in 
places like Afghanistan. Congress needs to create incentives 
and find additional funding for USAID to build a corps of 
contract officers willing to serve in war zones.
    The Kabul Bank incident underscores the importance of such 
a move. In 2010, massive fraud was uncovered at Kabul Bank, 
including loans totaling $900 million to shareholders at the 
Bank, which is nearly 5 percent of Afghanistan's current Gross 
Domestic Product (GDP). Fraud of this scale resulted from 
failures at every level, including internal bank control; Kabul 
Bank's auditors--A.F. Ferguson & Co., a Pakistani affiliate of 
PricewaterhouseCoopers; Afghanistan's Central Bank; the Central 
Bank's advisors, Deloitte, under a USAID contract; the 
political establishment; and USAID.
    At the time, USAID had only one contracting officer's 
technical representative overseeing the $92 million contract 
with Deloitte to provide technical assistance to the Central 
Bank. An investigation undertaken by the USAID Office of 
Inspector General determined that Deloitte knew or should have 
known that there were serious problems at Kabul Bank and failed 
to alert USAID officials in Kabul.\55\
---------------------------------------------------------------------------
    \55\ Tim Cox, ``Review of USAID/Afghanistan's Bank Supervision 
Assistance Activities and the Kabul Bank Crisis,'' Report No. F-306-11-
003-S, USAID Office of Inspector General, March 16, 2011.
---------------------------------------------------------------------------
    The failures do not end with Deloitte or USAID's lack of 
adequate oversight. Independent of its relationship with 
Deloitte, USAID should have known or suspected that there were 
serious problems at Kabul Bank. Within Afghanistan, the fraud 
at Kabul Bank has been described as an open secret, known and 
discussed by market participants. And yet, it appears that no 
one at USAID had the technical knowledge or private sector 
relationships to see what many others in the sector saw.
    According to a former USAID Kabul Mission Director:


          Because of the ill planned downsizing of USAID's 
        technical staff over the past years and the difficulty 
        in finding senior technical Foreign Service officers to 
        serve in Afghanistan, the management of the Kabul Bank 
        Deloitte contract was relegated to a junior officer. 
        While he worked to the best of his ability, this 
        important project demanded strong technical oversight 
        and similar programs of this level of strategic 
        importance will demand senior management expertise and 
        a different system with USAID to ensure the 
        availability of senior technical staff.


    In another case involving an education project for 
teachers, USAID's contracting officer was unaware and did not 
consent to the award of subcontracts and did not approve of 
significant subcontract modifications totaling $23.4 million 
out of a $94 million contract.\56\ These modifications included 
changes in the duration of subcontracts and terms of 
subcontractor performance, as well as significant funding 
increases.\57\
---------------------------------------------------------------------------
    \56\ Department of State, Office of Inspector General, ``Audit of 
USAID/Afghanistan's Building Education Support Systems for Teachers 
Project,'' Audit Report No. 5-306-10-006-P, January 29, 2010, p. 9, 
http://www.usaid.gov/oig/public/fy10rpts/5-306-10-006-p.pdf.
    \57\ Ibid.
---------------------------------------------------------------------------
    With respect to international narcotics and law enforcement 
programs, INL manages approximately $927 million in contract 
services in Afghanistan. Yet it has only one Contracting 
Officer Representative (COR) in Washington overseeing five 
Civilian Police (CivPol) Program task orders amounting to $800 
million and seven In-country Contract Representatives (I-CORs) 
providing on-the-ground administrative contract support.\58\
---------------------------------------------------------------------------
    \58\ Of the seven I-CORs, four are located in Kabul, one in Kunduz, 
one in Jalalabad, and one in Kandahar. Christine Leming, Department of 
State, e-mail message to Senate Foreign Relations Committee Majority 
Staff, May 3, 2011.
---------------------------------------------------------------------------
    The administration is taking welcome steps to improve 
oversight. We support initiatives such as USAID Forward, which 
will incorporate more vigorous measurement and accountability 
tools, streamline contracting rules, and fund smaller, local 
agents of change.\59\ USAID has also established the 
Accountable Assistance for Afghanistan initiative (A3) to 
ensure dollars are not being diverted from their purpose by 
extortion or corruption. These and other steps, including 
planned improvements to USAID's acquisition strategy and 
support for third party monitoring and evaluation, will help 
ensure proper use of U.S. taxpayer funds.
---------------------------------------------------------------------------
    \59\ Administrator Rajiv Shah, Testimony before the Commission on 
Wartime Contracting in Iraq and Afghanistan, Washington, DC, April 2, 
2011, http://www.wartimecontracting.gov/docs/hearing2011-04-
01_testimony-Shah.pdf.
---------------------------------------------------------------------------
    Embassy Kabul is working closely with Task Force 2010 and 
Combined Joint Interagency Task Force (CJIATF)-Shafafiyat 
(``Transparency'') to improve the quality of contractors and to 
prevent contracts with Afghan contractors who are corrupt or 
have ties to the insurgency. The United States is also working 
with the Afghan Government to change the way security is 
provided to our contractors. The military has ordered changes 
in the way goods and services are procured. SIGAR and the USAID 
Inspector General are investigating allegations of corruption 
relating to U.S. funds and have successfully prosecuted cases 
involving U.S. citizens.
    More can still be done to reduce our reliance on 
contractors and ensure proper oversight of prime and 
subcontractors. For instance, as discussed below, more U.S. 
funding could be channeled to national Afghan programs and 
Afghan civil society organizations instead of large, 
international contractors. The State Department and USAID 
should take immediate steps to ensure sufficient staffing 
levels and relevant professional expertise of contracting 
officers before contracts are awarded, including steps to 
recruit and train people with the proper financial oversight 
backgrounds. Recommendations put forth by the bipartisan 
Congressional Commission on Wartime Contracting in Iraq and 
Afghanistan should also be implemented.\60\
---------------------------------------------------------------------------
    \60\ Commission on Wartime Contracting in Iraq and Afghanistan, 
``At What Risk: Correcting Over-Reliance on Contractors in Contingency 
Operations,'' Second Interim Report to Congress, February 24, 2011, 
http://www.wartimecontracting.gov/docs/CWC_InterimReport2-lowres.pdf.
---------------------------------------------------------------------------


