REVISED AFGHANISTAN COMPACT

UNCLAS SECTION 01 OF 15 KABUL 005256 SIPDIS DEPARTMENT FOR SA/FO, SA/A TREASURY FOR PARAMESWARAN NSC FOR AHARRIMAN, KAMEND CJTF-76 FOR POLAD, CENTCOM FOR CG CFC-A COMMERCE FOR AADLER SENSITIVE E.O.12958: N/A TAGS: ECON EFIN EAID PREL PGOV AF SUBJECT: REVISED AFGHANISTAN COMPACT Ref: (A) Kabul 5024 (B) Kabul 4939 (C) State 219188 (D) State 203877 (E) State 203877 (F) State 203820 (G) Kabul 4797 (H) Kabul 4634 -------------- Summary -------------- ¶1. (SBU) The GoA pushed back strongly against Washington's undercutting the reciprocal balance of the Afghanistan Compact but accepted most of our other points. In a December 24 meeting, Senior Economic Advisor to the President Naderi and UNAMA Deputy SRSG Haq reviewed with Ambassador the latest version of the Afghanistan Compact and its three Annexes. The text was approved by GoA line economy and foreign affairs ministers in a December 23 meeting of the Afghanistan Compact Oversight Committee. This cable includes the full text of the December 24 version of the Compact, with revisions that reflects consensus recommendations reached at a series of Kabul December 2-5 PrepCom meetings as well as subsequent guidance from donor nation capitals, IFI headquarters and Kabul-based G-8 ambassadors. We have gained much of what we wanted in this latest revision, notably including specific references to counter-narcotics program "eradication" efforts in both the Chapeau and Annex I benchmark text. Compromise language has been suggested by the GoA to address concerns expressed by State/L as to whether our signing the Compact reflects a political statement of intent or an open-ended international commitment to fund the achievement of all benchmark targets. Naderi emphasized the importance of coming to closure soon on the makeup of the Annex III coordinating and monitoring board, with smaller donors agitating for a formalized role and the GoA feeling "caught in the crossfire." UNAMA's Haq suggested that a final resolution of coordinating board composition will likely combine a core group of key international donor and IFIs representatives, supplemented by additional donor and international agency participation as both the SRSG and senior GoA representative deem appropriate. The GOA and UNAMA request comments on this latest Compact draft NLT January 4. All comments need to come through the Embassy. Ambassador Neumann told Naderi he should disregard any/any comment received directly from any individual bureau or agency in Washington. End Summary. -------------- Compact Chapeau: Key Modifications -------------- ¶2. (SBU) Strong concern had been expressed the U.S, U.K. and Germany on text in the last paragraph of the "Purpose" section that could be interpreted to imply an open-ended international donor commitment to fund the achievement of all Compact benchmark targets. In this latest version, the GoA proposes language that would remove the (here bracketed) article "the" from this paragraph to read: "The Government of Afghanistan hereby commits itself to realizing this shared vision of the future; the international community reciprocally commits itself to provide [the] resources and support to realize that vision." Post supports this compromise language. ¶3. (SBU) Naderi explained the importance that the Compact Oversight Committee (chaired by Naderi and including the Ministers of Finance, Foreign Affairs, Commerce and Economy) attaches to keeping both the document title "Compact" and the above "the international community reciprocally commits itself" language to maintain the central notion and spirit of compact in the document. UNAMA informed Ambassador that the UK supports this GoA compromise text. (Comment: The GoA proposal removes the implication that the international community has an open-ended commitment to pay for everything. That said, it is essential that the basic commitment of the United States to see success in Afghanistan be clear as it has been in the past. End Comment). ¶4. (SBU) In the third sentence of the first paragraph of the "Security" section, the GoA has reclamaed donor requests that "with the support of the international community" language be added to text referring to the creation of a secure environment to pursue the DIAG process. The GoA proposes the following compromise language that splits the sentence into two parts: "The Government of Afghanistan and the international community will create a secure environment by strengthening Afghan institutions to meet the security needs of the country in a fiscally sustainable manner. With the support of the international community, the Afghan Government will consolidate peace by disbanding all illegal armed groups." ¶5. (SBU) Finally, in the Chapeau's "Counter-Narcotics, a Cross Cutting Priority," eradication language has been added at our request: "It will also be crucial to enforce a zero- tolerance policy towards official corruption; to pursue eradication as appropriate; to reinforce the message that producing or trading opiates is both immoral and a violation of Islamic law; and to reduce the demand for the illicit use of opiates." -------------- Annex I: Benchmarks - Key Modifications -------------- ¶6. (SBU) Key text on ANA and ANP force size in the "Security" section of the benchmark Annex remains bracketed. Basic service extension goals cited in the Economic Development Section's Comprehensive Rural Development benchmark have now been vetted and confirmed by Rural Development Minister Atmar. A number of edits have been made to Annex I benchmarks, including: -- Bracketed eradication text has been added