Wednesday, January 19

IMF slows Afghanistan’s access to finance, tightens the Taliban

The International Monetary Fund said Afghanistan’s new government cannot use the fund’s reserve assets days before the nation received nearly $ 500 million, depriving the Taliban of key resources.

The country has been in line to automatically receive new reserves, known as special drawing rights or SDRs, on Monday as part of a recently approved IMF plan to inject $ 650 billion of liquidity into the troubled world economy. While Afghanistan will continue to receive the assets, it will not be able to use them because the new regime lacks international recognition, the IMF said.


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“As is always the case, the IMF is guided by the views of the international community,” an IMF spokesman said by email on Wednesday. “Currently, there is a lack of clarity within the international community regarding the recognition of a government in Afghanistan, as a result of which the country cannot access SDRs or other IMF resources.”

Under IMF rules, the 190 members get the assets allocated on their balance sheets, and the total is divided roughly proportionally based on their share of world economic output. For Afghanistan, that’s 0.07% of the total, or $ 455 million. The vast majority of nations will be allowed to exchange reserves for cash to pay debts or provide funds for pandemic health expenses.

But Afghanistan cannot do so, joining a small group of countries, including Venezuela and Myanmar, that will receive the assets in the IMF but will not be able to control them due to lack of international recognition.

That’s a blow to the new Afghan government in a nation that, despite US efforts for 20 years to boost the economy and the banking sector, remains largely in a primitive state. Nearly three-quarters of the country’s nearly 40 million citizens live in rural areas, while most of the banks are located in the top three cities, according to World Bank data.

Afghan currency is not accepted for cross-border trade, making the nation dependent on US dollars and an informal transfer system often used in the Muslim world known as hawala. The century-old trust-based method of moving cash underpinned international trade throughout the Middle East and South Asia before the advent of modern banking. It remains a central part of the financial system in many of those countries, particularly Afghanistan.

The Biden administration had been taking steps to prevent the Taliban from using IMF-allocated reserves, according to a Treasury official. A group of 18 Republican lawmakers also wrote to US Treasury Secretary Janet Yellen asking her to intervene at the IMF to prevent the Taliban government from using the reserves.

The United States froze nearly $ 9.5 billion in assets belonging to the Afghan central bank and halted cash shipments to the nation, an administration official confirmed Tuesday. Any central bank assets the Afghan government has in the United States will not be available to the Taliban, which remains on the Treasury Department’s sanctions designation list, the official said.

Among the problems Afghanistan must solve is the leadership of the central bank. Ajmal Ahmady, the governor of Da Afghanistan Bank, or DAB as the institution is known, fled the country earlier this week. DAB has $ 9.5 billion in assets, a considerable portion of which is in accounts with the New York Federal Reserve and US-based financial institutions.

“The government is not recognized, and that will take time to resolve,” said Mark Sobel, a former US representative on the fund’s executive board and a former Treasury Department official who now participates in the Official Forum on Monetary and Financial Institutions. I don’t know if there is a central bank governor or someone the IMF can call and deal with. There is no way it will be fixed in the next few weeks. ”

While the US cannot unilaterally change a country’s recognition within the international community, the nation is by far the largest shareholder in the IMF, with a 16.5% voting share, almost three times the influence. from Japan and China, next in size. American views often have a significant influence on the Washington-based fund.

US Secretary of State Antony Blinken may be pressuring other nations not to recognize the Taliban. He spoke with his counterparts in both China and Russia on Monday following reports that the two nations were open to working with the Taliban.

China provided the Taliban with a crucial boost of legitimacy in late July when it endorsed the organization’s “important role” in the government of Afghanistan. But in talks with the Taliban and Afghan governments last week, the government of US President Joe Biden stressed that, together with its partners, it will not grant legitimacy to any government that takes over the country by force.

In terms of measuring international recognition, the IMF often relies on the United Nations as a benchmark, though it can also poll members directly on their views, Sobel said.

“It is extremely unlikely that the Taliban will have access in the immediate term to SDRs in a usable form, that is, the ability to access them and exchange them for dollars, euros or otherwise,” said Douglas Rediker, another former United States representative. Joined on the IMF Executive Board and a senior fellow at the Brookings Institution.

“If the Taliban become the de facto and de jure government of Afghanistan, with full control of the instruments of power, then it will be difficult for the IMF to deny them access to SDRs,” Rediker said. “But that does not mean that there will not be great efforts to avoid that result.”

© 2021 Bloomberg

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