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IdentifierCreatedClassificationOrigin
09ISLAMABAD1199 2009-06-02 12:55:00 CONFIDENTIAL Embassy Islamabad
Cable title:  

PM FINANCE ADVISOR ON ABSORPTIVE CAPACITY AND

Tags:   EAID ECON PHUM PREF PREL PK 
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RUEHKP/AMCONSUL KARACHI PRIORITY 1749
RUEHLH/AMCONSUL LAHORE PRIORITY 7349
RUEHPW/AMCONSUL PESHAWAR PRIORITY 6291
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					  C O N F I D E N T I A L SECTION 01 OF 02 ISLAMABAD 001199 

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E.O. 12958: DECL: 06/01/2019
TAGS: EAID ECON PHUM PREF PREL PK
SUBJECT: PM FINANCE ADVISOR ON ABSORPTIVE CAPACITY AND
MAKING BEST USE OF DONOR FUNDS

Classified By: Ambassador Anne W. Patterson for reasons 1.4 (b) and (d)
.



1. (SBU) Summary: In a meeting May 28 with the Ambassador,
Shaukat Tarin, the Prime Minister's Advisor for Finance, said
that, while he welcomed money coming through the budget,
donors should direct their funding to the most effective and
cost-efficient platforms for maximum impact. Tarin said the
GOP intends to focus Tokyo donations on poverty alleviation,
health and education, adding that donors could channel funds
through government or nongovernmental organizations, at the
federal or provincial level. Tarin shared the Ambassador's
concern that development assistance from donors might be
redirected to respond more immediately to Pakistan's growing
IDP crisis, and agreed that reconstruction costs will dwarf
those required for immediate humanitarian relief. Tarin
agreed with the Ambassador's view that GOP IDP Coordinator
Hina Rabbani Khar lacked sufficient staff to carry out
detailed follow up, and suggested establishing a cell within
the Economic Affairs Division to carry out assessments and
donor coordination. Tarin said the GOP would decide whether
to purchase new Boeing aircraft "within the next six months."
End Summary.

U.S. Assistance


--------------------------





2. (SBU) In a May 28 meeting, the Ambassador, USAID Director
and Shaukat Tarin, the Prime Minister's Advisor for Finance,
discussed possibilities for delivering the U.S. Tokyo pledge
and other U.S. funds in the pipeline. The Ambassador told
Tarin that the USG will consider additional support for
reconstruction in the future budget and is seeking to keep
current funding from being diverted to address the needs of
internally displaced persons (IDPs). The U.S. plans to focus
its development assistance on certain poor districts deemed
most at risk for militancy; support integrated interventions
driven by priority needs; and develop local in order to build
confidence of local populations in government responsiveness.
Some money might be set aside for modest cash transfers to
the GOP, subject to assessments of adequate funds control,
targeting, and likely impacts. These issues were still under
discussion in Washington.



3. (C) The Ambassador noted that the USG has had negative
experiences using cash transfers to the Ministries of Health
and Education in the past. (Note: The Finance Ministry must
provide local currency equivalent to the USD cash grant to
the target ministry. The target ministry must then account
to USAID for the use of the local currency on mutually agreed
priorities. In the past, Health and Education have failed to
properly use the funds provided in this fashion. President
Zardari has promised the Ambassador privately that the
incompetent Health and Education Ministers would be
transferred to less important ministries. End Note).

Absorptive Capacity ) Use Whatever Works Best


--------------------------





4. (SBU) Tarin recognized Washington concerns about the GOP's
capacity to absorb funding, noting that he had discussed this
with Deputy Secretary Lew during their meeting in May and
promised the Deputy Secretary an assessment of the issue.
Tarin stressed his goal is to make the most effective use of
any funds, whether it be through federal, provincial, or
non-governmental implementers. The GOP intends to focus
Tokyo donations on poverty alleviation, education and health,
but Tarin's immediate interest is capturing, without double
counting, all funding streams in the 2009-2010 budget being
presented to the National Assembly June 13. Tarin welcomed
any concrete information the U.S. could provide on the
precise amount of budget support as soon as possible. The
Ambassador agreed to meet Tarin to discuss in detail the
various funding streams.



5. (SBU) While Tarin was clear that the GOP had no objection
to the U.S. or other donors working directly with the
provinces or through organizations other than the GOP, he
warned against creating new vehicles to move funding,
especially where the GOP was efficient. Balancing impact
against delivery costs is key - higher delivery costs are

ISLAMABAD 00001199 002 OF 002


acceptable if there is a commensurate boost in impact. Tarin
cited the GOP's Higher Education Commission as an effective
federal-level platform for education, and added that
privately-run citizen foundations, which have already
established a number of effective schools around the country,
would be excellent platforms for secondary education at the
provincial level.



6. (U) For poverty alleviation, Tarin recommended the USG
investigate channeling funds through the Benazir Income
Support Fund (BISP), the National Rural Support Program
(NRSP), the privately-run Pakistan Poverty Alleviation Fund
(PPF), and the joint USAID-GOP Competitiveness Support Fund
(CSF). He noted that USAID and other donors are already
working with CSF, NRSP and the PPF. Tarin promised to help
the U.S. identify the most effective platforms in the health
sector and raised the possibility of creating a high-powered
steering committee to do an overall assessment of potential
funding mechanisms.

IDP Reconstruction: A Major Expense


--------------------------





7. (U) Tarin noted that unless donors came up with funds to
address Pakistan's growing IDP crisis, he would be forced to
use money from the budget. He said that reconstruction costs
for the 350,000 affected households would be "several billion
dollars," on top of the substantial and mounting expense
necessary to provide a $312 cash payment to each IDP
household, as well as health expenses for the 2.4 million
people. The Ambassador said that the U.S. has already set
aside money to help build up the police in the affected
areas, as well as for the Frontier Corps. Tarin agreed that
the police were not ready to take over after the army leaves,
but warned that Interior Minister Rehman Malik needed to
present a coherent plan that justified the money he was
requesting, and urged the Embassy to deal with the Finance
Ministry on budget issues. Tarin said he was meeting with
Malik and FATA officials the week of June 1 to determine how
the GOP could create capacity to increase spending
immediately in FATA.

Donor Coordination Remains a Challenge


--------------------------





8. (SBU) Tarin and the Ambassador agreed that the current GOP
focal point for IDPs, State Minister for Economic Affairs
Hina Rabbani Khar, lacked sufficient staff to drill down on
issues and to follow up with donors and GOP agencies alike.
Tarin said he would direct Khar to hold weekly rather than
twice monthly meetings with donors, would suggest the GOP
establish a coordination cell at the Economic Affairs
Division (EAD) to provide detailed analysis, and promised
that he himself would become more involved until an effective
system was in place. (Comment: this is not a solution to the
chronic problem of donor coordination. End Comment.)

Boeing


--------------------------





9. (SBU) On PIA's possible purchase of Boeing aircraft, Tarin
pointed out that Boeing was offering discounts of some 48
percent rather than the usual 38 percent. PIA needed to
optimize its fleet with a mixture of short and long range
planes, Tarin said, adding that PIA's aging 737s and 310s
must be replaced. Tarin said that PIA, along with the
railroads, steel mills and power distribution companies, were
on his personal "hit list," and claimed that these companies
lose some $2.5 billion per year - equivalent to half the
2008-2009 development budget. Tarin said he told PIA that if
the company broke even for two consecutive quarters, he would
consider its request for new aircraft; despite inflation of
over 20 percent, PIA's costs have remained flat and it is now
breaking even. Tarin said the decision on new aircraft would
be made within the next six months.
PATTERSON
PATTERSON