Progress Toward Security and Stability in Afghanistan

MARY BOIES: Thank you all for coming. Good morning. We are very lucky today to have with us Michele Flournoy, who's the under secretary of defense for policy. That makes her among the third highest ranking civilian officials in the Department of Defense. Indeed on policy matters, she's effectively the deputy and she is the one from the Defense Department who sits on the various deputies' committees. She was, prior to coming to the Defense Department, the president and co-founder of the Center for a New American Security. She had been a professor at the Institute of National Strategic Studies at the National Defense University. And you'll be happy to know she was a term member here at the Council. So this is where you will end up. (Laughter.)

Please turn off, not just put on vibrate, your cell phones, BlackBerrys, any wireless devices, so that we can avoid interference with the sound system. And I'd like to remind you that unlike most of this term conference, today's session is on the record.

Ms. Flournoy. (Applause.)

MICHELE FLOURNOY: Mary, thank you for that kind introduction. It's really wonderful to be back at CFR. As was mentioned, I, too -- one of my greatest claims to fame is that I, too, was once a term member here. And I once attended conferences like this and I'm just very, very pleased to see that Richard Haass, among all those who do great work here, has continued that wonderful tradition for the next generation.

I wanted to focus my comments this morning on the war in Afghanistan, where we are, where we've been, where we're going. Many of you read about last Saturday's attack in Kabul in which 10 Americans were killed and several Afghans and coalition partners in a suicide bombing where a truck struck one of our buses. And we were reminded on that occasion that we are still very much in harm's way in Afghanistan.

It also reminds us that the work of bringing about a peaceful and secure Afghanistan is far from complete. I know it seems, reading the papers, that there have been a lot of these reminders lately. Within the past two months, we've seen a September 10th vehicle bomb attack on one of our combat outposts in Wardak Province. We saw the September 13th attack against the U.S. embassy and our ISAF headquarters and other government buildings in Kabul. We saw the September 20th assassination attempt -- successful assassination of president -- former President Rabbani, the chairman of Afghanistan's High Peace Council. And now, last Saturday's attack, the deadliest single assault on Americans in Kabul since the war began.

In addition to these high-profile attacks, we've seen the continuation of two other factors that hinder our efforts in Afghanistan. The first is that the insurgency continues to benefit from sanctuaries and support inside Pakistan. This has contributed to the rise of cross-border incidents and the security situation in Regional Command East remains tenuous as a result. The second factor is the limited capacity of the Afghan government itself. Corruption remains a severe problem, as does the lack of progress in necessary political reforms.

All of these developments have caused some in the United States and in our partner countries to believe that our engagement in Afghanistan is doomed to a kind of futility, with our Afghan allies destined to fail, and the insurgency poised to regain control. What I want to do today is take advantage of this occasion to rebut this line of reasoning. I'll do so not simply by rehashing old talking points that you've heard before, but by trying to give you a sense of what the reality is on the ground today, a reality that I saw first-hand just a couple of weeks ago on my seventh trip to Afghanistan since 2009, and one that is detailed in our 1230 Report that the Department of Defense released last Friday. It's a good thick read, but I would encourage you all if you care about Afghanistan and what's going on there take a look and -- take a look and digest what's there.

The 1230 Report is a semi-annual document that's mandated by Congress on the state of progress towards achieving security and stability in Afghanistan. We've been putting this report out for a couple of years now, but this version, which deals with the six-month period between April and September of last -- of this year, is really rather noteworthy.

As many of you are well aware, the late spring and summer months of the traditional fighting season in Afghanistan, a period that is especially conducive to insurgent activity in a country where both physical terrain and -- where the physical terrain is difficult and the winters are very, very harsh.

In previous years, this has been the time of year when the insurgency in Afghanistan has tried to expand its reach and win back territory that it had lost to the coalition and the Afghan national security forces. But importantly that is not what happened is this year. In fact, the period that is covered by the latest 1230 Report says something pretty exceptional -- a reduction in the year-over-year violence in Afghanistan. This is something new.

For five consecutive years, enemy initiated attacks and overall violence had been rising substantially. For example, enemy initiated attacks increased from 2008 to 2009 by 88 percent. They went up by 94 percent in 2009 to 2010. But starting in May this past year, violence began going down compared to the previous year, and these declines continued throughout the summer fighting season.

In 21 of the last 27 weeks, the numbers of enemy initiated attacks were lower than the same weeks last year. This is the most sustained downturn in enemy initiated violence ever recorded by ISAF in Afghanistan.

So far this year, these attacks are down by 7.5 percent compared to the same time last year. The progress is even more significant in certain parts of the country, for example in Regional Command Southwest, home of several Taliban -- former Taliban strongholds, like the districts of Marjah, Nadali and Garmsir -- violence during the traditional height of the fighting season was down 43 percent from the same period last year, and it continues to drop. In short, contrary to what some opinion makers have said recently in the press and frankly the impressions that are created by these high-profile attacks, the momentum in Afghanistan has shifted and our strategy is working. We are seeking -- seeing undeniable progress on the security front, particularly in our core goal of disrupting, dismantling, and defeating al-Qaida and preventing restoration of its safe haven in Afghanistan.

We are degrading the insurgency and building up the Afghan security forces, and we are well into the process of transitioning substantial areas of the country to Afghan lead for security. But this progress on security has not occurred in isolation. It's part of a larger trend towards greater stability and expanded opportunity across the country.

This progress, as much as anything that's happened on the battlefield, is making it harder and harder for violent extremism to recapture the former strongholds, much less the loyalty of the Afghan people. Let me give you a few examples.

Access to basic education in Afghanistan has seen a dramatic increase since 2001 for all children, especially for girls. In August of this year, the Afghan Ministry of Education claimed that no girls had been enrolled in Afghan schools as of 2010 -- I'm sorry, 2002, and this would certainly be consistent with Taliban policy at the time. While we lack concrete data on the number of boys enrolled in Afghanistan schools during the Taliban regime, unverified reporting from the NATO side suggests that about 600,000 boys were in schools as of 2001. Contrast this with the total enrollment figure today of approximately 8 million students, about 37 percent of whom are female. By the way, the total enrollment number represents an 8.4 increase just in the past year.

To accommodate the swelling student population, the number of teachers has gone up more than eightfold, from only 20,000 nationwide at the beginning of 2002, to over 170,000, 30 percent of whom are women.

Consider health care. In 2002, only 9 percent of the Afghan population had access to basic health care services within two hours walking distance. Now, 85 percent live within one hour of a health care facility.

The basic improvement of everyday Afghan life shows up also in more mundane measures as well. For example, there were a grand total of 21,000 cell phone users in Afghanistan in 2001. Today there more than 12 million.

Afghan GDP growth has averaged 10 percent annually since 2002, driven by demand in the services sector and increased agricultural production. Official exports have grown at an annual rate of almost 30 percent since 2002. So these statistics offer some perspective and I believe some hope against the darker background of the recent attacks that we've read about and seen in Kabul and elsewhere. If anything, they should help us to see those attacks for what they are. With the loss of their former sanctuaries, with the failure of their spring and summer offenses, and perhaps most importantly with more and more Afghans seeing the extremist worldview as nothing but a brutal dead end, the Taliban are increasingly compelled to resort to high-profile efforts in an attempt to regain the momentum they have lost.

So I hope I've given you a clearer sense of where we are today in Afghanistan. What I'd like to do now is spend a minute looking at some of the factors that brought us here and that will provide the keys to continued progress.

First, I think it's fair to say that the major -- a major reason for the increase in security was President Obama's decision, in December, 2009, to surge military and civilian personnel into Afghanistan, joined by our coalition partners who also surged their forces. Undeniably the counterinsurgency efforts supported by these brave men and women sharply weakened the insurgency, particularly in southern Afghanistan.

However, it's also important to point out the growth in the size and the capability of the Afghan National Security Forces during the same period. At the end of September, the Afghan National Army had grown to more than 170,000 soldiers, while the national police stood at just over 136,000. Both the army and the police are well on their way to meeting their growth goals for 2012. Our joint efforts have enabled the ANSF to grow by the more than 100,000 people over the last two years, and this force has developed into the most reliable and respected institution inside Afghanistan.

While the sheer quantity of soldiers and policemen itself is important, it's certainly not sufficient -- not in a country where the uniform services have been hampered by attrition, illiteracy, resource shortages, corruption and occasionally infiltration by insurgents. The quality of the force matters greatly. And here too, we are seeing real progress.

When the NATO training mission Afghanistan began its mandatory literacy program, in 2009, there had been no prior systematic effort to train army and police personal for literacy, and 86 percent of new recruits at that time were illiterate. Since then, more than 120,000 soldiers and police have been educated by the Afghan National Security Forces Literacy Program, helping to build a much more literate and capable force. Based on the current estimates, about half of the ANA and ANP enlisted members and NCOs are literate to at least the first grade level. That's quite an achievement in a country where the literacy rate in the 18-to 40-year-old category is only 14 percent. This improvement in skills has elevated operational capacity and it's become a major incentive in recruiting. Within the Afghan National Army, the number of units that are now rated as effective with assistance or higher rose from 52 percent last year to 72 percent this year. Similarly for the Afghan National Civil Order Police, the most elite arm of the police, this figure went from 40 percent last year to 70 percent this year. That said, there's no doubt that the ANSF continues to face serious challenges.

The force still requires significant coalition support and that will be true for some time as we -- as they will take several years to build the enabler support in terms of medical and lift and so forth. It also continues to be threatened in some parts by the influence of criminal patronage networks that frankly plague Afghan society writ large.

It is promising that the ANSF continues to improve despite these challenges. It is taking the lead in a growing number of operations, most notably the first Afghan-led battalion level operation in Helmand Province occurred this past summer.

With an increasingly capable ANSF, the Afghan government has been able to begin the process of transition, transitioning areas across the country to Afghan lead for security, a process that began this past summer and will continue through the end of 2014. As a result, about 25 percent of the Afghan population today lives in areas where their own countrymen are providing the lead for security.

The Afghan government will soon announce a second tranche of areas to be transitioned, and this will raise this figure to approximately 50 percent of the population living in areas where Afghan forces are in the lead.

In short, we are on track to fulfill our security goals laid out at the NATO summit in Lisbon last November, which would put the ANSF in the lead across the country by the end of 2014. This is a very deliberate process governed by improvement in security situation on the ground and the improvement of the ANSF. As the insurgency continues to diminish and the Afghan forces strengthen in their own position across the country, we and our coalition partners will continue to hand over lead responsibility to the ANSF and start to bring our troops home.

As you know, President Obama announced that the recent security progress and the increasing capacity and capability of the ANSF have allowed us to begin to recover the surge forces we sent in. Ten thousand U.S. troops will be redeployed by the end of this year and another 23,000 personnel will be brought home by the end of September of next year. This process of security transition is running in parallel with political and economic development efforts in Afghanistan. These factors, of course, cannot be viewed in isolation from one another. As violence continues to abate, the political and economic conditions in the country will improve, which will in turn likely diminish the attractiveness of joining or supporting the insurgency.

One example of this is a nascent reintegration process. The Afghan Peace and Reintegration Program, established by President Karzai in 2010, continues to complement our security gains by removing insurgents from the battlefield. The number of fighters who've laid down their arms and come off the battlefield has increased substantially this year. Progress in key strategic areas, however, has been limited by a lack of institutional capacity, and the results are not yet strategically significant. That said, we expect this program to grow in the future.

We are seeing some movement in the right direction.

By the end of the reporting period that the 1230 Report covers, the program had formally integrated almost 2,500 insurgents countrywide, up from only 700 or so last March. But the reconciliation of former insurgents is only part of the challenge the Afghan government faces in building its credibility with the Afghan people.

As I mentioned earlier, corruption remains a very serious problem, as do the issues of governmental capacity and accountability. Here too, though, we've seen some progress and we're seeing it where it matters most, in Afghan society, at the village and district level, where the national government is taking some meaningful steps to build its connection to the people literally where they live. For example, the National Solidarity Program, funded by a grant from the World Bank has now entered its third phase of block grants. This program is teaching communities how to select representatives, set priorities for their development needs, and oversee the resulting programs.

Over 28,000 villages across Afghanistan are now active in the program with over $890 million in block grants dispersed so far and another $40 million on the way.

The Afghan government is also encouraging this establishment of representative elected district councils to take on roles such as informal dispute resolution, reintegration of former insurgents, and leading to the establishment of over 100 new district councils in areas without any previous form of representative government.

The Afghan local police is another locally focused program that is forging new links between the government and the people as citizens take responsibility for the protection for their own communities.

When you take a step back and consider these and other programs, you realize that the Afghan people today have a greater say over their own affairs than at any time in the last 30 years.

So let me conclude with what's -- a word about what's coming next. I want to emphasize an absolutely crucial point, especially as we begin to drawdown our surge forces. We have no intention of abandoning Afghanistan. We have done that before with terrible consequences. It is a mistake that won't be repeated.

Approximately 68,000 U.S. troops, however, will still be in Afghanistan following this period of the drawdown. While those force levels will gradually decrease, the United States remains committed to the long-term security and stability of Afghanistan, and negotiations are progressing on a long-term strategic partnership between the United States and Afghanistan. While this partnership will have an important security dimension, it is our intent to place ever greater emphasis on economic development, trade, cultural exchanges, diplomatic cooperation.

A great example of this has been the Task Force on Business Stability Operations, a program in which American public servants assist Afghan government officials in identifying and maximizing Afghanistan's economic potential. The task force's initiatives range from cataloging the vast mineral wealth in Afghanistan to a partnership with Silicon Valley entrepreneurs to develop Afghan technology incubators.

The Afghan people and the American people have shared a great deal over the past decade, including a great deal of sacrifice. The histories of our two nations have been -- become very intertwined. We have come to know an Afghanistan that is resilient and proud and deeply committed to taking its rightful place in the international community after decades of war and isolation, and we share the common core goal of disrupting and defeating the transnational terrorist threat that emanates from that region.

We look forward to helping Afghanistan achieve that very attainable goal. And this report that we've released offers concrete evidence of the fact that we are on track to do just that.

So with that, let me say thank you, and I look forward to our discussion and Q&A. Thanks. (Applause.)

BOIES: Thank you very much. You're a very talented and experienced woman, and you could work anywhere you want, and you've chosen public service. So first, we thank you for that and I hope that those -- particularly the young people in the audience will find inspiration in the good work that she does.

