The gains of the past 20 years in Afghanistan will be lost unless we keep funding social infrastructure
Afghanistan is on the brink of economic meltdown. Millions of people are going hungry. Teachers and doctors are going unpaid. The social infrastructure built up over the past 20 years is collapsing, The banks are running out of money. Total collapse could come in days rather than weeks.
A catastrophe can still be avoided but only if politicians in the west – and primarily those in Washington and London – accept that they lost and the Taliban won. Unless the international community engages with Afghanistan’s new rulers and finds a way of providing financial support it will be a classic example of self-harm.
Why? Because all the gains that have been made in the country over the past two decades have come as a result of grants and aid. Now that the money has been turned off, girls will not go to school, more mothers will die in childbirth and infant mortality will rocket.
The west seems to think that freezing Afghanistan’s reserves, turning off financial flows from the International Monetary Fund and halting the World Bank’s activities will force the Taliban to provide assurances of good behaviour. The opposite will be the case. Food riots in Kabul will embolden the Taliban hardliners, lead to more repression, encourage the growth of the opium economy and drive the regime into the hands of China.
Here’s the basic position. There has been some growth in the economy since the Taliban was ousted from power in 2001 but this has almost entirely been the result of help from the international community. Afghanistan remains an agrarian economy, although it is rich in largely untapped minerals, including rare earths.
Almost half of the country’s gross domestic product – 45% – comes from external financial support. Three-quarters of public spending comes from the same sources. Grants and aid have been paying civil service salaries, providing the stipends to send girls to school and funding rural medical centres. That money has been abruptly switched off, leaving the country with a colossal black hole. For a rich country 45% of GDP fiscal contraction would be hard to bear; for one of the poorest countries in the world, it represents an unbearable shock.
Afghanistan also imports a lot more than it exports. At the last count, official – non-illicit – exports were running at about £800m a year, while imports were running at about 10 times that rate. The country has only been able to run a trade deficit of this size because of financial flows from outside. The removal of that support means the currency is collapsing and inflation is rocketing.
Back in 2007, the first visible sign of a looming financial crisis in the UK was when queues started to form outside branches of Northern Rock. In Kabul, the crowds have been clamouring to withdraw their money out of not just one bank but all of them, because the west’s response to the Taliban’s military success was to impose financial sanctions. Until August, Afghanistan’s banks could rely on a regular supply of US dollars provided by the Federal Reserve Bank of New York. Hard currency flows have dried up, making it impossible for the banks to satisfy the demands of their customers.
There is a perfect storm arriving imminently: a triple fiscal, balance of payments and financial crisis that will be especially hard on a country already suffering from a severe drought.
Kevin Watkins, until recently the director of Save the Children, said: “Western governments are acting like rabbits in the headlight. Withdrawing aid and issuing the Taliban with tough-talking human rights demands makes for good soundbites, but it’s not a strategy for engagement. Aid withdrawal will lead to the wholesale collapse of basic services like health and education, the disintegration of productive infrastructure, and surging poverty as the economy implodes.”
Watkins said it is a mistake to see the Taliban as a monolithic organisation, adding that the movement is divided between hardliners and those who believe they have a better chance of staying in power if they engage with the outside world.
“Pragmatists in the Taliban leadership will know they desperately need aid if the country is to recover. Western governments should be talking to the Taliban, agreeing practical and achievable conditions for resuming aid, and working out how to deliver that aid”, he said.
There is no question that the US and the UK could exact some sort of revenge for the humiliations of the past few weeks. Joe Biden can keep Afghanistan’s dollar reserves locked up in New York, and he can use the US veto to prevent the IMF and World Bank from any form of engagement. But if you treat a country like a pariah then it will act like a pariah. It is quite easy to imagine Afghanistan as North Korea with a twist: isolated but exporting heroin and terrorism.
A better way forward, and one proposed by the former international development secretary, Andrew Mitchell, would be a global response, organised through the UN, the World Bank and the IMF. Such an approach would bind Russia and China – neither of which have an interest in Afghanistan becoming a failed state – into a deal with the Taliban that involves aid in return for safeguarding some of the development gains since 2001.
Clearly, this is not going to be easy, because Afghanistan currently lacks a functioning government and is under the control of a movement not exactly progressive in its outlook. But the fact is that there are already 2 million children under five suffering from malnutrition and there will be many more if the economy implodes. There is only one thing worse than talking to the Taliban, and that’s not talking to them.
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