Debt Collection, Not Aid, Was the Real Priority of
the Afghan Reconstruction Conference

by Yoichi Shimatsu
January 25, 2002

Tokyo – Afghan interim leader Hamid Karzai dropped a bombshell at the International Conference on Reconstruction Assistance to Afghanistan on January 21, but the media failed to pick it up. While outlining his blueprint for a stable new government, Karzai promised the meeting of donor nations: "Afghanistan will assume responsibility for the foreign debt incurred by all previous governments.'' U.S. Secretary of State Colin Powell nodded in smug approval. Karzai's remark elicited a smile from US Treasury Secretary Paul O'Neill, who was also part of the high-powered American delegation to the aid meeting, a follow-up to the Bonn conference on Afghanistan in December.

The Tokyo conference fell short of U.N. Secretary General Kofi Annan's goal of raising 10 billion USD over the next 5 years. The 61 donor nations and the World Bank pledged USD 1.8 billion in fiscal 2002 as part of a USD 4.5 billion commitment over the next five years. Much of this proposed package, however, has yet to be approved by respective national parliaments, and much of that aid will consist of goods and services and salaries for the nationals of donor countries rather than outright cash grants. While the Tokyo meeting was billed as a forum to discuss reconstruction of a war-devastated land, Karzai's remarks suggest the core issue at hand was the reintegration of Afghanistan into the global financial system in order to repay its foreign debt. This giving only for the purpose of getting was consistent with the irony of a conference held in Tokyo's Pamir center, named after an Afghan mountain chain claimed by Tajikistan in an age-old territorial dispute, and in a host country where the word for king is pronounced "Osama."

Garbed in a tailored silk suit and glib with technocratic jargon, Karzai is the sort of Afghan that bankers can do business with. His natty attire and fiscal conservatism are reminiscent of Carlos Menem, and his strong-currency policies could prove to be as disastrous for the Afghans as Menem's policies turned out to be for the Argentinians. As has been the trend since the Cambodian and East Timor crises, the Afghan conference sponsors stressed a shift in priorities from humanitarian aid to ''institution-building'' – restructuring of the Central Bank, making the currency convertible and close monitoring of the civil service. The ministers of Western countries extolled the virtues of accountability, transparency and cost-efficiency with the zeal of mullahs (as if these values exist in Houston). The dirt-poor Islamic republic is to be transformed into a shiny new Utopia for foreign investors. In this ''vision'' – a word repeated over and again by the donors – reopening schools was seen as more important than food or medicine, since schools are the necessary re-education camps to convert unkempt Islamic scholars into clean-shaven model bookkeepers.

Karzai's calculations, however, don't add up in the balance sheet. Afghanistan's foreign debt last stood at USD 5.5 billion in 1990, the year that major international lenders suspended further loans to the country, according to the UN Commission on Trade and Development (UNCTAD). That is nearly four times larger than the gross domestic product (GDP) of 1.55 billion in 1999, the first year of a lingering drought that has since withered the Afghan economy. If the outstanding debt is divided on a per capita basis, every man, woman and child carries an annual debt burden of USD 230, while the average individual GDP in 1999 was USD 70 per year.

Making annual interest payments of USD 115 million on this debt will be difficult, to say the least, when more than half of Afghanistan's 22 million people subsist in absolute poverty and cannot afford to eat minimally, much less pay taxes.

The annual foreign debt service is about one-tenth of annual GDP, unrealistically high for a society without an economic surplus. For purposes of debt repayment, available sources of revenue are few. Income tax will not be a factor for years to come, since only civil servants earn salaries, and irregularly at that. Karzai's main purpose for being in Tokyo was to plead for the cash needed to hire civil servants, the politically acceptable method for establishing a patronage system.

The bulk of the landlocked country's estimated USD 680 million in exports of grapes, pomegranates, carpets, goat hides and lapis lazuli will not bring in much hard currency since most of the product is sold to Pakistan, whose own currency has been depressed due to a long recession.

Raising tariffs on imports will impose a crushing burden on the Afghan poor, who survive because of the cheapness of Pakistani wheat, rice, cooking oil, diesel fuel, toilet paper and cloth. Karzai's open hostility and ingratitude toward Pakistan at the conference was, thus, shocking and provoked the Saudi representative to reaffirm Pakistan's massive contribution to Afghan welfare, starting with sanctuary and support for more than 2.4 million refugees.

The Afghan government no longer has any national industries to privatize, since all the hydroelectric power stations and its telephone system were bombed by US warplanes. The only assets with potential market value were summarized by Chris Patten, European Commissioner for External Affairs: "Afghanistan has oil, gas and minerals, and these will be attractive to foreign investors.'' A less than charitable comment, considering this was supposed to be an humanitarian aid conference.