to the Security section Counter-Narcotics benchmark: "The Government will strengthen its law enforcement capacity at both central and provincial levels, resulting in a substantial annual increase in the amount of drugs seized or destroyed and processing facilities dismantled, and in effective measures toward the elimination [and eradication] of poppy cultivation."; -- An anti-corruption benchmark was added to the "Governance and Rule of Law" section mandating ratification of the UN Convention Against Corruption by end 2006; -- Statistics data collection language was added to the "Governance and Rule of Law" Census benchmark; -- Protection of media freedom language was added to the "Governance and Rule of Law" Human rights benchmark; -- Language on renewable energy was added to the Economic Development section's energy benchmark at the request of Germany. Energy cost recovery language remains bracketed; -- A bracketed Afghan Cultural Heritage benchmark was added to the Human Capital section at the request of France; -- At the direct request of State/PRM, text was added to the Social Protection section's Refugee and IDP benchmark stating that refugees and IDP ".integration will be supported by national development programs, particularly in key areas of return." (Note: Naderi reiterated the GoA's earlier (Ref A) request that all/all suggested edits be received through Kabul-based ambassadors and we told him in the future to disregard any comments not received through the Embassy); -- At the UK's request, language was added to the Economic Governance section's Financial Management benchmark requiring Afghanistan to "achieve and maintain external debt- sustainability by end-2007." -------------- -- Annex II: AID Effectiveness - Key Modifications -------------- -- ¶7. (SBU) Annex II adds language requested donor provide untied aid when possible. It also adds language committing donors to harmonize the delivery of technical assistance to reduce duplication and costs. -------------- -------------- Annex III: Coordination/Monitoring - Key Modifications -------------- -------------- ¶8. (SBU) Finally, in Annex III, language was added at the request of the UK and Canada to specify that a "small" secretariat will be staffed by the GoA and UN. SIPDIS ¶9. (SBU) Naderi emphasized the importance of coming to closure soon on the makeup of the Annex III coordinating and monitoring board. Smaller donors excluded from the Compact formulation process are "venting," he noted, and the GoA feels "caught in the crossfire." UNAMA's Haq suggested that a final resolution of the board composition will likely combine a core group of key international donor and IFIs representatives, supplemented by additional participants as both the SRSG and senior GoA representative deem appropriate. -------------- Final Comments Due by January 4 -------------- ¶10. At this December 24 meeting, UNAMA Deputy SRSG Haq emphasized the need for final comments from G-8 donors by January 4 to ensure orderly preparation for the January 31 - February 1 London conference. -------------- ¶11. December 24 Compact Draft Text -------------- FYI: Post is also e-mailing copies of the text to key Washington addressees for readability. End FYI THE AFGHANISTAN COMPACT The Islamic Republic of Afghanistan and the International Community: Determined to strengthen their partnership to improve the lives of Afghan people, and to contribute to national, regional, and global peace and security; Affirming their shared commitments to continue, in the spirit of the Bonn, Tokyo, and Berlin conferences, to work toward a stable and prosperous Afghanistan, with good governance and human rights protection for all under the rule of law and to maintain and strengthen that commitment over the term of this Compact and beyond; Recognizing the courage and determination of Afghans who, by defying violent extremism and hardship, have laid the foundations for a democratic, peaceful, pluralistic and prosperous state embracing the principles of Islam; Noting the full implementation of the Bonn Agreement through the adoption of a new constitution in January 2004 and the holding of presidential elections in October 2004 and National Assembly and Provincial Council elections in September 2005, which have enabled Afghanistan to regain its rightful place in the international community; Mindful that Afghanistan's transition to peace and stability is not yet assured, and that strong international engagement will continue to be required to address remaining challenges; Resolved to overcome the legacy of conflict in Afghanistan by setting conditions for sustainable economic growth and development; strengthening state institutions and civil society; removing remaining terrorist threats; meeting the challenge of counter-narcotics; rebuilding capacity and infrastructure; reducing poverty; and meeting basic human needs; Have agreed to this Afghanistan Compact. Purpose The Afghan Government has articulated its overarching goals for the well-being of its people in the Afghanistan Millennium Development Goals Report 2005. Consistent with those goals, this Compact identifies three critical and interdependent areas or "pillars" of activity for the five years from the adoption of this Compact: ¶1. Security; ¶2. Governance, rule of law, and human rights; and ¶3. Sustainable economic and social development. A further vital and cross-cutting area of work is eliminating the narcotics industry, which remains a formidable threat to the people and state of Afghanistan, the region, and beyond. The Government of Afghanistan hereby commits itself