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IMF and the crisis in Afghanistan

Mini

Afghanistan today is a country ravaged -by war and disturbances, by corruption and inefficacy, by apathy and poverty, which desperately needs economic aid. The IMF helps countries tide over economic crises by offering loans and technical assistance but the US announcing that they would block Afghanistan from accessing emergency reserves could lead to financial and humanitarian crisis in the war-hit country.

IMF and the crisis in Afghanistan
William Dalrymple in his book, ‘The Return of the King’ mentions the prescient comment of Rev. G. R. Gleig in his memoir, written shortly after his return from the First Anglo-Afghan war. The army chaplain wrote ‘a war begun for no wise purpose, carried on with a strange mixture of rashness and timidity, brought to a close after suffering and disaster, without much glory attached either to the government which directed or the great body of troops which waged it. Not one benefit, political or military has been acquired with this war.  Our eventual evacuation of the country resembled the retreat of an army defeated.’ This was written in 1843. Nothing has changed. The US army retreat from Afghanistan in 2021 leaving the country in the hands of the battle-scarred Taliban, eerily resembles the earlier retreat of the British-and the Soviets who left after 20 years of trying to subjugate the locals.
Afghanistan today is a country ravaged -by war and disturbances, by corruption and inefficacy, by apathy and poverty. With a population just under 34 million, 54 percent of whom live under the national poverty line, ranked among the countries with the lowest gross domestic product by capita at $580.82, they desperately need economic aid.
The world today is, on the contrary, choking even what is due to Afghanistan. Typically, the International Monetary Fund (IMF) established in 1944 helps countries tide over economic crises by offering loans and technical assistance. The IMF is funded by a quota system where each country contributes depending on its size of the economy. The IMF had in 1969 also created special drawing rights (SDR) a type of international reserve asset to supplement official reserves. The US with a 17.4 percent share and being the largest contributor has the largest percentage of voting rights in the IMF. What this means is that they have a huge influence on the functioning of the IMF.
This has manifested now with the IMF under pressure from the Biden administration, announcing that they would block Afghanistan from accessing emergency reserves. The justification for this being that the Taliban government in Afghanistan has not been recognized. The country was to receive about $455 million in SDR’s as part of the recently approved proposal of IMF to release $650 billion into the pandemic hit global economy. They will not get it as of now. Further the US Treasury Department has frozen $9.4 billion of reserves held by DAB, the Afghan central bank in in the New York Federal reserve and US based financial institutions. The consequences of this being a huge financial and humanitarian crisis in Afghanistan.
But then the IMF has not always covered itself in glory. As the incisive paper by OXFAM ‘Adding Fuel to Fire-How IMF Demands for Austerity Will Drive up Inequality Worldwide’ shows, historically the IMF linking grant of funds to conditionalities have not always been in the best interests of the countries. The IMF demands wage cuts, cut in government spending, austerity -the consequent burden and impact being felt more by the vulnerable and paradoxically increasing inequality. Since Afghanistan is not receiving any money from the IMF, these have not kicked in as of now.
But what the financial crisis will mean is that the Taliban will necessarily turn to drugs to fund their activities. It should not be forgotten that Afghanistan produces nearly 90 percent of the world’s illicit opium from where heroin is distilled. As per UNODC, nearly 224,000 ha of land is under opium cultivation. In 2020 the UN has estimated that nearly 6300 tonnes of opium were cultivated- with a farm gate value of $350 million which when it reaches the Western markets becomes worth many folds more. It is estimated that opium trade is worth between 6-11 percent of Afghanistan’s GDP. Most or all of these were for feeding the drug habits of the Western markets, from US to Russia to Italy to UK. While the Taliban did curb opium cultivation in their previous stint in power in the 1990’s since ‘addiction is not permitted in Islam ‘, it is unlikely to do so now. The Taliban spokesman recently did make a very brave statement that ‘Afghanistan will not be a country for cultivation of opium anymore’ -however the financial stress and chaos the country is facing will force Taliban to resort to even more unchecked cultivation of opium. And the country itself will become fertile ground for the disgruntled, drug addicted youth, to fall easy prey to the influence of the Taliban.
Western countries all of whom have not been able to curb the demand in their countries for drugs, will get large supplies of illicitly cultivated opium and heroin. Drug trafficking apart from hurting societies, triggers a whole host of other criminal activities and worse, finances terrorism. Afghanistan has also discovered that ephedra plant which is a major source for methamphetamine grows there, providing yet another conduit for illicit fund generation.
The US President in his address to the nation after the withdrawal of US presence in Afghanistan did mention that the US must learn from its mistakes by setting clear goals when it goes to war and not become involved in nation building. This is true. The abrupt withdrawal and the subsequent choking of funds will definitely hurt Afghanistan and the Taliban -but will hurt the ordinary citizens of that beautiful country even more. They deserve better. A solution needs to be found to ensure that politics does not override humanitarian considerations.
— Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal
Read his other columns here
Note To Readers

Afghanistan today is a country ravaged -by war and disturbances, by corruption and inefficacy, by apathy and poverty, which desperately needs economic aid. The IMF helps countries tide over economic crises by offering loans and technical assistance but the US announcing that they would block Afghanistan from accessing emergency reserves could lead to financial and humanitarian crisis in the war-hit country.