The markets in Kabul have food, but few can afford it. A sack of flour can cost about $30. Businesses struggle to get materials because of lack of access to bank accounts or foreign currency. Teachers and government workers weren’t getting paid, and even if those salaries have resumed, incomes are lower. People sell furniture and silverware for cash. They also sell their kidneys.
This is Afghanistan in the months after the Taliban marched into Kabul, the Afghan government fell, and the United States withdrew. America’s 20-year war ended, but another crisis replaced it: economic collapse. This was brought on by the near-instant evaporation of billions of dollars in foreign aid, sanctions on Taliban leaders, and the US’s freezing of Afghanistan’s foreign currency reserves. A severe drought, the Taliban’s struggles to govern, and now the global shocks from the Ukraine war have pushed Afghanistan toward humanitarian catastrophe.
On Wednesday, a 5.9 magnitude earthquake hit the southeastern part of the country, killing about 1,000 people and injuring at least 1,500 more, according to a state-run news agency. The quake hit a rural, poor region near the Pakistan border, another humanitarian crisis for the country to face. Afghanistan’s diplomatic missions called for more foreign aid to help respond to the disaster.
But Afghanistan is already depending on humanitarian assistance to stave off crisis after crisis. Nearly 20 million Afghans were already facing acute food insecurity, about half of the country’s entire population. In March, the United Nations said almost 95 percent of Afghans aren’t getting enough to eat, what a UN official called “a figure so high that it is almost inconceivable.” More than 1 million children under 5 will face severe malnutrition this year. According to the World Food Program, 92 percent of households reported having debt; 88 percent said buying food forced them to borrow money.
The UN has raised billions in aid for Afghanistan this year. But this kind of relief is supposed to be an emergency measure. In Afghanistan, it is serving as the replacement for an economy that cannot function.
“Every single possible coping mechanism and social safety net has been ripped from underneath them,” said Athena Rayburn, Save the Children’s director of advocacy, communications, and media in Kabul. “The last frontier should be humanitarian agencies, but we’re increasingly having to do more and more and more because there’s nowhere else for people to turn.”
Afghanistan’s predicament is a long story, and a short one. It can be told in decades of international intervention, or in 20 years of US foreign policy failures, or it can begin in the immediate aftermath of the Taliban’s takeover, when development assistance disappeared and members of the Taliban went from being heavily sanctioned terrorists to the heavily sanctioned leaders of the de facto government.
The US Treasury Department has made substantial exceptions to Afghan sanctions in the months after the withdrawal, but they continue to have a chilling effect. And one of the toughest measures remains in place: The US continues to block Afghanistan’s central bank from accessing about $7 billion of its own assets, funds necessary to triage an economy in free fall.
The Taliban have also struggled to govern Afghanistan. They lack resources, but also the technical know-how — and many who have it are sidelined or have left. The Taliban have crushed any hope that they might emerge as a new and more moderate group, instead targeting minorities, banning girls from high school, and requiring women to wear the burqa in public. So far, they are unwilling, or unable, to change.
The West can blame the Taliban for failing to take reasonable steps that would ease Afghanistan’s isolation. The Taliban can blame the West for sanctions and blocking the central bank reserves. And the world is struggling to figure out what happens to a country that was suddenly cut out of the global system after two straight decades of international intervention.
It’s a “tug of war in some ways,” said Madiha Afzal, a foreign policy fellow at the Brookings Institution. “The people who are suffering are ordinary Afghans.”
That leaves humanitarian assistance to mitigate the disaster. But it does not offer Afghanistan a real pathway out of this crisis. “It will save lives for today,” said Sayed Hameed Sadaat, who worked in policy and planning in Afghanistan’s Office of the President, until the government’s collapse last August. “But tomorrow, there’s again a question mark: What will they eat? What will they live with?”
“There’s no strategic plan agreed [to] by [the] international community to save these needy people, to get Afghanistan out of international crisis,” Sadaat added.