to realizing this shared vision of the future; the international community reciprocally commits itself to provide [the] resources and support to realize that vision. Annex I of this Compact sets out detailed outcomes, benchmarks, and timelines for delivery, consistent with the high-level goals set by the Afghanistan National Development Strategy (ANDS). The Government and international community also commit themselves to improve the effectiveness and accountability of international assistance as set forth in Annex II. Principles of Cooperation As the Afghan Government and the international community embark on the implementation of this Compact, they will: ¶1. Respect the pluralistic culture, values and history of Afghanistan, based on Islam; ¶2. Work on the basis of partnership between the Afghan Government, with its sovereign responsibilities, and the international community, with a central and impartial coordinating role for the United Nations; ¶3. Engage further the deep-seated traditions of participation and aspiration to ownership of the Afghan people; ¶4. Pursue fiscal, institutional, and environmental sustainability; ¶5. Build lasting Afghan capacity and effective state and civil society institutions, with particular emphasis on building up human capacities, of men and women and boys and girls alike; ¶6. Ensure balanced and fair allocation of domestic and international resources in order to offer all parts of the country tangible prospects of well-being; ¶7. Recognize in all policies and programs that men and women have equal rights and duties; ¶8. Promote regional cooperation; and ¶9. Combat corruption and ensure public transparency and accountability. Security Genuine security remains a fundamental prerequisite for achieving stability and development in Afghanistan. Security cannot be provided by military means alone. It requires good governance, justice, and the rule of law, reinforced by reconstruction and development. The Government of Afghanistan and the international community will create a secure environment by strengthening Afghan institutions to meet the security needs of the country in a fiscally sustainable manner. With the support of the international community, the Afghan Government will consolidate peace by disbanding all illegal armed groups. To that end, the NATO-led International Security Assistance Force (ISAF),the US-led Operation Enduring Freedom (OEF),and partner nations involved in security sector reform will continue to provide strong support to the Afghan Government in establishing and sustaining security and stability in Afghanistan. They will continue to strengthen and develop the capacity of the national security forces to ensure that they become fully functional. OEF forces will continue to conduct counter-terrorism operations in close coordination with the Afghan Government and ISAF. ISAF will continue to expand its presence throughout Afghanistan, including through Provincial Reconstruction Teams (PRTs),and will continue to promote stability and support security sector reforms in its areas of operation. Full respect for Afghanistan's sovereignty and strengthening dialogue and cooperation between Afghanistan and its neighbors constitute an essential guarantee of stability in Afghanistan and the region. The international community will support concrete confidence-building measures to this end. Governance, Rule of Law, and Human Rights Democratic governance and the protection of human rights constitute the cornerstone of sustainable political progress in Afghanistan. The Afghan Government will rapidly expand its capacity to provide basic services to the population throughout the country. It will recruit competent and credible professionals to public service on the basis of merit; establish a more effective, accountable, and transparent administration at all levels of Government; and implement measurable improvements in fighting corruption, upholding justice and the rule of law, and promoting respect for the human rights of all Afghans. The Afghan Government will give priority to the coordinated establishment in each province of functional institutions - including civil administration, police, prisons and judiciary. These institutions will have appropriate legal frameworks and appointment procedures; trained staff; and adequate remuneration, infrastructure, and auditing capacity. The Government will establish a fiscally and institutionally sustainable administration for future elections under the supervision of the Afghanistan Independent Electoral Commission. Reforming the justice system will be a priority for the Afghan Government and the international community. The aim will be to ensure to all Afghans equal, fair and transparent access to justice for all based upon written codes with fair trials and enforceable verdicts. Measures will include completing legislative reforms for the public as well as the private sector; building the capacity of judicial institutions and personnel; promoting human rights and legal awareness; and rehabilitating judicial infrastructure. The Afghan Government and the international community reaffirm their commitment to the protection and promotion of rights provided for in the Afghan constitution and under international law, including the international human rights covenants and other instruments to which Afghanistan is party. With a view to rebuilding trust among those whose lives were shattered by war, reinforcing a shared sense of citizenship and a culture of tolerance, pluralism, and observance of the rule of law, the Afghan Government with the support of