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The "Reconstruction" of Afghanistan

Karzai & Associates Budget:

Print Money [quietly] and Hope for Foreign Largesse

by Marc W. Herold

29 May  2002.
Centre for Research on Globalisation (CRG),  globalresearch.ca ,  29 July  2002

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"International donors have been assessing finance ministry procedures for handling the massive infusions of foreign aid, which the western-backed government needs to stay in power. But, perceptions of corruption have been a big obstacle, according to diplomats."1

The Karzai & Associates' government budget for 2002 was unveiled in early April at a two-day donor's conference in Kabul.2 Planned expenditures are $460 million and planned receipts as of this writing, are $260 million [including $83 million to be generated from taxes]. About $200 million is destined to pay for salaries of the military, the police [25,000 strong], and government employees [210,000 strong].

In late December 2001, various 'supporting nations' pledged $20 million to the newly installed Karzai regime. About $6 million of these UNDP monies was flown into Kabul airport in late January under the cover of darkness in a United Nations' aircraft.3 The funds were to allegedly pay civil servants [on January 22] who had not been paid for six months. An Italian police contingent of the ISAF took consignment of the stash in an armored vehicle for safe storage. The United Nations also paid the Russian Government $1 million for 300 billion newly minted Afghanis [about $6 million]. Another $12 million of UNDP monies are being used to pay government employees through this June.

Karzai's numerous intercontinental junkets came out long in pledges, but short on cash for current government expenditures. Foreign donors, quite understandably, expressed reservations about financial transparency, preferring to commit goods in kind or direct project aid. In a state visit early April, Pakistan's president handed Karzai a check for $10 million.4 China had given a quick $1 million in January during Karzai's state visit to Beijing.5

The bulk of currently funded expenditures comes from the World Bank, the United Nations Development Program and related agencies, and the Asian Development Bank - funds totaling about $ 160 millions [see Table below]. In March, the Asian Development Bank provided Kabul with a $15 million technical assistance grant for 'government capacity building.' In early April, the World Bank granted Kabul $100 million in direct budget support.6 Total planned receipts amount to $256 million, leaving an operational budget shortfall of over $200 million.7 By May, Afghan Finance Minister Heydayat Amin-Arsala was begging international donors to provide funds to pay doctors' and teachers' wages while in the same breath, predictably, asserting that in a modern Afghanistan economic growth would be driven by private enterprise.8

The Karzai regime has said it can come up with internal funds amounting to $83 million through taxes .9 But most of these tax receipts and license fees depend upon regions furnishing resources to the Kabul government, a very dubious proposition. A much more likely source of internal funds will come simply from printing money, a procedure used by the previous Uzbek General Rashid Dostum and the Northern Alliance Rabbani government.10 The director of the Middle Eastern Department at the International Monetary Fund, Paul Chabrier, in January discovered in a visit to the customs office in Kabul that it had raised $12 million in the latter half of 2001 through duties on imports. The problem in his words was that "we don't know where the money went."11 The central government has barely collected any revenue locally with government expenditures being handled by 'deficit finance - by printing banknotes.' A Finance Ministry official reported in late February that a number of regions in Afghanistan were also printing their own banknotes, with the official adding "there is one company in Russia printing banknotes of different shapes and sizes for everyone."12


Table 1. Karzai's Central Government Budget for 2002

Planned expenditures $460 million
Planned receipts $256 million
  - Kabul government taxes $83 million
  - UNDP and related $47 million
  - China $1 million
  - Pakistan $10 million
  - Asian Development Bank $15 million
  . World Bank $100 million
Budget deficit $200 million

 


Footnotes

1 . Charles Clover, "Kabul Insists Aid Distribution is Working," The Financial Times [February 25, 2002].

2 . The phrase 'Karzai & Associates' is elaborated upon in my "The 'Karzai and Helpers Vision' of Afghanistan's Reconstruction: the Kabul Intercontinental Hotel as [its] Metaphor" [Durham, N.H.: unpublished manuscript, Departments of Economics and Women's Studies, University of New Hampshire, May 2002]. The prostrate condition of Afghanistan's financial infrastructure is described in Charles Recknagel, "Afghanistan: Reconstruction Will Require Resuscitating Banking Sector," Eurasia Insight [December 26, 2001], at : http://www.eurasianet.org/departments/business/articles/pp122601.shtml . See also "Currency Problems Cloud Afghanistan's Economic Prospects," The Taipei Times [December 24, 2001], at : http://www.taipeitimes.com/news/2001/12/24/print/0000117185

3 . Guy Dinmore, "Kabul Desperate to Receive Cash Lifeline," The Financial Times [February 5, 2002]: 12.

4 . Pamela Constable, "Musharraf Offers Hand, Aid Check During 1-Day Visit to Afghanistan," Washington Post [April 3, 2002].

5 . "China Renews Pledge of Aid During Karzai Visit," China Daily [January 24, 2002].

6 . "World Bank Offers Up to US $ 100 Million Budget Support to Afghanistan," Relief Web [April 2002].

7 . Rachel Morajee, "Afghan Finance Minister Makes Plea for Funds to Pay Wages," Relief Web [May 9, 2002].

8 . Morajee, op. cit.

9 . The Financial Times [April 11, 2002] and [April 15, 2002].

10 . Recknagel, op. cit.

11 . Mark Landler, "I.M.F. Backs Official Shift to U.S Dollar by Afghans," New York Times [January 31, 2002].

12 .Clover, op. cit.


 Marc W. Herold teaches at the  Departments of Economics and Women's Studies, Whittemore School of Business & Economics, University of New Hampshire. Copyright   Mar Herold 2002. For fair use only


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