                  ON-BUDGET VERSUS OFF-BUDGET FUNDING


    Most international donors, including the United States, 
channel much of their aid ``off-budget,'' meaning it does not 
go through the Afghan Government. Off-budget funding is 
appealing because it provides more financial and programmatic 
control to the donor, which is important in an environment 
where there are significant concerns about weak government 
capacity and corruption.
    However, off-budget funding has significant downsides. It 
can weaken the ability of the Afghan state to control 
resources, which results in donor duplication, and can fuel 
corruption. It has also led to the creation of thousands of 
donor-driven projects without any plan for sustaining them, 
including 16,000 CERP projects funded by the military at a cost 
of over $2 billion.\61\ As USAID notes, there is a daily 
tension between ``building capacity in the Afghan Government, 
putting U.S. taxpayer money on-budget, and ensuring that urgent 
[Afghan] government functions happen.'' \62\
---------------------------------------------------------------------------
    \61\ Josh Boak, ``U.S.-funded infrastructure deteriorates once 
under Afghan Control, report says,'' Washington Post, January 4, 2011, 
http://www.washingtonpost.com/wp-dyn/content/article/2011/01/03/
AR2011010302175.html?hpid=topnews.
    \62\ See Appendix VII.
---------------------------------------------------------------------------
    Ultimately, the Afghan Government must be a genuine partner 
for our assistance efforts to succeed. It cannot be held 
accountable for processes over which it has little to no 
control. Thus, the U.S. Government is working to meet its Kabul 
Conference commitment to fund up to 50 percent of our aid ``on-
budget'' by FY 2012 from approximately 21 percent in FY 2009, 
35 percent in FY 2010, and 37-45 percent in FY 2011. \63\
---------------------------------------------------------------------------
    \63\ Response to Questions for the Record submitted to Secretary of 
State Hillary Rodham Clinton by Chairman John Kerry, March 2, 2011, 
Nos. 13 and 14. According to USAID, ``we currently spend approximately 
38 percent of our funds on-budget.'' For more information, see: 
Appendix VII.
---------------------------------------------------------------------------
    According to the London and Kabul conference communiques, 
delivering aid through the Afghan Government is ``conditioned 
on the Government's progress in further strengthening public 
financial management systems, reducing corruption, improving 
budget execution, developing a financial strategy and 
Government capacity towards the goal.'' \64\
---------------------------------------------------------------------------
    \64\ Tim Cox, ``Review of USAID/Afghanistan's Ministerial 
Assessment Process,'' Review Report No. F-306-11-001-S, November 6, 
2010, p. 2, http://www.usaid.gov/oig/public/fy11rpts/f-306-11-001-
s.pdf.
---------------------------------------------------------------------------
    For instance, the Afghan Government committed at the Kabul 
Conference to pass an improved Audit Law as part of its effort 
to improve public financial management. This is also an 
Afghanistan Reconstruction Trust Fund (ARTF) benchmark. Yet the 
U.S. Treasury Department and many at Embassy Kabul believe that 
the Audit Law passed by the government is insufficient and does 
not meet the Afghan obligation under the ARTF benchmark. 
Failure to meet the benchmark would mean that for the first 
time, a certain amount of funds--approximately $17 million--
would not be disbursed to the Afghan Government, sending a 
signal that these commitments matter.\65\ However, the U.S. 
Government's current position is to accept the deficient Audit 
Law, despite strong internal opposition, in order to avoid a 
confrontation with the Afghan Government.
---------------------------------------------------------------------------
    \65\ The ARTF is comprised of two ``windows'': 1) a recurrent 
window that covers the costs of the government for operations, 
maintenance, and salaries for teachers, health workers, and civilian 
staff in the ministries and provinces, and 2) an investment window that 
supports government capacity-building projects and technical 
assistance.
---------------------------------------------------------------------------
    The United States has committed to funding more aid 
directly through the Afghan Government, but stronger measures 
must first be taken to ensure greater accountability of our 
funds.
    Most of USAID's on-budget aid--an estimated $2.08 billion--
is provided through the ARTF, a multidonor trust fund 
administered by the World Bank.\66\ ARTF is a valuable 
instrument through which the United States can disburse its 
aid.
---------------------------------------------------------------------------
    \66\ Response to Questions for the Record submitted to Secretary of 
State Hillary Rodham Clinton by Chairman John Kerry, March 2, 2011, No. 
16.
---------------------------------------------------------------------------
    But ARTF has its own challenges. It requires some 
structural changes to improve absorptive capacity and ensure 
adequate field oversight. Today, World Bank supervision is 
constrained by the Bank's limit of 100 personnel in-country, 
who are expected to oversee 46 small programs.\67\ Donors 
should push for more robust supervision from the World Bank. 
Additionally, donors should consider using the ARTF for a 
smaller number, i.e., 5 to 7, of big ``national programs'' like 
the National Solidarity Program (NSP) to improve focus and 
oversight instead of dozens of smaller programs. Finally, since 
ARTF is World Bank-administered, USAID does not have authority 
to audit the ARTF and its programs directly. But the United 
States could argue for more rigorous application of the metrics 
and benchmarks of the ARTF performance fund.
---------------------------------------------------------------------------
    \67\ Scott Guggenheim, email message to Senate Foreign Relations 
Committee Majority Staff, April 18, 2011.
---------------------------------------------------------------------------
    Aside from ARTF, the U.S. Government also delivers money 
on-budget through Afghan ministries. To date, $307 million has 
been transferred directly to Afghan ministries.\68\ USAID 
expects to deliver at least $509.4 million through Afghan 
ministries after having completed assessments to determine 
which ministries can manage USAID funds. Currently, 14 
ministries and agencies receive direct assistance from the 
State Department and USAID.\69\
---------------------------------------------------------------------------
    \68\ Response to Questions for the Record submitted to Secretary of 
State Hillary Rodham Clinton by Chairman John Kerry, March 2, 2011, No. 
18.
    \69\ Ministry of Finance ($30 million), Ministry of Communications 
and Information Technology ($1 million), Ministry of Public Health 
($236.5 million), USAID Salary Sup Special Posts ($2 million), Ministry 
of Agriculture, Irrigation, and Livestock, Independent Directorate of 
Local Governance ($85 million), Ministry of Finance and World Bank 
($2,079.5 million), Ministry of Education ($25 million through Danish 
Development Agency), Ministry of Transportation and Civil Aviation ($6 
million), Ministry of Counter Narcotics, Ministry of Women's Affairs, 
Ministry of Justice, Attorney General's Office, and Ministry of 
Interior. For more information, see: Response to Questions for the 
Record submitted to Secretary of State Hillary Rodham Clinton by 
Chairman John Kerry, March 2, 2011, Nos. 15 and 16.
---------------------------------------------------------------------------
    The administration's assessment of these ministries for 
specific projects has also run into challenges. As of September 
2010, USAID had performed assessments of six ministries,\70\ 
but USAID's Inspector General found that they ``did not provide 
reasonable assurance of detecting significant vulnerabilities'' 
that could result in the waste or misuse of U.S. Government 
resources.\71\ USAID and the State Department do not follow the 
same standard assessment process. SIGAR has also expressed 
concern that ``the United States and other donors do not have a 
process in place to assess whether Afghan institutions have the 
capacity to manage and account for donor funds.'' \72\
---------------------------------------------------------------------------
    \70\ Ministry of Rural Rehabilitation and Development (MRRD), 
Ministry of Agriculture, Irrigation, and Livestock (MAIL), Ministry of 
Education, Ministry of Communication and Information Technology, 
Ministry of Finance, and Ministry of Public Health. For more 
information, see: Response to Questions for the Record submitted to 
Secretary of State Hillary Rodham Clinton by Chairman John Kerry, March 
2, 2011, Nos. 18 and 19.
    \71\ Tim Cox, ``Review of USAID/Afghanistan's Ministerial 
Assessment Process,'' Review Report No. F-306-11-001-S, November 6, 
2010, p. 4, http://www.usaid.gov/oig/public/fy11rpts/f-306-11-001-
s.pdf.
    \72\ Special Inspector General for Afghanistan Reconstruction, 
Quarterly Report to the United States Congress, October 30, 2010, p. 
10, http://www.sigar.mil/pdf/quarterlyreports/Oct2010/Lores/SIGAR4Q--
2010Book.pdf.
---------------------------------------------------------------------------
    Embassy Kabul has taken some action to change the 
assessment process of ministries to ensure proper safeguards of 
U.S. funds. More must be done. The U.S. Treasury Department, 
which has expertise in budgetary assessments and oversight, 
could assist with assessments in conjunction with the World 
Bank to ensure that our standards are harmonized with other 
donors. Increasing on-budget funding should be conditioned on 
the Afghan Government's success in meeting its Kabul Conference 
commitments. The Afghan Government must comply with 
International Monetary Fund (IMF) requirements to resolve the 
Kabul Bank crisis. Finally, the FY 2010 Supplemental 
Appropriations Act of 2010 requires the Secretary of State to 
certify that progress has been made in the areas of fighting 
corruption and improving governance before Economic Support 
funds and International Narcotics Control and Law Enforcement 
(INCLE) funds can be disbursed.\73\
---------------------------------------------------------------------------
    \73\ U.S. Congress. Supplemental Appropriations Act, 2010. 111th 
Cong., 2nd sess., H.R. 4899, Section 1004, subsection c(1).
---------------------------------------------------------------------------
    Measurable progress on the part of the Afghan Government in 
these areas will demonstrate that it is committed to improving 
public financial management and able to protect money from 
fraud and abuse. Steps must also be taken to simplify the 
Afghan Government's public financial control systems, which are 
too complicated and limit disbursement rates.