You mentioned that the report identified as one of the largest risks to a stable Afghanistan is the insurgency's safe havens in Pakistan. Now, many commentators believe that Pakistan is directly invested in Afghanistan's failure and that Pakistan does not want a secure and stable Afghanistan on its western border, especially one with close ties to its arch foe, India, and that that's one reason that Pakistan is using the Haqqani Network and other insurgents to foment instability. Are these commentators wrong?

FLOURNOY: Let me start by saying the safe havens along the border between Afghanistan and Pakistan are a very serious problem, and they are at the top of our agenda in our engagement with the Pakistani government. These are under governed areas where frankly the central government of Pakistan doesn't have much control, but they're -- but there are groups operating in these areas -- a sort of witches brew of militant groups that do very much pose a threat, not only to our campaign in Afghanistan and Afghans future stability, but also I would argue to the future stability and viability of Pakistan itself.

So we are engaged in a very candid and intensive discussion with Pakistan about how we, together, can deal with some of these groups. We believe that it's in Pakistan's interest to have a friendly, stable, and secure Afghanistan on its border, but that's not something they've experienced historically for a very long time. So we have a lot of work to do to convince them that that outcome as possible and that it's something that they should be part of achieving.

BOIES: We, the U.S. and our coalition partners have been trying for years to get the Pakistanis to go into the North Waziristan and clear out the insurgents there, much as they did in the Swat Valley and South Waziristan. So far we've seen -- as far as I know -- no movement there. Is it not -- is it possible to convince the Pakistanis to go after the Haqqani Network because, as many believe, it's in their self-interest to have that network active. They go into these other places -- South Waziristan and the Swat Valley, because those terrorists attacked Pakistan itself. But as long as Haqqani Network is focused on cross border attacks, does Pakistan really have an incentive to go after them?

FLOURNOY: Well I think that, again, this is an area where we've been in serious discussions with Pakistan. As you noted, starting in 2009, they conducted a number of offensives to clear out areas like Swat Valley and so forth. I don't think many people know that in the course of these various operations and in several years of counterterrorism effort, Pakistan actually lost more than 10,000 civilians and 30,000 military personnel. So they have paid a very heavy price for terrorism on their soil.

We have been talking with them about the need to do more in this area. It is unacceptable to us to have pockets along the border where militants come across and attack Afghans, attack U.S. interests, the embassy for example, attack our soldiers. We want to do this in cooperation with Pakistan that this has become a serious force protection issue for us, and we will pursue means necessary to deal with this problem.

BOIES: The United States has decided to entertain talks with the Haqqani Network and this, I believe, is a fairly significant shift in U.S. policy. Even assuming we can reach agreement, how can we sustain it without large and sustained troop presence?

FLOURNOY: Well, first of all, I think every -- even our most senior military commanders would say that there is no purely military solution to this conflict or frankly any conflict. Ultimately there has to be a political end game, a political process that resolves differences. I think the early efforts at reconciliation talks -- they're not even talks yet, really. They're really probes. We have not prejudged the outcome. We have not prejudged who we should talk to. The door is open in terms of -- it's an Afghan-led process, but the door is open for any part of the insurgency that is willing to engage in genuine dialogue.

I think ultimately they will separate themselves into categories of those who are reconcilable, who want to lay down their arms, renounce al-Qaida, come back, and be reintegrated into Afghan society, and those who are fundamentally irreconcilable, who are never going to stop, but reconciliation will be a key part of degrading the insurgency to levels that the Afghans can manage over time.

We're in the early days of this process. As I said, we're working very closely with the Afghan government in this, but we do believe that this will be a key part of the solution. Ultimately, whatever political settlement is reached in Afghanistan -- you made an important point -- it's going to have to be supported and enforced by the regional neighbors, by the international community, and that's why a lot of our diplomacy is focused on the neighbors and trying to get them on the side of supporting an outcome as opposed to acting as spoilers.

BOIES: And the second challenge that the report identifies to a stable Afghanistan is the limited capacity of the Afghan government, and the report goes so far as to say that the Afghan government, quote, "continues to lack the resolve to address many corruption issues." Now, you mentioned the National Solidarity Program as an important tool in villages to fight corruption, as well as begin economic and other development, but what about corruption at the very top? Have you seen any resolve there or even any indication there that the government will take on the issue of corruption? Because without the rule of law and good governance, whatever gains we make cannot continue.

FLOURNOY: I think we have seen some progress, but a lot -- frankly there's a lot -- a long way still to go. We have been working with a number of the ministries -- we, not DOD, but the U.S. government -- to put in place a series of transparency and accountability measures, so that once they put those in place, they're validated, we can actually flow more of our assistance dollars through the Afghan government itself, rather than doing private grants. There's been substantial progress in that area.

Another example is the Kabul Bank crisis. I think this became sort of the poster child of corruption in Afghanistan and such a clear problem for the most senior levels of the Afghan government, that they came to understand that unless they start to address this corruption head-on, the systemic corruption, they're going to lose international support and assistance.

And so I think you've seen the Afghans in recent weeks and months take a number of steps that will ultimately enable them to sit down with the IMF and negotiate a deal moving forward. But I think it's been a very hard road for them, many more miles to be traveled. But I think the connection between dealing with corruption and winning a sort of place of legitimacy in the eyes of your population, that connection is finally being made by a number of senior Afghans.

BOIES: Okay. I see that the clock says that it is time to open up the floor to the participants. Please when I call on you, stand, state your name and affiliation. And if you would, have a nice, brief question so that we can get as many as possible.

Okay. Yes, sir.

QUESTIONER: Thank you, Ms. Flournoy, your comments are very informative. My name is Roland Paul. I'm a lawyer. Long time ago I was at the Pentagon myself in OSD. You said that the Afghan national forces would be in the lead by 2014, but I thought, according to press accounts, it's the administration's policy to withdraw all American combat troops by the end of 2014. And I wondered if that's just my misunderstanding. But if it is true, isn't it really bad strategy that's been trumped by domestic political reasons to withdraw all those troops by then? Thank you.

FLOURNOY: So the plan was laid out at the NATO Summit in Lisbon. And what it calls for is the transition process where we're transferring lead responsibility for security to the Afghans to be completed by the end of 2014. And we believe we're on track to do that.

That said, the Afghan forces at that time will be largely infantry battalions, police and so forth. They are still going to need support from the international community in terms of enablers, such as mobility, intelligence, surveillance reconnaissance and so forth. So it will take some time before they have all the enablers necessary. So they're going to need some support. They're also going to need continued advising and assisting.

And so we and NATO also have been negotiating strategic partnership agreements with the Afghan government that would lay out an enduring strategic partnership far into the future. Obviously, that will have economic dimensions, diplomatic, other dimensions.

But one of the dimensions on the security side is, at the invitation of the Afghan government, we will continue to have a partnership force in place that really provides advising, assisting, support, continued support to the Afghan National Security Forces for quite some time. So 2014 is not a withdrawal date. It's an inflexion point where we put -- where Afghans are firmly in the lead and we step back into a consistently supporting role but at much lower numbers of troops.

BOIES: Yes, ma'am.

QUESTIONER: Hello. Hi. My name is Silvana Senja (ph), and I have spent two of the last three years working in Afghanistan. I just got back working on rule of law issues for the U.S. Institute of Peace.

And in connection with the Kabul Bank scandal which you mentioned, my understanding from colleagues, from Afghan colleagues, is that the Attorney General's Office in Kabul has the names of approximately 40 people who are implicated in the scandal and that that list includes people very senior within the Karzai government, even up to the vice president level and people related to him.

While we at least have a presence there, has there been any effort to try to make those names public? It seems the decision on the part of the U.S. government has been to sort of look past that. But that also seems to be consistent with what's happening with APRP. And what is the thinking behind that I guess is my question.

FLOURNOY: So we certainly haven't overlooked it. We believe that it's very important for both transparency and accountability for charges to be made against people that the Afghan government believes is responsible for the corruption and what's happened at the Kabul Bank. We think that that is for the Afghan government to do and it's very important that the Afghan government release those names, pursue those individuals and the legal process against them.

This remains a continued part of not only our conversations with the Afghans but the IMF's conversation with the Afghans. But there are a number of steps that the IMF has set out to say, these are the things you need to do to be able to have continued international financial support. There's been some progress made along those steps, but more to be done, including the one that you mentioned.

BOIES: Has the United States indicated that it will reduce its support if progress in this area is not made?

FLOURNOY: We have made it very clear to President Karzai that it was difficult for us to imagine gaining congressional support for continued financial assistance and/or frankly signing a strategic partnership agreement without meaningful progress on the Kabul Bank and other corruption issues. We believe that a number of steps have been taken and that we are moving in the right direction. Again, not enough yet. We're continuing to press this issue. But I think that the linkage between performance on this issue and our ability to sustain our own domestic protocol support for a long-term relationship with Afghanistan, that linkage exists. It's a reality. BOIES: Yes, sir, with the yellow tie.

QUESTIONER: Hi. Jim Morin. I'm an attorney with Cooley. And I served in Afghanistan several years ago. And all of my colleagues that also served, we all take away the same frustration with the lack of developmental support, reconstruction support from other parts of the government.

So when I first left active duty I attended a session you had on Goldwater-Nichols Two which was really encouraging to me.

I was wondering if you could have -- give us an update on the status of that whole of government approach and the structural reforms you were advocating at the time.

FLOURNOY: Well, first let me say that I think the imbalances in our ability to provide funding across the development demand for Afghanistan is not for any lack of effort or will on the part of the State Department and USAID. It is the fact that these agencies are funded at just a fraction of the level of funding that the Department of Defense has traditionally enjoyed.

The politics on Capitol Hill of funding U.S. service men and women, on one hand -- very patriotic thing to do -- versus funding foreign development assistance, they're very different.

And, frankly, the civilian side of our government has really struggled to get the funding levels that would allow us to have a sort of comprehensive and cohesive approach to these problem sets that really require integrated whole of government strategy. That said, we have worked very hard on this. We've made some progress. My worry is that in the current budgetary climate that imbalance that all of this funding is going to be under the knife, if you will, and that the civilian side will be cut disproportionately.

So I think this problem is going to be with us for some time. But, you know, again, it's caused us to really scrub our efforts, to prioritize and to focus on where we think we really are making the biggest difference with our investments.

BOIES: If the congressional committee on the budget doesn't reach agreement by the end of this month, I guess, what will the effect be on the Pentagon?

FLOURNOY: Absolutely devastating.

BOIES: Can you explain?

FLOURNOY: Yes. The Congress has asked the Pentagon to find more than $450 billion of cuts over the next 10 years. We are, under Secretary Panetta's leadership, undertaking a deeper view of our entire budget from a very strategy driven approach.

I mean, the cuts are so significant that we really had to kind of go back to first principles of what are American interests, what are the priority missions for the U.S. military, what do we think the future is going to look like, and so forth. So are in the process of doing that. And I think we're going to have to make some very, very hard choices just to get to that target.

If the super committee fails to reach agreement and we go into sequestration, it will be devastating for not only the Department of Defense, but the U.S. government, and I believe our ability to protect and advance U.S. interests around the world.

Sequestration requires you take across the board cuts. So every shipbuilding, every aircraft building, every maintenance, every training, every program in the DOD budget will be simultaneously broken by having to take a chunk out of it. It does not allow you to make considered strategy driven cuts. It requires across the board salami slicing.

It will have very dire impacts. And so write your congressman and make it clear that we can't allow sequestration to happen.

BOIES: Yes, sir, in the back.

QUESTIONER: Bart Szewzyk, WilmerHale and GW Law School. You mentioned the importance for the Afghan government to establish legitimacy among its populous. When will we know that it has established that legitimacy? What metrics or measures would you need to be confident that the Afghan government has that legitimacy and that we can actually rely on it?

FLOURNOY: I think that has to start at the level where most Afghans experience government, which is at the local and the district level.

And, again, one of the reasons why I tend to be more hopeful about Afghanistan is that whenever I go there, I get out of Kabul and I go to the local level, and you see communities that for the first time in years are experiencing some semblance of security. Their economy is starting to revive. They have a district government for the first time ever who actually is listening to them, understanding that part of his job is not just to benefit from his position but to actually try to provide basic services to the community and their mechanisms for holding that person accountable.

That is happening at the local level across the country and it is the beginnings of the legitimacy that has to take hold at higher levels. You see it in some areas at the provincial level where you have governors who get it and who are really transforming their provinces based on the needs of their people. That is a process that will take many years, but gives me a great deal of hope.

You also at the national level have the emergence of legitimacy of institutions. And here opinion polling is telling us, a recent opinion poll, the Afghan people, 85 percent expressed confidence in the Army; 81 percent expressed confidence in the police. That is remarkable. I mean, if you did a free word association with most Afghans five years ago and you said corruption, the first word out of their mouth would be police. So this is a dramatic change. And, again, holds a lot of promise. But a lot more has to be done to shore up that legitimacy, make that connection.

BOIES: Yes, sir. Yes.

QUESTIONER: Hi. Asim Rehman with MetLife. Thanks for your comments. How are we doing on reducing the threat of an attack on the United States that's originated from Afghan or the region? You did provide metrics on how we've done with securing the country and securing the region, but are those the same metrics, or are there different metrics for protecting us from an attack? And if there are different metrics, what more needs to be done to protect us from an attack that would originate from that country?

FLOURNOY: Well I think we do -- another metric or set of metrics relate to the state of core al-Qaida and the al-Qaida affiliates that have expressly either stated the intent or shown their capability to try to conduct attacks in the American homeland.

Our principal concerns right now are the core al-Qaida elements that remain in the Afghan-Pakistan border region and the al-Qaida affiliate in Yemen. I think particularly against core al-Qaida in Pakistan and Afghanistan, they have suffered some pretty devastating blows, not only the death of bin Laden, but since -- based on the intelligence claimed from that operation, three of the most senior operatives in that chain of command have also died since then. We continue, frankly, with the cooperation of the Pakistani government, to put relentless pressure on core al-Qaida in the region.

In Yemen, similarly working with the Yemeni government -- although, obviously, the broader political context there is making this more difficult -- we are putting pressure on al-Qaida in the Arabian Peninsula as well and with the Yemeni government in the lead in those operations.

So we have our eye on the ball here. And our greatest focus, our most sustained focus is on the elements of al-Qaida that still have the will and capability to reach across and actually target Americans here at home.

