REPORT ON AFGHANISTAN AND PAKISTAN, SEPTEMBER 2011

During his March 27, 2009, speech announcing our strategy for Afghanistan and Pakistan, President Obama said going forward, we will not blindly stay the course. Instead, we will set clear metrics to measure progress and hold ourselves accountable. This report outlines the process underway to fulfill that directive and provides the Administrations most recent assessments. These assessments are to highlight both positive and negative trends in the implementation of our Afghanistan and Pakistan strategy and identify issues that may call for policy adjustments over time. Background At the Presidents request and following his March 27, 2009, announcement of a new policy for Afghanistan and Pakistan, the National Security Staff (NSS) and departments and agencies developed a strategic implementation plan and a set of performance measures, or metrics, to track progress in meeting the Presidents goals and objectives. These metrics were developed with input from both congressional and academic experts. The Administration presented its first formal metrics document to the Congress on September 24, 2009, in accordance with Public Law 111-32, section 1117a. That document provided the Congress with a statement outlining the objectives of the U.S. policy for Afghanistan and Pakistan and the metrics used to assess progress toward achieving these objectives. Public Law 111-32 also includes a reporting requirement to provide an assessment of our strategy to the Congress starting March 30, 2010 and in 180-day intervals thereafter concluding with September 30, 2011. This report is the fourth semi-annual report. As metrics collection in the field occurs quarterly, the assessments of each objective are divided into two separate reporting periods, January 1 March 31, 2011, and April 1 June 30, 2011. For each objective, a third post-reporting period is also provided as an interim assessment for the June 30 August 31, 2011 time period. Goal and objectives Following the August 2009 national election in Afghanistan, President Obama led a strategic review of the overall U.S.

2 policy for Afghanistan and Pakistan. On December 1, 2009, in a speech at West Point, New York, the President reaffirmed his goal in Afghanistan and Pakistan to disrupt, dismantle, and defeat al-Qaida and its extremist allies and prevent their return to either country. In December 2010, the NSS completed an annual review of our progress in Afghanistan and Pakistan, the findings of which were included as the first part of the March 2011 metrics assessment. On June 22, 2011, President Obama announced a drawdown of U.S. forces in Afghanistan, citing progress in the campaign against al-Qaida, the growth of Afghan National Security Forces, and the killing of Usama bin Laden in Pakistan on May 2, 2011. At President Obamas direction, the U.S. troop presence in Afghanistan will decrease by 33,000 before the end of summer 2012, returning the U.S. troop presence to pre-surge levels. In support of our overarching goal, eight objectives form the framework for our quarterly assessments. The objectives, along with the lead responsible departments, are to:
1.

2. 3.

4.

5. 6.

7.

8.

Disrupt terrorist networks in Afghanistan, and especially Pakistan, to degrade any ability they have to plan and launch international terrorist attacks. (Director of National Intelligence (DNI)) (Tab C) Please see the classified annex for details concerning this objective. Assist efforts to enhance civilian control and stable constitutional government in Pakistan. (Department of State (State)) Develop Pakistans counterinsurgency (COIN) capabilities; continue to support Pakistans efforts to defeat terrorist and insurgent groups. (Department of Defense (DOD)) Involve the international community more actively to forge an international consensus to stabilize Pakistan. (State) In Afghanistan, reverse the Talibans momentum and build the capacity of Afghan National Security Forces (ANSF) so that we can begin to transition responsibility for security to the Afghan government and decrease our troop presence by July 2011. (DOD) Strategically build the capacity of the Afghan government, which enables Afghans to assume responsibility in the four-step process of clear-hold-build-transfer. (State) Involve the international community more actively to forge an international consensus to stabilize Afghanistan. (State)

3 Classified Annex Details concerning progress in our first objective to disrupt terrorist networks in Afghanistan and especially Pakistan to degrade any ability they have to plan and launch international terrorist attacks are included within the classified annex. Objective 2 is classified entirely and fully discussed in the classified annex. Semi-Annual Assessment of Progress Against the Eight Objectives, September, 30, 2011 Objective 1: Disrupt terrorist networks in Afghanistan and especially Pakistan to degrade any ability they have to plan and launch international terrorist attacks. (DNI) During this reporting period, with continued assistance from Pakistan, the United States had significant success against alQaida. As the President noted, our counterterrorism (CT) cooperation with Pakistan helped lead us to bin Laden and the compound where he was hiding. Indeed, bin Laden had declared war against Pakistan as well, and ordered attacks against the Pakistani people. Together with the Pakistanis, we have taken out more than half of al-Qaidas leadership. Further details of progress on this objective can be found in the classified annex. Objective 2: Details on this objective can be found in the classified annex. (State) Objective 3: Assist efforts to enhance civilian control and stable constitutional government in Pakistan. (State) January 1 March 31, 2011, Reporting Period: Overall, indicators and metrics against this objective remained static during this reporting period. During this quarter, the Pakistan Peoples Party (PPP) leadership dissolved the federal cabinet of ministers and weeks later reconstituted a smaller cabinet, reducing the number of ministerial-rank officials by 50 to 60 percent. This action was taken as part of the devolution of authority to the provincial level under the 18th Amendment. The 7-week detention by Pakistani authorities of a U.S. official undermined the United States-Pakistan relationship, slowing

