Afghanistan Said to be Teetering on the Brink of Economic Collapse

Over the years, even as the civil war spread across the country, suicide bombings rocked Kabul and billions of dollars disappeared into foreign accounts or were poured into the villas in Dubai and Istanbul built by senior government officials, the price of bread always remained the same.

And that price, according to a recent decree from the Taliban’s commission for the economy, must not change. Nobody knows where the commission is located or how it can be reached. But their threatening words were broadcast on television: It is forbidden to change the size of a bread loaf or the price charged for it.

There are good reasons for the rather panicky decree. Indeed, it speaks volumes about Afghanistan’s accelerating plunge into economic collapse – a plunge that neither the Taliban nor the international community wants, but one that neither side is doing much to prevent.

Things began rapidly sliding downhill after the sudden implosion of the Afghan state on August 15. The country was abruptly cut off from roughly $9 billion in foreign currency reserves, more than 90 percent of its total holdings, most of which is held in the United States. Almost all foreign aid workers left the country, as did tens of thousands of senior civil servants, business leaders, bankers and technocrats.

The state, now essentially the Islamic Emirate of the Taliban, has been left unable to pay salaries, aside from those to some teachers and hospital workers. Banks are only allowed to distribute miniscule amounts in the country’s currency, the afghani. And as a consequence, millions of people are running out of cash – at a time when prices for many foodstuffs, gasoline and cooking gas are climbing rapidly. There is still electricity – around 80 percent of it imported from the neighboring countries of Uzbekistan, Turkmenistan, Iran and Tajikistan – but Kabul hasn’t been able to pay for it since August 15.

The number of beggars, particularly women, has exploded, and the streets of Kabul are lined with used washing machines, cabinets and pots that have been put up for sale – and which nobody is buying. Fall is harvest time for pomegranates in the country, but produce sellers, too, are waiting around for hours for customers. “If somebody does show up, they’re only interested in the damaged fruits,” says one desperate vendor from behind his wagon full of shiny, deep-red pomegranates.

Fighting Back a Vast Flood with Bags of Sand

But the price of bread, that sacred staple of all Afghans and sold in Kabul from thousands of tiny bakeries, may not be increased. On order from the new regime. “But how is that supposed to work?” demands a furious Ihsanullah, who owns a bakery in northern Kabul. “In July, a hundredweight of flour cost 1,300 afghani, now it costs 2,300. Gas for the oven now costs twice as much as it did, and the owner of the building has told us he has to increase the rent because it is his only source of income.”

Still, the bakery owner cannot complain of a lack of customers. Even if they might be suffering financially, they still have to eat. “But if I am not allowed to increase prices, I’ll have to close the bakery,” says Ihsanullah. For now, he is using wood to heat the oven, which is actually prohibited because of air pollution. “But it’s a bit cheaper than gas at the moment.” As soon as he has to pay more for fuel, he says, “I’ll have to close my doors. And other bakeries will do the same.”

The decrees released by the Taliban feel a bit like they are trying to hold back a vast flood with a handful of sandbags. Just days after the bread-price decree, the Taliban commission issued a stop on rent hikes, this time over Facebook. More than anything, though, the new rulers are trying to distribute something they don’t have: money.

The Taliban itself isn’t completely to blame for this state of affairs. Washington, Berlin and Brussels have frozen the country’s assets and suspended payments to the country and all development projects, aside from emergency humanitarian aid – aid that was originally intended for the drought-stricken western part of the country, but which is now needed everywhere. Forecasts from the UN’s World Food Program are sounding increasingly apocalyptic, with the general assumption being that the entire economy could collapse within weeks.

But in the eye of the brewing storm, among the few senior Taliban leaders who meet with business leaders, banks and technocrats from the previous state apparatus, the message is always the same: “Be patient! We’ll assemble a committee to address your questions. We’ll call you back.”

Over the course of several weeks, DER SPIEGEL met with several top executives who have remained in the country – bank managers, executives at large state holding companies and senior leaders at other companies. Most of the discussions took place in private residences and almost nobody wanted to be quoted by name for this piece. But their stories all sound similar. “They claim that they’ll listen to our expertise,” says one frustrated vice president of the country’s largest private bank. “But they don’t. Clerics are in all of the leadership positions and they don’t have a clue about international financial deals, about the complicated financing models with foreign currency set up by Afghan ministries. But they don’t include us. They don’t trust anybody, and they make no decisions.”

Another banker, following a discussion with a Taliban vice president, says it reminded him of the empty promises made many years ago. “We have immense quantities of natural resources, he told me, and China will invest in the mining of lithium, iron, copper. Afghanistan is on the brink of a bright future!” That, though, the banker goes on, is exactly what Hamid Karzai said 10 years ago when he was still president. Even the copper mine project in Aynak, in which the Chinese initially planned to invest, has been dead for years, he says. Beijing would have had to pay for the mine and the roads and rail lines leading to it, he says. “But China isn’t going to invest billions in an uncertain project.” Having once worked for several years in the Ministry of Mines, he knows what he is talking about.

Stuck in a Dilemma

The Taliban, concedes a third bank executive, are earnest in their efforts to address the corruption of the former government. “But that’s not enough.” How, he wonders, should a cleric with generally limited knowledge of the Koran be able to recognize state excesses without understanding them? “They are stuck in a dilemma,” he continues. “If they keep the current rules in place, whereby not even businessmen are allowed to withdraw more than $25,000 per month, companies and traders will go out of business. But if they remove those rules, people will withdraw everything they have, the banks will collapse and the afghani will plunge into the abyss because people only want to use dollars.”