the international community will implement the Action Plan on Peace, Justice and Reconciliation. Economic and Social Development The Afghan Government with the support of the international community will pursue high rates of sustainable economic growth with the aim of reducing hunger, poverty, and unemployment. It will promote the role and potential of the private sector, alongside those of the public and non-profit sectors; curb the narcotics industry; ensure macroeconomic stability; restore and promote the development of the country's human, social, and physical capital, thereby establishing a sound basis for a new generation of leaders and professionals; strengthen civil society; and complete the reintegration of returnees, internally displaced persons and ex-combatants. Public investments will be structured around the six basic priorities of the Afghanistan National Development Strategy: ¶1. Agriculture and rural development; ¶2. Physical infrastructure; ¶3. Human capital, including health and education; ¶4. Social protection; ¶5. Economic governance; and ¶6. Private sector development. In each of these areas, the objective will be to achieve measurable results towards the goal of equitable economic growth that reduces poverty, expands employment and enterprise creation, enhances opportunities in the region, and improves the well-being of all Afghans. Counter-Narcotics - A Cross-Cutting Priority Meeting the threat that the narcotics industry poses to national, regional and international security as well as the development and governance of the country and the well-being of Afghans will be a priority for the Government and the international community. The aim will be to achieve a sustained and significant reduction in the production and trafficking of narcotics with a view to complete elimination. Essential elements include improved interdiction, law enforcement, and judicial capacity building; enhanced cooperation among Afghanistan, neighboring countries, and the international community on disrupting the drugs trade; wider provision of economic alternatives for farmers and laborers in the context of comprehensive rural development; and building national and provincial counter-narcotics institutions. It will also be crucial to enforce a zero-tolerance policy towards official corruption; to pursue eradication as appropriate; to reinforce the message that producing or trading opiates is both immoral and a violation of Islamic law; and to reduce the demand for the illicit use of opiates. Coordination and Monitoring The Afghan Government and the international community are establishing a joint Coordination and Monitoring Board for the implementation of this Compact. As detailed in Annex 3, this Board will be co-chaired by the Afghan Government and the United Nations and will be supported by a small secretariat. It will ensure greater coherence of efforts by the Afghan Government and international community to implement the Compact and provide regular and timely reports on its execution to the President, National Assembly, Afghan public, international community, and to the UN Security Council through the UN Mission. ANNEX 1: BENCHMARKS AND TIMELINES The Afghan Government, with the support of the international community, is committed to achieving the following benchmarks in accordance with the timelines specified or within the five-year timeframe of this Compact. Security International Security Forces With the support of and in close cooperation with the Afghan authorities, the NATO-led International Security Assistance Force (ISAF),Operation Enduring Freedom (OEF) and their respective Provincial Reconstruction Teams (PRTs) will ensure increased security and stability in all regions of Afghanistan, including by strengthening Afghan capabilities. Afghan National Army A fully constituted, professional, functional and ethnically balanced Afghan National Army of [up to 70,000] will be able to meet the security needs of the country effectively and will be increasingly fiscally sustainable. Afghan National Police A fully constituted, professional, functional and ethnically balanced Afghan National Police and Afghan Border Police with a combined force of [up to 62,000] will be able to meet the security needs of the country effectively and will be increasingly fiscally sustainable. Disbandment of Illegal Armed Groups All illegal armed groups will be disbanded by end-2007 in all provinces. Counter-Narcotics The Government will strengthen its law enforcement capacity at both central and provincial levels, resulting in a substantial annual increase in the amount of drugs seized or destroyed and processing facilities dismantled, and in effective measures toward the elimination [and eradication] of poppy cultivation. The Government will work with neighboring and regional governments to increase coordination and intelligence sharing, with the goal of an increase in the seizure and destruction of drugs being smuggled across Afghanistan's borders, and effective action against drug traffickers. Mine Action and Ammunition In line with the Millennium Development Goals (MDGs) and Afghanistan's Ottawa Convention obligations, by 2010 the land area contaminated by mines and unexploded ordnance will be reduced by 70%; all stockpiled anti-personnel mines will be located and destroyed by end-2007; and all unsafe, unserviceable, and surplus ammunition will be destroyed. Governance, Rule of law and human rights Public Administrative Reform Government machinery (including the number of ministries) will be restructured and rationalized to ensure a fiscally