4 ongoing efforts to strengthen the civilian government. The detention created division amongst the civilian leadership in Pakistan as well as between Pakistan civilian and military leaders. Civilian authorities were unwilling and unable to recognize the officials diplomatic immunity and deferred the issue to Pakistani courts for resolution. Political instability continued to complicate government efforts to introduce economic reforms and improve government performance on a range of issues during this reporting period. The GOP unsuccessfully revived efforts to implement structural economic reforms identified as requirements by the International Monetary Fund (IMF). These required reforms, such as the Reformed General Sales Tax (RGST), were further postponed by PPP-led discussions with the Karachi-based political party Muttahida Quami Movement (MQM) about returning to the governing coalition after the MQM withdrew in early January. The MQM returned to the coalition late that same month. United Nations (U.N.) agencies and the international community with significant support from the United States, in coordination with the Government of Pakistan (GOP), continued to provide much needed humanitarian assistance to millions of people in three distinct vulnerable groups in country: 1) flood-affected individuals; 2) conflict-affected internally displaced persons (IDPs) and returnees; and 3) Afghan refugees. Extremists opposition to proposed amendments to the Zia-era blasphemy laws played a role in multiple displays of religious intolerance across the country. These included the high-profile assassinations of the Federal Minister for Minorities Shahbaz Bhatti and the Governor of Punjab Salman Taseer for his personal support of Asia Bibi, a Christian woman accused of blasphemy. Attacks against religious minorities, including Muslim minorities, underscored the problem of violence incited by extremist pressure. Allegations of human rights abuses continued to be a cause for concern, as well. Several visits by Congressional leaders advocated ongoing policy recommendations during this reporting period. The U.S. Embassy continued to execute targeted programs with some success to increase gender equity, economic growth, and entrepreneurship.

April 1 June 30, 2011, Reporting Period: Overall, indicators and metrics against this objective remained static during this reporting period.

5 During this quarter, political instability continued to complicate government efforts to introduce economic reforms and improve government performance on a range of issues as part of joint United States-Pakistan efforts. Internally, the MQM pullout from the coalition government in late June marked the third time the party quit the government, in one form or another, over the past 6 months due to ongoing disagreements with the ruling party, the PPP. Bilaterally, two key events the lingering effects from the detention of a U.S. official and the raid resulting in the death of Usama bin Laden complicated the United States-Pakistan relationship. The democratically elected government led by President Zardari and Prime Minister Gilani took steps to implement constitutional reforms passed under the 18th amendment, such as the devolution of 17 Federal ministries to the provincial level. However, the Federal government continued to face challenges on governance despite having the most stable coalition it has had since rising to power in 2008. The GOP also unsuccessfully attempted to revive efforts to implement structural economic reforms identified by the IMF, including the previously mentioned RGST. Increased tax revenues, budget discipline, and energy reforms continue to be critical, but incomplete, reform efforts. The government has yet to make significant progress in tackling corruption and develop a plan for sustained investment in key infrastructure, including power. Despite the odds, Pakistan's economy continued to grow slowly. Strong remittances from overseas and higher international prices for Pakistans exports of agricultural commodities and textiles sustained the account balance during this reporting period. Tax collection shortfalls and overspending contributed to a deficit that was as high as 6.5 percent of GDP in Pakistans FY2011, which ended June 30. During this reporting period, the IMF voiced doubt about the GOP commitment to stem mismanagement in the energy sector and undertake critical tax reforms, an essential issue both for the GOP and for Pakistan itself if the country is to successfully expand the job market. The Afghanistan-Pakistan Transit Trade Agreement (APTTA), a landmark agreement, was officially operationalized on June 12, though a number of requirements for full execution were still being resolved.

6 Access to health and education services remained poor for a large number of Pakistanis. Despite ongoing efforts by U.N. agencies and the international community to provide needed humanitarian assistance to millions of people, the GOP continued to host a large population of people displaced internally due to insurgency and counterinsurgency operations in Pakistans northwestern border areas. Approximately one million people remained displaced due to the conflict as of late June. Extremists continued opposition to amending blasphemy laws contributed to acts of religious intolerance across the country. Progress was slow in prosecuting the assassin of Punjab Governor Taseer and identifying those responsible for the death of Federal Minister for Minorities Shahbaz Bhatti. Attacks against religious minorities, especially Ahmadis and women, underscored the ongoing problem of violence incited by the rhetoric of extremist groups. As in the previous reporting period, allegations of gross human rights violations continued to be of concern. In a stark example, on June 8 paramilitary Sindh Rangers killed a 22-year old unarmed man in Benazir Bhutto Park in the upscale Clifton neighborhood of Karachi. The video of the shooting was viewed by millions on television and shocked the people of Pakistan, as it graphically portrayed the brutal killing. On August 12, an anti-terrorism court in Karachi convicted the six rangers involved, sentencing one to death and the five others to life in prison. Despite challenges in the relationship, several United StatesPakistan Strategic Dialogue working groups were able to meet during this period: a meeting of the Economics and Finance working group in April during Deputy Secretary of State Nides visit to Islamabad; and meetings of the Security, Strategic Stability and Non-proliferation group, and the Defense group in May. During this period, senior level visits by Department of State and Department of Defense officials continued ongoing policy dialogues, while the U.S. Embassy continued targeted programs to build law enforcement and agricultural capacity and to increase electricity and rural growth. July 1 August 31 2011, Post-Reporting Period: Political instability continued in this reporting period to complicate government efforts to introduce economic reforms and improve government performance on a range of issues. Internally, MQM had pulled out of the government again in late June due to ongoing disagreements with the ruling PPP and the long-standing disagreement over the governance of the city of Karachi. High levels of political violence in the streets of Karachi between agents of the PPP and MQM resulted in over 100 deaths during

