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Still not a cent returned
27.03.2023, Financing for development
The foundation set up in Geneva in September to manage USD 3.5 billion from the Afghan Central Bank is playing it safe – by doing nothing. Switzerland seems to endorse the American position.
Isolda Agazzi
Expert on trade and investment policy / Media relations French-speaking part of Switzerland
Part of the foreign reserves of the Afghan central bank are now in Switzerland. In the archive photo: A man guards the old currency in Kabul.
© KEYSTONE / AP / MANISH SWARUP
In a surprise announcement on 14 September 2022, the Federal Department of Foreign Affairs (FDFA) unveiled the creation of a foundation called "Fund for the Afghan People" in Geneva, supported by the US and Switzerland. Despite the somewhat misleading name, it is a foundation under Swiss law (and not a fund) that will manage foreign assets belonging to the Central Bank of Afghanistan (DAB), worth USD 3.5 billion and frozen in the USA. When the Taliban retook Kabul in August 2021, Washington sequestered the USD 7 billion being held by the Afghan Central Bank in the USA. The basis for this was a law passed by Congress allowing for the freezing of assets belonging to countries that support terrorism. Half of this amount is being retained for the families of 9/11 victims; it is not clear whether this sum will actually be disbursed. As long as the Taliban's involvement in the attack is not proven, the money is unlikely to be released.
That leaves the 3.5 billion that must be returned to the DAB over the long term. The sum is currently being held in an account with the Basel-based Bank for International Settlements. The foundation, or "Afghan Fund", envisages returning the money bit by bit. It is not meant to fund humanitarian aid, but to shore up Afghanistan's macroeconomic stability, pay for the printing of new banknotes, clear up arrears allowing it to retain its seat in international financial institutions to receive humanitarian aid or finance electricity imports.
Possible USA veto
The Board of Trustees comprises four persons: on the Swiss side, Ambassador Alexandra Baumann, head of the FDFA's Prosperity and Sustainability Division; on the Afghan side, two economists, Anwar-ul-Haq Ahady, former head of the DAB and former Minister of Finance, and Shah Merhabi, a professor at Montgomery College; on the American side, a representative of the Treasury Department, Andrew Baukol. Decisions are made unanimously; if one of the four members opposes a proposal, nothing happens.
But time is passing and Afghanistan has not yet seen a cent. The Board of Trustees met for the first time on 21 November in Geneva, when it decided to hire an external auditor and appoint an Executive Secretary. No disbursement decisions were made, however, and none is expected for the foreseeable future. A second meeting was held virtually on 16 February, where no decision on disbursement was taken either. The fund decided to look for external funding to cover operational costs, which seems to us to be the least it can do.
Economics Professor Dr. Merhabi is beginning to lose patience. He told the online newspaper "In These Times" that given the catastrophic situation in Afghanistan, at least USD 100 million per month are urgently needed to curb inflation, stabilise the exchange rate and pay for imports. The USA, however, insists on very stringent guarantees: the DAB must prove its independence from political authorities, enforce adequate anti-money laundering and anti-terrorism controls, and conduct an external audit.
Switzerland at one with the USA
Where does Switzerland's stand? At a meeting with Alliance Sud in September, the FDFA had given assurances that the foundation would be managed in a fully transparent manner. Alexandra Baumann recently confirmed that the minutes of meetings were to be published and that a website was under construction.
On the matter of whether or not the Fund should start repaying the money, the Ambassador fully endorses the Fund's official position – and seemingly that of the USA by extension. "The Board of Trustees is pursuing the purpose of the foundation, which is to receive, protect, preserve for the future, and partially disburse a portion of the DAB assets currently sequestered in the USA. The long-term aim is to transfer the unused funds to the DAB," Baumann said. She added that this would occur only if the DAB could credibly demonstrate that it was independent and had introduced adequate controls. "The foundation and its Board of Trustees act independently according to Swiss law. I can confirm my commitment to the above objectives," Alexandra Baumann concluded.
