Afghan Financial Death Match: IMF versus Central Bank
Edward Kenney Afghanistan Study Group
Last Fall I attended a conference by the Afghan-American Chamber of Commerce with keynote speaker Dr Abdul Qadeer Fitrat, the Afghan Central Bank Governor. The purpose of the conference was to reinvigorate foreign investment in Afghanistan in the wake of serious scandal involving Kabul Bank, one of largest Afghan financial institutions.
Few at the conference admitted what was already widely recognized at the time: promoting business development and investment in a country with spiraling violence, inadequate property rights, and rampant corruption is a massive challenge. Over six months have passed, but not much has changed. These obstacles to growth are still obscured by the moneymaking war machine, which spurs the Afghan economy forward. Afghan growth rates have totaled 8.2% in 2010 and 20.9% in 2009, but these impressive numbers are likely the result of foreign aid and war spending representing up to 97% of the economy. Crucially, other macroeconomic factors have been far less promising. Unemployment is possibly as high as 35%, meanwhile inflation, thanks in part to a massive influx of foreign cash, was at 13.3% in 2009, one of the highest rates in the world.
When I asked the Central Banker at the Afghan American Chamber of Commerce Conference about these key Macroeconomic indicators, he pointedly denied the numbers, which incidentally were compiled for the CIA World Factbook. In Afghanistan, it seems, you can wish bad data away.
You can’t always wish away a juicy scandal.
Flash forward to these last few weeks and Afghanistan macro-stability seems even further in doubt, thanks to a highly public standoff with the International Monetary Fund and the Afghan Government. The controversy involves, what else? Kabul Bank—the same bank which famously lost $850 million last October. As part of the fallout from this scandal, the IMF suspended its $120 million aid program through the Extended Credit Facility. This is not a lot of money, but as Martine Van Bijlert from the Afghan Analysts Network noted last week, other development funds have followed suit, so the impact of this impasse may be greater than it appears on the surface.
Van Bijlert explained that the main sticking point for the IMF is an audit of two Afghan banks, and the “recapitalization” of the Afghan Central Bank. Last fall, the Central Bank was forced to take over the floundering Kabul Bank. Because this financial transaction was marked as essentially a loss, the IMF required that the Afghan Government infuse the central bank with cash. Thus far, the Karzai administration has refused to budge.
This week, the standoff took another weird turn. Dr Abdul Qadeer Fitrat, yes the same Fitrat from the Afghan American Chamber of Commerce Conference, suddenly quit his post over the weekend and has fled to Arlington, VA. He has accused key members of the Karzai administration of corruption; now he himself is implicated in the Kabul bank heist from an indictment issued by the Attorney General.
I have no idea how this is going to turn out. Suffice to say, untangling these financial shenanigans may take years and will likely remain major obstacles to Afghan growth moving forward.