7 this period, with the issue consuming Federal and provincial political resources and further eroding public confidence in the civilian leadership according to public opinion polls. Bilaterally, the fallout of the raid resulting in the death of Usama bin Laden continued to complicate the United StatesPakistan relationship, further strained by a series of media reports based on alleged leaks from both the United States and Pakistan. The kidnapping of an American citizen United States Agency for International Development (USAID) contractor provided an avenue for cooperation between law enforcement authorities, but simultaneously added a new level of security concern to U.S. partners working in Pakistan. The case remained unsolved at the time of this report. United States-Pakistan Strategic Dialogue working groups continued their efforts during this period despite strains in the overall relationship with a meeting of the Law Enforcement and Counterterrorism working group in early July. Of note, in an important trade development, the first shipments of Pakistani mangoes granted U.S. market access arrived in July. Objective 4: Develop Pakistans counterinsurgency (COIN) capabilities; continue to support Pakistans efforts to defeat terrorist and insurgent groups. (DOD) January 1 March 31, 2011, Reporting Period: Overall, indicators and metrics against this objective remained static during this reporting period. Pakistan remained central to the U.S. strategy to defeat al-Qaida and prevent its return during this reporting period. The most encouraging line of effort was close and improving cross-border coordination between the Pakistan military, the International Security Assistance Force (ISAF), and the Afghan National Security Forces (ANSF). However, due to factors such as the 7-week detention of a U.S. official, this reporting period also saw strains on United States-Pakistan military-tomilitary cooperation and collaboration. Insurgent activity again gained momentum during this reporting period, after a lull in Pakistan military operations following the fall 2010 floods and significant challenges to executing the COIN cycle in Khyber-Pakhtunkhwa (KPk) and the Federally Administered Tribal Areas (FATA). The Pakistan military continued to face challenges in clearing, holding and making areas resistant to militant return.

8 Overall, the level of coordination between ISAF, the ANSF and the Pakistan military continued on a positive trajectory during this reporting period, but began to regress late in the period. This coordination had built up to this point for nearly 2 years at the operational level, generally resistant to external factors negatively impacting the strategic relationship. As coordination for complementary operations continued, positive developments in the relationship included operational and tactical coordination via video teleconferences between Regional CommandEast (RC-East) and the Pakistan Armys 11th Corps leadership; evolving airspace coordination and deconfliction efforts between Pakistan military and ISAF aviation assets; and improved tactical air, ground, and ground-to-air cross-border communications. While the Pakistan military continued to support cross-border coordination meetings and cooperation continued to gain momentum, room for continued improvement remained. Following a number of events that contributed to tension in the United States-Pakistan relationship, this reporting period saw the Pakistan-directed decrease in the number of U.S. military personnel in Pakistan as well as renewed challenges with obtaining visas for U.S. military personnel. These shifts negatively affected the abilities of U.S. military elements critical to the implementation and effectiveness of the assistance the United States provided Pakistan for its COIN efforts. The operational situation facing the Pakistan military continued to deteriorate slowly and Pakistans COIN efforts appeared to stall during this reporting period. Despite impressive gains in 2009 and early 2010, and a maintenance of force levels as seen in previous reporting periods, the Pakistan military had not yet regained the momentum lost when it temporarily suspended COIN operations after the 2010 floods. The Pakistan military and security forces, however, continued to fight against violent extremism. These efforts continued to come at great cost to the Pakistan military, sustaining more than 12,700 casualties (2,748 personnel killed and 9,965 wounded) since 2002. This figure does not include casualties taken by Pakistans other security forces (such as the police, khassadars, and lashkars) or the civilian population. Pakistans current COIN campaign is the longest, deadliest, and most costly campaign in Pakistans history and is having a heavy impact on the military leadership and combat troops.

9 The return of militant-inspired violence after a 4-month lull following the 2010 floods demonstrated how insurgent elements have managed to survive and even return to many areas previously cleared by the Pakistan military. Indeed, during this reporting period the Pakistan military had to reclaim previously cleared areas in Mohmand and Bajaur Agencies in the FATA. Ongoing operations in Mohmand encountered more resistance than anticipated, hindered not only by the weather, but by improvised explosive devices (IEDs), efforts to return the displaced population, and diminished COIN capabilities. A bright spot in the overall COIN effort remained the regeneration of the Swat valley, though the Pakistan Army continued to garrison two extra divisions in order to hold the valley against militant incursions. One of the key challenges facing the Pakistan military was the ability of civilian institutions, including civilian security forces, to consolidate gains made in previous clearing efforts. The absence of effective and sustained hold, build and transfer capacity, including reconstruction, development, governance, and law enforcement capabilities, continued to hinder efforts to render cleared areas resistant to militant return. April 1 June 30, 2011, Reporting Period: Overall, indicators and metrics against this objective declined during this reporting period. Pakistans response to the raid against Usama bin Laden on May 2 strained military-to-military cooperation and collaboration between the United States and Pakistan. The continuation of the Pakistan-directed drawdown of the U.S. military assistance effort dramatically reduced the U.S. ability to support Pakistans COIN and CT fight. The security situation in the FATA and KPk continued to deteriorate slowly during this reporting period, while the returned focus of militant violence against government infrastructure targets demonstrated the resiliency of the insurgency and the non-permanent effects of Pakistani operations in key insurgent areas. The negative reaction to the bin Laden raid within Pakistan included unprecedented public and internal military criticism of the leadership of the Pakistani military. As a result, the leadership of Pakistans military and intelligence establishments focused a significant amount of time and effort on managing internal opinion during this reporting period.