BOIES: As you may have guessed, I'm looking for term members. So if you look like me, you're less likely to get called on. (Laughter.) The young lady all the way in the back. QUESTIONER: Thanks. Hi, I'm Farah Stockman with the Boston Globe. And I've spent some time in Afghanistan and Pakistan. And nothing drives Pakistani military or intelligence crazier than the idea of India and Afghanistan on their border and its consulates. And I was just wondering if you could say a few words about the U.S. position on this and whether the United States is saying anything at all to India about what it's doing in Afghanistan or is it basically the U.S. position that India is a separate country and that's not something we talk to them about?

FLOURNOY: I think that Afghanistan needs to develop positive relationships with all of its neighbors. The Afghans and the Indians have recently signed a strategic partnership of their own. We have not seen the details of that document, but our understanding is that India is primarily at this point providing a great deal of development assistance to Afghanistan in the transportation and infrastructure sectors, and so forth.

I think India has actually been very careful, very mindful of the fact that Pakistan is sensitive to the types of assistance it provides to the Afghans. It has consciously chosen not to take a major role, for example, in the training and development of the security forces. They have a small police training program for female police officers in India.

But they really have chosen to stay away from that effort in order not to exacerbate Pakistan's concerns. So I think they've taken a very responsible approach. Their development assistance is extremely positive and helpful in the country. And, ultimately, this is between Afghanistan and India. But we've seen them take a very carefully calibrated and helpful role to date.

BOIES: Yes.

QUESTIONER: Hi. My name is Laura Herman with FSG. I'm wondering if you could comment on the possibility of success if we were to condition more of our aid to Pakistan in the hopes that it would encourage them to be more successful in the border region in ridding them of insurgents. Is that something that is on the table? Is it a serious consideration? Do you think it's likely to succeed?

FLOURNOY: We have experienced what happens when you go all the way to the extreme of cutting off aid. And it's not a -- that experiment didn't turn out so well. So we believe that breaching -- cutting off assistance, breaching the relationship is not a recipe for getting to -- advancing our objectives in the region.

That said, we have -- again, had a very candid discussion with Pakistan about the kinds of things -- the kind of cooperation we need to see from them to be able to deliver assistance. I mean, we live in a democracy. Congress gets the vote. They get the decisive vote, right?

And so we -- the fact is that even though we have several billions of dollars of security assistance in the pipeline, very little of that is being delivered now because, for example, most of our equipment deliveries require training at the receiving end. Well, Pakistan, in the wake of the bin Laden raid and other things, asked us to pull all our trainers back. So we can't train on the equipment so we can't deliver the equipment. So that right there is blocking the delivery of a lot of assistance that's already in the pipeline.

In addition, we have some financial payments so, frankly, reimbursement moneys that we owe them. We have not released the last two quarters of those funds because we need to see concrete progress on some of our counterterrorism objectives together.

So I don't think a blunt, you know, heavy-handed legislative conditioning of this would be helpful, but I think a very carefully calibrated approach that calibrates the release of aid to progress towards common objectives can be useful.

BOIES: Do you have a question?

QUESTIONER: Tom Graham, Brookhaven National Lab. Do you see any indication at the two-star, three-star level inside Pakistan that any military officers are looking at their relationship vis-a-vis India and saying, this is not a game that's in our national interest. We really need to start thinking of some Pakistani ideas so that it's not just the Americans telling the Pakistanis, look, you need to actually rethink your own threat perspective, or is this something that's going to take a generational change from the Pakistani perspective?

FLOURNOY: You know, I see some early efforts to -- on the part of both officials in India and Pakistan to restart their dialogue in a serious way to get back to discussing confidence building measures. We're cautiously optimistic about that process.

I don't know if -- I don't see -- I have not personally seen the impetus for that coming from the ranks of the military at this point. You know, I think there is a generation of officers there that, frankly, because of the cutoff of our relationship in a certain period we lost visibility into them. And that is the generation that's now rising into this sort of one-star, two-star ranks. And so it's hard for us to have a good feel for that.

But I do see at the highest levels, on the civilian side in particular but also some in the military, there is an effort to reopen the discussions with India. I think they realize there's value in trying to make some progress to rebuild some confidence.

BOIES: Yes, sir.

QUESTIONER: Joel Hemming (sp) with Open Revolution. Secretary Flournoy, we've talked about India a little, India and India's interest in Afghanistan. Could you characterize Iran's interests in Afghanistan, specifically their perspective of our drawdown and our plans there for the future of Afghanistan?

FLOURNOY: Iran has long had serious economic trade with -- (audio break) -- Afghanistan and I think that continues to this day. I think from what we can tell Iran is very nervous about a long-term U.S. presence.

And, you know, we are openly talking about the strategic partnership that we are working towards with the Afghans. We have openly acknowledged that at the invitation of the Afghan government we will -- we do envision military trainers, advisers, forces assisting for a number of years to come.

But we're also been very clear that we are not seeking any permanent U.S. bases in Afghanistan. We do not seek to threaten any of Afghanistan's neighbors with our forces, that this will be at the invitation of the Afghan government focused on building their security forces and addressing issues of common concern.

That said, I think Iran is nervous about a long-term U.S. presence in Afghanistan. I think part of the reason we've engaged in these regional discussions is to try to be very transparent and clear about what this is and what it isn't.

BOIES: Yes, ma'am.

QUESTIONER: Stacia George with Georgetown University. And I've worked in Afghanistan before. I'm curious -- I think we can all agree the ANSF has made tons of progress both in capacity and size. But I'm also curious about the fact that the majority of the Afghan government's budget is donor funded. And the current size of the ANSF is not sustainable in the long term. And I'm just wondering how the long- term vision of that is being reconciled as you guys are planning for the ANSF.

FLOURNOY: We have put a huge amount of focus on the question of the ANSF sustainability in recent months.

First of all, I think that until the insurgency is more fully degraded, the Afghan forces will need a certain level of size and density, if you will. But we can all envision a point at which the insurgency really starts to substantially diminish, even more so than it has so far and that you could imagine at that point the Afghan government making a choice to go with a somewhat smaller force and one that would be more affordable. In the meantime, however, we're doing a couple of things for our part. We're working with them to really scrub the program of record to say, how do we put this on a more sustainable footing? And it's everything from construction standards, the complexity of sustainment going forward, whether you build -- use Afghan construction that sort of naturally uses adobe structures that keep things cool in the summer and warm in the winter versus lots of electrical systems and air conditioners or complex things that they'll have to keep up over time. So we're scrubbing the program with them, trying to make it more sustainable.

The other piece is that as we draw down over time, as our coalition partners draw down over time, we would like to see a reinvestment of some of that transition dividend into continued training and financial support for the ANSF. In fact, we have laid out a goal for our partners in ISAF to get to a billion Euros per year for the future. That remains a stretch goal at the moment but we are pushing very hard to meet that goal over time.

BOIES: We have time for three more questions if we hear all the questions at once. So the young man in the back and before you answer, I'm going to allow two more.

FLOURNOY: Okay. Sure.

QUESTIONER: Austin Ramsey (sp). I worked for General Petraeus in Afghanistan for the last year. My question is on strategic risk. I'm wondering can we achieve our objectives there if it turns out that Pakistan does in fact want to be a spoiler and they continue to actively support the Haqqani network. And if we can, what would that success look like?

BOIES: Another question. Yes, sir.

QUESTIONER: Michael Alderman, Albert Einstein College of Medicine. You haven't mentioned the opium issue at all. Does that remain an important factor in the Afghanistan equation? And how do you think it's impacting and will impact on the attainment of our objectives there? BOIES: Yes, sir. One last question.

QUESTIONER: Hi. (Inaudible) -- Technologies. The lack of a SOFA in Iraq hastened our departure there. Is there a corollary risk in Afghanistan?

FLOURNOY: Okay? So first, strategic risk and the potential for Pakistan to serve as a spoiler -- this is obviously a question on which we are intensely focused. I believe that we can be successful in Afghanistan even with some degree of continued safe haven in Pakistan, but it will be much more difficult and much more resource intensive to sustain that success. I think that we will continue to degrade the insurgency. We will continue to put pressure on these safe havens in a way that will reduce that threat.

Whether we can ultimately change, fundamentally change the situation is an open question. I believe though that if Pakistan sees that we are achieving our goals in Afghanistan, that we are not abandoning Afghanistan, they will have a fundamental choice of whether to be part of the solution or whether to be defined as part of the problem. And I think at that point, when those things are abundantly clear, we can certainly hope that they will throw their lot in with being part of a regional solution.

On opium, thank you for raising that. The drug problem is a very important element in Afghanistan. The funding that comes out, the nexus between the drug production and trade, the criminal patronage network and the insurgency is very, very tight. So if you want to take away the funding of the Taliban, the lawlessness that kind of creates an environment where the insurgency can take root and grow, you have to address the drug issue. I think it's been very well addressed in areas where we've had surge forces, where you've seen radical changes. It's being consciously addressed in our development activities where we're working with farmers on crop substitution and longer term sort of alternative livelihoods and so forth. But this will be an issue that it's moving in the direction, but, again, this is a year's long effort that will have to be sustained.

On the lack of SOFA, one of the elements of the strategic partnership is the commitment to negotiate a SOFA before the real shift in our focus from our current operations to a long-term advise and assist partnership. And so we hope that that will be an important part of ensuring that we can sustain the security dimension of the partnership over the years to come.

BOIES: And a SOFA is a --

FLOURNOY: I'm sorry -- status of forces agreement. It's basically the legal framework that we negotiate in any country where we have troops on their soil. It defines kind of our mutual legal obligations to one another.

BOIES: Well, Ms. Flournoy has to now return to her mountain and push that rock more and more.

FLOURNOY: My cave.

BOIES: We thank you for your time today and we really thank you for your service.

FLOURNOY: Thank you. (Applause.)

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THIS IS A RUSH TRANSCRIPT.

MARY BOIES: Thank you all for coming. Good morning. We are very lucky today to have with us Michele Flournoy, who's the under secretary of defense for policy. That makes her among the third highest ranking civilian officials in the Department of Defense. Indeed on policy matters, she's effectively the deputy and she is the one from the Defense Department who sits on the various deputies' committees. She was, prior to coming to the Defense Department, the president and co-founder of the Center for a New American Security. She had been a professor at the Institute of National Strategic Studies at the National Defense University. And you'll be happy to know she was a term member here at the Council. So this is where you will end up. (Laughter.)

Please turn off, not just put on vibrate, your cell phones, BlackBerrys, any wireless devices, so that we can avoid interference with the sound system. And I'd like to remind you that unlike most of this term conference, today's session is on the record.

Ms. Flournoy. (Applause.)

MICHELE FLOURNOY: Mary, thank you for that kind introduction. It's really wonderful to be back at CFR. As was mentioned, I, too -- one of my greatest claims to fame is that I, too, was once a term member here. And I once attended conferences like this and I'm just very, very pleased to see that Richard Haass, among all those who do great work here, has continued that wonderful tradition for the next generation.

I wanted to focus my comments this morning on the war in Afghanistan, where we are, where we've been, where we're going. Many of you read about last Saturday's attack in Kabul in which 10 Americans were killed and several Afghans and coalition partners in a suicide bombing where a truck struck one of our buses. And we were reminded on that occasion that we are still very much in harm's way in Afghanistan.

It also reminds us that the work of bringing about a peaceful and secure Afghanistan is far from complete. I know it seems, reading the papers, that there have been a lot of these reminders lately. Within the past two months, we've seen a September 10th vehicle bomb attack on one of our combat outposts in Wardak Province. We saw the September 13th attack against the U.S. embassy and our ISAF headquarters and other government buildings in Kabul. We saw the September 20th assassination attempt -- successful assassination of president -- former President Rabbani, the chairman of Afghanistan's High Peace Council. And now, last Saturday's attack, the deadliest single assault on Americans in Kabul since the war began.

In addition to these high-profile attacks, we've seen the continuation of two other factors that hinder our efforts in Afghanistan. The first is that the insurgency continues to benefit from sanctuaries and support inside Pakistan. This has contributed to the rise of cross-border incidents and the security situation in Regional Command East remains tenuous as a result. The second factor is the limited capacity of the Afghan government itself. Corruption remains a severe problem, as does the lack of progress in necessary political reforms.

All of these developments have caused some in the United States and in our partner countries to believe that our engagement in Afghanistan is doomed to a kind of futility, with our Afghan allies destined to fail, and the insurgency poised to regain control. What I want to do today is take advantage of this occasion to rebut this line of reasoning. I'll do so not simply by rehashing old talking points that you've heard before, but by trying to give you a sense of what the reality is on the ground today, a reality that I saw first-hand just a couple of weeks ago on my seventh trip to Afghanistan since 2009, and one that is detailed in our 1230 Report that the Department of Defense released last Friday. It's a good thick read, but I would encourage you all if you care about Afghanistan and what's going on there take a look and -- take a look and digest what's there.

The 1230 Report is a semi-annual document that's mandated by Congress on the state of progress towards achieving security and stability in Afghanistan. We've been putting this report out for a couple of years now, but this version, which deals with the six-month period between April and September of last -- of this year, is really rather noteworthy.

As many of you are well aware, the late spring and summer months of the traditional fighting season in Afghanistan, a period that is especially conducive to insurgent activity in a country where both physical terrain and -- where the physical terrain is difficult and the winters are very, very harsh.

In previous years, this has been the time of year when the insurgency in Afghanistan has tried to expand its reach and win back territory that it had lost to the coalition and the Afghan national security forces. But importantly that is not what happened is this year. In fact, the period that is covered by the latest 1230 Report says something pretty exceptional -- a reduction in the year-over-year violence in Afghanistan. This is something new.

For five consecutive years, enemy initiated attacks and overall violence had been rising substantially. For example, enemy initiated attacks increased from 2008 to 2009 by 88 percent. They went up by 94 percent in 2009 to 2010. But starting in May this past year, violence began going down compared to the previous year, and these declines continued throughout the summer fighting season.

In 21 of the last 27 weeks, the numbers of enemy initiated attacks were lower than the same weeks last year. This is the most sustained downturn in enemy initiated violence ever recorded by ISAF in Afghanistan.

So far this year, these attacks are down by 7.5 percent compared to the same time last year. The progress is even more significant in certain parts of the country, for example in Regional Command Southwest, home of several Taliban -- former Taliban strongholds, like the districts of Marjah, Nadali and Garmsir -- violence during the traditional height of the fighting season was down 43 percent from the same period last year, and it continues to drop. In short, contrary to what some opinion makers have said recently in the press and frankly the impressions that are created by these high-profile attacks, the momentum in Afghanistan has shifted and our strategy is working. We are seeking -- seeing undeniable progress on the security front, particularly in our core goal of disrupting, dismantling, and defeating al-Qaida and preventing restoration of its safe haven in Afghanistan.