               CAPACITY BUILDING USING TECHNICAL ADVISORS


    Ultimately, success will depend on the ability of the 
Afghan Government to provide basic services and security in a 
transparent, accountable, and effective manner. The United 
States should focus its assistance on the core state functions 
that are necessary for success. Donors will not be able to keep 
paying for the costs of running the Afghan Government 
indefinitely.
    Given this reality, the U.S. strategy is focused on 
building the capacity of Afghan institutions to deliver basic 
services. But our overreliance on international technical 
advisors to build Afghan capacity may undermine these efforts.
    According to Dr. Ashraf Ghani, Afghanistan's former Finance 
Minister and current Presidential advisor, in 2001 Afghanistan 
had approximately 240,000 civil servants, including doctors and 
teachers.\74\ The international aid effort, with its inflated 
salaries, may have chipped away at this elementary form of 
governmental capacity. Instead of investing in vocational and 
higher education that would have given Afghans the skills to 
run their country, donors hired technical advisors to do these 
jobs at roughly 10 times the cost.\75\
---------------------------------------------------------------------------
    \74\ According to Dr. Ashraf Ghani, as reported in The Times, 
``When we started in 2001 we had 240,000 civil servants willing to work 
for a government salary of 25 a month. By 2004 all the 
talented ones had left to become drivers for the UN, the World Bank or 
charities.'' Christina Lamb, ``Afghans Plead for 25bn in 
Aid as Disorder Grows,'' The Times, June 8, 2008, http://
www.timesonline.co.uk/tol/news/world/asia/article4087300.ece.
    \75\ Clare Lockhart, Institute for State Effectiveness, email 
message to Senate Foreign Relations Committee Majority Staff, April 24, 
2011.
---------------------------------------------------------------------------
    For instance, in the last fiscal year, the Afghan Ministry 
of Education's entire budget for vocational and higher 
education was only $35 million.\76\ In contrast, the State 
Department and USAID are currently spending approximately $1.25 
billion on capacity-building efforts.\77\ A significant portion 
is spent on technical advisors. The United States is currently 
funding approximately 260 civilian advisors, according to 
senior Embassy officials.
---------------------------------------------------------------------------
    \76\ Ibid.
    \77\ The figure of $1.25 billion includes USAID estimated costs on 
capacity building in Afghanistan (see Appendix IV) and INL current task 
order year spending on capacity-building projects in Afghanistan (see 
Appendix V). USAID's $1.1 billion capacity-building projects include 
$219 million to assist the Civil Service Institute to build the 
capacity of line ministry employees; $102 million to create effective 
municipal governance; $94 million to improve teacher performance and 
build capacity within the Ministry of Education; $92 million to develop 
economic and regulatory policy and support the private sector; $84 
million to build the capacity of the Ministry of Public Health; and $41 
million to develop the institutional capacity of the National Assembly.
---------------------------------------------------------------------------
    Technical advisors work with an organization for a limited 
time to generate institutional capacity, train Afghans to 
perform effectively, and enable them to teach their own 
successors. Their work can be critical in such areas as fiscal 
policy and pension reform, where highly specialized technical 
assistance is needed. There are a number of cases where 
technical advisors have made a positive impact in Afghanistan.
    But there can be substantial downsides. Technical advisors 
are expensive--each one can cost between $500,000 and $1 
million annually.\78\ They can be difficult to supervise, given 
the shortage of qualified contracting personnel. They may fail 
to report evidence of corruption or wrongdoing, believing their 
allegiance is to the Afghan ministry rather than the U.S. 
Government. They may do the job of Afghans themselves or impose 
their own vision on the institution rather than train the 
Afghan staff or advise the Afghan minister. Or they may 
introduce unsustainable high-tech methods.
---------------------------------------------------------------------------
    \78\ Clare Lockhart, Institute for State Effectiveness, email 
message to Senate Foreign Relations Committee Majority Staff, April 24, 
2011.
---------------------------------------------------------------------------
    Once they are trained, Afghans may leave their ministry to 
take a job for inflated wages with international firms or 
missions, resulting in brain drain from Afghan institutions. 
The Afghan Government finds it nearly impossible to retain 
competent workers when foreign governments, aid agencies, 
nongovernmental organizations, and private companies offer them 
inflated salaries and benefits (``top-up salaries'')--sometimes 
10 to 20 times the amount of base government salaries--to 
perform jobs within Afghan Government institutions.
    For instance, wage levels for Afghan Government staff such 
as teachers, health workers, and administrative staff are in 
the realm of $50 to $100 per month, but drivers, assistants, 
and translators for aid projects are paid upward of $1,000 per 
month.\79\ According to a State Department official, 40 Afghans 
working in professional positions within the government 
received between $3,000 and $5,000 per month in salary 
supplements from the U.S. Government, although this particular 
program ended in March 2011.\80\ Many of these donor-supported 
positions are not even authorized in the government's staffing 
charts.\81\ These practices undermine the goal of generating 
long-term Afghan capacity and are unsustainable.
---------------------------------------------------------------------------
    \79\ Ibid.
    \80\ Conversation with senior Embassy Kabul officials, April 2011.
    \81\ Special Inspector General for Afghanistan Reconstruction, 
Quarterly Report to the United States Congress, October 30, 2010, p. 
11, http://www.sigar.mil/pdf/quarterlyreports/Oct2010/Lores/SIGAR4Q--
2010Book.pdf. ``Since 2002, the United States and other international 
donors have paid the salaries of thousands of civilian government 
employees and technical advisors to help build the capacity of the 
GIRoA. Afghanistan's Ministry of Finance estimated that 17 donors were 
paying more than $45 million a year in salary support for 6,600 
civilian employees and advisors. This support is separate from the 
money provided by the Afghan Reconstruction Trust Fund (ARTF). The ARTF 
pays for much of Afghanistan's regular civil service through its 
contribution to Afghanistan's operating budget. Since 2002, the United 
States has provided nearly $922 million to the ARTF. The United States 
pledged $590 million for 2010 and has contributed $215 million of this 
amount to date.'' Ibid., p. 10.
