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27 July 2022

Afghanistan Still Wants Its Frozen Funds

Lynne O’Donnell

The United States and the Taliban continue to negotiate the release of billions of dollars of Afghanistan’s central bank reserves that could help get the moribund economy back to work and bring some relief from the widespread hunger and poverty that are hammering millions of Afghans. But discussions keep stalling on the Taliban’s insistence that they control the cash, even though they have a habit of pilfering money and financial aid to give to their soldiers and supporters.

Afghanistan had reserves of more than $9 billion in banks in the United States and Europe when the Western-supported government collapsed last August. (Another $500 million belonging to individuals who hold accounts with privately owned Afghan banks is also frozen.) The money had been managed by Da Afghanistan Bank, the central bank, and used as reserves traditionally are, especially to keep the currency stable, to finance imports, and to provide liquidity to the banking system.

Talks in Doha, Qatar, between U.S. State and Treasury Department officials and the Taliban in recent months have revolved around $7 billion held in the Federal Reserve Bank of New York. The Biden administration is open to releasing half of those funds, holding the rest against compensation claims by victims of the 9/11 attacks, which the Taliban facilitated by harboring al Qaeda. The Taliban, however, want the entire sum and are refusing to accept an independent audit that could make sure they don’t get their hands in the till, U.S. and Afghan sources said.

An official at the Afghan foreign ministry said that throughout negotiations the government has been open to an independent audit of the use of funds, and the official said the continued hold on the billions of dollars constituted theft of assets that belong to the Afghan people.

Releasing even half the money could have an immediate positive effect on economic activity, which has ground to a near-halt in the past year, not least due to the Taliban’s inability to govern. Inward investment has halted, prices of imports have soared, and the banking system has been paralyzed. An injection of fresh funds would allow the Afghan authorities to shore up the afghani—which has fallen by about 15 percent against the dollar since August 2021 and is still sliding—a move that would help temper inflation and the rising cost of food and other necessities. The cash would also inject liquidity into the banking system to help jumpstart at least some economic activity, which has been paralyzed by the near-impossibility of conducting regular financial transactions.

Putting money back into Afghanistan’s private banking sector would enable individuals to access their personal accounts, reigniting purchasing power, said Shah Mehrabi, chairman of Da Afghanistan Bank’s audit committee and a member of its board.

“The whole idea of reserves management is for ‘rainy day’ needs, to bring enough liquidity so people will not face hardship. Right now, the banks do not have liquidity,” Mehrabi said. “You have to bring affordability back into the economy. The Ukraine war has added 3 to 4 percent to inflation. The people are faced with hardship through no fault of their own, but hardship that can easily be relieved.”

Washington has donated almost a billion dollars in economic and humanitarian assistance since last August. The apparent U.S. reluctance regarding the reserves is about making sure the Taliban don’t have access to the money.

Ahmad Shuja Jamal, a former security official in the previous Afghan government, told Foreign Policy that the heart of the issue is profound mistrust of the Taliban; he described them as “the biggest liability for the Afghan economy.” He pointed to the financial intelligence unit known as FinTraca, which had been set up by the republic to fight money laundering and terrorism financing, and to track illicit flows of money, including those to, from, and between the Taliban and other terrorist organizations.

Now the Taliban are in control of all financial transaction information while maintaining close ties to al Qaeda and other terrorists. They are led by sanctioned terrorists, such as Sirajuddin Haqqani, the de facto interior minister. “The fox guarding the henhouse,” Jamal said. “That gives the world every reason to be more cautious with the funds because of international terrorism risks. And that caution is in the interest of the Afghan people suffering under Talib tyranny.”

Since taking over, the Taliban have set about building their own kleptocracy. Sources have reported arbitrary taxes levied on communities across the north. Food and other aid is diverted through Taliban-controlled charities to their soldiers and supporters. Western charity workers and foreign businesspeople cite efficient collection of taxes and duties as evidence the Taliban regime is not as corrupt as the former government, but they don’t know where the money goes.

People who deal directly with the Islamists say what the Taliban collect, they keep. “Under the Republic you would pay bribes and get things done,” said an Afghan source who did not want to be named. “But under the Taliban, you pay bribes and nothing gets done, they just move the money among themselves.” The source said that the Taliban are spending cash in the Persian Gulf and Turkey because “they are thinking we need as much money as possible as fast as possible for ourselves, because this isn’t going to last. They can’t be trusted, they know this won’t last forever.” That’s why the group is opposed to independent auditing of any return of the central bank funds, the source said.

The looting appears to be happening across the board and across the country. A source close to the leadership said 3 billion afghanis—the equivalent at the current official exchange rate of around $35 million—was recently taken from central bank vaults in Kabul and transported to Kandahar, the base of Taliban senior leaders and the former capital last time they were in power from 1996 to 2001. This cash, the source said, is a slush fund for keeping supporters on their side as internal Taliban factional divisions widen.

An Afghan political source privy to the negotiations said the only interest Taliban figures have is getting access to money. “It is all they talk about, all they think about, all they want,” he said, asking that he not be named.

“The strategy from the United States appears to be to ensure that this regime survives—not that it lives, but that it does not die, while they come up with an alternative,” he said. “That may take some time, and in the meantime, they need to find a way to help the people who are dying because of the Taliban, and [yet] make sure they don’t help the Taliban.”

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