We are degrading the insurgency and building up the Afghan security forces, and we are well into the process of transitioning substantial areas of the country to Afghan lead for security. But this progress on security has not occurred in isolation. It's part of a larger trend towards greater stability and expanded opportunity across the country.

This progress, as much as anything that's happened on the battlefield, is making it harder and harder for violent extremism to recapture the former strongholds, much less the loyalty of the Afghan people. Let me give you a few examples.

Access to basic education in Afghanistan has seen a dramatic increase since 2001 for all children, especially for girls. In August of this year, the Afghan Ministry of Education claimed that no girls had been enrolled in Afghan schools as of 2010 -- I'm sorry, 2002, and this would certainly be consistent with Taliban policy at the time. While we lack concrete data on the number of boys enrolled in Afghanistan schools during the Taliban regime, unverified reporting from the NATO side suggests that about 600,000 boys were in schools as of 2001. Contrast this with the total enrollment figure today of approximately 8 million students, about 37 percent of whom are female. By the way, the total enrollment number represents an 8.4 increase just in the past year.

To accommodate the swelling student population, the number of teachers has gone up more than eightfold, from only 20,000 nationwide at the beginning of 2002, to over 170,000, 30 percent of whom are women.

Consider health care. In 2002, only 9 percent of the Afghan population had access to basic health care services within two hours walking distance. Now, 85 percent live within one hour of a health care facility.

The basic improvement of everyday Afghan life shows up also in more mundane measures as well. For example, there were a grand total of 21,000 cell phone users in Afghanistan in 2001. Today there more than 12 million.

Afghan GDP growth has averaged 10 percent annually since 2002, driven by demand in the services sector and increased agricultural production. Official exports have grown at an annual rate of almost 30 percent since 2002. So these statistics offer some perspective and I believe some hope against the darker background of the recent attacks that we've read about and seen in Kabul and elsewhere. If anything, they should help us to see those attacks for what they are. With the loss of their former sanctuaries, with the failure of their spring and summer offenses, and perhaps most importantly with more and more Afghans seeing the extremist worldview as nothing but a brutal dead end, the Taliban are increasingly compelled to resort to high-profile efforts in an attempt to regain the momentum they have lost.

So I hope I've given you a clearer sense of where we are today in Afghanistan. What I'd like to do now is spend a minute looking at some of the factors that brought us here and that will provide the keys to continued progress.

First, I think it's fair to say that the major -- a major reason for the increase in security was President Obama's decision, in December, 2009, to surge military and civilian personnel into Afghanistan, joined by our coalition partners who also surged their forces. Undeniably the counterinsurgency efforts supported by these brave men and women sharply weakened the insurgency, particularly in southern Afghanistan.

However, it's also important to point out the growth in the size and the capability of the Afghan National Security Forces during the same period. At the end of September, the Afghan National Army had grown to more than 170,000 soldiers, while the national police stood at just over 136,000. Both the army and the police are well on their way to meeting their growth goals for 2012. Our joint efforts have enabled the ANSF to grow by the more than 100,000 people over the last two years, and this force has developed into the most reliable and respected institution inside Afghanistan.

While the sheer quantity of soldiers and policemen itself is important, it's certainly not sufficient -- not in a country where the uniform services have been hampered by attrition, illiteracy, resource shortages, corruption and occasionally infiltration by insurgents. The quality of the force matters greatly. And here too, we are seeing real progress.

When the NATO training mission Afghanistan began its mandatory literacy program, in 2009, there had been no prior systematic effort to train army and police personal for literacy, and 86 percent of new recruits at that time were illiterate. Since then, more than 120,000 soldiers and police have been educated by the Afghan National Security Forces Literacy Program, helping to build a much more literate and capable force. Based on the current estimates, about half of the ANA and ANP enlisted members and NCOs are literate to at least the first grade level. That's quite an achievement in a country where the literacy rate in the 18-to 40-year-old category is only 14 percent. This improvement in skills has elevated operational capacity and it's become a major incentive in recruiting. Within the Afghan National Army, the number of units that are now rated as effective with assistance or higher rose from 52 percent last year to 72 percent this year. Similarly for the Afghan National Civil Order Police, the most elite arm of the police, this figure went from 40 percent last year to 70 percent this year. That said, there's no doubt that the ANSF continues to face serious challenges.

The force still requires significant coalition support and that will be true for some time as we -- as they will take several years to build the enabler support in terms of medical and lift and so forth. It also continues to be threatened in some parts by the influence of criminal patronage networks that frankly plague Afghan society writ large.

It is promising that the ANSF continues to improve despite these challenges. It is taking the lead in a growing number of operations, most notably the first Afghan-led battalion level operation in Helmand Province occurred this past summer.

With an increasingly capable ANSF, the Afghan government has been able to begin the process of transition, transitioning areas across the country to Afghan lead for security, a process that began this past summer and will continue through the end of 2014. As a result, about 25 percent of the Afghan population today lives in areas where their own countrymen are providing the lead for security.

The Afghan government will soon announce a second tranche of areas to be transitioned, and this will raise this figure to approximately 50 percent of the population living in areas where Afghan forces are in the lead.

In short, we are on track to fulfill our security goals laid out at the NATO summit in Lisbon last November, which would put the ANSF in the lead across the country by the end of 2014. This is a very deliberate process governed by improvement in security situation on the ground and the improvement of the ANSF. As the insurgency continues to diminish and the Afghan forces strengthen in their own position across the country, we and our coalition partners will continue to hand over lead responsibility to the ANSF and start to bring our troops home.

As you know, President Obama announced that the recent security progress and the increasing capacity and capability of the ANSF have allowed us to begin to recover the surge forces we sent in. Ten thousand U.S. troops will be redeployed by the end of this year and another 23,000 personnel will be brought home by the end of September of next year. This process of security transition is running in parallel with political and economic development efforts in Afghanistan. These factors, of course, cannot be viewed in isolation from one another. As violence continues to abate, the political and economic conditions in the country will improve, which will in turn likely diminish the attractiveness of joining or supporting the insurgency.

One example of this is a nascent reintegration process. The Afghan Peace and Reintegration Program, established by President Karzai in 2010, continues to complement our security gains by removing insurgents from the battlefield. The number of fighters who've laid down their arms and come off the battlefield has increased substantially this year. Progress in key strategic areas, however, has been limited by a lack of institutional capacity, and the results are not yet strategically significant. That said, we expect this program to grow in the future.

We are seeing some movement in the right direction.

By the end of the reporting period that the 1230 Report covers, the program had formally integrated almost 2,500 insurgents countrywide, up from only 700 or so last March. But the reconciliation of former insurgents is only part of the challenge the Afghan government faces in building its credibility with the Afghan people.

As I mentioned earlier, corruption remains a very serious problem, as do the issues of governmental capacity and accountability. Here too, though, we've seen some progress and we're seeing it where it matters most, in Afghan society, at the village and district level, where the national government is taking some meaningful steps to build its connection to the people literally where they live. For example, the National Solidarity Program, funded by a grant from the World Bank has now entered its third phase of block grants. This program is teaching communities how to select representatives, set priorities for their development needs, and oversee the resulting programs.

Over 28,000 villages across Afghanistan are now active in the program with over $890 million in block grants dispersed so far and another $40 million on the way.

The Afghan government is also encouraging this establishment of representative elected district councils to take on roles such as informal dispute resolution, reintegration of former insurgents, and leading to the establishment of over 100 new district councils in areas without any previous form of representative government.

The Afghan local police is another locally focused program that is forging new links between the government and the people as citizens take responsibility for the protection for their own communities.

When you take a step back and consider these and other programs, you realize that the Afghan people today have a greater say over their own affairs than at any time in the last 30 years.

So let me conclude with what's -- a word about what's coming next. I want to emphasize an absolutely crucial point, especially as we begin to drawdown our surge forces. We have no intention of abandoning Afghanistan. We have done that before with terrible consequences. It is a mistake that won't be repeated.

Approximately 68,000 U.S. troops, however, will still be in Afghanistan following this period of the drawdown. While those force levels will gradually decrease, the United States remains committed to the long-term security and stability of Afghanistan, and negotiations are progressing on a long-term strategic partnership between the United States and Afghanistan. While this partnership will have an important security dimension, it is our intent to place ever greater emphasis on economic development, trade, cultural exchanges, diplomatic cooperation.

A great example of this has been the Task Force on Business Stability Operations, a program in which American public servants assist Afghan government officials in identifying and maximizing Afghanistan's economic potential. The task force's initiatives range from cataloging the vast mineral wealth in Afghanistan to a partnership with Silicon Valley entrepreneurs to develop Afghan technology incubators.

The Afghan people and the American people have shared a great deal over the past decade, including a great deal of sacrifice. The histories of our two nations have been -- become very intertwined. We have come to know an Afghanistan that is resilient and proud and deeply committed to taking its rightful place in the international community after decades of war and isolation, and we share the common core goal of disrupting and defeating the transnational terrorist threat that emanates from that region.

We look forward to helping Afghanistan achieve that very attainable goal. And this report that we've released offers concrete evidence of the fact that we are on track to do just that.

So with that, let me say thank you, and I look forward to our discussion and Q&A. Thanks. (Applause.)

BOIES: Thank you very much. You're a very talented and experienced woman, and you could work anywhere you want, and you've chosen public service. So first, we thank you for that and I hope that those -- particularly the young people in the audience will find inspiration in the good work that she does.

You mentioned that the report identified as one of the largest risks to a stable Afghanistan is the insurgency's safe havens in Pakistan. Now, many commentators believe that Pakistan is directly invested in Afghanistan's failure and that Pakistan does not want a secure and stable Afghanistan on its western border, especially one with close ties to its arch foe, India, and that that's one reason that Pakistan is using the Haqqani Network and other insurgents to foment instability. Are these commentators wrong?

FLOURNOY: Let me start by saying the safe havens along the border between Afghanistan and Pakistan are a very serious problem, and they are at the top of our agenda in our engagement with the Pakistani government. These are under governed areas where frankly the central government of Pakistan doesn't have much control, but they're -- but there are groups operating in these areas -- a sort of witches brew of militant groups that do very much pose a threat, not only to our campaign in Afghanistan and Afghans future stability, but also I would argue to the future stability and viability of Pakistan itself.

So we are engaged in a very candid and intensive discussion with Pakistan about how we, together, can deal with some of these groups. We believe that it's in Pakistan's interest to have a friendly, stable, and secure Afghanistan on its border, but that's not something they've experienced historically for a very long time. So we have a lot of work to do to convince them that that outcome as possible and that it's something that they should be part of achieving.

BOIES: We, the U.S. and our coalition partners have been trying for years to get the Pakistanis to go into the North Waziristan and clear out the insurgents there, much as they did in the Swat Valley and South Waziristan. So far we've seen -- as far as I know -- no movement there. Is it not -- is it possible to convince the Pakistanis to go after the Haqqani Network because, as many believe, it's in their self-interest to have that network active. They go into these other places -- South Waziristan and the Swat Valley, because those terrorists attacked Pakistan itself. But as long as Haqqani Network is focused on cross border attacks, does Pakistan really have an incentive to go after them?

FLOURNOY: Well I think that, again, this is an area where we've been in serious discussions with Pakistan. As you noted, starting in 2009, they conducted a number of offensives to clear out areas like Swat Valley and so forth. I don't think many people know that in the course of these various operations and in several years of counterterrorism effort, Pakistan actually lost more than 10,000 civilians and 30,000 military personnel. So they have paid a very heavy price for terrorism on their soil.

We have been talking with them about the need to do more in this area. It is unacceptable to us to have pockets along the border where militants come across and attack Afghans, attack U.S. interests, the embassy for example, attack our soldiers. We want to do this in cooperation with Pakistan that this has become a serious force protection issue for us, and we will pursue means necessary to deal with this problem.

BOIES: The United States has decided to entertain talks with the Haqqani Network and this, I believe, is a fairly significant shift in U.S. policy. Even assuming we can reach agreement, how can we sustain it without large and sustained troop presence?

FLOURNOY: Well, first of all, I think every -- even our most senior military commanders would say that there is no purely military solution to this conflict or frankly any conflict. Ultimately there has to be a political end game, a political process that resolves differences. I think the early efforts at reconciliation talks -- they're not even talks yet, really. They're really probes. We have not prejudged the outcome. We have not prejudged who we should talk to. The door is open in terms of -- it's an Afghan-led process, but the door is open for any part of the insurgency that is willing to engage in genuine dialogue.

I think ultimately they will separate themselves into categories of those who are reconcilable, who want to lay down their arms, renounce al-Qaida, come back, and be reintegrated into Afghan society, and those who are fundamentally irreconcilable, who are never going to stop, but reconciliation will be a key part of degrading the insurgency to levels that the Afghans can manage over time.

We're in the early days of this process. As I said, we're working very closely with the Afghan government in this, but we do believe that this will be a key part of the solution. Ultimately, whatever political settlement is reached in Afghanistan -- you made an important point -- it's going to have to be supported and enforced by the regional neighbors, by the international community, and that's why a lot of our diplomacy is focused on the neighbors and trying to get them on the side of supporting an outcome as opposed to acting as spoilers.

BOIES: And the second challenge that the report identifies to a stable Afghanistan is the limited capacity of the Afghan government, and the report goes so far as to say that the Afghan government, quote, "continues to lack the resolve to address many corruption issues." Now, you mentioned the National Solidarity Program as an important tool in villages to fight corruption, as well as begin economic and other development, but what about corruption at the very top? Have you seen any resolve there or even any indication there that the government will take on the issue of corruption? Because without the rule of law and good governance, whatever gains we make cannot continue.

FLOURNOY: I think we have seen some progress, but a lot -- frankly there's a lot -- a long way still to go. We have been working with a number of the ministries -- we, not DOD, but the U.S. government -- to put in place a series of transparency and accountability measures, so that once they put those in place, they're validated, we can actually flow more of our assistance dollars through the Afghan government itself, rather than doing private grants. There's been substantial progress in that area.

Another example is the Kabul Bank crisis. I think this became sort of the poster child of corruption in Afghanistan and such a clear problem for the most senior levels of the Afghan government, that they came to understand that unless they start to address this corruption head-on, the systemic corruption, they're going to lose international support and assistance.