10 The security situation in the FATA and KPk continued to slowly deteriorate as in the previous reporting period. Operations in Mohmand settled into a largely static and defensive posture, but unlike previous reporting periods, as Pakistans ground operations in Mohmand stalled, so too did opportunities for ISAF and ANSF cooperation and collaboration with the Pakistani military on future plans and troop movements, necessary for effective combined planning along the border. Reductions of the U.S. military presence that began at Pakistans direction at the end of the last reporting period continued during this reporting period. This reduced U.S. support to Pakistans COIN and CT fight, in part by hindering the ability to maintain relationships and understand the operating realities of key counterparts conducting COIN operations in the FATA and KPk. This significantly degraded the U.S. ability to support the Pakistani military in its fight against militancy through the provision of training and equipment. The Pakistan military initiated two new COIN operations during this reporting period in Khyber and Kurram agencies of the FATA to disrupt militant movement from North Waziristan into the Tirah Valley of Orakzai and Khyber agencies and to reduce attacks and intimidation against local tribesmen. These new offensive activities did not, in the end, alter the overall balance between militants and the Pakistan military. Additionally, insurgent attacks continued, with police and military personnel and facilities serving as the primary targets of domestic insurgents and terrorists. These attacks continued to undermine public confidence. COIN operations continued to face challenges given the static nature Pakistani forces, the scope of militant activity, and considerable COIN capability shortfalls. Finally, due to continued shortcomings with build and transfer operations, durable and long-term stability in areas most susceptible to militant influence remained unfulfilled. July 1 August 31 2011, Post-Reporting Period: This period was marked by continued negative trends. Years of progress in cross-border coordination and collaboration faced increased challenges, while the drawdown of U.S. military elements in Pakistan continued the trend of a decreased U.S. ability to contribute to Pakistans COIN and CT efforts. Pakistan military operations continued in the FATA, but insurgent activity and high-profile strikes against security and government forces contributed to a decline in the security situation.

11 Despite efforts to develop more robust communication and coordination mechanisms to de-conflict cross-border incidents, this reporting period saw an increase in incidents along the Afghanistan-Pakistan border as well as an overall decrease in coordination and collaboration. Insurgent activity along the Afghanistan-Pakistan border continues to pose a challenge to stabilization efforts in both Afghanistan and Pakistan. Attacks occurred along the border of both the northern and southern FATA agencies, with a number of large-scale attacks resulting in high casualty rates for Pakistans security forces in the north. High-level ISAF, ANSF, and Pakistan military engagement to de-escalate tensions along the border resulted in a decrease in shelling incidents in the south, but many of the core challenges remained unresolved along the entire FATA border, with continued potential for future escalation. This period saw continued decreases in the U.S. military presence in Pakistan at the request of the Pakistan military, accompanied by decreased ability to assist Pakistan in the development of its COIN capabilities as seen in the previous reporting period. Pakistani military operations in the FATA continued to focus on securing critical lines of communication in Khyber and Kurram agencies of the FATA, with some signs of success. The Pakistani military will likely continue to focus on limited actions, reactive in nature and consisting of a defensive posture in Khyber, Kurram, and Orakzai Agencies. Significant casualties continued to be reported in fighting along the border in Chitral, Mohmand, and Bajaur. Additionally, insurgent strikes in Peshawar and elsewhere in KPk and the FATA continued to highlight the governments limited success in making space resistant to insurgent return. Objective 5: Involve the international community more actively to forge an international consensus to stabilize Pakistan. (State) January 1 March 31, 2011, Reporting Period: Overall, indicators and metrics against this objective remained static during this reporting period. Pakistans significant efforts to generate international awareness during and immediately after the flood disaster of fall 2010 waned, as energy was turned to other domestic challenges. The Friends of Democratic Pakistan (FODP) focused on establishing a Water Sector Task Force led by the Asian

12 Development Bank and Pakistans Minister of Water & Power. The IMF Stand-By Agreement (SBA) with Pakistan continued to be on hold since August 2010 because the required revenue and power sector reforms had not been implemented. The schedule of international meetings for the rest of 2011 remained to be determined, largely dependent on the progress of economic reform. As part of working towards this objective during this reporting period the international community continued efforts on: flood relief and recovery; energy, agriculture, water, and related economic sectors; economic and political reforms; capacity to provide social services; and providing security assistance. During this quarter, the United States Government disbursed over $153 million in civilian assistance, continuing a modest upward trend on the civilian side. Since the October 2009 passage of the Enhanced Partnership with Pakistan Act (Kerry-Lugar-Berman legislation, or KLB), the United States Government has disbursed about $1.7 billion in assistance, including over $550 million in emergency humanitarian assistance. Contributions to the World Bank-managed Multi-Donor Trust Fund (MDTF) totaled $140 million, with the United States contributing $25 million. Contributions from other nations were as follows: United Kingdom $5.8 million; EU $19.2 million; Germany $11.2 million; Australia $8.9 million; Finland $7.2 million; Denmark $7.1 million; Italy $5.4 million; Sweden $5 million; and Turkey $5 million. Separately, the U.N. 2010 Pakistan Humanitarian Response Plan, which addresses the needs of people displaced by conflict in Pakistans western border areas, was approximately 50 percent funded, with $331 million received of the $661.2 million requested. Relations between Afghanistan and Pakistan improved this quarter. Afghan Foreign Minister Rassoul visited Islamabad on January 27-28 for meetings with President Zardari, Prime Minister Gilani, and former Foreign Minister Qureshi. In a joint statement, Afghanistan and Pakistan pledged to establish mechanisms to address a broad range of bilateral issues.

April 1 June 30, 2011, Reporting Period: Overall, indicators and metrics against this objective remained static during this reporting period. International donors remained active in Pakistan, with increasing activity in the FATA region. U.N. responses to conflict and flooding were partially funded. During this

