Thank you very much for the opportunity to join you today in an open and frank discussion of important subjects that, while sensitive, are critical to the social and economic health of each and every country in the world. I would like to touch on two of these subjects today: one is the importance of the sanctity of business contracts; the other is the problem of corruption in donor assistance to Pakistan. Both relate more generally to the issue of transparency and accountability in business and commercial practices; issues on which all countries, including my own, should welcome on-going scrutiny and improvement in performance.
The level of foreign direct investment is one of the key indicators of a healthy economy. And while international investment in Pakistan rose significantly in the last fiscal year, it continues to lag behind capital inflows to other countries in Asia and the region. Most certainly, foreign direct investment flows into Pakistan have fallen far short of Pakistan's obvious potential. The result is lower levels of job creation and overall slower economic growth. There are several reasons why Pakistan is not drawing more long-term investment from abroad; one, of course, is the international perception of the security situation in Pakistan, something that continues to generate concern among investors. But also important are perceptions with regard to the sanctity of contracts and the slow pace of the judicial process. There is a growing sense among potential U.S. investors that foreign companies cannot count on timely and fair resolution of contractual disputes when they arise with Pakistani firms.
One current example is illustrative of this problem.
In the late 1990s, a consortium of U.S. investors entered into an agreement with a local partner. When a dispute arose with the Pakistani partner on performance obligations, the matter was taken to international arbitration under the terms of the original contract.
Now, almost five years later, and despite a clear-cut arbitration ruling in favor of the U.S. consortium, the matter is still tied up in Pakistani provincial and federal courts. Efforts by the Pakistani partner in U.S. courts to circumvent a preliminary arbitration ruling were dismissed - years ago.
Word that international arbitration decisions are not respected in Pakistan and that court proceedings can drag on excessively spreads quickly through the international business community. The result is that Pakistan's reputation as a solid and reliable partner for investment suffers, and capital moves elsewhere. I know that the Government, with the support of the Asian Development Bank's "Access to Justice" program, is working diligently to upgrade the capacity of Pakistan's judiciary to function more effectively. This is important and necessary work that will help to address international investors' concerns.
I also understand that the Ministry of Finance is leading a working group that is reviewing current legislation governing arbitral judgments and awards. It is worth noting here that, while Pakistan is a signatory of the 1958 New York Convention on international arbitral awards, this agreement has never been ratified by Pakistan's parliament. I encourage the Government to move quickly to address this prominent investment irritant.
I would also like to say a few words today about allegations of corruption in donor assistance.
Transparency International's mission statement states that "Corruption is one of the greatest challenges of the contemporary world. It undermines good government, fundamentally distorts public policy, leads to the misallocation of resources, harms the private sector and private sector development, and particularly hurts the poor. Controlling it is only possible with the co-operation of a wide range of stakeholders in the system, including most importantly the state, civil society, and the private sector."
Your mission is a critical one and it is relevant to the donor process. The United States and all other bilateral and multilateral donors are frequently asked: Where did all the money go? Clearly, international donors want all assistance funds to go to the intended purpose, but until recently, we have not had reliable tools to monitor our funds along the way.
We believe that one tool to which an ever increasing number of citizens have access - the Internet -- can help all of us -- donors, recipients, and independent observers alike -- to keep better track of where funds are actually going. Later this year, USAID will begin posting the content of our programs on the Internet - a significant move towards greater transparency. We will inform the public about the programs we are funding and the results we expect to achieve. We will publish which organizations we have selected to implement our programs, the size and duration of the programs, and how you can contact these organizations. We will also explain the process that resulted in the selection of recipient organizations. If the implementing organizations are using others as sub-grantees or subcontractors, we will identify them as well, and explain their role in the program. In addition, we will update progress towards results as the recipient organizations and our own monitors provide updates.
USAID almost always implements its programs through private organizations. We design our programs in close coordination with the Government of Pakistan: government officials help us select the organization and provide some oversight as well. However, we believe strongly that using the private sector and NGOs leads to great accountability, better performance, and more jobs for Pakistan. The same holds in the United States. Our Government is increasingly "out sourcing," or contracting out, functions that have traditionally been performed by the Government, because the private sector is often more efficient and less costly.
When, however, we do disburse funds directly to the Government, we will report even more information on our website. We will post how much money was provided to the Government, the purpose for the funds, and - most importantly -- how the Government spent the funds. In this way, the Government will be more accountable publicly for the USAID money it manages directly. We hope this will ensure that all expenditures directly support the goals of the program, and that these procedures will increase Pakistani confidence in our programs.
I hope Transparency International/Pakistan will support the United States government in our effort to encourage all donors - bilateral and multilateral - to render their assistance programs more transparent. We all talk a lot about transparency, good governance, and fighting corruption; here is something concrete we can all do to put some substance behind our words.
USAID has hired a local firm to design its new website, where very shortly all this information, and more, will be available. We would welcome other donors to contact USAID to learn from us how our procedures work. We would also welcome suggestions from other donors; we can and should exchange information and learn from each other. I hope that a year from now, TI/Pakistan will be able to report that all of Pakistan's major donors have put their programs on the Internet for all to see.
Thank you again for the opportunity to speak to you for a few minutes today on two important topics. The United States would be very pleased, and we intend to continue to work closely with you, to ensure that foreign direct investment in Pakistan increases substantially in the coming years. Increased investment will lead to more job creation and a concomitant decrease in poverty. But for this to occur, more does need to be done to assure potential foreign investors that Pakistan is indeed open for business. Absent this, needed foreign direct investment will flow elsewhere.
The United States also seeks to ensure greater public confidence with regard to donor assistance and how and by whom it is being used. We believe that our initiative to place this information on the Internet will greatly increase transparency in the assistance process.
Thank you again