sustainable public administration; the Civil Service Commission will be strengthened; and civil service functions will be reformed to reflect core functions and responsibilities. A clear and transparent appointments mechanism will be established within 6 months, applied within 12 months, and fully implemented within 24 months for all senior level appointments to the central government and the judiciary, as well as for provincial governors, chiefs of police, district administrators and provincial heads of security. By end-2006 a review of the number of administrative units and their boundaries will be undertaken with the aim of contributing to fiscal sustainability. Merit-based appointments, vetting procedures and performance- based reviews will be undertaken at all levels of government, including central government, the judiciary and police, and requisite support will be provided to build the capacity of the civil service to function effectively. Annual performance-based reviews will be undertaken for all senior staff (Grade 2 and above) starting by end-2007. Anti-Corruption The UN Convention against Corruption will be ratified by end- 2006, national legislation adapted accordingly by end-2007 and a monitoring mechanism to oversee implementation will be in place by end-2008. The Census and Statistics The census enumeration will be completed by end-2008 and the complete results published. Reliable statistical baselines will be established for all quantitative benchmarks by mid-2007 and statistical capacity built to track progress against them. National Assembly The National Assembly will be provided with technical and administrative support by mid-2006 to fulfill effectively its constitutionally mandated roles. Elections The Afghanistan Independent Electoral Commission will have the high integrity, capacity and resources to undertake elections in an increasingly fiscally sustainable manner by end-2008, with the Government of Afghanistan contributing to the cost of future elections from its own resources. A permanent civil and voter registry with a single national identity document will be established by end-2009. Gender The National Action Plan for Women in Afghanistan will be fully implemented. In line with Afghanistan's MDGs, female participation in all Afghan governance institutions, including elected and appointed bodies and the civil service, will be strengthened. Rule of Law The legal framework required under the constitution, including civil, criminal, and commercial law, will be put in place, distributed to all judicial and legislative institutions, and made available to the public. Functioning institutions of justice will be fully operational in each province of Afghanistan. The average time to resolve contract disputes will be reduced from 400 to 300 days. A review and reform of oversight procedures relating to corruption, lack of due process and miscarriage of justice will be initiated by end-2006 and fully implemented by end- 2008; reforms will strengthen the professionalism, credibility and integrity of key institutions of the justice system (the Ministry of Justice, the Judiciary, the Attorney- General's office, the Ministry of Interior and National Directorate of Security). Justice infrastructure will be rehabilitated; prisons will have separate facilities for women and juveniles. Land Registration A process for registration of land in all administrative units and the registration of titles will be started for all major urban areas by end-2006 with a view to completion by end-2008. A fair system for settlement of land disputes will be in place by end-2007. Registration for rural land will be under way by end-2007. Counter-Narcotics The Government will increase the number of arrests and prosecutions of traffickers and corrupt officials, and will improve its information base concerning those involved in the drugs trade, with a view to enhancing the selection system for national and sub-national public appointments, as part of the appointments mechanism mentioned earlier in this annex. Human Rights The Government's capacity to comply with and report on its human rights treaty obligations will be strengthened; state security agencies will adopt codes of conduct and procedures aimed at preventing arbitrary arrest, torture, extortion and illegal expropriation of property with a view to the elimination of these practices; media freedom will be protected; human rights awareness will be included in education curricula, and promoted among legislators, judicial personnel and other state agencies and the public; independent human rights monitoring carried out by the Afghan Independent Human Rights Commission (AIHRC) and the UN will track the effectiveness of measures aimed at the protection of human rights. The AIHRC will be supported in the fulfillment of its objectives with regard to monitoring, investigation, protection and promotion of human rights. The implementation of the Action Plan on Peace, Justice and Reconciliation will be completed by end-2008. Economic and Social Development Agriculture and rural development Agriculture and Livestock The necessary institutional, regulatory and incentive framework to increase production and productivity will be established to create an enabling environment for legal agriculture and agriculture-based rural industries, and public investment in agriculture will increase by 30 percent. Particular consideration will be given to perennial horticulture, animal health and food security by instituting specialized support agencies and financial service delivery mechanisms, supporting farmers' associations, branding national products, disseminating timely price and weather- related information and statistics, providing strategic research and technical assistance, and securing access to irrigation and water management systems. Comprehensive Rural Development Rural development will be enhanced comprehensively for the benefit of 19 million people in over 38,000 villages. This will be achieved through the election of at least a further 14,000 voluntary community development councils in all remaining villages, promoting local governance and community empowerment. Access to safe drinking water will be extended to 90% of villages and sanitation to 50%. Road connectivity will reach 40% of all villages, increasing access to markets, employment and social services. 