When an economy craters overnight
Over 20 years, the United States had set aside nearly $150 billion for Afghanistan reconstruction, according to the Special Inspector General for Afghanistan Reconstruction (SIGAR). (The total US cost of the war is estimated at $2.3 trillion, according to Brown University’s Cost of War Project.) That funded Afghan’s security services, governance and development programs, and more. According to the Congressional Research Service, the US and international donors supported more than half of the Afghan government’s $6 billion annual budget and as much as 80 percent of its total expenditures. About 40 percent of Afghanistan’s GDP came from foreign assistance.
All of that stopped abruptly when the Taliban swept into Kabul. This was billions, gone. “When the Taliban came in, not only did the government collapse, but everything — all the relationships, all these institutions, and all the processes that had been built over two decades, in terms of economic development aid that was flowing into Afghanistan — it all collapsed,” said Abid Amiri, an economist and author of The Trillion Dollar War: The U.S. Effort to Rebuild Afghanistan 1999-2021.
This was the money that paid teachers and public sector employees their salaries. It also hit the artificial economy that bubbled up around foreign investment — taxi drivers, day laborers, the restaurateurs who catered to civil servants.
“No country in the world could withstand a sharp cutoff of that aid,” said William Byrd, a senior expert on Afghanistan at the United States Institute of Peace.
Now add in sanctions. Both the United States and the United Nations had existing sanctions on members of the Taliban; for example, those accused of orchestrating or coordinating attacks on the US and its allies or of having financial ties to terrorists. There are sanctions on specific groups, like the Haqqani network, a distinct entity within the Taliban. The Taliban takeover meant many of these sanctioned leaders became the de facto leaders of the Afghan government.
There was another sweeping measure: a freeze on the assets of the Da Afghanistan Bank, or DAB, the country’s central bank. It’s hard to get a perfect figure, but Afghanistan held about $9.5 billion in foreign reserves in Western institutions, with about $7 billion or so in the New York Federal Reserve. The US completely blocked the Taliban from accessing these reserves, saying that Afghanistan’s democratically elected — but now defunct — government is the steward of these assets. This should be the money Afghanistan could use to manage the macroeconomy, to do things like help control inflation, insert liquidity into the economy — all problems plaguing Afghanistan.
The United States has peeled back sanctions, but it hasn’t really worked
When the Taliban took over, Afghanistan was effectively cut off from the global financial system. That created a liquidity crisis: basically, not enough cash. The frozen central bank funds mean there isn’t enough currency, whether dollars or afghanis, to back up commercial banks. People and businesses cannot access their bank accounts, even if they have money in there. Physical cash in circulation is wearing down, and Afghanistan doesn’t print its own money.
It is harder to import things; businesses can’t tap their accounts to buy products, and even if they could, the afghani has depreciated, making imports more expensive. Prices have gone way, way up, even as incomes have gone down. “The fundamental issue of our economy right now is just people not having enough money to buy things,” said Haroun Rahimi, an Afghan researcher and law professor at the American University of Afghanistan.
Afghanistan’s poverty rate was at 72 percent around the time of the Taliban takeover, with most of the country living on less than $2 per day. As much as 97 percent of Afghanistan was expected to sink below the poverty rate by mid-2022.
The dire situation ultimately prompted the United Nations and the United States to begin issuing sanctions exemptions to allow the free flow of humanitarian assistance. The US continued to expand on these “general licenses,” which allowed more and more transactions over time. In late February, the Treasury Department issued a general license that gave private companies and NGOs the legal cover to do a wide range of transactions, including with governing institutions in Afghanistan — even those headed up by sanctioned individuals.
The US “definitively and categorically said sanctions on the Taliban do not mean that all engagement with or economic activity with the Afghan government is sanctioned,” said Andrew Watkins, senior expert in Afghanistan at the United States Institute of Peace. In other words, it largely permitted the majority of economic activity that foreign actors might want to have with Afghanistan.