---------------------------------------------------------------------------
    In order for technical advisors to play a constructive 
role, they must be monitored effectively. But our overreliance 
on them and minimal oversight has proved costly and made it 
harder for them to do their jobs. The administration should 
consider other options. For example, the Scott Family Liberia 
Fellows program recruits young professionals, including 
qualified Liberians, to support the Government of Liberia at a 
fraction of the cost.\82\ Too often, our aid programs assume 
that building capacity can only be done through hiring 
international experts to provide technical assistance. The 
Scott Family Fellows program suggests an alternative model from 
which to draw best practices.
---------------------------------------------------------------------------
    \82\ ``The Scott Family Fellows program aims to recruit young 
professionals to support the Government of Liberia as it recovers from 
14 years of brutal civil war. These young professionals fill a huge 
capacity gap and work in Liberia as ``special assistants'' to senior 
Liberian government officials, primarily Cabinet members. They 
typically have a Masters degree and one or two years of relevant 
experience. The program puts a special emphasis on encouraging 
qualified Liberians to apply. The Fellows work long hours in a range of 
activities from mundane administrative tasks to more profound policy 
issues, all with the goal of helping Liberia in its urgent 
reconstruction and development efforts. The Scott Family Fellows 
program is funded by a generous $1,000,000 grant from the family of 
Edward W. Scott, Jr. When announcing the program in February 2007, 
Liberian President Ellen Johnson Sirleaf said, `This is just the kind 
of support we need from our friends. I am very grateful to Ed Scott and 
his family for their generous support.' Since its inception, the 
program has expanded to include other fellows funded by Humanity 
United, the McCall MacBain Foundation, the Open Society Institute and 
the Nike Foundation.'' Scott Family Liberia Fellows, Center for Global 
Development, Initiatives, accessed April 19, 2011, http://
www.cgdev.org/section/initiatives/--active/scottfellows.
---------------------------------------------------------------------------
    Embassy Kabul is addressing these issues. For instance, the 
Embassy now meets with technical advisors twice a month to 
monitor their work and ensure proper oversight. The Embassy 
should also examine the efficacy of its technical advisors and 
limit their use where they are not making progress.
    Perhaps the most important step the U.S. Government can 
take in conjunction with the Afghan Government and other donors 
is to standardize Afghan salaries and work within Afghan 
Government staffing constraints. This single step would have a 
significant and lasting effect on improving the capacity of the 
Afghan Government. Until this problem is resolved, programs 
such as the Afghan Civil Service Support program, which is an 
$84 million USAID program to train 4,000 civil servants in 
Kabul and 12,000 more in all 34 provinces, may have limited 
impact in building Afghanistan's civil service.\83\
---------------------------------------------------------------------------
    \83\ Embassy of the United States, Kabul, Afghanistan, 
``Afghanistan Civil Service Commission and U.S. Government Sign 
Memorandum of Understanding to Begin Civil Service Support Program,'' 
February 22, 2010, http://kabul.usembassy.gov/pre--2202.html.
---------------------------------------------------------------------------


                   TRANSITIONING TO AFGHAN OWNERSHIP


    Increasing and improving on-budget funding, paring back the 
number of technical advisors, and standardizing salaries are 
important first steps for strengthening the capacity of the 
Afghan Government. But ultimately, Afghans have to be able to 
absorb donor programs. The United States must focus its 
assistance programs on Afghan ownership and sustainability, 
especially as we prepare for the 2014 transition.
    Too often, this is not the case. For example, in the past 5 
years, the State Department has spent approximately $2 billion 
on counternarcotics programs in Afghanistan, including $60 
million since 2007 to support two counternarcotics compounds 
near the Kabul airport \84\ and in Kunduz province. While it is 
a U.S. objective to transfer responsibilities and ownership of 
these compounds from the United States to Afghanistan, the 
State Department's Inspector General found the Department still 
``has not addressed how and when the Afghan Government will be 
able to assume control and sustain day-to-day operations.'' 
\85\
---------------------------------------------------------------------------
    \84\ The Kabul compound is home to two specialized Afghan 
counternarcotics units-the National Interdiction Unit and the 
Specialized Investigative Unit-and is designed to support up to 400 
Afghan counternarcotics agents to work, train, and live while on duty. 
For more information, see: Department of State, Office of Inspector 
General, ``Performance Evaluation of PAE Operations and Maintenance 
Support for the Bureau of International Narcotics and Law Enforcement 
Affairs' Counternarcotics Compounds in Afghanistan,'' Report Number 
MERO-I-11-02, February 2011, p. 7, http://oig.state.gov/documents/
organization/157927.pdf.
    \85\ Ibid.
---------------------------------------------------------------------------
    In other instances, we have transferred programs to Afghan 
control even when the capacity does not yet exist. For example, 
despite a request from Afghanistan's Ministry of Education 
(MoE) for a longer extension, USAID is granting a no-cost, 3-
month extension for a successful 5-year program that expands 
access to primary education classes for more than 84,000 
children, over 63 percent of which are girls. The $31 million 
program, called the Partnership for Advancing Community-Based 
Education (PACE-A), involves four prominent international 
NGOs--CARE International, Catholic Relief Services, 
International Rescue Committee, and the Aga Khan Foundation--
who have experience providing education in areas not served by 
the MoE.
    To support the sustainability of these efforts, the NGOs 
work closely with the MoE to integrate classes into the formal 
education system and strengthen the MoE's ability to assume 
responsibility for these classes.\86\ Turning this program over 
to the MoE prematurely could end access to education for many 
students, particularly girls, and jeopardize the relationships 
built in these communities with village mullahs that defied the 
Taliban to allow their girls to attend school.
---------------------------------------------------------------------------
    \86\ According to one of PACE-A's implementing partners, 
approximately 51 percent of the schools in the entire consortium 
project have been integrated into the Ministry of Education, a process 
that usually takes three years.
---------------------------------------------------------------------------