47% of villages will benefit from small-scale irrigation. 800,000 households (22% of all Afghanistan's households) will benefit from improved access to financial services. Livelihoods of at least 15% of the rural population will be supported through the provision of 91 million labor days. Counter-Narcotics The Government will design and implement programs to achieve a sustained annual reduction in the amount of land under poppy and other drug cultivation, by the strengthening and diversification of licit livelihoods and other counter- narcotics measures, as part of the Government's overall goal of a decrease in the absolute and relative size of the drug economy in line with the Government's MDG target. Infrastructure Roads Afghanistan will have a fully upgraded and maintained ring road, as well as roads connecting the ring road to neighboring countries by 2008, and a fiscally sustainable system for road maintenance by end-2007. Air Transport Kabul International Airport and Herat Airport will achieve full International Civil Aviation Organization compliance. Mazar, Jalalabad and Kandahar will be upgraded with runway repairs, air navigation, fire and rescue and communications equipment; and seven other domestic airports will be upgraded to facilitate domestic air transportation. Air transport services and costs will be increasingly competitive with international market standards and rates. Energy Electricity will reach at least 65% of households and 90% of non-residential establishments in major urban areas, and at least 25% of households in rural areas. [Costs will be recovered from at least 75% of users.] A strategy for the development and the use of renewable energies will be developed by end-2007. Mining and Natural Resources An enabling regulatory environment will be created by end- 2006 and the investment environment and infrastructure will be enhanced in order to attract domestic and foreign direct investment in this area. Water Resource Management Sustainable water resource management strategies and plans, covering irrigation and drinking water supply, will be developed by end-2006 and irrigation investments will result in at least 30% of water coming from large waterworks. Urban Development Municipal governments will have strengthened capacity to manage urban development and to ensure that municipal services are delivered effectively, efficiently and transparently. In line with Afghanistan's MDGs, investment in water supply and sanitation will ensure that 50% of households in Kabul and 30% of households in other major urban areas will have access to piped water. Environment In line with Afghanistan's MDGs, environmental regulatory frameworks and management services will be established for the protection of air and water quality, waste management and pollution control, and natural resource policies will be developed and implementation started at all levels of government as well as the community level, by end-2007. Human capital Health and Nutrition In line with Afghanistan's MDGs, the Basic Package of Health Services will be extended to cover at least 90% of the population, maternal mortality will be reduced by 15%, and full immunization coverage for infants under-5 for vaccine preventable diseases will be achieved and their mortality rates reduced by 20%. Primary and Secondary Education In line with Afghanistan's MDGs, net enrolment in primary school for girls and boys will be at least 60% and 75% respectively; a new curriculum will be operational in all secondary schools, female teachers will be increased by 50%; 70% of Afghanistan's teachers will have passed a competency test, and a system for assessing learning achievement such as a national testing system for students will be in place. Higher Education Enrolment of students to universities will be 100,000 with at least 35% female students. The curriculum in Afghanistan's public universities will be revised to meet the development needs of the country and private sector growth. Skills Development A human resource study will be completed by end-2006, and 150,000 men and women will be trained in marketable skills through public and private means. Afghan Cultural Heritage A comprehensive inventory of Afghan cultural treasures will be compiled by end-2007. Measures will be taken to stop the trafficking of antiques and to restore damaged monuments and artifacts. Social Protection Poverty Reduction In line with Afghanistan's MDGs, the proportion of people living on less than US$1 a day will decrease by 3% per year and the proportion of people who suffer from hunger will decrease by 5% per year. Humanitarian and Disaster Response An effective system of disaster preparedness and response will be in place. Disabled Increased assistance will be provided to meet the special needs of all disabled people, including their