And so I think you've seen the Afghans in recent weeks and months take a number of steps that will ultimately enable them to sit down with the IMF and negotiate a deal moving forward. But I think it's been a very hard road for them, many more miles to be traveled. But I think the connection between dealing with corruption and winning a sort of place of legitimacy in the eyes of your population, that connection is finally being made by a number of senior Afghans.

BOIES: Okay. I see that the clock says that it is time to open up the floor to the participants. Please when I call on you, stand, state your name and affiliation. And if you would, have a nice, brief question so that we can get as many as possible.

Okay. Yes, sir.

QUESTIONER: Thank you, Ms. Flournoy, your comments are very informative. My name is Roland Paul. I'm a lawyer. Long time ago I was at the Pentagon myself in OSD. You said that the Afghan national forces would be in the lead by 2014, but I thought, according to press accounts, it's the administration's policy to withdraw all American combat troops by the end of 2014. And I wondered if that's just my misunderstanding. But if it is true, isn't it really bad strategy that's been trumped by domestic political reasons to withdraw all those troops by then? Thank you.

FLOURNOY: So the plan was laid out at the NATO Summit in Lisbon. And what it calls for is the transition process where we're transferring lead responsibility for security to the Afghans to be completed by the end of 2014. And we believe we're on track to do that.

That said, the Afghan forces at that time will be largely infantry battalions, police and so forth. They are still going to need support from the international community in terms of enablers, such as mobility, intelligence, surveillance reconnaissance and so forth. So it will take some time before they have all the enablers necessary. So they're going to need some support. They're also going to need continued advising and assisting.

And so we and NATO also have been negotiating strategic partnership agreements with the Afghan government that would lay out an enduring strategic partnership far into the future. Obviously, that will have economic dimensions, diplomatic, other dimensions.

But one of the dimensions on the security side is, at the invitation of the Afghan government, we will continue to have a partnership force in place that really provides advising, assisting, support, continued support to the Afghan National Security Forces for quite some time. So 2014 is not a withdrawal date. It's an inflexion point where we put -- where Afghans are firmly in the lead and we step back into a consistently supporting role but at much lower numbers of troops.

BOIES: Yes, ma'am.

QUESTIONER: Hello. Hi. My name is Silvana Senja (ph), and I have spent two of the last three years working in Afghanistan. I just got back working on rule of law issues for the U.S. Institute of Peace.

And in connection with the Kabul Bank scandal which you mentioned, my understanding from colleagues, from Afghan colleagues, is that the Attorney General's Office in Kabul has the names of approximately 40 people who are implicated in the scandal and that that list includes people very senior within the Karzai government, even up to the vice president level and people related to him.

While we at least have a presence there, has there been any effort to try to make those names public? It seems the decision on the part of the U.S. government has been to sort of look past that. But that also seems to be consistent with what's happening with APRP. And what is the thinking behind that I guess is my question.

FLOURNOY: So we certainly haven't overlooked it. We believe that it's very important for both transparency and accountability for charges to be made against people that the Afghan government believes is responsible for the corruption and what's happened at the Kabul Bank. We think that that is for the Afghan government to do and it's very important that the Afghan government release those names, pursue those individuals and the legal process against them.

This remains a continued part of not only our conversations with the Afghans but the IMF's conversation with the Afghans. But there are a number of steps that the IMF has set out to say, these are the things you need to do to be able to have continued international financial support. There's been some progress made along those steps, but more to be done, including the one that you mentioned.

BOIES: Has the United States indicated that it will reduce its support if progress in this area is not made?

FLOURNOY: We have made it very clear to President Karzai that it was difficult for us to imagine gaining congressional support for continued financial assistance and/or frankly signing a strategic partnership agreement without meaningful progress on the Kabul Bank and other corruption issues. We believe that a number of steps have been taken and that we are moving in the right direction. Again, not enough yet. We're continuing to press this issue. But I think that the linkage between performance on this issue and our ability to sustain our own domestic protocol support for a long-term relationship with Afghanistan, that linkage exists. It's a reality. BOIES: Yes, sir, with the yellow tie.

QUESTIONER: Hi. Jim Morin. I'm an attorney with Cooley. And I served in Afghanistan several years ago. And all of my colleagues that also served, we all take away the same frustration with the lack of developmental support, reconstruction support from other parts of the government.

So when I first left active duty I attended a session you had on Goldwater-Nichols Two which was really encouraging to me.

I was wondering if you could have -- give us an update on the status of that whole of government approach and the structural reforms you were advocating at the time.

FLOURNOY: Well, first let me say that I think the imbalances in our ability to provide funding across the development demand for Afghanistan is not for any lack of effort or will on the part of the State Department and USAID. It is the fact that these agencies are funded at just a fraction of the level of funding that the Department of Defense has traditionally enjoyed.

The politics on Capitol Hill of funding U.S. service men and women, on one hand -- very patriotic thing to do -- versus funding foreign development assistance, they're very different.

And, frankly, the civilian side of our government has really struggled to get the funding levels that would allow us to have a sort of comprehensive and cohesive approach to these problem sets that really require integrated whole of government strategy. That said, we have worked very hard on this. We've made some progress. My worry is that in the current budgetary climate that imbalance that all of this funding is going to be under the knife, if you will, and that the civilian side will be cut disproportionately.

So I think this problem is going to be with us for some time. But, you know, again, it's caused us to really scrub our efforts, to prioritize and to focus on where we think we really are making the biggest difference with our investments.

BOIES: If the congressional committee on the budget doesn't reach agreement by the end of this month, I guess, what will the effect be on the Pentagon?

FLOURNOY: Absolutely devastating.

BOIES: Can you explain?

FLOURNOY: Yes. The Congress has asked the Pentagon to find more than $450 billion of cuts over the next 10 years. We are, under Secretary Panetta's leadership, undertaking a deeper view of our entire budget from a very strategy driven approach.

I mean, the cuts are so significant that we really had to kind of go back to first principles of what are American interests, what are the priority missions for the U.S. military, what do we think the future is going to look like, and so forth. So are in the process of doing that. And I think we're going to have to make some very, very hard choices just to get to that target.

If the super committee fails to reach agreement and we go into sequestration, it will be devastating for not only the Department of Defense, but the U.S. government, and I believe our ability to protect and advance U.S. interests around the world.

Sequestration requires you take across the board cuts. So every shipbuilding, every aircraft building, every maintenance, every training, every program in the DOD budget will be simultaneously broken by having to take a chunk out of it. It does not allow you to make considered strategy driven cuts. It requires across the board salami slicing.

It will have very dire impacts. And so write your congressman and make it clear that we can't allow sequestration to happen.

BOIES: Yes, sir, in the back.

QUESTIONER: Bart Szewzyk, WilmerHale and GW Law School. You mentioned the importance for the Afghan government to establish legitimacy among its populous. When will we know that it has established that legitimacy? What metrics or measures would you need to be confident that the Afghan government has that legitimacy and that we can actually rely on it?

FLOURNOY: I think that has to start at the level where most Afghans experience government, which is at the local and the district level.

And, again, one of the reasons why I tend to be more hopeful about Afghanistan is that whenever I go there, I get out of Kabul and I go to the local level, and you see communities that for the first time in years are experiencing some semblance of security. Their economy is starting to revive. They have a district government for the first time ever who actually is listening to them, understanding that part of his job is not just to benefit from his position but to actually try to provide basic services to the community and their mechanisms for holding that person accountable.

That is happening at the local level across the country and it is the beginnings of the legitimacy that has to take hold at higher levels. You see it in some areas at the provincial level where you have governors who get it and who are really transforming their provinces based on the needs of their people. That is a process that will take many years, but gives me a great deal of hope.

You also at the national level have the emergence of legitimacy of institutions. And here opinion polling is telling us, a recent opinion poll, the Afghan people, 85 percent expressed confidence in the Army; 81 percent expressed confidence in the police. That is remarkable. I mean, if you did a free word association with most Afghans five years ago and you said corruption, the first word out of their mouth would be police. So this is a dramatic change. And, again, holds a lot of promise. But a lot more has to be done to shore up that legitimacy, make that connection.

BOIES: Yes, sir. Yes.

QUESTIONER: Hi. Asim Rehman with MetLife. Thanks for your comments. How are we doing on reducing the threat of an attack on the United States that's originated from Afghan or the region? You did provide metrics on how we've done with securing the country and securing the region, but are those the same metrics, or are there different metrics for protecting us from an attack? And if there are different metrics, what more needs to be done to protect us from an attack that would originate from that country?

FLOURNOY: Well I think we do -- another metric or set of metrics relate to the state of core al-Qaida and the al-Qaida affiliates that have expressly either stated the intent or shown their capability to try to conduct attacks in the American homeland.

Our principal concerns right now are the core al-Qaida elements that remain in the Afghan-Pakistan border region and the al-Qaida affiliate in Yemen. I think particularly against core al-Qaida in Pakistan and Afghanistan, they have suffered some pretty devastating blows, not only the death of bin Laden, but since -- based on the intelligence claimed from that operation, three of the most senior operatives in that chain of command have also died since then. We continue, frankly, with the cooperation of the Pakistani government, to put relentless pressure on core al-Qaida in the region.

In Yemen, similarly working with the Yemeni government -- although, obviously, the broader political context there is making this more difficult -- we are putting pressure on al-Qaida in the Arabian Peninsula as well and with the Yemeni government in the lead in those operations.

So we have our eye on the ball here. And our greatest focus, our most sustained focus is on the elements of al-Qaida that still have the will and capability to reach across and actually target Americans here at home.

BOIES: As you may have guessed, I'm looking for term members. So if you look like me, you're less likely to get called on. (Laughter.) The young lady all the way in the back. QUESTIONER: Thanks. Hi, I'm Farah Stockman with the Boston Globe. And I've spent some time in Afghanistan and Pakistan. And nothing drives Pakistani military or intelligence crazier than the idea of India and Afghanistan on their border and its consulates. And I was just wondering if you could say a few words about the U.S. position on this and whether the United States is saying anything at all to India about what it's doing in Afghanistan or is it basically the U.S. position that India is a separate country and that's not something we talk to them about?

FLOURNOY: I think that Afghanistan needs to develop positive relationships with all of its neighbors. The Afghans and the Indians have recently signed a strategic partnership of their own. We have not seen the details of that document, but our understanding is that India is primarily at this point providing a great deal of development assistance to Afghanistan in the transportation and infrastructure sectors, and so forth.

I think India has actually been very careful, very mindful of the fact that Pakistan is sensitive to the types of assistance it provides to the Afghans. It has consciously chosen not to take a major role, for example, in the training and development of the security forces. They have a small police training program for female police officers in India.

But they really have chosen to stay away from that effort in order not to exacerbate Pakistan's concerns. So I think they've taken a very responsible approach. Their development assistance is extremely positive and helpful in the country. And, ultimately, this is between Afghanistan and India. But we've seen them take a very carefully calibrated and helpful role to date.

BOIES: Yes.

QUESTIONER: Hi. My name is Laura Herman with FSG. I'm wondering if you could comment on the possibility of success if we were to condition more of our aid to Pakistan in the hopes that it would encourage them to be more successful in the border region in ridding them of insurgents. Is that something that is on the table? Is it a serious consideration? Do you think it's likely to succeed?

FLOURNOY: We have experienced what happens when you go all the way to the extreme of cutting off aid. And it's not a -- that experiment didn't turn out so well. So we believe that breaching -- cutting off assistance, breaching the relationship is not a recipe for getting to -- advancing our objectives in the region.

That said, we have -- again, had a very candid discussion with Pakistan about the kinds of things -- the kind of cooperation we need to see from them to be able to deliver assistance. I mean, we live in a democracy. Congress gets the vote. They get the decisive vote, right?

And so we -- the fact is that even though we have several billions of dollars of security assistance in the pipeline, very little of that is being delivered now because, for example, most of our equipment deliveries require training at the receiving end. Well, Pakistan, in the wake of the bin Laden raid and other things, asked us to pull all our trainers back. So we can't train on the equipment so we can't deliver the equipment. So that right there is blocking the delivery of a lot of assistance that's already in the pipeline.

In addition, we have some financial payments so, frankly, reimbursement moneys that we owe them. We have not released the last two quarters of those funds because we need to see concrete progress on some of our counterterrorism objectives together.

So I don't think a blunt, you know, heavy-handed legislative conditioning of this would be helpful, but I think a very carefully calibrated approach that calibrates the release of aid to progress towards common objectives can be useful.

BOIES: Do you have a question?

QUESTIONER: Tom Graham, Brookhaven National Lab. Do you see any indication at the two-star, three-star level inside Pakistan that any military officers are looking at their relationship vis-a-vis India and saying, this is not a game that's in our national interest. We really need to start thinking of some Pakistani ideas so that it's not just the Americans telling the Pakistanis, look, you need to actually rethink your own threat perspective, or is this something that's going to take a generational change from the Pakistani perspective?

FLOURNOY: You know, I see some early efforts to -- on the part of both officials in India and Pakistan to restart their dialogue in a serious way to get back to discussing confidence building measures. We're cautiously optimistic about that process.

I don't know if -- I don't see -- I have not personally seen the impetus for that coming from the ranks of the military at this point. You know, I think there is a generation of officers there that, frankly, because of the cutoff of our relationship in a certain period we lost visibility into them. And that is the generation that's now rising into this sort of one-star, two-star ranks. And so it's hard for us to have a good feel for that.

But I do see at the highest levels, on the civilian side in particular but also some in the military, there is an effort to reopen the discussions with India. I think they realize there's value in trying to make some progress to rebuild some confidence.

BOIES: Yes, sir.

QUESTIONER: Joel Hemming (sp) with Open Revolution. Secretary Flournoy, we've talked about India a little, India and India's interest in Afghanistan. Could you characterize Iran's interests in Afghanistan, specifically their perspective of our drawdown and our plans there for the future of Afghanistan?

FLOURNOY: Iran has long had serious economic trade with -- (audio break) -- Afghanistan and I think that continues to this day. I think from what we can tell Iran is very nervous about a long-term U.S. presence.

And, you know, we are openly talking about the strategic partnership that we are working towards with the Afghans. We have openly acknowledged that at the invitation of the Afghan government we will -- we do envision military trainers, advisers, forces assisting for a number of years to come.

But we're also been very clear that we are not seeking any permanent U.S. bases in Afghanistan. We do not seek to threaten any of Afghanistan's neighbors with our forces, that this will be at the invitation of the Afghan government focused on building their security forces and addressing issues of common concern.