Karzai pledged to ban the cultivation of opium poppies, the income of last resort for Afghanistan. Afghanistan will not be able to simply print money. On the contrary, the country is being put under an international trusteeship that aims to shrink the money supply – mainly by taking it out of the hands of the poor.

To prevent any tax revenues from being consumed by inflation and to protect foreign investors, the Karzai government will peg the national currency called the afghani to the US dollar. An Asian Development Bank official explained at a press briefing that the ADB, World Bank, United Nations and Islamic Development Bank are forming a trusteeship to oversee the aid payments to the government and control the currency. In other words, aid will be doled out only if the Afghans obey the bankers' rules.

Afghanis were minted by different governments, and these various notes have differing real values in the marketplace. Still, the Afghani, for all the confusion about its value, has served as an effective medium of exchange since it is generally traded not against the US dollar but with the Pakistani rupee, as nearly all trade is with Pakistan.

If the currency crises in Asia and Latin America serve as indicators, the dollar peg and convertibility are likely to cause higher prices for the poor and capital flight among the middle class (not to mention foreign investors, who will trade afghanis for dollars at the first signs of trouble). Convertibility is a recipe for social suicide in an economy as weak as Afghanistan's, when even Singapore and Hong Kong are having difficulty keeping up with the strong dollar. Another problem is that the consumerist spending of highly-paid foreigners and civil servants could rapidly widen the economic gulf between rich and poor, as has happened in Cambodia.

The economic disparities caused by a sudden influx of foreign aid was, in fact, the original source of Afghanistan's long-term economic and political crises. In the 1960s, King Zahir Shah opened the isolated agrarian country to foreign aid projects. The disparity between those who earned foreign dollars and the impoverished majority led to unrest among the urban poor and student protests . . . and eventually to the leftist coup of April 1978 and the exile of the king, who took much of the borrowed money with him to Rome.

The pro-Soviet Babrak Karmal government introduced education for girls and devalued the currency after overborrowing from abroad to invest in ambitious construction projects. These rapid modernization programs went against the traditional values of the rural population, who form the demographic majority . . . and thus began the Afghan mujahideen resistance to Soviet occupation.

Now these failed reform programs of the past are to be resurrected under the very same King!

Nearly every speaker mentioned the ''20 years of civil war and three years of drought'' as if the causes for Afghanistan's problems are homegrown. Not a single delegate dared to mention the obvious: That it was a co-chair of the donor conference, the United States government, that destroyed the Afghan economy with weapons and economic sanctions. The US provided the ordnance and explosives that destroyed the factories, highways, tunnels, airports, television station and gas fields that were built by the leftist governments. This past autumn, American planes and missiles destroyed what remained of Afghanistan's assets, including a telephone system that was more modern than Pakistan's.

Addressing the interim leader as ''General Karzai' ' – who was actually just a minor warlord swept to power literally aboard a US helicopter gunship – Colin Powell showed a keen interest in the proposed National Army, Police Force and Intelligence Bureau for Afghanistan. America's contribution to Afghanistan has always been weaponry, and it seems that priority will not change if Powell carries out the Bush promise that "America is in Afghanistan for the long term.'' Powell pledged USD 296 million in aid to Afghanistan in the next fiscal year, plus release of more than 200 million in Afghan government funds seized by the US Treasury Department – without the accrued interest, however. In contrast, the United States has spent at least USD 4.5 billion since September for the military action against Afghanistan.

It is ethically unconscionable that Washington is now demanding debt payment from the Afghan people for what they were robbed of by America. With subtle signals, the Japanese hosts expressed some unease with the American attempts to dominate the donor conference. It is too early to determine whether Japan's persistent and peaceful ''Asian'' approach is mere window-dressing and logistical support for a global bankers' regime or if it can ultimately save Afghanistan from the catastrophic economic policies being imposed by Washington. The level of applause in the conference room showed that many of the delegates clearly favored the Japanese and Saudi approach of providing civilian humanitarian assistance rather the US mindset of waging war and making others pay for the damage . . . and then having the gall to extract debt payments and natural resources as quickly as possible.

If the Bush team can gain the political momentum for for military attacks on other countries, the reconstruction conferences in Bonn and Tokyo could serve as a precedent for many more to come. The Tokyo meeting ended on a chilling note when US Treasury Secretary Paul O'Neill warned: ''I have no doubt that this process of pursuing and defeating terrorists wherever they go – and rebuilding countries – can be repeated again and again.''

Yoichi Shimatsu, former editor of The Japan Times Weekly and journalism lecturer at The University of Hong Kong, was based in Pakistan over the summer and autumn to report on the Afghan war and Kashmir dispute.

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