Afghanistan Government Faces Financial Crisis, IMF Angered

Afghanistan's efforts to punish the perpetrators of last year's crisis do not satisfy the IMF; if this continues, the country will suffer a cash crisis within a month.
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* Afghanistan
* Imf
* Bankrupt
* Bailout
* Central Bank
* Hamid Karzai
* Corruption

* Banking
* Business
* Government

* Spain

June 30, 2011 - PRLog -- The government of Afghanistan could be bankrupt in the next 30 days, according to the IMF. Bailout talks for an $820 million deal to save the country's biggest bank have made little progress. Without the IMF agreeing to give the country cash, other foreign donors may not be able to give cash either. The Afghan government's inability to come up with a serious solution since the scandal emerged last year has worried international partners who have provided billions of dollars in aid since the Taliban were toppled in 2001.

The Afghan government will struggle to pay its bills "within a month" after the International Monetary Fund rejected proposals for resolving the Kabul Bank scandal, western officials have warned. The war-torn country's biggest bank nearly collapsed last September, and the government of Hamid Karzai and the international community are still at loggerheads over plans to fund an $820m bailout as well as how the disgraced former managers and shareholders who helped themselves to hundreds of millions of dollars should be prosecuted. As long as the IMF declares the plans to be inadequate, many countries, including Britain, are legally barred from pumping money into a government that is almost completely reliant on foreign cash to pay civil servants' salaries. The IMF and the Afghan government and central bank are at loggerheads over what to do with Kabulbank: the IMF wants it placed in receivership and sold quickly to stem losses but the government wants a gradual rehabilitation and sale.

Last year Afghanistan’s central bank spent $820m of its reserves bailing out Kabul Bank. The question now facing the government of President Hamid Karzai is how it will recover the money from these worthless holes in the ground, along with luxury Dubai villas bought at the top of the market, and much else. In total, close to $1 billion is missing, thanks to a binge of interest-free and mostly illegal insider lending to shareholders, including one of Mr Karzai’s brothers. The spiriting away of such sums is a huge blow in a land with an official GDP of just $12 billion a year. The United States, through the IMF, is taking a tough line, demanding that the foot-dragging government properly finance the bail-out and prosecute those responsible. The IMF’s insistence has sharply slowed the flow of donor funds on which the Afghan government relies. If the IMF remains unsatisfied, the country will suffer a cash crisis within a month. The Afghans protest that, after months of wrangling, they have done much of what was asked of them, including replacing the bank’s management, stripping the shareholders of their rights, and hiving off all the dodgy loans. The finance minister, Omar Zakhilwal, has plans to raise taxes and pay off the bill over eight years.

The Afghan Ministry of Finance said the U.S. and Afghan officials have agreed that the crisis was caused by poor management and supervision but exacerbated by an "erroneous" audit by accounting firm PricewaterhouseCoopers, and "ineffective" international technical support. The International Monetary Fund (IMF) has painted a grim picture of the Afghan government's handling of the Kabulbank crisis, one which could lead to the fund ending its Afghan support program. The crisis has worsened already tense relations between Afghan President Hamid Karzai's government and its Western backers at a crucial time, with the gradual handover of security responsibility to Afghan forces to begin mid-year. Western governments have been impatient with what they describe as a lax attitude toward corruption by Karzai's government. Donors contribute about 70 percent of the Afghan state operating budget and also spend billions in direct aid outside of Afghan control.

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