            FISCAL SUSTAINABILITY FOR THE AFGHAN GOVERNMENT


    Strengthening the capacity of the Afghan Government to 
undertake basic government functions is important, but it will 
require fiscal sustainability to succeed. According to the 
World Bank, an estimated 97 percent of Afghanistan's GDP is 
derived from spending related to the international military and 
donor community presence. A precipitous withdrawal of 
international support, in the absence of reliable domestic 
revenue and a functioning market-based economy, could trigger a 
major economic recession.\87\ USAID and the State Department 
recognize these challenges and their current planning is 
``anticipating both the impact of the U.S. troop withdrawal on 
the Afghan economy, and on U.S. civilian resources.'' \88\
---------------------------------------------------------------------------
    \87\ Dr. Ashraf Ghani, ``Preparing for Transition: A Policy Note on 
Development,'' policy memo sent to Senate Foreign Relations Committee 
Majority Staff, May 12, 2011.
    \88\ See Appendix VII.
---------------------------------------------------------------------------
    At present, donors are picking up most of the costs of 
running the Afghan Government. Scott Guggenheim, formerly with 
the World Bank, has noted that domestic revenues only cover 
one-fifth of public spending and two-thirds of public spending 
is off-budget, which means that donors pay for most development 
services.\89\
---------------------------------------------------------------------------
    \89\ The World Bank notes that domestic revenue collection in 
Afghanistan reached $1.65 billion in 2010/2011, double the 2007/2008 
rate as a result of significant efforts by the Ministry of Finance. 
Afghanistan's core budget in this period, a combination of domestic 
revenue and off-budget expenditures, was $4.6 billion. Its external 
budget, comprised of donor-financed off-budget expenditures, was 
reported by the Ministry of Finance to be $6 billion, though the actual 
amount may be as high as $16 billion. For more information, see: 
Response to Questions for the Record submitted to Secretary of State 
Hillary Rodham Clinton by Chairman John Kerry, March 2, 2011, No. 17.
---------------------------------------------------------------------------
    Achieving fiscal sustainability will require the Afghan 
Government to (1) substitute donor grants for the operating and 
development budget; (2) assume external budget obligations on 
the operating budget; (3) pay for a share of technical 
assistance for core civil service functions; (4) fund the Kabul 
process; and (5) invest in operations and maintenance for 
acquired assets. Transition planning should find the right 
balance between avoiding a sudden dropoff in aid, which could 
trigger a major economic recession, and a long-term phaseout 
from current donor levels.
    These are daunting tasks. Analysts estimate that it could 
cost between $6 and $8 billion a year alone to sustain the 
Afghan National Security Forces, depending on the final size of 
the force. Without significant domestic revenue generation, the 
Afghan state will not be self-sufficient for decades and 
donors, particularly the United States, will have to bear the 
costs. With the right planning, Afghanistan may be able to 
generate substantial revenues from its sizeable mineral 
deposits in the future, but we do not see any signs of near-
term revenue generation from its mineral wealth.
    In the short term, it will be critical to build the private 
sector and attract foreign investment. Our aid programs should 
be designed with foreign capital in mind. Our capacity-building 
efforts should focus on key ministries and institutions that 
must work for the Afghan Government to deliver rather than an 
across-the-board approach to strengthen all ministries. Instead 
of creating additional off-budget assets like schools, clinics, 
and roads, our attention must turn to how the Afghan Government 
will sustain and staff what the donor community has already 
built.

                              Case Studies


   CASE STUDY A: SUCCESS OF NATIONAL PROGRAMS WITH LOCAL BUY-IN--THE 
    NATIONAL SOLIDARITY PROGRAM AND BASIC PACKAGE OF HEALTH SERVICES


          The National Solidarity Program and Basic Package of 
        Health Services illustrate how national-level programs 
        that are on-budget and have significant Afghan buy-in 
        can achieve more with less. These programs exemplify 
        the goals of being ``necessary, achievable, and 
        sustainable.''


    Imposing governance from the center has never been 
effective in Afghanistan.\90\ According to anthropologist 
Thomas Barfield:
---------------------------------------------------------------------------
    \90\ Thomas Barfield and Neamatollah Nojumi, ``Bringing More 
Effective Governance to Afghanistan: 10 Pathways to Stability,'' Middle 
East Policy 17 (December, 2010): 40-52.


          While governments in the developed world are the 
        unquestioned suppliers of governance to their local 
        communities, this has not been the case historically in 
        Afghanistan. Here one finds adequate local governance 
        in the absence of formal government institutions . . . 
        Successful regimes in Afghanistan have recognized this 
        reality by devolving considerable informal 
        decisionmaking power to local communities, letting them 
        solve their own problems so that the state does not 
        have to intervene. In return, local communities have 
        recognized the sovereignty of the Afghan national state 
        and have not challenged its legitimacy.\91\
---------------------------------------------------------------------------
    \91\ Ibid., p. 40.


    As Barfield's analysis suggests, our goal should be to 
strengthen local traditions of governance even as we work to 
develop the central institutions of the Afghan state. 
Assistance programs that are successful in Afghanistan involve 
strong participation and ownership from local communities. As 
---------------------------------------------------------------------------
President Karzai noted at the Kabul conference:


          Despite some noteworthy achievements, we have learned 
        together that delivering our resources through hundreds 
        of isolated projects will not generate the desired 
        results, achieve public visibility, or support the 
        establishment of good governance. It is time to 
        concentrate our efforts on a limited number of national 
        programs and projects to transform the lives of our 
        people, reinforce the social compact between state and 
        citizens, and create mechanisms of mutual 
        accountability between the state and our international 
        partners.\92\
---------------------------------------------------------------------------
    \92\ Statement by President Karzai at International Kabul 
Conference, July 20, 2010.