13 quarter, the United States Government disbursed over $322 million in civilian assistance. Challenges in U.S. assistance implementation arose with visa and government diplomatic permission difficulties and public statements by the Punjab Chief Minister that the province would no longer accept foreign aid or U.S. assistance. The United States Government, primarily USAID, continues to channel approximately 50 percent of FY 2010 KLB funding directly through GOP institutions. On June 11, the United States Government disbursed $190 million to the GOP in support of the Citizens Damage Compensation Program (CDCP). Japan and the United Kingdom remain active in Pakistan, and international partners have shown increasing interest in investing in KPk and the FATA. The bulk of U.N. coordination efforts were conducted through the FODP and through the U.N. Office of the Special Envoy. The United Nations Development Program (UNDP) had authority for coordinating the international communitys efforts to support Pakistans recovery efforts from the floods of fall 2010. The United Nations Office of Coordination for Humanitarian Affairs (UNOCHA) had responsibility for organizing the first Water Sector Task Force (WSTF) meeting which was held June 2 to develop contingency plans in advance of the 2011 monsoon season. In addition, UNOCHA had the lead for the coordination of the efforts of the FODP. Representatives from United States, Australia, Canada, France, Germany, Japan, Netherlands, and Norway participated in the meetings. The U.N. 2010 Pakistan Humanitarian Response Plan, designed to address the needs of people displaced by conflict in Pakistans western border areas, continued to be 50 percent funded, with $332 million received of the $661.2 million requested. Funding for the Pakistan Flood Relief and Early Response Plan increased slightly and was about 70 percent funded. The significant efforts that Pakistan undertook to generate international awareness during and immediately after the flood disaster of fall 2010 continued to wane. In part, this reflects domestic political developments. The IMFs SBA with Pakistan has been on hold since August 2010 as needed revenue and power sector reforms remained unimpeded. Relations with Afghanistan improved somewhat, with the two countries conducting several productive and high level visits on a range of issues. India and Pakistan tentatively expanded economic and commercial engagement when the Commerce Secretaries from both countries met on April 27-28, the first such meeting since the 2008 Mumbai attacks.

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July 1 August 31 2011, Post-Reporting Period: During this period, international donors remained active in Pakistan, with attention turning to the need for possible flood disaster assistance in southern Pakistan in the fall. While not as devastating as the floods of 2010, early assessments indicated millions would be affected and hundreds of thousands displaced. The United States and the international community prepared to provide assistance as requested by the GOP. Challenges in U.S. assistance implementation continued with visa and diplomatic government permission difficulties and another series of public statements by the Punjab Chief Minister that the province would no longer accept foreign aid or U.S. assistance. Additionally, as mentioned earlier, the kidnapping of an American citizen working for a USAID implementing partner again raised security issues for those organizations USAID relies upon to deliver civilian assistance. Objective 6: In Afghanistan, reverse the Talibans momentum and build Afghan National Security Forces (ANSF) capacity so that we can begin to transition responsibility for security to the Afghan government and decrease our troop presence by July 2011. (DOD) January 1 March 31, 2011, Reporting Period: Overall, indicators and metrics against this objective improved during this reporting period. Coalition military operations remained predominantly focused in RC-South and RC-Southwest, and continued to disrupt Taliban freedom of movement. Insurgent assassination and intimidation tactics became increasingly directed against Afghan government and tribal leaders, particularly against the Afghan Local Police (ALP), in an effort to erode popular support for the government and its security elements. The enemys increased reliance on such tactics was assessed to reflect its resilience and also its reduced ability to successfully engage in direct confrontation against ANSF or Coalition forces. ISAFs assessment in this quarter identified improved security in 24 districts and a decline in six districts. Of note, five of the six declining districts were in RC-East. Operations RC-Souths in Marjah, insurgents and local security initiatives during this quarter in central Kandahar and Helmand Provinces, particularly Panjwai, and Garm Ser Districts, displaced and degraded their command and control. Combined

15 ISAF and ANSF operations also disrupted insurgent staging and transit areas, eliminated caches, and continued to build security in parts of Zharay and Panjwai, inhibiting insurgent reinfiltration ahead of the 2011 fighting season. These operations also improved freedom of movement on Highway 1 in Kandahar. In Helmand, combined ISAF-Afghan National Army (ANA) operations degraded insurgent operational capabilities in Garm Ser District, eliminating a safe haven, and removed a key facilitation hub in the southern village of Durzhay. In Marjah, residents banded together to confront Taliban intimidation and, through their initiative, helped push insurgents out of the district.

ISAF continued to leverage the effectiveness of culturallyaligned, locally-sourced security by expanding the ALP program. ALP is a village-focused Ministry of Interior (MOI) initiative that complements ANSF efforts by training local Afghans in rural areas to defend their own communities against insurgent threats and other illegally armed groups. Although their capabilities and authorities are more limited than those of the Afghan National Police (ANP), ALP directly affected insurgent activities by denying them safe havens and freedom of movement. During the reporting period, local populations generally remained supportive of ALP and viewed its personnel as capable and helpful. A perception that security improved in ALPcontrolled areas prompted leaders from some neighboring villages to request their own programs, although some villages and elders showed reluctance due to insurgent intimidation. Overall expansion of the program remained measured and deliberate, with its execution monitored to ensure careful oversight that ALP activities remained in support of local and national governance objectives. ANSF performance improved slightly during this quarter. This steady progress, particularly observed in the ANA, continued to depend on ISAF support and was concentrated primarily in areas where ANSF units partnered with ISAF counterparts, such as Helmand, Kandahar, Kunduz, and Parwan Provinces. However, uneven development in personnel, leadership, and logistical capacity limited progress even in these provinces. NATO Training Mission-Afghanistan (NTM-A) reported that, although aggregate strength goals were consistently achieved, there remained a leadership deficit. The officer deficit was closing slowly, with most growth cancelling out losses due to attrition, while keeping pace with new force growth requirements. The noncommissioned officer (NCO) deficit

