Tuesday, June 21, 2011

Stunning Corruption, Even For Afghanistan

Tomorrow President Obama is scheduled to make another “major” announcement on America's decade-long involvement in Afghanistan. There has been a lot of talk about Afghanistan in the blogosphere and among the punditocracy recently, circulating mostly around US troop levels and whether or not its a good idea to talk with the Taliban. But one major story getting almost no attention is the ongoing mess surrounding the Kabul Bank, a situation that could cripple the entire country.

We first talked about the Kabul Bank late last year when the institution collapsed after the top executives – including a former professional poker player and President Hamid Karzai's brother Mahmoud - essentially used the Kabul Bank as their own personal slush fund, ripping the institution off to the tune of approximately $900 million, using the money to invest in half-built luxury villas in Dubai, a dysfunctional national airline and the reelection fund of Hamid Karzai. To put that in perspective, Afghanistan's total Gross Domestic Product is only about $12 billion. And to make matters worse, the Kabul Bank hosts the payroll accounts for the nation's army, police and civil servants (a kick-back for the Karzai reelection fund); the loyalty of the first two is already an open question, so one can only imagine what would happen if they didn't get paid. The Guardian's Jon Boone has put together a wonderfully detailed account of the stunning corruption affecting the Kabul Bank.

In fact, the only thing more stunning has been the Afghan government's official reaction to the Kabul Bank scandal. Shortly after the collapse, Hamid Karzai scolded foreign accountants hired by international agencies to oversee the bank for not preventing the fraud – in other words, he blamed the international community for not keeping his brother from robbing the nation's largest bank (which is almost as good a definition of chutzpah as the boy who kills his parents then asks the judge for leniency because he's an orphan). Currently the International Monetary Fund is negotiating with Afghanistan for a bailout of the Kabul Bank, but here too Afghan officials are putting on a great display of kleptocratic arrogance. Not only does the IMF want strict controls put in at the Kabul Bank to prevent the outflow of capital into the pockets of the bank's top execs, they also want people to go to jail for running the bank into the ground in the first place. Seems reasonable, well to everyone that is except Afghanistan's Finance Minister Omar Zakhilwal who accused the IMF of “playing games” for trying to instill a sense of fiscal responsibility and good corporate governance to the Kabul Bank and said that the government was “running out of patience” with the IMF - no word on what Zakhilwal or the Afghan government will do to make good on that threat.

Unless the Kabul Bank is reformed though a host of international aid groups are threatening to withhold further donations to Afghanistan – why throw money down a rat hole is the prevailing thought among them. Currently, foreign aid makes up about 40% of Afghanistan's budget, so this loss would be a big blow to the country. And the whole Kabul Bank affair has seriously undermined faith in the banking sector among average Afghans. It’s also another example of the incredible corruption and incompetent leadership of a country in which the United States has already invested far too much.
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