    The best example of this is the National Solidarity Program 
(NSP), which is the Afghan Government's principal community 
development program. The United States is the largest NSP 
donor, giving $528 million from June 2002 to September 2010, 
including $225 million from FY 2010 funds through the ARTF.\93\ 
NSP promotes subnational governance by setting up community 
development councils (CDCs) and training them to manage small-
scale projects funded by block grants. The program currently 
reaches 23,000 villages, covering 351 of Afghanistan's 398 
districts in all 34 provinces.\94\
---------------------------------------------------------------------------
    \93\ Office of the Special Inspector General for Afghanistan 
Reconstruction, ``Afghanistan's National Solidarity Program Has Reached 
Thousands of Afghan Communities, but Faces Challenges that Could Limit 
Outcomes,'' March 22, 2011, pp. ii and 5, http://www.sigar.mil/pdf/
audits/SIGARAudit-11-8.pdf.
    \94\ Ibid.
---------------------------------------------------------------------------
    According to Guggenheim, who largely designed the program, 
NSP works because the government apex role is strong but 
simple, execution is outsourced to the communities, 
disbursements are transparent, standardized, and streamlined, 
and there is strong monitoring and evaluation with expatriate 
help. SIGAR's recent audit of NSP found strong community 
oversight of NSP funds:


          The high level of community involvement in NSP 
        activities--CDC elections, social audits, and community 
        contributions--has resulted in a degree of local 
        ownership of NSP-funded projects which helps safeguard 
        assets. Facilitating partners reported that, in some 
        cases, community members intervened and recovered money 
        when block grant funds were stolen by thieves or 
        embezzled by CDC members. According to one facilitating 
        partner, the Taliban are less likely to burn NSP 
        schools because communities defend them.\95\
---------------------------------------------------------------------------
    \95\ Ibid., p. 13.


    While NSP is one of the best development programs in 
Afghanistan, it too can be improved. Currently, unpredictable 
donor contributions block strategic planning and communities 
only receive one-time bloc grants, despite having created 
significant community social infrastructure that could be used 
to further ongoing governance and development programs. 
Ensuring consistency in funding will be critical as NSP expands 
into less permissive areas. NSP could become a key pillar of 
transition because it can provide villages with a tangible 
dividend from peace.
    The United States could also work with the Government of 
Afghanistan to improve oversight and internal controls, 
strengthen reporting mechanisms on local governance, and ensure 
that block grants and payments to facilitating partners are 
disbursed in a timely fashion.\96\ By opening its transport 
system to senior Afghan staff, the United States could 
facilitate monitoring and oversight of NSP disbursements. There 
are a number of national programs that were initially designed 
for Afghanistan in addition to NSP that could work well with 
donor support.
---------------------------------------------------------------------------
    \96\ Ibid., p. 13.
---------------------------------------------------------------------------
    Another successful model of delivering assistance in 
Afghanistan is the Basic Package of Health Services (BPHS).\97\ 
Established in 2003, BPHS provides a standardized package of 
basic services, including maternal and newborn health, child 
health, and public nutrition, at the four primary health care 
facilities within the Afghan health system: health posts at the 
community level, basic health centers, comprehensive health 
centers, and district hospitals.
---------------------------------------------------------------------------
    \97\ According to USAID, the Ministry of Public Health was ``the 
first Afghan ministry certified in 2009 to receive $239 million in 
direct funding from the U.S. government to implement the BPHS in 13 
provinces,'' including Badakhshan, Baghlan, Bamyan, Faryab, Ghazni, 
Hirat, Jawzjan, Kabul, Kandahar, Khost, Paktya, Paktika, and Takhar. 
For more information, see: U.S. Agency for International Development, 
``Fact Sheet: Health Service Delivery Grant - Partnership Contracts for 
Health (PCH),'' July 2010.
---------------------------------------------------------------------------
    BPHS has proved a remarkable success, given the state of 
health care 8 years ago. It has helped unify Afghanistan's 
health system; improved coordination among the Afghan 
Government, donors, and NGOs; and dramatically increased the 
percentage of the population with access to primary health 
care. National coverage rates have risen from an estimated 9 
percent in 2003 to 85 percent in 2008 and under-5 mortality 
rates have dropped by 26 percent since 2002.\98\ Between FY 
2002 and FY 2010, the United States provided roughly $798 
million in health assistance to Afghanistan.
---------------------------------------------------------------------------
    \98\ ``Building on Basics in Health Care,'' The World Bank, Last 
updated June 2009, http://web.worldbank.org.
---------------------------------------------------------------------------
    With the right investments and leadership within the 
Ministry of Education, the BPHS model could be extended to the 
area of education. While the United States has dedicated 
considerable resources to support basic and higher education, 
teacher trainings, and textbooks for primary schools in 
Afghanistan, international donor efforts in the education 
sector are piecemeal and not coordinated for maximum 
effect.\99\ According to one U.S. official:
---------------------------------------------------------------------------
    \99\ Between FY2002-2010, the United States spent an estimated $672 
million on education assistance in Afghanistan.


          The Afghan Government is constantly outraged by the 
        fact that they see the Germans build a school here, the 
        French supply schoolbooks there, and the Belgians do a 
        teacher meeting at a third location, which means you 
        have three separate projects that fail, rather than one 
        project that would succeed if, indeed, you knew about 
        them and were able to steer them to work together. 
        \100\
---------------------------------------------------------------------------
    \100\ Center for Complex Operations official, relaying comment made 
by a PRT member in Afghanistan, April 2011.

CASE STUDY B: ISSUES OF SUSTAINABILITY--THE PERFORMANCE-BASED GOVERNORS 
                                  FUND


          The Performance-Based Governors Fund illustrates how 
        the design of our aid programs impacts the outcome. 
        While it may be ``necessary'' in its second phase, the 
        program in its current design may not be ``achievable'' 
        or ``sustainable.''