16 continued to shrink due to new training capacity and an increased emphasis at command levels. ANA recruitment continues to exceed goals, and end strength in March 2011 was 159,363 personnel well over the 154,988 goal. In March, ANA schools were filled to 92 percent capacity with 21,635 of 23,593 available seats filled. This fill rate was up 2 percent over the previous quarter, even as capacity increased. Ministry of Defense (MOD) and ANA leaders have placed special emphasis on sending more NCOs and potential NCOs to school in order to address the shortage of trained leaders in fielded forces. The fill rate for NCO schools increased to 92 percent. Officer schools were filled to 99 percent capacity. Objective measures indicate that the ANSF were slowly improving their institutional capacity, operational effectiveness, and ability to plan and execute operations independently. The Afghan population believed the same, and confidence in the ANSF continued to grow, with 41 percent believing that their communitys security was good. Even so, only 25 percent of the population believed that the ANA most likely or certainly will defeat insurgent elements in the next few years. April 1 June 30, 2011, Reporting Period: Overall, indicators and metrics against this objective improved during this reporting period. The third quarter data suggested that our overall strategy has been effective where resources have been focused. The ISAF assessment identified improved security in 23 districts and a decline in security in 15. Continued security challenges are in part attributable to insurgent use of continued militant safehavens in Pakistan. Overall, total security incidents increased by 21 percent over the previous quarter. However, this increase was not uniform across regions. In the first quarter, 92 percent of security incidents occurred in RC-East, RC-South, and RC-Southwest. Security incidents decreased by 18 percent in RC-Southwest, while increasing in RC-South and RC-East by 38 percent and 75 percent respectively. This decrease in security incidents in RC-Southwest from the winter to the spring was unusual and demonstrated effectiveness of the ISAF main effort in RC-Southwest, while the increase in RC-East was considerably higher than expected.

17 Although the aggregate security situation improved over the last reporting period, perceptions among the population deteriorated. Polling showed that 33 percent of the population considered security in their communities to be good as compared with 50 percent in June 2010. This change appears to affirm the effectiveness of the insurgents strategy of perception-oriented targeting. The ANSF improved slightly during this quarter, again helped by ISAF support and close mentorship during operations. The performance of the ANP continued to receive mixed reviews from the Afghan public, as COIN operations remained the primary focus of the ANP at the expense of community policing activities. The ANSF continued to rely on sustained levels of operational and training support from ISAF as well as mentorship in developing capable army and police leadership and personnel. An enduring presence of coalition forces to advise and assist in the transitioned areas will enable a more effective process of transition. The ANSF responses to the May 30 attack on the Herat Provincial Reconstruction Team and the June 28 attack on the Intercontinental Hotel in Kabul demonstrated an improved ability of some ANSF units to respond to complex attacks. ISAF tactical enablers remain an important part of many ANSF combat operations. Some MOI elements demonstrated a developing capability to conduct basic law enforcement functions this quarter, but remain tilted heavily toward COIN operations. ALP were a contributing factor to security improvements in locations where they had been established. For instance, the ALPs presence in Helmands Nad Ali District fostered confidence in the population that the Afghan government was committed to providing security there. A slim majority (51 percent) of Afghans held al-Qaida, Taliban or other anti-governments responsible for bringing the most insecurity to their communities, up from 41 percent in the previous quarter. Only 2 percent of Afghans cited the ANA and 4 percent cited the ANP as bringing the most insecurity to their communities. In contrast, 86 percent of Afghans cited Shuras, the ANP or the ANA as bringing the most security to their communities, up from 82 percent the previous quarter. The percentage citing Shuras grew from 24 percent to 45 percent, while the percentage citing the ANP declined from 48 percent to 31 percent. This may have been a reflection of the growing role of Shura-approved ALP in improving community-level security, but

18 also underscores potential consequences of sustained shortfalls in police mentoring and training teams. NTM-A reports that while aggregate strength goals were consistently achieved in the ANSF there remained challenges with attrition and also with a leadership deficit in the officer and NCO ranks. ANA recruitment continued to exceed goals, such that end strength as reported by the Ministry of Defense in June 2011 was 171,050 - well over the 162,100 goal. In June, ANA schools were filled to 93 percent capacity. This fill rate was up slightly from the last quarters reporting. MOD and ANA leaders placed special emphasis on sending more NCOs and potential NCOs to school in order to address the shortage of trained leaders in fielded forces. The fill rate for NCO schools has increased to 98 percent. Officer schools are filled to 97 percent capacity. July 1 August 31 2011, Post-Reporting Period: The overall capability of the ANSF increased since November 2009, as quantity has increased from 193,000 to 302,000, and ISAF is on track to achieve the U.S. and internationally agreed upon 352,000 force size by October 2012. The last ANA infantry battalion will be fielded in October 2012 for a total of 85 infantry battalions. During this period, ISAF entered a new phase with increasing emphasis on force professionalization, representing an important inflection point for the ANSF. Continued force professionalization continued to be important to the ANSFs assuming lead security efforts in transitioning areas enabled by ISAF assistance and support at reduced levels. As of July 2011, Afghan forces were assuming lead for security operations in the first tranche of transitioning areas (i.e., Pajshayr, Bamyan, Kabul [minus Sarobi District], and municipalities of Herat, Lashkar Gah, Mazar e Sharif, and Mehtar Lam) and were assuming greater responsibilities in more contested areas while continuing to demonstrate increased growth, effectiveness, and capability. Objective 7: Strategically build the capacity of the Afghan government, which enables Afghans to assume responsibility in the four-step process of clear-hold-build-transfer. (State) January 1 March 31, 2011, Reporting Period: Overall, indicators and metrics against this objective remained static during this reporting period. The ongoing special tribunal investigation continued to loom over the newly seated Afghan parliament. Allegations of

