The speed of the capture of Afghanistan by the Taliban last weekend has prompted the West to scramble to reduce the hold of militant Islamists on the country. Military action was all but ruled out and instead the United States and its NATO allies turned to financial warfare.
US President Joe Biden and the Federal Reserve have frozen billions of dollars in Afghan currency reserves held in the United States. Almost $ 9 billion (€ 7.7 billion) in assets are held in the United States and other countries, including $ 1.2 billion in gold and over $ 300 million in international currencies .
In anticipation of the fall of Kabul, Biden last week halted shipments of US dollars to Afghanistan – a move according to the country’s former central bank chief Ajmal Ahmady would lead to a “dire” outlook for the country. population.
american financial newspaper The Wall Street Journal reported that Washington is also blocking the Taliban’s access to government accounts managed by the Federal Reserve and other US banks.
Cash “close to zero”
Ahmady wrote on Twitter that the country “depended on getting physical shipments of cash every few weeks” due to a large deficit in the foreign exchange account. “The amount of this remaining cash is close to zero,” he warned.
Several countries, including Germany, have suspended development aid. Afghanistan relies heavily on foreign aid to keep its fragile economy running. Last year, the country received nearly $ 8 billion in aid.
The International Monetary Fund (IMF) has suspended around $ 340 million in foreign exchange reserve assets that the Taliban could turn into hard currency, citing a “lack of clarity within the international community regarding the recognition of a new government “.
Any Afghan bank reserves that militants can acquire will be insufficient to run the country, suggesting that one of the world’s poorest nations will fare much worse.
Hans-Jakob Schindler, former coordinator of a United Nations team monitoring the Taliban and other extremist groups, told DW that the reserves are not enough to “run the country in a sustainable manner.”
“There isn’t a lot of money, if you think nationally,” he said.
More poppy cultivation? The Taliban made a mint from the production of opium and heroin
Activists funded by the drug trade
Having long faced international sanctions as a terrorist organization, the Taliban insurgency has been fueled by the massive Afghan poppy trade, drug trafficking and extortion.
Afghanistan is the world’s largest exporter of opium and the latest UN report puts annual source funding for the Taliban at between $ 300 million and $ 1.6 billion.
The country’s new rulers have vowed to end drug trafficking, a promise that has been viewed with great skepticism, especially in light of the West’s financial retaliation.
“I very much doubt that they want to eradicate drug production in Afghanistan and their ability to do so,” Schindler said, adding: “The commanders on the ground have virtually no other income.”
A confidential NATO report revealed that the militant group is also raising funds from illegal mining, ownership and customs revenues from seized checkpoints. Several anonymous benefactors from Iran, Pakistan, United Arab Emirates, Saudi Arabia and Qatar also make regular donations.
But the Taliban will clearly need international legitimacy to govern effectively. Freezing assets and development aid could help push them to agree on a power-sharing government acceptable to the West.
Bank reserves seized by activists in their recent offensive are unlikely to amount to much, Schindler warned, making new sources of revenue essential.
“We can say that the funds accessible to the Taliban represent maybe 0.1 to 0.2% of Afghanistan’s total international reserves. Not much,” Ahmady, who left the country on Sunday, wrote on Twitter. .
Afghanistan is estimated to have between $ 1 trillion and $ 3 trillion in minerals, including copper and lithium, needed to fuel the global energy transition. Much of it remains untapped due to rampant corruption and deplorable infrastructure.
Some analysts are skeptical of the Taliban’s willingness or competence to exploit these natural resources, despite several recent mining deals with China under the previous government.
Afghan currency fell to record lows this week
“The Taliban have no intention of rebuilding the Afghan economy and will likely end foreign trade deals in the country,” Tilman Brück, founder and director of the International Security & Development Center (ISDC) told DW. in Berlin. “By nature and ideology, the Taliban are not interested in economic growth.
While China already has a footprint in the country, Western investors are likely to be reluctant to get involved in a group that openly rejects liberal values to the extent that the Taliban do, Brück believes.
“The scope of private sector-led investments has always been very limited and is even more limited with the absence of Western military powers on the ground,” he said.
Ahmady predicted that the new Afghan rulers will have to introduce currency controls – immediately limiting access to dollars – and said inflation would rise as the local currency continued to fall, hurting the poorest the most. .