Banking Bailout Needed in Kabul

Back in the fall of 2010, it was announced that Kabul Bank would be unable to pay back hundreds of millions of dollars that Afghan citizens deposited. Kabul Bank was established in 2004, only seven years ago, and has since accumulated assets of up to one billion dollars from Afghan citizens. Now, as a result of bad loans to friends and relatives to prominent politicians, the Bank is going to need a bailout of about 900 million dollars (sound familiar?), nearly the same amount that was initially deposited. However, the government of Afghanistan does not have much money to bail out the bank, so the money will have to come from the international community, especially the U.S.

According to Azarakhsh Afizi, a member of the Afghan Chamber of Commerce, the Kabul Bank was a great opportunity to garner support for the “new” Afghanistan. Mr. Afizi believes that the money should have been invested in Afghan industries, such as steel or oil, rather than divvied out into various loans. This could have allowed the Afghanis to feel more confident with the new government. However now that it has come out that large sums of money were instead lent to shareholders (including the brothers of vice president Fahim and president Karzai), the people undoubtedly feel betrayed and upset.

According to an organization called Transparency International, Afghanistan is the third most corrupted country in the world. After learning that shareholders pocketed almost a billion dollars of Afghan citizens’ hard-earned money, I can see why. And while this is certainly disconcerting, the question remains: how to pay all the money back. As mentioned earlier, Afghanistan clearly does not have the funds to recompense 900 million dollars, which leaves neighbors (meaning countries like Pakistan and Iran) and foreign allies to make up this debt. Seeing as the U.S. currently has troops stationed in Afghanistan and is so heavily involved in the establishment of the Karzai administration, it would be expected to contribute to this bailout. However, can the U.S. really handle paying such a large sum of money with the current economy? I have a feeling that many American taxpayers would be unhappy to hear that the country’s money was being spent to bail out a bank in another country. There was already a commotion over banks and corporations in America receiving bailout money.

Furthermore, what does this mean for Afghanistan’s government? It seems this banking crisis will only bring dislike of president Karzai, unless he manages to handle the situation swiftly and efficiently. However, without funds to pay off the bailout, it is unlikely that this will happen. According to Mustafa Kazem, a Kabul businessman, Kabul Bank holds almost half of the country’s assets, along with one other large bank in Afghanistan. Considering the fact that government payroll is also passed through Kabul Bank, it seems that this bailout problem could lead to bigger problems with the government. This could even lead to the disintegration of the government.

The International Monetary Fund did send a delegation to visit Afghanistan and investigate the situation with Kabul Bank and they are currently demanding that missing assets be returned. Things are still not looking good for Afghanistan, but this seems like a promising start.

Link for Picture: http://www.guardian.co.uk/world/2010/sep/05/afghanistan-government-kabul-bank-bailout

Link for NPR Article: http://www.npr.org/2011/02/28/134137014/another-bailout-looms-but-this-time-its-for-kabul