19 corruption at Kabul Bank and within the government undermined public confidence in the Afghan government and underscored weaknesses in the financial regulatory system. Afghans reported declining confidence in their national government. Despite strong gains in revenue collection, the Afghan government continued to fall short of covering operating expenses. However, Afghanistans economy remained stable and growing. In addition, the government continued to progress on the Afghanistan Peace and Reintegration Program (APRP). Nonetheless, the change in the rating for this objective from advancing to static reflects the negative impact of the special tribunal, Kabul Bank, and corruption concerns in general. President Karzai continued to contest the results of the 2010 parliamentary elections through the special tribunal and the Attorney Generals Office, putting pressure on the electoral commissions and parliament. The ultimate goal of the special tribunal and the end date of its investigation remained uncertain. Despite President Karzais initial attempt to delay the seating of parliament, parliament was inaugurated on January 26. The newly seated parliament elected leadership and deliberated over the next fiscal budget. The IMF identified a number of important steps that the Afghan authorities should take to address the problems at Kabul Bank and strengthen the financial sector more broadly. These steps would help restore Afghanistan's credibility with the international community. On March 29, President Karzai approved a set of recommendations intended to fulfill the IMF requirements. It was unclear by the end of the quarter whether the Afghan government was taking the aggressive and concrete steps necessary to resolve the Kabul Bank situation. Positive perception of service provision was on the rise with Afghans reporting increased satisfaction with the provision of water, health care, and education this quarter. However, overall confidence in the Afghan government continued to decline. A sense that government justice was corrupt and efforts to combat corruption and reduce violence in the country were ineffective continued to harm public confidence in the government. Afghans overwhelmingly reported that government corruption affects their daily lives. Afghanistans economy remained stable and growing with a low inflation rate. The IMF projected increases in real Gross Domestic Product growth rates at 6.84 percent in 2011, and 7.09 percent in 2012. The development of minerals and

20 hydrocarbons provided opportunities for further sustainable growth, foreign investment, and an end to Afghanistans dependence on assistance from international donors. Positive developments occurred in the extractive industry sector with the potential to boost long-term economic growth in Afghanistan. Indian steel companies expressed heavy interest in developing iron ore deposits at Hajigak in Bamyan Province. Nonetheless, it will take 5 to 10 years, at a minimum, before realizing returns on investments in the extractive industries. The Afghan government continued to progress this quarter in the development and execution of the APRP. Insurgent interest in reintegration appeared to increase thanks to significant outreach by the Afghan government. A High Peace Council (HPC) delegation visited Islamabad, Pakistan, Ankara, Turkey, and Jeddah, Saudi Arabia, to encourage international support. However, it was too early to discern the overall impact of the reintegration program and challenges remained. April 1 June 30, 2011, Reporting Period: Overall, indicators and metrics against this objective remained static during this reporting period. The Afghan government was finalizing its transition implementation plans as ANSF forces prepared to assume lead security responsibility for seven areas in July. The Ministry of Finance (MOF), in agreement with the Independent Directorate for Local Governance (IDLG), advanced a new policy giving provincial line directorates a greater role in budget formulation and bolstering provincial capacity in support of the transition effort. However, the ongoing special tribunal investigation concluded with a call for the replacement of 62 out of 249 Members of Parliament (MPs). Allegations of corruption at Kabul Bank and within the government continued to undermine public confidence in the Afghan government and underscored weaknesses in the financial regulatory system. Afghans reported declining confidence in their national government. The Afghan government was finalizing its transition implementation plans for presentation to the international community on July 12. The government held a Transition Conference on June 29-30 to work through internal coordination issues (both inter-ministerial and national-to-provincial), to meet with their international partners, and conduct strategic communications outreach to the Afghan people. A consensus

21 emerged among Afghan security ministries that the ANSF had the capacity and will to assume security leadership and ownership. The MOF, in agreement with the IDLG, initiated implementation of a new provincial budgeting policy to give provincial line directorates a greater role in budget formulation. The approach initially affects four ministries: Education; Public Health; Agriculture, Irrigation, and Livestock; and Rural Rehabilitation and Development. The initiative will focus primarily on the year-long process of formulating those ministries budgets for next year Solar Year (SY) 1391. The four line ministries would be required to consult their provincial directorates, incorporating provincial priorities into the budget submissions to the MOF and Ministry of Economy (MOE). As briefly noted above, on June 23, a Special Election Court created in December at President Karzais direction to investigate complaints of alleged parliamentary electoral fraud concluded its nearly 7-month investigation by calling for the replacement of 62 out of 249 MPs. The MPs, along with the Independent Election Commission, opposed the Special Courts legitimacy and rejected its rulings. In April, Kabul Bank was placed under legal receivership. The resolution of the Kabul Bank situation is a critical element of negotiating a new IMF country program, which Afghanistan has been without since September 2010. While recent progress has been made on a limited number of issues, the government has not yet completed key essential actions. Absent the Afghan government completing a number of long-standing prior actions that will stabilize and strengthen the banking sector, the IMF could not agree to finalize a new lending program. Specific prior actions that remained unresolved or incomplete include: credible efforts to recover Kabul Bank assets (including legally binding repayment agreements from shareholders and borrowers who stole money from the bank), parliamentary approval of first-year recapitalization costs for the bank, initiation of legal prosecutions against those at Kabul Bank who committed wrongdoing, and a forensic audit of Azizi Bank (a forensic audit of Kabul Bank by Kroll Associates has since begun). Overall confidence in the Afghan government continued to decline with allegations of corruption at Kabul Bank and within the government undermining public confidence in the Afghan government. Afghans reported overwhelmingly, at 87 percent, that government corruption affects their daily lives.

22 July 1 August 31, 2011, Post Reporting Period: The Afghan government presented its transition implementation plans formally to the international community on July 12 and transition began during the week of July 16-23 in the seven areas listed previously. Work continued to spur the Afghan government to complete a number of long-standing prior actions to stabilize and strengthen the banking sector. Specific actions that remained unresolved or incomplete were the same as those in the earlier reporting period. President Karzai empowered the IEC as the final arbiter in the Parliamentary election impasse. The IEC decided to replace nine Members of Parliament, who were subsequently removed from office. Overall confidence in the Afghan government continued to decline. Allegations of corruption at Kabul Bank and within the government undermined public confidence in the government. Objective 8: Involve the international community more actively to forge an international consensus to stabilize Afghanistan. (State) January 1 March 31, 2011, Reporting Period: Overall, indicators and metrics against this objective improved during this reporting period. NATO/ISAF troop levels were at an all-time high. However, there was a shortfall of 740 institutional trainers to support the development of the ANSF. The ongoing Kabul Bank situation continued to complicate negotiations over the IMFs renewal of Afghanistans Extended Credit Facility (ECF) Program, which could adversely affect donor funding. The Afghan government continued to advance efforts to improve regional relations. The ongoing bank issue continued to complicate negotiations over the IMFs renewal of Afghanistans ECF Program until weaknesses in the financial system are addressed. Due to the absence of the program since September 2010, disbursements under the Afghanistan Reconstruction Trust Funds (ARTF) Incentive Program remained on hold. Donor contributions remained steady this quarter. The United Kingdom redirected half of its $138 million in scheduled contributions to the ARTF to other funding mechanisms, such as through the Asian Development Bank.