“Morally dubious” sequestration
The issue is nonetheless beginning to inflame passions in civil society. Norah Niland, Chair of the Internal Task Team on Afghanistan of United Against Inhumanity (UAI), an international movement of personalities working to counter wartime atrocities, says: "It is rather disturbing that the Afghan Fund remains inactive and also seems uninterested in recapitalising the DAB. If it is to solve the liquidity problems and help rebuild the collapsed economy and banking system, the DAB must be able to function. We agree with Dr. Mehrabi that a relatively small monthly amount – USD 150 million for example – should be disbursed in a controlled manner as the bank is able to dispel concerns over the fight against money laundering and the funding of terrorism."
The seasoned humanitarian aid worker, who has worked in Afghanistan, adds that humanitarian measures, however effective, are no substitute for a functioning economy. And that the "immoral" sequestration of Afghan foreign reserves also collectively punishes Afghans who are not responsible for the Taliban's return to Kabul. "UAI expresses grave concern over the growing poverty, indebtedness, loss of livelihoods, hunger and the very harsh winter, all of which are compounding the suffering of the Afghan people and forcing them to take adaptation measures that are worsening their plight."
Switzerland must commit to starting the restitution of the funds
This is also the view of Unfreeze Afghanistan, an international campaign by women calling on President Joe Biden to release Afghan funds frozen in the USA.
Alliance Sud commends the endeavour to get at least a portion of the funds "to safety". But this, only if the funds can be used for the benefit of Afghanistan’s people. As it is well-nigh impossible to fulfil the conditions for restitution – the DAB has never been independent of State power, including even before the Taliban took power –, flexibility is needed in negotiations with the Afghan Government. Alliance Sud urges Switzerland to work prudently for the speedy return of sufficient funds to Afghanistan to enable the economy to start functioning again in the interests of the population.
"Humanitarian aid alone will not be enough to save Afghanistan"
Erhard Bauer visited Afghanistan several times over 14 years, including from 1996 to 2004 under the first Taliban government. Today he represents the Terre des hommes Foundation in that country. The Foundation still employs women in the health and education sectors, and is striving to reinstate all of its female personnel. – Interview by Isolda Agazzi
How has the situation evolved since the regime change in August 2021?
Erhard Bauer: The government had already collapsed before the USA withdrew from the country. The very start of its term in office in 2001 seemed ill-fated, as huge swathes of Afghan society were excluded – a mistake that has never been put right, and even today is hardly ever admitted openly. Culprits are obviously being sought, given the current disastrous situation. Naturally, it is easy to point the finger at an Islamist movement that has taken power. But the overall situation was already catastrophic before August 2021. Western sanctions and the suspension of international payments to the government then led to the collapse of the financial system and of many government services. We, the humanitarian organisations, too, could no longer make money transfers, as Afghanistan was disconnected from the Swift system. We now use an "unofficial" banking system that allows us to transfer funds from one country to another.
And yet there was substantial western support for Afghanistan...
Even before the US withdrawal, the Taliban controlled over half of the country. What was chalked up as a "success" in the building of a civil society was confined to just one part of the country. With the economy in a state of collapse, cities like Kabul and Herat now find themselves in the very situation endured by much of the population for the past 20 years. All the progress that had benefitted the urban population and the middle class was wiped out at a stroke.
How can the situation be improved?
So immense is the need for action that even with a replenishment of humanitarian aid, we would only be able to meet the most pressing needs of a part of the population. Humanitarian aid alone will not suffice to bring Afghanistan through this massive economic crisis. What is needed is a process in which all political forces work together. Whether this government suits us or not, whether we recognise it as the governing force or not: if a way is to be found out of this situation, there must be some form of dialogue that serves the interests of the population.
What part do the sanctions play?
What has kept this country going is that there is still a private sector, an agriculture sector, and limited manufacturing, imports and exports. The shutdown of the banking system is hitting not just the Taliban, but also the entire population. The sanctions have also driven up inflation considerably. Many things would be easier without them.
Many people have left the country in the wake of the US withdrawal. The Taliban do not have much administrative and management expertise, and this "brain drain" is hastening the collapse of structures. During the first Taliban government (1996–2001), many things still worked, as the administration had continued to function in large part by keeping the remaining civil servants in place.