“That hasn’t sent people rushing back into Afghanistan,” Watkins added.
As some experts told me, this licensing process was too gradual and took too long. Businesses had already ended their dealings with Afghanistan and, because of the many uncertainties, didn’t see it as a worthwhile investment to return. Foreign banks and entities are still scared they might end up inadvertently violating sanctions rules, or that the rules might change.
“The problem was everybody had to figure out: ‘Okay, what does this license cover? And how far open is this? Are there things I can’t do even within the license?’” said Jeffrey Grieco, president and CEO of the Afghan-American Chamber of Commerce. “The Afghan business guys are not lawyers in the US. They’re just trying to sell food and import wheat and import rice.”
All of that has created a deterrent effect that is hard to overcome. Afghan businesses are struggling to export and import goods, or even get parts to fix machinery from suppliers to produce things at home. “Once you tell them these materials go to Afghanistan, they just ignore you,” said one Afghan businessman, who was granted anonymity to protect his safety.
The conundrum of Afghanistan’s central bank funds
Deepening the paralysis of the Afghan economy is the freeze on DAB’s assets. The country does not have a functioning central bank, so it lacks the tools to ease some economic constraints, like lack of liquidity or high inflation.
The central bank assets are also the most visible and symbolic element of the battle over Afghanistan’s future. Treasury froze the assets in August 2021; soon after, some 9/11 victims’ families began pursuing the funds as potential compensation in terrorist judgments against the Taliban and others.
The Biden administration was in some ways boxed in by this litigation, which is still weaving through the courts and may not ultimately succeed. But in February, the White House issued an executive order that set aside about half of the assets for possible compensation in the lawsuit, and committed about $3.5 billion “for the benefit of the Afghan people,” which would be made available through a third-party trust.
The move angered many critics, who say the assets belong fully to the Afghan people. Afghan advocates and others have also challenged the legality of using these reserves for a judgment in this suit, since the Afghan people bear no responsibility for 9/11, and doing so would likely prolong the crisis in Afghanistan.
“The change of the government shouldn’t lead to the freezing of assets in the case when, for example, a country doesn’t recognize the results of an election or [the] overthrow of government. It’s money of the state; it’s not money of the government,” said Alena Douhan, the United Nations special rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights.
With the executive order, the administration tried to guarantee that some of the assets would return to Afghanistan in some form, though it’s still not clear what form that might be. And many see the central bank funds as an urgent component necessary for ameliorating Afghanistan’s economic precarity. “You’re going to need to give them aid, but you’re also going to need to figure out how to restore some elements of their economy, so they can slowly move toward greater levels of sufficiency,” said Masuda Sultan, co-founder of Unfreeze Afghanistan, a campaign calling for the release of the assets.
Shah Mehrabi, a professor of economics at Montgomery College and member of the Board of Governors of Da Afghanistan Bank, has proposed restoring the funds through a limited, monitored release. “We want to be able to prop up the value of the afghani and stabilize prices, and then help meet the needs of ordinary Afghans,” he said. “That’s the whole purpose of what we want to do is to avoid financial sector crisis, and to allow businesses who are having difficulty to be able to pay for imports to be able to do that.”
Some proponents favor releasing funds in waves, carefully monitored in case the Taliban abuses the funds. But even within that proposal, there are debates as to whether it should be done through some sort of separate mechanism, like a third-party trust, or through the DAB itself, which, though technically independent, is now being run by a Taliban official.
It’s also still a question of how successfully Afghanistan’s DAB can manage those funds. The chill of sanctions and lack of foreign investment may mean there are limits to how much these reserves can repair the economy. Many of the top leaders of the bank also fled after Afghanistan’s fall, and others are trying to leave or have been pushed out of positions by Taliban leadership. “They are not willing to use people who can work: technocrats, the experts that are already there, at home; they go to work, they have no role. And every day that passes, they become more irrelevant,” said Aref Dostyar, senior adviser at the Kroc Institute for International Peace Studies at the University of Notre Dame, and a former Afghan government official.