    The Performance-Based Governors Fund is a program run by 
the Asia Foundation that aims to empower provincial governors 
by providing them with operational budgets to improve their 
relationships with constituents and their overall management 
capacity. Most provincial governors receive relatively few 
resources from the federal government and lack capacity to 
execute their modest budgets.
    In the first phase, the program gave each governor $25,000 
per month to spend on specified administrative expenses and a 
financial advisor to help identify budget priorities, make 
expenditures, and account for them. The goal was to teach 
governors how to execute budgets. Funds could be used for (1) 
vehicles, utilities, furniture, and equipment; (2) travel and 
transportation; (3) maintenance and repair of public 
facilities; (4) computer, information technology, and 
communications; (5) capacity building; and (6) community 
outreach.
    Development experts criticized the design of the program 
because it had no impact on the governor's actual performance. 
Every governor, even those known to be corrupt, received the 
funds.
    To address these concerns, the second phase of the program 
has been expanded to include incentives to improve governance. 
The program now has a mechanism that can increase or reduce the 
monthly amount based on the governor's performance. It also 
added a development component: a well-performing governor can 
receive an additional $75,000 per month to spend on local 
development projects determined in consultation with provincial 
councils and other local groups.
    Nevertheless, significant challenges remain. USAID has yet 
to bring the program fully on-budget in part as a result of 
concerns expressed by the Government of Afghanistan that it 
lacked the capacity to implement the program effectively at the 
central and provincial levels. Off-budget funding of the 
program renders it susceptible to the problems noted earlier. 
In addition, the Ministry of Finance has a budget execution 
rate of approximately 35 percent, which means that donor funds 
are replacing national government funds that are available but 
not reaching the provincial level. Oversight will be difficult 
since field audits are limited. USAID and its implementing 
partner may not have enough supervisory personnel to ensure 
that funds are properly spent and accounted for.
    Absorptive capacity is another concern. In some provinces, 
the governors have the capacity to allocate a $1.2 million 
annual budget. However, in less-developed provinces, this 
amount represents a tidal wave of funding that could hamper the 
ability of local officials to spend the money wisely. Excess 
funding could lead to corruption and waste. Finally, the 
program is not sustainable unless concrete steps are taken to 
build the capacity of the Afghan Government to execute the 
program and include it within its budget. Currently, the 
Independent Directorate of Local Governance does not have the 
capacity to run this program.
    In sum, the program in its current form may not be 
achievable or sustainable. USAID should only go forward with 
the program if it can eventually be put on-budget, reduce 
funding in provinces where absorptive capacity is low, and 
ensure sufficient oversight. As donor funding declines for this 
program in outlying years, steps must be taken to replace these 
funds with domestic resources. We look forward to working with 
USAID as it explores options to bring the program on-budget 
over the next 18 months.

                            Recommendations

    We urge the administration to focus its assistance strategy 
on what is necessary, achievable, and sustainable. Below are 
the three overarching steps that would help lay the foundation 
for more successful development outcomes in Afghanistan.


  1) Consider authorizing a multiyear civilian assistance 
        strategy for Afghanistan. The administration and 
        Congress should consider working together on a 
        multiyear authorization that includes: (a) a clearly 
        defined assistance strategy; (b) the tools, 
        instruments, and authorities required for a successful 
        development approach; (c) a plan as to how U.S. funding 
        will leverage and partner with Afghan domestic 
        policies, with multilateral efforts--including the 
        World Bank, Asian Development Bank, and Islamic 
        Development Bank--and with private sector financing; 
        (d) the civilian resources needed for a successful 
        military draw down and transition; (e) the steps needed 
        to ensure accountability, oversight, and effectiveness; 
        and (f) metrics that measure performance and capture 
        outcomes. The strategy should also establish benchmarks 
        for the Afghan Government to fulfill its international 
        commitments, outline goals for improving donor 
        coordination, and include specific annual funding 
        levels. This process would clarify the U.S. assistance 
        strategy, offer greater predictability on future 
        funding levels, and provide Congress with robust tools 
        for oversight.

  2) Reevaluate the performance of stabilization programs in 
        conflict zones. We must challenge the assumption that 
        our stabilization programs in their current form 
        necessarily contribute to stability. The administration 
        should continue to assess the impact of our 
        stabilization programs in Afghanistan and reallocate 
        funds, as necessary.

  3) Focus on sustainability. We should follow a simple rule: 
        Donors should not implement projects if Afghans cannot 
        sustain them. Development in Afghanistan will only 
        succeed if Afghans are legitimate partners and there is 
        a path toward sustainability. The Afghan Government 
        must have sufficient technical capability and funding 
        to cover operation and maintenance costs after a 
        project is completed. A sustainability strategy would 
        consolidate our programs, increase on-budget aid, 
        streamline our rules and controls, and pursue a limited 
        number of high-impact programs that do not require 
        complex procurement or infrastructure. We should also 
        focus on raising domestic revenue, reducing aid 
        dependency, and developing partnerships with the 
        private sector to create jobs. Success should not be 
        measured by outputs or the amount of money spent, but 
        by the ability of Afghan institutions to deliver 
        services, the Afghan private sector to generate jobs 
        and grow the economy, and Afghan civil society and 
        public institutions to provide avenues for citizens to 
        hold their government accountable and participate in 
        political and civic life. More thought should be given 
        to the type of projects we fund. Our aid should be 
        visible among Afghans, and we should have a robust 
        communications strategy in place so Afghans know what 
        U.S. civilian aid in Afghanistan is accomplishing.


  Annex--Academic Literature Review: Development and Counterinsurgency

                              ----------                              

    There is a bourgeoning literature on development and 
counterinsurgency (COIN). Recent work on the development-COIN 
nexus has modeled insurgencies as competitive governance 
systems that seek to capture the support of the local 
population. In a competitive governance environment, civilians 
will condition their support for the government on sustainable 
and transparent service provision. To that end, various 
scholars have recommended building Afghan Government capacity 
to provide services at the local and provincial levels through 
small, community-based projects that are informed by local 
needs. Development resources can be violence-reducing and 
prompt defection within the insurgent's ranks,\101\ but only 
under certain conditions:
---------------------------------------------------------------------------
    \101\ On the vulnerability of certain violence-producing groups to 
government service provision, see: Eli Berman, Radical, Religious, and 
Violent: The New Economics of Terrorism. Cambridge: MIT Press, 2009.


   Knowledge of community needs:  Counterinsurgent forces 
        should be dispersed, less mechanized,\102\ and should 
        interact closely with local political leaders to gain 
        information about community needs. Knowledge of local 
        needs, as opposed to the size of one's forces, can 
        enhance the effectiveness and legitimacy of service 
        provision. For instance, Berman, Shapiro, and Felter 
        find that small-scale reconstruction spending allocated 
        through CERP reduced violence in post-surge Iraq when 
        operational changes in U.S. strategy encouraged greater 
        contact and engagement with the local community.\103\
---------------------------------------------------------------------------
    \102\ Jason Lyall and Isaiah Wilson III, ``Rage against the 
Machines: Explaining Outcomes in Counterinsurgency Wars,'' 
International Organization 63 (2009): 67-106.
    \103\ Eli Berman, Jacob N. Shapiro and Joseph H. Felter, ``Can 
Hearts and Minds Be Bought? The Economics of Counterinsurgency in 
Iraq,'' NBER WP #14606, March 2009, Last revised: April 2011, http://
igcc.ucsd.edu/DACOR.

   Small projects in secure areas: Small grants implemented 
        through community-based mechanisms in secure areas 
        stand a greater chance of success than large, big-
        ticket infrastructure projects. One working study, 
        which uses a randomized field experiment spanning 500 
        villages across 10 Afghan districts, finds that NSP has 
        led to ``a significant improvement in villagers' 
        perception of their economic well-being as well as in 
        their attitudes toward all levels of government.'' 
        \104\
---------------------------------------------------------------------------
    \104\ The authors ``find some evidence that the program [NSP] 
improved perceptions of the security situation, but do not find any 
effects on the actual occurrence of security incidents in and around 
villages.'' Andrew Beath, Fontini Christia, and Ruben Enikolopov, 
``Winning Hearts and Minds?'' Evidence from a Field Experiment in 
Afghanistan,'' Massachusetts Institute of Technology, Working Paper, 
Last revised: April 11, 2011, http://www.nsp-ie.org/papers/hearts.pdf.