integration in society through opportunities for education and gainful employment. Employment of Youth and Demobilized Soldiers Employment opportunities for youth and demobilized soldiers will be increased through special programs. Refugees and IDPs All refugees opting to return and internally displaced persons will be provided assistance for rehabilitation and integration in their local communities. Their integration will be supported by national development programs, particularly in key areas of return. Vulnerable Women The number of female-headed households that are chronically poor will be reduced by 20%, and their employment rates will be increased by 20%. Counter-Narcotics The Government will implement programs to reduce the demand for narcotics and provide improved treatment for drug users. Economic Governance and Private Sector Development Financial Management By end-2007, the Government will ensure improved transparent financial management at the central and provincial levels through establishing and meeting benchmarks for financial management agreed with and monitored by the international community, including those in the anticipated Poverty Reduction Growth Facility (PRGF). In turn and in line with improved government accountability, donors will make every effort to increase the share of total external assistance to Afghanistan that goes to the Core Budget. Afghanistan will achieve, and then maintain, external debt sustainability by end-2007. Domestic Revenues Afghanistan's total domestic budgetary revenue - equivalent to 4.5% of estimated legal GDP in 1383 (2004/05) - will steadily increase and reach 8% of GDP by 1389 (2010/11). The ratio of revenue to estimated total recurrent expenditures, including estimated recurrent expenditures in the core and external development budgets, is projected to rise from 28% in 1383 (2004/05) to an estimated 58% in 1389, resulting in a continuing need, in accord with the principles in Annex 2, for (1) external assistance to the core budget and (2) increasing cost-effectiveness of assistance that funds recurrent expenditure though the external development budget. Private Sector Development and Trade All legislation, regulations and procedures related to investment will be simplified and harmonized by end-2006 and implemented by end-2007. New business organization laws will be tabled in the National Assembly by end-2006. The Government's strategy for divestment of State-Owned Enterprises will be completed by end-2008. Financial Services and Markets Internationally accepted prudential regulations will be developed for all core sectors of banking and non-bank financial institutions by end-2007. The banking supervision function of Da Afghanistan Bank will be further strengthened by end-2007. Re-licensing of state-owned commercial banks will be complete by end-2006. State-owned banks that have not been re-licensed are liquidated by end-2006. Regional Cooperation Afghanistan and it neighbours will achieve lower transit times through Afghanistan by means of cooperative border management and other multi-lateral or bilateral trade and transit agreements. Afghanistan will increase the amount of electricity available through bilateral power purchase and cross border hydro projects. Afghanistan will increase the amount of water available for irrigation through agreements with riparians of its major river systems. Afghanistan and its neighbours will reach agreements to enable Afghanistan to import skilled labour from its neighbours and to enable Afghans to seek work in the region and send remittances home. Annex 2: Improving The Effectiveness of Aid to Afghanistan The international community has made a significant investment in the future of a democratic state of Afghanistan since December 2001. This Compact is an affirmation of that commitment. The Afghan Government and the international community are further committed to improving the effectiveness of the aid being provided to Afghanistan in accordance with the `Paris Declaration on Aid Effectiveness' recognizing the special needs of Afghanistan and their implications for donor support. Consistent with the Paris Declaration and the Principles of Cooperation of this Compact, the Government and the international community providing assistance to Afghanistan agree that the principles for improving the effectiveness of aid to Afghanistan under this Compact are: a) Leadership of the Afghan Government in setting its development priorities and strategies and within them the support needs of the country and the coordination of donor assistance; b) Transparency and accountability on the part of both the Government and the donors of the international assistance being provided to Afghanistan; Under these principles and towards the goal of improving the effectiveness of aid to Afghanistan, the Government will: -- Provide a prioritized and detailed Afghanistan National Development Strategy (ANDS) with indicators for monitoring results, including those for the Afghanistan Millennium Development Goals (MDGs); -- Improve its ability to generate domestic revenues through, inter alia, customs duties and taxes; and to achieve cost recovery from public utilities and transportation; -- Agree with the donors, international financial institutions and United Nations agencies on the benchmarks for channeling aid through the Government's core budget and for the utilization of such aid; monitor performance against those benchmarks; -- Provide regular reporting on the use of donor assistance and performance against the benchmarks of this compact to the National Assembly, the