That said, I think Iran is nervous about a long-term U.S. presence in Afghanistan. I think part of the reason we've engaged in these regional discussions is to try to be very transparent and clear about what this is and what it isn't.

BOIES: Yes, ma'am.

QUESTIONER: Stacia George with Georgetown University. And I've worked in Afghanistan before. I'm curious -- I think we can all agree the ANSF has made tons of progress both in capacity and size. But I'm also curious about the fact that the majority of the Afghan government's budget is donor funded. And the current size of the ANSF is not sustainable in the long term. And I'm just wondering how the long- term vision of that is being reconciled as you guys are planning for the ANSF.

FLOURNOY: We have put a huge amount of focus on the question of the ANSF sustainability in recent months.

First of all, I think that until the insurgency is more fully degraded, the Afghan forces will need a certain level of size and density, if you will. But we can all envision a point at which the insurgency really starts to substantially diminish, even more so than it has so far and that you could imagine at that point the Afghan government making a choice to go with a somewhat smaller force and one that would be more affordable. In the meantime, however, we're doing a couple of things for our part. We're working with them to really scrub the program of record to say, how do we put this on a more sustainable footing? And it's everything from construction standards, the complexity of sustainment going forward, whether you build -- use Afghan construction that sort of naturally uses adobe structures that keep things cool in the summer and warm in the winter versus lots of electrical systems and air conditioners or complex things that they'll have to keep up over time. So we're scrubbing the program with them, trying to make it more sustainable.

The other piece is that as we draw down over time, as our coalition partners draw down over time, we would like to see a reinvestment of some of that transition dividend into continued training and financial support for the ANSF. In fact, we have laid out a goal for our partners in ISAF to get to a billion Euros per year for the future. That remains a stretch goal at the moment but we are pushing very hard to meet that goal over time.

BOIES: We have time for three more questions if we hear all the questions at once. So the young man in the back and before you answer, I'm going to allow two more.

FLOURNOY: Okay. Sure.

QUESTIONER: Austin Ramsey (sp). I worked for General Petraeus in Afghanistan for the last year. My question is on strategic risk. I'm wondering can we achieve our objectives there if it turns out that Pakistan does in fact want to be a spoiler and they continue to actively support the Haqqani network. And if we can, what would that success look like?

BOIES: Another question. Yes, sir.

QUESTIONER: Michael Alderman, Albert Einstein College of Medicine. You haven't mentioned the opium issue at all. Does that remain an important factor in the Afghanistan equation? And how do you think it's impacting and will impact on the attainment of our objectives there? BOIES: Yes, sir. One last question.

QUESTIONER: Hi. (Inaudible) -- Technologies. The lack of a SOFA in Iraq hastened our departure there. Is there a corollary risk in Afghanistan?

FLOURNOY: Okay? So first, strategic risk and the potential for Pakistan to serve as a spoiler -- this is obviously a question on which we are intensely focused. I believe that we can be successful in Afghanistan even with some degree of continued safe haven in Pakistan, but it will be much more difficult and much more resource intensive to sustain that success. I think that we will continue to degrade the insurgency. We will continue to put pressure on these safe havens in a way that will reduce that threat.

Whether we can ultimately change, fundamentally change the situation is an open question. I believe though that if Pakistan sees that we are achieving our goals in Afghanistan, that we are not abandoning Afghanistan, they will have a fundamental choice of whether to be part of the solution or whether to be defined as part of the problem. And I think at that point, when those things are abundantly clear, we can certainly hope that they will throw their lot in with being part of a regional solution.

On opium, thank you for raising that. The drug problem is a very important element in Afghanistan. The funding that comes out, the nexus between the drug production and trade, the criminal patronage network and the insurgency is very, very tight. So if you want to take away the funding of the Taliban, the lawlessness that kind of creates an environment where the insurgency can take root and grow, you have to address the drug issue. I think it's been very well addressed in areas where we've had surge forces, where you've seen radical changes. It's being consciously addressed in our development activities where we're working with farmers on crop substitution and longer term sort of alternative livelihoods and so forth. But this will be an issue that it's moving in the direction, but, again, this is a year's long effort that will have to be sustained.

On the lack of SOFA, one of the elements of the strategic partnership is the commitment to negotiate a SOFA before the real shift in our focus from our current operations to a long-term advise and assist partnership. And so we hope that that will be an important part of ensuring that we can sustain the security dimension of the partnership over the years to come.

BOIES: And a SOFA is a --

FLOURNOY: I'm sorry -- status of forces agreement. It's basically the legal framework that we negotiate in any country where we have troops on their soil. It defines kind of our mutual legal obligations to one another.

BOIES: Well, Ms. Flournoy has to now return to her mountain and push that rock more and more.

FLOURNOY: My cave.

BOIES: We thank you for your time today and we really thank you for your service.

FLOURNOY: Thank you. (Applause.)

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THIS IS A RUSH TRANSCRIPT.

MARY BOIES: Thank you all for coming. Good morning. We are very lucky today to have with us Michele Flournoy, who's the under secretary of defense for policy. That makes her among the third highest ranking civilian officials in the Department of Defense. Indeed on policy matters, she's effectively the deputy and she is the one from the Defense Department who sits on the various deputies' committees. She was, prior to coming to the Defense Department, the president and co-founder of the Center for a New American Security. She had been a professor at the Institute of National Strategic Studies at the National Defense University. And you'll be happy to know she was a term member here at the Council. So this is where you will end up. (Laughter.)

Please turn off, not just put on vibrate, your cell phones, BlackBerrys, any wireless devices, so that we can avoid interference with the sound system. And I'd like to remind you that unlike most of this term conference, today's session is on the record.

Ms. Flournoy. (Applause.)

MICHELE FLOURNOY: Mary, thank you for that kind introduction. It's really wonderful to be back at CFR. As was mentioned, I, too -- one of my greatest claims to fame is that I, too, was once a term member here. And I once attended conferences like this and I'm just very, very pleased to see that Richard Haass, among all those who do great work here, has continued that wonderful tradition for the next generation.

I wanted to focus my comments this morning on the war in Afghanistan, where we are, where we've been, where we're going. Many of you read about last Saturday's attack in Kabul in which 10 Americans were killed and several Afghans and coalition partners in a suicide bombing where a truck struck one of our buses. And we were reminded on that occasion that we are still very much in harm's way in Afghanistan.

It also reminds us that the work of bringing about a peaceful and secure Afghanistan is far from complete. I know it seems, reading the papers, that there have been a lot of these reminders lately. Within the past two months, we've seen a September 10th vehicle bomb attack on one of our combat outposts in Wardak Province. We saw the September 13th attack against the U.S. embassy and our ISAF headquarters and other government buildings in Kabul. We saw the September 20th assassination attempt -- successful assassination of president -- former President Rabbani, the chairman of Afghanistan's High Peace Council. And now, last Saturday's attack, the deadliest single assault on Americans in Kabul since the war began.

In addition to these high-profile attacks, we've seen the continuation of two other factors that hinder our efforts in Afghanistan. The first is that the insurgency continues to benefit from sanctuaries and support inside Pakistan. This has contributed to the rise of cross-border incidents and the security situation in Regional Command East remains tenuous as a result. The second factor is the limited capacity of the Afghan government itself. Corruption remains a severe problem, as does the lack of progress in necessary political reforms.

All of these developments have caused some in the United States and in our partner countries to believe that our engagement in Afghanistan is doomed to a kind of futility, with our Afghan allies destined to fail, and the insurgency poised to regain control. What I want to do today is take advantage of this occasion to rebut this line of reasoning. I'll do so not simply by rehashing old talking points that you've heard before, but by trying to give you a sense of what the reality is on the ground today, a reality that I saw first-hand just a couple of weeks ago on my seventh trip to Afghanistan since 2009, and one that is detailed in our 1230 Report that the Department of Defense released last Friday. It's a good thick read, but I would encourage you all if you care about Afghanistan and what's going on there take a look and -- take a look and digest what's there.

The 1230 Report is a semi-annual document that's mandated by Congress on the state of progress towards achieving security and stability in Afghanistan. We've been putting this report out for a couple of years now, but this version, which deals with the six-month period between April and September of last -- of this year, is really rather noteworthy.

As many of you are well aware, the late spring and summer months of the traditional fighting season in Afghanistan, a period that is especially conducive to insurgent activity in a country where both physical terrain and -- where the physical terrain is difficult and the winters are very, very harsh.

In previous years, this has been the time of year when the insurgency in Afghanistan has tried to expand its reach and win back territory that it had lost to the coalition and the Afghan national security forces. But importantly that is not what happened is this year. In fact, the period that is covered by the latest 1230 Report says something pretty exceptional -- a reduction in the year-over-year violence in Afghanistan. This is something new.

For five consecutive years, enemy initiated attacks and overall violence had been rising substantially. For example, enemy initiated attacks increased from 2008 to 2009 by 88 percent. They went up by 94 percent in 2009 to 2010. But starting in May this past year, violence began going down compared to the previous year, and these declines continued throughout the summer fighting season.

In 21 of the last 27 weeks, the numbers of enemy initiated attacks were lower than the same weeks last year. This is the most sustained downturn in enemy initiated violence ever recorded by ISAF in Afghanistan.

So far this year, these attacks are down by 7.5 percent compared to the same time last year. The progress is even more significant in certain parts of the country, for example in Regional Command Southwest, home of several Taliban -- former Taliban strongholds, like the districts of Marjah, Nadali and Garmsir -- violence during the traditional height of the fighting season was down 43 percent from the same period last year, and it continues to drop. In short, contrary to what some opinion makers have said recently in the press and frankly the impressions that are created by these high-profile attacks, the momentum in Afghanistan has shifted and our strategy is working. We are seeking -- seeing undeniable progress on the security front, particularly in our core goal of disrupting, dismantling, and defeating al-Qaida and preventing restoration of its safe haven in Afghanistan.

We are degrading the insurgency and building up the Afghan security forces, and we are well into the process of transitioning substantial areas of the country to Afghan lead for security. But this progress on security has not occurred in isolation. It's part of a larger trend towards greater stability and expanded opportunity across the country.

This progress, as much as anything that's happened on the battlefield, is making it harder and harder for violent extremism to recapture the former strongholds, much less the loyalty of the Afghan people. Let me give you a few examples.

Access to basic education in Afghanistan has seen a dramatic increase since 2001 for all children, especially for girls. In August of this year, the Afghan Ministry of Education claimed that no girls had been enrolled in Afghan schools as of 2010 -- I'm sorry, 2002, and this would certainly be consistent with Taliban policy at the time. While we lack concrete data on the number of boys enrolled in Afghanistan schools during the Taliban regime, unverified reporting from the NATO side suggests that about 600,000 boys were in schools as of 2001. Contrast this with the total enrollment figure today of approximately 8 million students, about 37 percent of whom are female. By the way, the total enrollment number represents an 8.4 increase just in the past year.

To accommodate the swelling student population, the number of teachers has gone up more than eightfold, from only 20,000 nationwide at the beginning of 2002, to over 170,000, 30 percent of whom are women.

Consider health care. In 2002, only 9 percent of the Afghan population had access to basic health care services within two hours walking distance. Now, 85 percent live within one hour of a health care facility.

The basic improvement of everyday Afghan life shows up also in more mundane measures as well. For example, there were a grand total of 21,000 cell phone users in Afghanistan in 2001. Today there more than 12 million.

Afghan GDP growth has averaged 10 percent annually since 2002, driven by demand in the services sector and increased agricultural production. Official exports have grown at an annual rate of almost 30 percent since 2002. So these statistics offer some perspective and I believe some hope against the darker background of the recent attacks that we've read about and seen in Kabul and elsewhere. If anything, they should help us to see those attacks for what they are. With the loss of their former sanctuaries, with the failure of their spring and summer offenses, and perhaps most importantly with more and more Afghans seeing the extremist worldview as nothing but a brutal dead end, the Taliban are increasingly compelled to resort to high-profile efforts in an attempt to regain the momentum they have lost.

So I hope I've given you a clearer sense of where we are today in Afghanistan. What I'd like to do now is spend a minute looking at some of the factors that brought us here and that will provide the keys to continued progress.

First, I think it's fair to say that the major -- a major reason for the increase in security was President Obama's decision, in December, 2009, to surge military and civilian personnel into Afghanistan, joined by our coalition partners who also surged their forces. Undeniably the counterinsurgency efforts supported by these brave men and women sharply weakened the insurgency, particularly in southern Afghanistan.

However, it's also important to point out the growth in the size and the capability of the Afghan National Security Forces during the same period. At the end of September, the Afghan National Army had grown to more than 170,000 soldiers, while the national police stood at just over 136,000. Both the army and the police are well on their way to meeting their growth goals for 2012. Our joint efforts have enabled the ANSF to grow by the more than 100,000 people over the last two years, and this force has developed into the most reliable and respected institution inside Afghanistan.

While the sheer quantity of soldiers and policemen itself is important, it's certainly not sufficient -- not in a country where the uniform services have been hampered by attrition, illiteracy, resource shortages, corruption and occasionally infiltration by insurgents. The quality of the force matters greatly. And here too, we are seeing real progress.

When the NATO training mission Afghanistan began its mandatory literacy program, in 2009, there had been no prior systematic effort to train army and police personal for literacy, and 86 percent of new recruits at that time were illiterate. Since then, more than 120,000 soldiers and police have been educated by the Afghan National Security Forces Literacy Program, helping to build a much more literate and capable force. Based on the current estimates, about half of the ANA and ANP enlisted members and NCOs are literate to at least the first grade level. That's quite an achievement in a country where the literacy rate in the 18-to 40-year-old category is only 14 percent. This improvement in skills has elevated operational capacity and it's become a major incentive in recruiting. Within the Afghan National Army, the number of units that are now rated as effective with assistance or higher rose from 52 percent last year to 72 percent this year. Similarly for the Afghan National Civil Order Police, the most elite arm of the police, this figure went from 40 percent last year to 70 percent this year. That said, there's no doubt that the ANSF continues to face serious challenges.

The force still requires significant coalition support and that will be true for some time as we -- as they will take several years to build the enabler support in terms of medical and lift and so forth. It also continues to be threatened in some parts by the influence of criminal patronage networks that frankly plague Afghan society writ large.

It is promising that the ANSF continues to improve despite these challenges. It is taking the lead in a growing number of operations, most notably the first Afghan-led battalion level operation in Helmand Province occurred this past summer.