And politically, it’s difficult for the US to release these funds as long as the Taliban remains in charge. “The US can’t really just say, ‘Okay, you know what, we’re going to unfreeze your central bank funds and essentially insert liquidity in the economy,’ because that really looks like you’re essentially letting the Taliban get away with it,” Afzal, of the Brookings Institution, said.
Which means it is possible that — even if Afghanistan’s plight worsens — these assets could stay frozen until there is a democratically elected Afghan government, or at least until the Taliban leaves or changes.
The Taliban are not doing themselves — or the Afghan people — any favors
Except the Taliban are not changing. In March, in Qatar, the US planned to begin discussions with the Taliban about economic issues, including those frozen funds, but talks fell apart after the Taliban issued their decree stopping girls from attending secondary school.
The Taliban are content to blame the West, and especially the US, for Afghanistan’s suffering — but their continued human rights violations and ideological extremism have kept Afghanistan cut off from the world. The Taliban continue to curtails women’s rights, like barring girls from attending school beyond sixth grade after they promised they would allow it. The Taliban’s restrictions on freedom of movement for women and girls, and on employment outside the home, have added to the economic strain, as they can’t earn income or seek access to things like health care.
The Taliban have also continued to target civil society. They embarked on revenge killings of former members of the Afghan security forces, and human rights groups have documented arbitrary arrests and extrajudicial killings across the country, along with the targeting of minority groups.
The Taliban are still a very secretive and shadowy organization. There are likely some members who do want to try to build a functioning government, but others see the Taliban’s retrograde vision for the world as central to the organization’s character, and do not necessarily want to have a good relationship with the outside world.
“They see these pro-engagement voices as a threat to the Taliban’s identity,” Rahimi, of the American University of Afghanistan, said. If the Taliban moderate their behavior, they may do so at the expense of internal legitimacy.
In some ways, the central bank funds and sanctions are the two points of leverage still available to the West, the things it can use to pressure the Taliban on reforms. So far, that has not been successful. But it is also risky, to make what should be a matter of basic human rights into a kind of quid pro quo — and there are few guarantees the Taliban will keep its word, or work to the benefit of the Afghan people.
Afghanistan, still on the brink
Afghans in the country, or who do business in Afghanistan, all say a version of the same thing: Nobody has any money.
Fixing that requires ending Afghanistan’s isolation, which requires a menu of things: easing sanctions, releasing central bank funds, and encouraging or incentivizing reinvestment. These are all difficult options because of the political situation. Without them, Afghanistan risks being trapped on the precipice of humanitarian catastrophe.
There are improvements on the margins. The United Nations Assistance Mission in Afghanistan has physically delivered batches of cash to Afghanistan. The World Bank’s Afghanistan Reconstruction Trust Fund, which previously financed Afghan government programs, has announced that it will fund three programs worth nearly $800 million.
These are just small measures in the bigger crisis. According to one UN estimate, Afghanistan will still require about $200 million in humanitarian assistance each month. In March, the United Nations sought to raise a record $4.4 billion for Afghanistan, the largest-ever appeal for a single country. It raised $2.4 billion, with the US contributing $204 million. (As of May, the US has set aside $720 million for Afghanistan since mid-August 2021, according to the State Department.) But some advocates and experts worry that it will be difficult for the world to meet or sustain such a level of support, especially with so much international focus on Russia’s war in Ukraine.
Afghanistan avoided some of the most dire predictions of this winter because of humanitarian aid successes. But with suffering on a country-wide scale, anything — a natural disaster, global food shocks — can push it even deeper into crisis. “It’s not just going to go away if we want it to go away,” Dostyar, the former Afghan official, said. “What it does is that it will multiply the amount of the trouble that will haunt us again, later.”
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