23 Security remained a significant impediment to the effectiveness of assistance. The ability of nongovernmental organizations and USAID implementing partners to operate independently, freely, and securely persisted as a challenge. A Bridging Strategy agreement for standing-up the Afghan Public Protection Force (APPF) was signed by the U.S. Embassy and ISAF on March 15. The agreement permits continued use of private security companies for a period of 1 year. The United States will provide development assistance, advisors, funding for the APPF headquarters, and an assessment of the MOIs Directorate of Public Protection. On March 22, the U.N. Security Council unanimously adopted resolution 1974 (2011) to extend the mandate for the United Nations Assistance Mission in Afghanistan (UNAMA) for another year. UNAMA continued to improve the coordination of donor assistance while building the capacity of the government to take lead responsibility for this task in the future. UNAMA pressed the Afghan government to address major concerns on behalf of the donor community regarding Kabul Bank and the private security company issue. On February 18, Secretary of State Hillary Clinton delivered the Holbrooke Memorial Speech on Afghanistan and Pakistan at the Asia Society in New York, emphasizing the need for an intensification of regional diplomacy. In January, members of the High Peace Council visited Pakistan, and HPC Chairman Rabbani planned future visits. Prime Minister Gilani of Pakistan and Army Chief of Staff General Kayani visited Kabul in April to discuss bilateral issues, including most prominently reconciliation. On the economic front, President Karzai signed a decree ratifying the APTTA in January. The agreement went into force on February 11. However, both sides agreed to postpone full implementation by four months, pending an agreement between the two countries on a mechanism of financial guaranty on vehicles and goods transiting Pakistan into India. The United States and Afghanistan launched formal discussions in Kabul in March on a new Strategic Partnership document to outline a long-term framework for bilateral cooperation in the areas of security, economic and social development, and institution building. The United States reiterated firm commitment to an enduring partnership with Afghanistan that extends beyond 2014, strengthens Afghan sovereignty, stability and prosperity, and contributes to our shared goal of defeating al-Qaida and its extremist affiliates.

24 April 1 June 30, 2011, Reporting Period: Overall, indicators and metrics against this objective improved during this reporting period. The Joint Coordination and Monitoring Boards (JCMB) Security Standing Committee (SSC) approved the Afghan request for an increase in ANSF end strength to 352,000 to enable transition to Afghan-led security. Future donor funding to the ARTF remained at risk without credible resolution of the Kabul Bank situation and agreement on a new IMF program. The Afghan government continued to advance regional relations, as the APTTA became operational in June. On June 22, President Obama announced a drawdown of U.S. forces in Afghanistan, citing success in the campaign against al-Qaida and the killing of Usama bin Laden in Pakistan on May 2. The U.S. troop presence in Afghanistan will decrease by 33,000 before the end of summer 2012, returning the U.S. troop presence to pre-surge levels. After this initial reduction, U.S. troops will continue to decrease at a steady pace as Afghan security forces move into the lead. By the end of 2014, this transition process will be complete. There were some signs this quarter that the announcement of the U.S. troop reduction could affect allied troop and resource contributions. At a June 28 meeting, the JCMB SSC approved the Afghan governments request for an increase in ANSF end strength to 352,000. The purpose of the additional forces is to consolidate the gains of the ISAF surge, enabling a durable transition to Afghan-led security. The Afghan government was finalizing its transition implementation plans. A consensus emerged among Afghan security ministries that the ANSF had the capacity and will to assume security leadership and ownership in the provinces noted above. Without a credible resolution of the Kabul Bank situation and agreement on a new IMF program, future donor funding continued to be at risk. Due to the absence of the IMF Program since September 2010, disbursements under the ARTFs Recurrent Window and Incentive Program remained on hold pending renewal of the program. The Incentive Program is a $70 million initiative hard-linked to the presence of an IMF program in country. The Recurrent Window, a $200 million program that funds a portion of the operating budget, is linked to the presence of sound macroeconomic and financial policies, typically defined by the presence of an IMF program. Disbursement from the ARTFs

25 Investment Window continued as scheduled, although it was significantly constrained by available funds. On the economic front, APTTA became operational on June 12, although a few challenges persisted. The most problematic issue remained the question of financial guarantees on vehicles and goods transiting Pakistan. Once fully operational, APPTA should significantly expand opportunities for Afghan exports by providing duty-free transit access to India and other markets. Afghanistan is also pursuing with other Central Asian nations transit-trade agreements that could incentivize Pakistan to improve coordination efforts related to APTTA. The United States and Afghanistan held a second formal negotiating session in Kabul in July on a new Strategic Partnership document that outlines a long-term framework for bilateral cooperation. The two sides made significant progress toward an agreed text, achieved a common understanding of the issues remaining, and committed to continue working closely together to complete a text. July 1 August 31, 2011, Post Reporting Period: Although many nations faced financial and political pressures to reduce their commitments, troop levels remained at an all-time high. The Kabul Bank situation continued to have the potential to impact future donor funding. The ongoing bank issue continued to complicate negotiations over the IMFs renewal of Afghanistans ECF Program until weaknesses in the financial system are addressed. Successful transition continues in the initial seven areas where ANSF has the capacity to assume security leadership and ownership in these areas.