Afghanistan’s legal exports in recent years – coal, dried fruits, fruit and carpets, for example – only brought in less than a billion dollars per year, with narcotics exports adding another $600 million on top of that. But more than $7 billion worth of goods were imported. “The exchange rate of around 75 afghani per dollar was largely propped up by the fact that between $20 and $30 million flowed in from the U.S. every week,” the bank executive says. “That is over. But the Taliban still don’t seem to have understood how serious the situation is.”

Not even the courts have resumed their work, he says. The country’s bureaucracy is even more confusing than it used to be, the executive says, because nobody knows who is responsible for what.

The Taliban are continuing to glorify the successful expulsion of foreign powers from their country even as they are acutely dependent on their return – not with weapons, but with the money they used to bring into the country. Or at least some of it.

One of the new clerics on the five-person board of the country’s central bank recently made a visit to one of the most important private banks in Kabul, headquartered in a high-rise whose interior could be straight out of Dubai or Qatar: Women wearing loose-fitting headscarves, men in stylish suits, high-end conference technology and polished marble.

But the new central bank board member wasn’t particularly interested in the bank’s balance sheet, according to someone who was present during the visit. He was much more concerned with how the women were dressed, and continued to focus on their attire even when none were around. There were no immediate consequences – the Taliban, after all, would like to portray a more liberal image. Either way, though, there was no discussion during the visit regarding how to prevent the complete collapse of Afghanistan’s banking industry.

One of the few top executives, both current and former, who agreed to be quoted by name is the deputy head of production for the National Development Corporation (NDC), which was, until August, in charge of numerous construction projects – some of them massive – and employed more than 10,000 workers. Among the projects were four new residential complexes in Kabul, each with between 500 and 1,200 apartments, and three canal projects for irrigation and electricity production.

“What Am I Supposed to Tell Them?”

Since August 15, though, Riazuddin Sharifi has only been in charge of a bunch of abandoned building sites. The NDC leadership was forced to move out of the presidential palace in Kabul to new accommodations on the city’s outskirts. Aerial photos of the construction sites hang on the walls above the empty desks. “Even just the canal in Mazar-i-Sharif in the north would have provided irrigation for tens of thousands of hectares of farmland,” says Sharifi proudly. “But only 14 of 300 kilometers have been finished.” In the photographs of the 100-meter-wide, 12-meter-deep canal, earth movers and cranes can be seen, looking as small as toys. Around 800 construction vehicles were involved in the project “and some of them are still in the trench, while others have been picked up by the companies involved. Nobody knows if the project will be continued,” Sharifi says. Two-thousand workers are now sitting at home without pay. “What am I supposed to tell them? Stay? Go somewhere else to find work?”

The longer the construction sites lie abandoned, and the more equipment and workers disappear, he says, the more difficult it will be to resume construction at some point. “We understand the precarious situation of the new government, but we need decisions. Should we keep going? Or just shut down?” When asked which system worked better from an economic point of view – the old, Western-dominated government or the new, Taliban regime – he just shakes his head. “There is no answer to that question,” he says. “At the moment, there is no system that could be compared to the former one.”

The country is running out of time. And technocrats continue to leave, perhaps not as dramatically as at the end of August, but the outflow is quiet and continuous. The Taliban have so few experienced engineers, finance experts and technicians that they have appointed a bachelor’s degree holder to university rector, fighters have been given governorships and clerics are now bank executives.

The result is that multi-million-dollar projects are crumbling due to a lack of interest and chaos within both the Taliban ranks and in donor countries. Among those projects is a German one called the Afghan Credit Guarantee Foundation (ACGF), a German-Afghani development aid organization headquartered in Cologne and with offices in Kabul. Over the course of several years, the ACGF has guaranteed millions in loans taken out by Afghan companies. Financed by the German government and by the World Bank, the 30 ACGF employees would examine creditworthiness, business plans and the market – and if they gave their thumbs up, loans would be guaranteed against default. “It was extremely difficult to find financial experts in Afghanistan,” recalls ACGF executive Idrees Haidarpoor. “For one job, we issued a call for applicants on three occasions with no luck, before finally training one of our staff members to do the job.”

Haidarpoor remained in Afghanistan until mid-September and was thinking of staying. Just before the fall of the government, ACGF had received approval from the World Bank for a $60 million project to increase the competitiveness of small companies and had hired an additional 50 people. “Many would like to continue. Someone just has to get the Taliban to clear out of our offices!” A group of fighters from the Ghazni province moved into the building after August 15 when fearful ACGF employees abandoned it.

Germany has to increase the pressure, says Haidarpoor, or the Taliban leaders do. But for weeks, nothing happened, and then, in mid-October, Haidarpoor left the country for Germany. Other ACGF specialists are also leaving, one after the other, out of fear and a lack of professional prospects. The Taliban leadership, meanwhile, views loans as a fundamental sin in violation of the Islamic ban on charging interest and has prohibited banks from loaning money in return for interest payments. How should the economy be financed without that tool? The Taliban doesn’t seem much to care.

Mistrustful and Isolated

The ACGF is now essentially history, even if its funders would be interested in continuing. The experts are gone and only the Taliban fighters are left behind in the generous property in the central Kabul neighborhood of Taimani. An armed man at the door to the offices merely said gruffly that it was now the “conference center” for the “security committee” in charge of five provinces. He wasn’t allowed to say more, he said.

Indeed, two months after their sudden victory, the Taliban remain mistrustful and isolated, still driving through Kabul in heavily armed pickups as if the front were right behind the next building. Their top leader remains invisible, their prime minister can sometimes be seen in televised cabinet meetings, but he has yet to actually say anything. The Taliban rank and file have been ordered to treat foreign journalists with courtesy, but as soon as those journalists want to go beyond the periodic parades held by the pro-Taliban women known as the “devout sisters” and learn a few concrete details from the new power-holders, things become more difficult.