   Employment and Counterinsurgency: Providing legitimate 
        employment opportunities may increase popular support 
        for the government, but only under certain conditions. 
        Collier and Hoeffler argue that improved economic 
        opportunities can increase the cost of insurgent 
        recruitment and diminish potential rebel supply.\105\ 
        Berman, Callen, Felter, and Shapiro, however, find a 
        negative correlation between unemployment and insurgent 
        violence in Iraq, the Philippines, and 
        Afghanistan.\106\ They posit that higher unemployment 
        rates lower the price of obtaining information from the 
        population about the insurgent's whereabouts and result 
        from certain COIN tactics such as establishing security 
        checkpoints that disrupt legitimate commerce. While the 
        literature remains inconclusive, it suggests that we 
        should pay careful attention to the conditions of each 
        sector, resource endowments, local perceptions, and 
        levels of income inequality at both the national and 
        subnational levels when designing programs to improve 
        labor market opportunities for communities in conflict 
        areas.
---------------------------------------------------------------------------
    \105\ Paul Collier and Anke Hoeffler, ``Greed and Grievance in 
Civil Wars.'' Oxford Economic Papers 56 (2004): 563-95.
    \106\ Eli Berman, Michael Callen, Joseph H. Felter, and Jacob N. 
Shapiro, ``Do Working Men Rebel? Insurgency and Unemployment in 
Afghanistan, Iraq, and the Philippines,'' Journal of Conflict 
Resolution, published online March 22, 2011, http://jcr.sagepub.com/
content/early/2011/03/16/0022002710393920.full.pdf+html.
---------------------------------------------------------------------------
      






                          A P P E N D I X E S







                APPENDIX II: USAID Funding by Province 
                      in Afghanistan, FY 2009-2010





    Source: Response to Questions for the Record submitted to 
Secretary of State Hillary Rodham Clinton by Chairman John 
Kerry, March 2, 2011, No. 21.

                APPENDIX III: USAID Funding by Province 
                        in Afghanistan, FY 2011





    Source: Response to Questions for the Record submitted to 
Secretary of State Hillary Rodham Clinton by Chairman John 
Kerry, March 2, 2011, No. 22.

  APPENDIX IV: USAID/Afghanistan: Capacity Development Programs with 
                                 GIRoA





    Source: Response from State Department to SFRC majority 
staff, February 9, 2011.

               APPENDIX V: Capacity Building Programs in 
                           Afghanistan--INCLE

    The State Department's Bureau of International Narcotics and Law 
Enforcement Affairs (INL), through the International Narcotics Control 
and Law Enforcement (INCLE) account, provides capacity building to 
Afghanistan ministries focused on the provision of internal security, 
rule of law, and enforcement of Afghanistan's illicit narcotics laws. 
INL's capacity building programs in Afghanistan help build the 
organizational and human capacity of Afghan Government Ministries to 
effectively and independently fulfill their core functions.


    INCLE funds the following capacity building programs:


   Justice Sector Support Program ($64 million for current task order 
        year May 2010-May 2011):  Launched in 2005, the Justice Sector 
        Support Program (JSSP) is the primary capacity building vehicle 
        of INL's criminal justice assistance through training, 
        mentoring, and technical support. JSSP supports capacity 
        building efforts within the following Ministries: the Ministry 
        of Justice (MOJ) and Attorney General's Office (AGO) and, to a 
        lesser degree, the Ministry of Interior (MOI), the Ministry of 
        Women's Affairs, and the Supreme Court. Through the creation of 
        close partnerships between JSSP advisors and Afghan Government 
        officials, the program's main goal is to help create 
        sustainable improvements in the Afghan Government's delivery of 
        justice to the Afghan people. In terms of nationwide reach, 
        JSSP is the largest justice assistance program in Afghanistan 
        today, with 93 Afghan legal experts, 65 American advisors, and 
        over 100 Afghan support staff.

   Corrections System Support Program ($63 million for current task 
        order year May 2010-May 2011): Launched in 2006, INL's 
        Corrections System Support Program (CSSP) partners with the 
        Afghan Ministry of Justice's (MOJ) Central Prison Directorate 
        (CPD) to build a safe, secure, and humane prison system that 
        meets international standards and Afghan cultural requirements. 
        CSSP focuses on CPD headquarters capacity building, basic and 
        advanced nationwide training, infrastructure program 
        management, advising provincial prison leadership on secure and 
        humane corrections practices, and providing mentoring and 
        support at the Counter-Narcotics Justice Center. CSSP currently 
        has 71 American corrections advisors and over 200 Afghan staff. 
        CSSP is based in Kabul and has seven regional teams located at 
        the RTCs in Balkh, Herat, Nangarhar, Kunduz, Bamiyan, and 
        Paktia and the Provincial Reconstruction Team (PRT) in 
        Kandahar.

   Ministry of Counternarcotics Advisors ($800,000 for first program 
        year; $25 million planned):  INL has provided the Ministry of 
        Counter Narcotics (MCN) with two advisors, an Executive Advisor 
        and a Capacity Building Advisor. These advisors provide advice 
        and support on MCN policies and programs and assess capacity 
        building requirements. To further advance the goal of building 
        MCN capacity, INL proposes a new, multi-year, $25 million 
        program to develop the MCN's human and bureaucratic capacity in 
        order to promote its independence and effectiveness. The MCN 
        capacity building program will provide expatriate and Afghan 
        advisors for the MCN's Kabul headquarters and provincial 
        offices as well as support for the Ministry's human resources, 
        information technology, commodities, logistics, and 
        engineering.

   Ministry of Interior--Counternarcotics ($2.4 million for current 
        task order year):  As part of its larger contract supporting 
        operations and facilities maintenance for the Counternarcotics 
        Police of Afghanistan's vetted units, which are mentored by 
        DEA, INL provides six additional advisors/mentors to the 
        National Interdiction Unit and the Sensitive Investigative 
        Unit. These individuals work to assist DEA in building the 
        capacity of the vetted units not just operationally, but also 
        in the areas of administration, logistics, and management.


    Source: Response from State Department to SFRC majority staff, 
February 9, 2011.

 APPENDIX VI: Letter From Deputy Secretary of State Thomas R. Nides to 
                 Chairman John F. Kerry on June 6, 2011







 APPENDIX VII: Letter From USAID Administrator Rajiv Shah to Chairman 
                     John F. Kerry on June 1, 2011

















                                  
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