With an increasingly capable ANSF, the Afghan government has been able to begin the process of transition, transitioning areas across the country to Afghan lead for security, a process that began this past summer and will continue through the end of 2014. As a result, about 25 percent of the Afghan population today lives in areas where their own countrymen are providing the lead for security.

The Afghan government will soon announce a second tranche of areas to be transitioned, and this will raise this figure to approximately 50 percent of the population living in areas where Afghan forces are in the lead.

In short, we are on track to fulfill our security goals laid out at the NATO summit in Lisbon last November, which would put the ANSF in the lead across the country by the end of 2014. This is a very deliberate process governed by improvement in security situation on the ground and the improvement of the ANSF. As the insurgency continues to diminish and the Afghan forces strengthen in their own position across the country, we and our coalition partners will continue to hand over lead responsibility to the ANSF and start to bring our troops home.

As you know, President Obama announced that the recent security progress and the increasing capacity and capability of the ANSF have allowed us to begin to recover the surge forces we sent in. Ten thousand U.S. troops will be redeployed by the end of this year and another 23,000 personnel will be brought home by the end of September of next year. This process of security transition is running in parallel with political and economic development efforts in Afghanistan. These factors, of course, cannot be viewed in isolation from one another. As violence continues to abate, the political and economic conditions in the country will improve, which will in turn likely diminish the attractiveness of joining or supporting the insurgency.

One example of this is a nascent reintegration process. The Afghan Peace and Reintegration Program, established by President Karzai in 2010, continues to complement our security gains by removing insurgents from the battlefield. The number of fighters who've laid down their arms and come off the battlefield has increased substantially this year. Progress in key strategic areas, however, has been limited by a lack of institutional capacity, and the results are not yet strategically significant. That said, we expect this program to grow in the future.

We are seeing some movement in the right direction.

By the end of the reporting period that the 1230 Report covers, the program had formally integrated almost 2,500 insurgents countrywide, up from only 700 or so last March. But the reconciliation of former insurgents is only part of the challenge the Afghan government faces in building its credibility with the Afghan people.

As I mentioned earlier, corruption remains a very serious problem, as do the issues of governmental capacity and accountability. Here too, though, we've seen some progress and we're seeing it where it matters most, in Afghan society, at the village and district level, where the national government is taking some meaningful steps to build its connection to the people literally where they live. For example, the National Solidarity Program, funded by a grant from the World Bank has now entered its third phase of block grants. This program is teaching communities how to select representatives, set priorities for their development needs, and oversee the resulting programs.

Over 28,000 villages across Afghanistan are now active in the program with over $890 million in block grants dispersed so far and another $40 million on the way.

The Afghan government is also encouraging this establishment of representative elected district councils to take on roles such as informal dispute resolution, reintegration of former insurgents, and leading to the establishment of over 100 new district councils in areas without any previous form of representative government.

The Afghan local police is another locally focused program that is forging new links between the government and the people as citizens take responsibility for the protection for their own communities.

When you take a step back and consider these and other programs, you realize that the Afghan people today have a greater say over their own affairs than at any time in the last 30 years.

So let me conclude with what's -- a word about what's coming next. I want to emphasize an absolutely crucial point, especially as we begin to drawdown our surge forces. We have no intention of abandoning Afghanistan. We have done that before with terrible consequences. It is a mistake that won't be repeated.

Approximately 68,000 U.S. troops, however, will still be in Afghanistan following this period of the drawdown. While those force levels will gradually decrease, the United States remains committed to the long-term security and stability of Afghanistan, and negotiations are progressing on a long-term strategic partnership between the United States and Afghanistan. While this partnership will have an important security dimension, it is our intent to place ever greater emphasis on economic development, trade, cultural exchanges, diplomatic cooperation.

A great example of this has been the Task Force on Business Stability Operations, a program in which American public servants assist Afghan government officials in identifying and maximizing Afghanistan's economic potential. The task force's initiatives range from cataloging the vast mineral wealth in Afghanistan to a partnership with Silicon Valley entrepreneurs to develop Afghan technology incubators.

The Afghan people and the American people have shared a great deal over the past decade, including a great deal of sacrifice. The histories of our two nations have been -- become very intertwined. We have come to know an Afghanistan that is resilient and proud and deeply committed to taking its rightful place in the international community after decades of war and isolation, and we share the common core goal of disrupting and defeating the transnational terrorist threat that emanates from that region.

We look forward to helping Afghanistan achieve that very attainable goal. And this report that we've released offers concrete evidence of the fact that we are on track to do just that.

So with that, let me say thank you, and I look forward to our discussion and Q&A. Thanks. (Applause.)

BOIES: Thank you very much. You're a very talented and experienced woman, and you could work anywhere you want, and you've chosen public service. So first, we thank you for that and I hope that those -- particularly the young people in the audience will find inspiration in the good work that she does.

You mentioned that the report identified as one of the largest risks to a stable Afghanistan is the insurgency's safe havens in Pakistan. Now, many commentators believe that Pakistan is directly invested in Afghanistan's failure and that Pakistan does not want a secure and stable Afghanistan on its western border, especially one with close ties to its arch foe, India, and that that's one reason that Pakistan is using the Haqqani Network and other insurgents to foment instability. Are these commentators wrong?

FLOURNOY: Let me start by saying the safe havens along the border between Afghanistan and Pakistan are a very serious problem, and they are at the top of our agenda in our engagement with the Pakistani government. These are under governed areas where frankly the central government of Pakistan doesn't have much control, but they're -- but there are groups operating in these areas -- a sort of witches brew of militant groups that do very much pose a threat, not only to our campaign in Afghanistan and Afghans future stability, but also I would argue to the future stability and viability of Pakistan itself.

So we are engaged in a very candid and intensive discussion with Pakistan about how we, together, can deal with some of these groups. We believe that it's in Pakistan's interest to have a friendly, stable, and secure Afghanistan on its border, but that's not something they've experienced historically for a very long time. So we have a lot of work to do to convince them that that outcome as possible and that it's something that they should be part of achieving.

BOIES: We, the U.S. and our coalition partners have been trying for years to get the Pakistanis to go into the North Waziristan and clear out the insurgents there, much as they did in the Swat Valley and South Waziristan. So far we've seen -- as far as I know -- no movement there. Is it not -- is it possible to convince the Pakistanis to go after the Haqqani Network because, as many believe, it's in their self-interest to have that network active. They go into these other places -- South Waziristan and the Swat Valley, because those terrorists attacked Pakistan itself. But as long as Haqqani Network is focused on cross border attacks, does Pakistan really have an incentive to go after them?

FLOURNOY: Well I think that, again, this is an area where we've been in serious discussions with Pakistan. As you noted, starting in 2009, they conducted a number of offensives to clear out areas like Swat Valley and so forth. I don't think many people know that in the course of these various operations and in several years of counterterrorism effort, Pakistan actually lost more than 10,000 civilians and 30,000 military personnel. So they have paid a very heavy price for terrorism on their soil.

We have been talking with them about the need to do more in this area. It is unacceptable to us to have pockets along the border where militants come across and attack Afghans, attack U.S. interests, the embassy for example, attack our soldiers. We want to do this in cooperation with Pakistan that this has become a serious force protection issue for us, and we will pursue means necessary to deal with this problem.

BOIES: The United States has decided to entertain talks with the Haqqani Network and this, I believe, is a fairly significant shift in U.S. policy. Even assuming we can reach agreement, how can we sustain it without large and sustained troop presence?

FLOURNOY: Well, first of all, I think every -- even our most senior military commanders would say that there is no purely military solution to this conflict or frankly any conflict. Ultimately there has to be a political end game, a political process that resolves differences. I think the early efforts at reconciliation talks -- they're not even talks yet, really. They're really probes. We have not prejudged the outcome. We have not prejudged who we should talk to. The door is open in terms of -- it's an Afghan-led process, but the door is open for any part of the insurgency that is willing to engage in genuine dialogue.

I think ultimately they will separate themselves into categories of those who are reconcilable, who want to lay down their arms, renounce al-Qaida, come back, and be reintegrated into Afghan society, and those who are fundamentally irreconcilable, who are never going to stop, but reconciliation will be a key part of degrading the insurgency to levels that the Afghans can manage over time.

We're in the early days of this process. As I said, we're working very closely with the Afghan government in this, but we do believe that this will be a key part of the solution. Ultimately, whatever political settlement is reached in Afghanistan -- you made an important point -- it's going to have to be supported and enforced by the regional neighbors, by the international community, and that's why a lot of our diplomacy is focused on the neighbors and trying to get them on the side of supporting an outcome as opposed to acting as spoilers.

BOIES: And the second challenge that the report identifies to a stable Afghanistan is the limited capacity of the Afghan government, and the report goes so far as to say that the Afghan government, quote, "continues to lack the resolve to address many corruption issues." Now, you mentioned the National Solidarity Program as an important tool in villages to fight corruption, as well as begin economic and other development, but what about corruption at the very top? Have you seen any resolve there or even any indication there that the government will take on the issue of corruption? Because without the rule of law and good governance, whatever gains we make cannot continue.

FLOURNOY: I think we have seen some progress, but a lot -- frankly there's a lot -- a long way still to go. We have been working with a number of the ministries -- we, not DOD, but the U.S. government -- to put in place a series of transparency and accountability measures, so that once they put those in place, they're validated, we can actually flow more of our assistance dollars through the Afghan government itself, rather than doing private grants. There's been substantial progress in that area.

Another example is the Kabul Bank crisis. I think this became sort of the poster child of corruption in Afghanistan and such a clear problem for the most senior levels of the Afghan government, that they came to understand that unless they start to address this corruption head-on, the systemic corruption, they're going to lose international support and assistance.

And so I think you've seen the Afghans in recent weeks and months take a number of steps that will ultimately enable them to sit down with the IMF and negotiate a deal moving forward. But I think it's been a very hard road for them, many more miles to be traveled. But I think the connection between dealing with corruption and winning a sort of place of legitimacy in the eyes of your population, that connection is finally being made by a number of senior Afghans.

BOIES: Okay. I see that the clock says that it is time to open up the floor to the participants. Please when I call on you, stand, state your name and affiliation. And if you would, have a nice, brief question so that we can get as many as possible.

Okay. Yes, sir.

QUESTIONER: Thank you, Ms. Flournoy, your comments are very informative. My name is Roland Paul. I'm a lawyer. Long time ago I was at the Pentagon myself in OSD. You said that the Afghan national forces would be in the lead by 2014, but I thought, according to press accounts, it's the administration's policy to withdraw all American combat troops by the end of 2014. And I wondered if that's just my misunderstanding. But if it is true, isn't it really bad strategy that's been trumped by domestic political reasons to withdraw all those troops by then? Thank you.

FLOURNOY: So the plan was laid out at the NATO Summit in Lisbon. And what it calls for is the transition process where we're transferring lead responsibility for security to the Afghans to be completed by the end of 2014. And we believe we're on track to do that.

That said, the Afghan forces at that time will be largely infantry battalions, police and so forth. They are still going to need support from the international community in terms of enablers, such as mobility, intelligence, surveillance reconnaissance and so forth. So it will take some time before they have all the enablers necessary. So they're going to need some support. They're also going to need continued advising and assisting.

And so we and NATO also have been negotiating strategic partnership agreements with the Afghan government that would lay out an enduring strategic partnership far into the future. Obviously, that will have economic dimensions, diplomatic, other dimensions.

But one of the dimensions on the security side is, at the invitation of the Afghan government, we will continue to have a partnership force in place that really provides advising, assisting, support, continued support to the Afghan National Security Forces for quite some time. So 2014 is not a withdrawal date. It's an inflexion point where we put -- where Afghans are firmly in the lead and we step back into a consistently supporting role but at much lower numbers of troops.

BOIES: Yes, ma'am.

QUESTIONER: Hello. Hi. My name is Silvana Senja (ph), and I have spent two of the last three years working in Afghanistan. I just got back working on rule of law issues for the U.S. Institute of Peace.

And in connection with the Kabul Bank scandal which you mentioned, my understanding from colleagues, from Afghan colleagues, is that the Attorney General's Office in Kabul has the names of approximately 40 people who are implicated in the scandal and that that list includes people very senior within the Karzai government, even up to the vice president level and people related to him.

While we at least have a presence there, has there been any effort to try to make those names public? It seems the decision on the part of the U.S. government has been to sort of look past that. But that also seems to be consistent with what's happening with APRP. And what is the thinking behind that I guess is my question.

FLOURNOY: So we certainly haven't overlooked it. We believe that it's very important for both transparency and accountability for charges to be made against people that the Afghan government believes is responsible for the corruption and what's happened at the Kabul Bank. We think that that is for the Afghan government to do and it's very important that the Afghan government release those names, pursue those individuals and the legal process against them.

This remains a continued part of not only our conversations with the Afghans but the IMF's conversation with the Afghans. But there are a number of steps that the IMF has set out to say, these are the things you need to do to be able to have continued international financial support. There's been some progress made along those steps, but more to be done, including the one that you mentioned.

BOIES: Has the United States indicated that it will reduce its support if progress in this area is not made?

FLOURNOY: We have made it very clear to President Karzai that it was difficult for us to imagine gaining congressional support for continued financial assistance and/or frankly signing a strategic partnership agreement without meaningful progress on the Kabul Bank and other corruption issues. We believe that a number of steps have been taken and that we are moving in the right direction. Again, not enough yet. We're continuing to press this issue. But I think that the linkage between performance on this issue and our ability to sustain our own domestic protocol support for a long-term relationship with Afghanistan, that linkage exists. It's a reality. BOIES: Yes, sir, with the yellow tie.

QUESTIONER: Hi. Jim Morin. I'm an attorney with Cooley. And I served in Afghanistan several years ago. And all of my colleagues that also served, we all take away the same frustration with the lack of developmental support, reconstruction support from other parts of the government.

So when I first left active duty I attended a session you had on Goldwater-Nichols Two which was really encouraging to me.

I was wondering if you could have -- give us an update on the status of that whole of government approach and the structural reforms you were advocating at the time.

FLOURNOY: Well, first let me say that I think the imbalances in our ability to provide funding across the development demand for Afghanistan is not for any lack of effort or will on the part of the State Department and USAID. It is the fact that these agencies are funded at just a fraction of the level of funding that the Department of Defense has traditionally enjoyed.

The politics on Capitol Hill of funding U.S. service men and women, on one hand -- very patriotic thing to do -- versus funding foreign development assistance, they're very different.