donor community through the Afghanistan Development Forum, and the public at large; The donors will: -- Provide assistance within the framework of the Afghanistan National Development Strategy. Programs and projects will be agreed with Government in order to focus on priorities, eliminate duplication and rationalize donor activities to maximize cost-effectiveness; -- Increasingly provide more predictable and multi-year funding commitments or indications of multi-year support to Afghanistan to enable the Government to plan better the implementation of its National Development Strategy, and provide untied aid whenever possible; -- Increase the proportion of donor assistance channeled directly through the Afghanistan Core Budget, as agreed bi- laterally between the Government and each donor, and as well as through other more predictable Core Budget funding modalities in which the Afghan Government participates such as the Afghanistan Reconstruction Trust Fund (ARTF),the Law and Order Trust Fund for Afghanistan (LOTFA) and the Counter- Narcotics Trust Fund (CNTF); -- Provide assistance for the development of public expenditure management systems which are essential for improving transparency and accountability in the utilization of donor resources and countering corruption; -- Recognize that because of the need to build Afghan capacity, donor assistance provided through the external budget will be designed in such a manner as to build this capacity in the Government as well as the private sector and non-profit sector; -- Ensure that development policies, including salary policies, strengthen national institutions that are sustainable in the medium to long-term for delivery of programs by the Government; For aid not channeled through the Core Budget endeavor to: -- harmonise the delivery of technical assistance in line with Government needs, to focus on priority areas and reduce duplication and transaction costs; -- reduce the external management and overhead costs of projects by promoting the Afghan private sector in their management and delivery; -- increasingly use Afghan national implementation partners and equally qualified local and expatriate Afghans; -- increase the procurement within Afghanistan of supplies for civilian and military activities; and -- use Afghan materials in the implementation of projects, in particular for infrastructure; -- Within the principles of international competitive bidding, promote the participation in the bidding process of the Afghan private sector and South-South cooperation in order to overcome capacity constraints and to lower costs of delivery; -- Provide timely, transparent and comprehensive information on foreign aid flows, including levels of pledges, commitments and disbursements in a format that will enable the Afghan Government to plan its own activities and present comprehensive budget reports to the National Assembly. This covers the nature and amount of assistance being provided to Afghanistan through the core and external budgets; and -- For external budget assistance, also report to the Government on the utilization of funds; its efficiency, quality and effectiveness; and the results achieved. These mutual commitments are intended to ensure that the donor assistance being provided to Afghanistan is used efficiently and effectively, that there is increased transparency and accountability, and that both Afghans and the taxpayers in donor countries are receiving value for money. Annex 3: Coordination and Monitoring The Islamic Republic of Afghanistan and the international community recognize that the success of the Afghanistan Compact requires strong political, security and financial commitment to achieve the benchmarks within the agreed timelines. Equally, the success of the Compact relies on an effective coordination and monitoring mechanism. To ensure comprehensive and timely implementation of this Compact the Afghan Government and the international community are establishing a joint Coordination and Monitoring Board with the participation of senior Afghan Government officials appointed by the President and representatives of the international community. The Board will be co-chaired by a senior Afghan Government official appointed by the President and the Special Representative of the UN Secretary-General for Afghanitan. The Coordination and Monitoring Board, in addition to existing sectoral coordination mechanisms, will provide overall coordination for the implementation of the Compact. The Board will have a small secretariat staffed by the Afghan Government and the United Nations. It will be supported by technical experts, as needed. The Board will hold periodic meetings and special sessions as required to review the implementation of the Compact and suggest corrective action, as appropriate. Afghan state institutions and sectoral coordination mechanisms involved in the implementation of the Afghanistan National Development Strategy (ANDS) will provide inputs to the Board with regard to the implementation of the Compact. In addition, in carrying out its assessments, the Board will consider inputs from the international community including United Nations agencies, International Financial Institutions, donor agencies, international security forces, and relevant non-governmental organizations and civil society representatives. Periodic progress reports on the implementation of the Compact prepared by the Coordination and Monitoring Board will be made to the President, the National Assembly, public, the international community and the UN Security Council through the UN Mission.