U.S. to channel more aid via Pakistan government

ISLAMABAD (Reuters) - The United States will channel more aid to Pakistan directly through the Islamabad government, the new head of the U.S. overseas aid agency said on Wednesday, a move that could win Washington more trust from a crucial regional ally against Islamic militants.

The United States is the biggest foreign donor to nuclear-armed Pakistan but that aid -- both military and civilian -- has often been a source of suspicions in the relationship, with doubts over U.S. intentions.

Keeping Pakistan happy is more critical than ever for the United States as it leans heavily on Islamabad to help stabilise neighbouring Afghanistan before U.S. troops start withdrawing in 2011 after years of fighting the Taliban.

Barack Obama’s administration wants to steer away from so-called big box contractors popular with the George W. Bush administration and from U.S.-based non-governmental organisations.

The plan now is to funnel more aid via local NGOs and directly through Pakistan’s civilian government. The hope is this approach will build local capacity.

But many local NGOs do not yet have the ability to handle big amounts of money and Congress demands strict monitoring and accountability of U.S. funds.

On his first visit to Pakistan after being appointed U.S. Agency for International Development (USAID) administrator in December, Rajiv Shah said the United States was “incredibly” serious about changing the way the USAID used to work in Pakistan.

“Our investments have often gone to U.S.-based contractors and U.S.-based organisations, and too much of those resources have landed back in the U.S.,” he told a news conference.

“Our team is committed to increasing the proportion of spendings that we provide directly to the government and directly to the Pakistani institutions.”

The United States has given its nuclear-armed ally more than $15 billion in direct aid and military reimbursements since the Sept. 11 attacks on the United States. About two-thirds of it is security related.

The U.S. Congress passed legislation in October for a new U.S. aid package, tripling Pakistan’s non-military assistance over the next five years.

When the $7.5 billion package was announced last year, it was met with great suspicion in Pakistan, whose military said too many conditions were attached to the funds.

Instead of setting priorities in Washington, Shah said he was committed to coming to Pakistan for direct feedback on the aid programme from government officials and civil society leaders.

Boosting energy capacity in Pakistan is a major goal, as frequent power cuts have weighed heavily on the sluggish economy and contributed to widespread public anger. Other priorities are water, agriculture, health and education.

Editing by Michael Georgy and Jerry Norton