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INTERVIEW-Specter of 2014 haunts Afghan economy, finmin says

Source: Thomson Reuters Foundation - Mon, 14 Jan 2013 21:26 GMT
Author: Reuters
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By Anna Yukhananov

WASHINGTON, Jan 14 (Reuters) - Worries that instability could undermine the Afghan economy after most foreign troops leave in 2014 could send investors scurrying for the exits and harm the economy, even though growth prospects are sound, Afghanistan's finance minister said.

In an interview with Reuters, Omar Zakhilwal blamed think tanks and the media for spreading negative perceptions about Afghanistan's prospects post-2014, which he said could scare off investors and wealthy citizens. Worries about instability have spurred a flight of capital.

"Right now the trend is to speak negatively about Afghanistan, about what's going to come up in 2014," Zakhilwal said. "Our voice ... against this onslaught of negativity is not easy.

"It is the fear about 2014, and this generated fear by the media, that is more of concern than any of the real substantive issues," he said.

U.S. President Barack Obama and Afghan President Hamid Karzai last week agreed to speed up the handover of combat operations in Afghanistan to Afghan forces, raising the prospect of an accelerated U.S. withdrawal from the country.

In Kabul on Monday, Karzai said the country will be "more secure" after foreign troops leave.

Zakhilwal, speaking late on Friday at the conclusion of the official Afghan visit to the United States, said he expects the economy to grow 5 percent to 6 percent after the withdrawal, despite a contraction in military spending, as development aid will continue to flow in. More than 90 percent of Afghanistan's national budget comes from foreign donations.

"It will have an impact, but the impact will not be to the extent that comes as a severe shock to us," he said of the planned drawdown of NATO troops.

CORRUPTION PLEDGES

Major donors in July pledged to give Afghanistan more than ${esc.dollar}16 billion in aid through 2015, in exchange for reforms to fight widespread corruption.

Despite intense fiscal pressures of their own, donor nations say they are determined to keep helping Afghanistan, in part to ensure it does fall back into conditions that gave the fundamentalist Taliban a foothold in the 1990s after the withdrawal of Soviet troops.

But many foreign aid groups are also growing impatient with the Karzai government's failure to take decisive steps to combat waste and fraud.

Canadian-educated and fluent in English, Zakhilwal helped convince donors in July of Afghanistan's commitment to fighting corruption.

In the interview, he said Afghanistan has complied with governance pledges so far, such as setting dates for its election and meeting revenue targets from the International Monetary Fund.

He also called on donors to live up to their side of the bargain, which includes giving more money directly to the Afghan government rather than to contractors or aid groups - a focus of meetings in Washington.

"There are commitments from both sides, and they are interdependent," Zakhilwal said. "Our delivery depends on the donors' delivery."

In a study last May, the World Bank estimated that only 10 percent to 25 percent of aid given to non-government sources actually stays in Afghanistan, with the rest flowing out with contractor salaries or imports.

NOT A SLOGAN

Championed by international donors for his integrity in a country mired in graft, Zakhilwal himself became the target of an anti-corruption probe earlier this year over transferring money to overseas accounts.

He has denied any wrongdoing and has said the transfers were the result of work conducted before he entered the government.

In the interview, he said corruption is still a problem in Afghanistan and one that often becomes politicized as officials point fingers rather than find solutions.

"Corruption is used blanketly, sometimes more as a slogan than as a problem," Zakhilwal said.

Zakhilwal also heralded the imminent conclusion of the government's probe into the Kabulbank banking scandal.

The theft of about ${esc.dollar}935 million from the bank in 2010, and subsequent foot-dragging in prosecuting those responsible, delayed millions of dollars in aid payments. Among those linked to the scandal are relatives of Karzai and the bank's current and former chiefs.

The outcome of the case is seen as a crucial barometer of Afghanistan's commitment to the rule of law and stable finances.

Zakhilwal said ${esc.dollar}170 million to ${esc.dollar}180 million of the stolen funds have been recovered, along with another ${esc.dollar}70 million to ${esc.dollar}100 million in assets, which will be sold for cash.

He also said a new banking law would strengthen oversight of banks and make it more difficult to manipulate the system.

"I would say we are at the final stages of resolving this lingering issue, and this chapter will be closed," he said. (Reporting by Anna Yukhananov; Editing by Steve Orlofsky)

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