And, frankly, the civilian side of our government has really struggled to get the funding levels that would allow us to have a sort of comprehensive and cohesive approach to these problem sets that really require integrated whole of government strategy. That said, we have worked very hard on this. We've made some progress. My worry is that in the current budgetary climate that imbalance that all of this funding is going to be under the knife, if you will, and that the civilian side will be cut disproportionately.

So I think this problem is going to be with us for some time. But, you know, again, it's caused us to really scrub our efforts, to prioritize and to focus on where we think we really are making the biggest difference with our investments.

BOIES: If the congressional committee on the budget doesn't reach agreement by the end of this month, I guess, what will the effect be on the Pentagon?

FLOURNOY: Absolutely devastating.

BOIES: Can you explain?

FLOURNOY: Yes. The Congress has asked the Pentagon to find more than $450 billion of cuts over the next 10 years. We are, under Secretary Panetta's leadership, undertaking a deeper view of our entire budget from a very strategy driven approach.

I mean, the cuts are so significant that we really had to kind of go back to first principles of what are American interests, what are the priority missions for the U.S. military, what do we think the future is going to look like, and so forth. So are in the process of doing that. And I think we're going to have to make some very, very hard choices just to get to that target.

If the super committee fails to reach agreement and we go into sequestration, it will be devastating for not only the Department of Defense, but the U.S. government, and I believe our ability to protect and advance U.S. interests around the world.

Sequestration requires you take across the board cuts. So every shipbuilding, every aircraft building, every maintenance, every training, every program in the DOD budget will be simultaneously broken by having to take a chunk out of it. It does not allow you to make considered strategy driven cuts. It requires across the board salami slicing.

It will have very dire impacts. And so write your congressman and make it clear that we can't allow sequestration to happen.

BOIES: Yes, sir, in the back.

QUESTIONER: Bart Szewzyk, WilmerHale and GW Law School. You mentioned the importance for the Afghan government to establish legitimacy among its populous. When will we know that it has established that legitimacy? What metrics or measures would you need to be confident that the Afghan government has that legitimacy and that we can actually rely on it?

FLOURNOY: I think that has to start at the level where most Afghans experience government, which is at the local and the district level.

And, again, one of the reasons why I tend to be more hopeful about Afghanistan is that whenever I go there, I get out of Kabul and I go to the local level, and you see communities that for the first time in years are experiencing some semblance of security. Their economy is starting to revive. They have a district government for the first time ever who actually is listening to them, understanding that part of his job is not just to benefit from his position but to actually try to provide basic services to the community and their mechanisms for holding that person accountable.

That is happening at the local level across the country and it is the beginnings of the legitimacy that has to take hold at higher levels. You see it in some areas at the provincial level where you have governors who get it and who are really transforming their provinces based on the needs of their people. That is a process that will take many years, but gives me a great deal of hope.

You also at the national level have the emergence of legitimacy of institutions. And here opinion polling is telling us, a recent opinion poll, the Afghan people, 85 percent expressed confidence in the Army; 81 percent expressed confidence in the police. That is remarkable. I mean, if you did a free word association with most Afghans five years ago and you said corruption, the first word out of their mouth would be police. So this is a dramatic change. And, again, holds a lot of promise. But a lot more has to be done to shore up that legitimacy, make that connection.

BOIES: Yes, sir. Yes.

QUESTIONER: Hi. Asim Rehman with MetLife. Thanks for your comments. How are we doing on reducing the threat of an attack on the United States that's originated from Afghan or the region? You did provide metrics on how we've done with securing the country and securing the region, but are those the same metrics, or are there different metrics for protecting us from an attack? And if there are different metrics, what more needs to be done to protect us from an attack that would originate from that country?

FLOURNOY: Well I think we do -- another metric or set of metrics relate to the state of core al-Qaida and the al-Qaida affiliates that have expressly either stated the intent or shown their capability to try to conduct attacks in the American homeland.

Our principal concerns right now are the core al-Qaida elements that remain in the Afghan-Pakistan border region and the al-Qaida affiliate in Yemen. I think particularly against core al-Qaida in Pakistan and Afghanistan, they have suffered some pretty devastating blows, not only the death of bin Laden, but since -- based on the intelligence claimed from that operation, three of the most senior operatives in that chain of command have also died since then. We continue, frankly, with the cooperation of the Pakistani government, to put relentless pressure on core al-Qaida in the region.

In Yemen, similarly working with the Yemeni government -- although, obviously, the broader political context there is making this more difficult -- we are putting pressure on al-Qaida in the Arabian Peninsula as well and with the Yemeni government in the lead in those operations.

So we have our eye on the ball here. And our greatest focus, our most sustained focus is on the elements of al-Qaida that still have the will and capability to reach across and actually target Americans here at home.

BOIES: As you may have guessed, I'm looking for term members. So if you look like me, you're less likely to get called on. (Laughter.) The young lady all the way in the back. QUESTIONER: Thanks. Hi, I'm Farah Stockman with the Boston Globe. And I've spent some time in Afghanistan and Pakistan. And nothing drives Pakistani military or intelligence crazier than the idea of India and Afghanistan on their border and its consulates. And I was just wondering if you could say a few words about the U.S. position on this and whether the United States is saying anything at all to India about what it's doing in Afghanistan or is it basically the U.S. position that India is a separate country and that's not something we talk to them about?

FLOURNOY: I think that Afghanistan needs to develop positive relationships with all of its neighbors. The Afghans and the Indians have recently signed a strategic partnership of their own. We have not seen the details of that document, but our understanding is that India is primarily at this point providing a great deal of development assistance to Afghanistan in the transportation and infrastructure sectors, and so forth.

I think India has actually been very careful, very mindful of the fact that Pakistan is sensitive to the types of assistance it provides to the Afghans. It has consciously chosen not to take a major role, for example, in the training and development of the security forces. They have a small police training program for female police officers in India.

But they really have chosen to stay away from that effort in order not to exacerbate Pakistan's concerns. So I think they've taken a very responsible approach. Their development assistance is extremely positive and helpful in the country. And, ultimately, this is between Afghanistan and India. But we've seen them take a very carefully calibrated and helpful role to date.

BOIES: Yes.

QUESTIONER: Hi. My name is Laura Herman with FSG. I'm wondering if you could comment on the possibility of success if we were to condition more of our aid to Pakistan in the hopes that it would encourage them to be more successful in the border region in ridding them of insurgents. Is that something that is on the table? Is it a serious consideration? Do you think it's likely to succeed?

FLOURNOY: We have experienced what happens when you go all the way to the extreme of cutting off aid. And it's not a -- that experiment didn't turn out so well. So we believe that breaching -- cutting off assistance, breaching the relationship is not a recipe for getting to -- advancing our objectives in the region.

That said, we have -- again, had a very candid discussion with Pakistan about the kinds of things -- the kind of cooperation we need to see from them to be able to deliver assistance. I mean, we live in a democracy. Congress gets the vote. They get the decisive vote, right?

And so we -- the fact is that even though we have several billions of dollars of security assistance in the pipeline, very little of that is being delivered now because, for example, most of our equipment deliveries require training at the receiving end. Well, Pakistan, in the wake of the bin Laden raid and other things, asked us to pull all our trainers back. So we can't train on the equipment so we can't deliver the equipment. So that right there is blocking the delivery of a lot of assistance that's already in the pipeline.

In addition, we have some financial payments so, frankly, reimbursement moneys that we owe them. We have not released the last two quarters of those funds because we need to see concrete progress on some of our counterterrorism objectives together.

So I don't think a blunt, you know, heavy-handed legislative conditioning of this would be helpful, but I think a very carefully calibrated approach that calibrates the release of aid to progress towards common objectives can be useful.

BOIES: Do you have a question?

QUESTIONER: Tom Graham, Brookhaven National Lab. Do you see any indication at the two-star, three-star level inside Pakistan that any military officers are looking at their relationship vis-a-vis India and saying, this is not a game that's in our national interest. We really need to start thinking of some Pakistani ideas so that it's not just the Americans telling the Pakistanis, look, you need to actually rethink your own threat perspective, or is this something that's going to take a generational change from the Pakistani perspective?

FLOURNOY: You know, I see some early efforts to -- on the part of both officials in India and Pakistan to restart their dialogue in a serious way to get back to discussing confidence building measures. We're cautiously optimistic about that process.

I don't know if -- I don't see -- I have not personally seen the impetus for that coming from the ranks of the military at this point. You know, I think there is a generation of officers there that, frankly, because of the cutoff of our relationship in a certain period we lost visibility into them. And that is the generation that's now rising into this sort of one-star, two-star ranks. And so it's hard for us to have a good feel for that.

But I do see at the highest levels, on the civilian side in particular but also some in the military, there is an effort to reopen the discussions with India. I think they realize there's value in trying to make some progress to rebuild some confidence.

BOIES: Yes, sir.

QUESTIONER: Joel Hemming (sp) with Open Revolution. Secretary Flournoy, we've talked about India a little, India and India's interest in Afghanistan. Could you characterize Iran's interests in Afghanistan, specifically their perspective of our drawdown and our plans there for the future of Afghanistan?

FLOURNOY: Iran has long had serious economic trade with -- (audio break) -- Afghanistan and I think that continues to this day. I think from what we can tell Iran is very nervous about a long-term U.S. presence.

And, you know, we are openly talking about the strategic partnership that we are working towards with the Afghans. We have openly acknowledged that at the invitation of the Afghan government we will -- we do envision military trainers, advisers, forces assisting for a number of years to come.

But we're also been very clear that we are not seeking any permanent U.S. bases in Afghanistan. We do not seek to threaten any of Afghanistan's neighbors with our forces, that this will be at the invitation of the Afghan government focused on building their security forces and addressing issues of common concern.

That said, I think Iran is nervous about a long-term U.S. presence in Afghanistan. I think part of the reason we've engaged in these regional discussions is to try to be very transparent and clear about what this is and what it isn't.

BOIES: Yes, ma'am.

QUESTIONER: Stacia George with Georgetown University. And I've worked in Afghanistan before. I'm curious -- I think we can all agree the ANSF has made tons of progress both in capacity and size. But I'm also curious about the fact that the majority of the Afghan government's budget is donor funded. And the current size of the ANSF is not sustainable in the long term. And I'm just wondering how the long- term vision of that is being reconciled as you guys are planning for the ANSF.

FLOURNOY: We have put a huge amount of focus on the question of the ANSF sustainability in recent months.

First of all, I think that until the insurgency is more fully degraded, the Afghan forces will need a certain level of size and density, if you will. But we can all envision a point at which the insurgency really starts to substantially diminish, even more so than it has so far and that you could imagine at that point the Afghan government making a choice to go with a somewhat smaller force and one that would be more affordable. In the meantime, however, we're doing a couple of things for our part. We're working with them to really scrub the program of record to say, how do we put this on a more sustainable footing? And it's everything from construction standards, the complexity of sustainment going forward, whether you build -- use Afghan construction that sort of naturally uses adobe structures that keep things cool in the summer and warm in the winter versus lots of electrical systems and air conditioners or complex things that they'll have to keep up over time. So we're scrubbing the program with them, trying to make it more sustainable.

The other piece is that as we draw down over time, as our coalition partners draw down over time, we would like to see a reinvestment of some of that transition dividend into continued training and financial support for the ANSF. In fact, we have laid out a goal for our partners in ISAF to get to a billion Euros per year for the future. That remains a stretch goal at the moment but we are pushing very hard to meet that goal over time.

BOIES: We have time for three more questions if we hear all the questions at once. So the young man in the back and before you answer, I'm going to allow two more.

FLOURNOY: Okay. Sure.

QUESTIONER: Austin Ramsey (sp). I worked for General Petraeus in Afghanistan for the last year. My question is on strategic risk. I'm wondering can we achieve our objectives there if it turns out that Pakistan does in fact want to be a spoiler and they continue to actively support the Haqqani network. And if we can, what would that success look like?

BOIES: Another question. Yes, sir.

QUESTIONER: Michael Alderman, Albert Einstein College of Medicine. You haven't mentioned the opium issue at all. Does that remain an important factor in the Afghanistan equation? And how do you think it's impacting and will impact on the attainment of our objectives there? BOIES: Yes, sir. One last question.

QUESTIONER: Hi. (Inaudible) -- Technologies. The lack of a SOFA in Iraq hastened our departure there. Is there a corollary risk in Afghanistan?

FLOURNOY: Okay? So first, strategic risk and the potential for Pakistan to serve as a spoiler -- this is obviously a question on which we are intensely focused. I believe that we can be successful in Afghanistan even with some degree of continued safe haven in Pakistan, but it will be much more difficult and much more resource intensive to sustain that success. I think that we will continue to degrade the insurgency. We will continue to put pressure on these safe havens in a way that will reduce that threat.

Whether we can ultimately change, fundamentally change the situation is an open question. I believe though that if Pakistan sees that we are achieving our goals in Afghanistan, that we are not abandoning Afghanistan, they will have a fundamental choice of whether to be part of the solution or whether to be defined as part of the problem. And I think at that point, when those things are abundantly clear, we can certainly hope that they will throw their lot in with being part of a regional solution.

On opium, thank you for raising that. The drug problem is a very important element in Afghanistan. The funding that comes out, the nexus between the drug production and trade, the criminal patronage network and the insurgency is very, very tight. So if you want to take away the funding of the Taliban, the lawlessness that kind of creates an environment where the insurgency can take root and grow, you have to address the drug issue. I think it's been very well addressed in areas where we've had surge forces, where you've seen radical changes. It's being consciously addressed in our development activities where we're working with farmers on crop substitution and longer term sort of alternative livelihoods and so forth. But this will be an issue that it's moving in the direction, but, again, this is a year's long effort that will have to be sustained.

On the lack of SOFA, one of the elements of the strategic partnership is the commitment to negotiate a SOFA before the real shift in our focus from our current operations to a long-term advise and assist partnership. And so we hope that that will be an important part of ensuring that we can sustain the security dimension of the partnership over the years to come.

BOIES: And a SOFA is a --

FLOURNOY: I'm sorry -- status of forces agreement. It's basically the legal framework that we negotiate in any country where we have troops on their soil. It defines kind of our mutual legal obligations to one another.

BOIES: Well, Ms. Flournoy has to now return to her mountain and push that rock more and more.

FLOURNOY: My cave.

BOIES: We thank you for your time today and we really thank you for your service.

FLOURNOY: Thank you. (Applause.)

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