Biden's Decision on $3.5Bln Afghan Funds Could Compound Economic, Monetary Crisis

MOSCOW (Sputnik), Tommy Yang - US President Joe Biden’s decision to allocate $3.5 billion of Afghanistan’s central bank's frozen funds to family members of 9/11 victims is likely to cause deeper economic crisis in Afghanistan and lead to a sharp depreciation of its currency, Afghan advocates told Sputnik.

Foreign currency assets belonging to the Afghan central bank — known as Da Afghanistan Bank (DAB) — are under scrutiny as the Afghan government dissolved in August and the Taliban* immediately claimed a right to the money after the takeover. Out of the DAB's $9.1 billion official foreign currency reserves, about $7 billion are kept by US financial institutions in New York and are unavailable for withdrawal.

More than six months after the Taliban’s takeover in Afghanistan, the Biden administration announced its decision on how to handle the $7 billion funds of DAB.

However, instead of drafting a detailed plan to ensure ordinary Afghans can benefit from the assets, the Biden administration decided to split the $7 billion and reallocate half of the amount to family members of 9/11 victims in the United States.

Hurting Afghan People

As ordinary Afghans started to experience growing economic difficulties even before the Taliban’s takeover, the reallocation of Afghan assets could deepen the country’s crisis and trigger a sharp drop in its currency, Afghan advocates argued.

"First of all, reallocating the funds and splitting it into two halves, as the Biden administration said will do, will break the backbone of the Afghan economy. It will practically make the Afghani [Afghan currency] worthless. Afghanistan is already a poor country, even before the government's fall. There were hopes that an economy of some sort would take shape and people would make a living. But with removing the foreign reserves, that could cause a free fall of the Afghan currency. President Biden’s decision to reallocate the fund will hurt ordinary Afghans the most. The result will be an Afghanistan that is dependent on foreign aid for the foreseeable future", Wahidullah Azizi, an Afghan activist who has been working for various anti-corruption organisations since 2016, told Sputnik.

In this photograph taken on December 29, 2014, an Afghan customer (L) counts his Afghani currency notes at a currency exchange market along the roadside in Kabul

© AFP 2023 / Wakil Kohsar

The White House released a statement explaining the decision to reallocate the assets to family members of 9/11 victims in the United States.

"Many US victims of terrorism, including relatives of victims who died in the September 11, 2001 terrorist attacks, have brought claims against the Taliban and are pursuing DAB assets in federal court. Because some of these plaintiffs currently have writs of execution against the DAB assets, the court will need to issue a further decision regarding the scope of those writs. Even if funds are transferred for the benefit of the Afghan people, more than $3.5 billion in DAB assets would remain in the United States and are subject to ongoing litigation by US victims of terrorism. Plaintiffs will have a full opportunity to have their claims heard in court", the statement said.

But Azizi argued that Afghans were not responsible for the 9/11 attacks.

"Most importantly, the people of Afghanistan had nothing to do with the 9/11 attacks on US soil. All of the attackers, their planers, and financiers were not Afghans. The decision to set aside Afghan money to compensate for the victims of 9/11 is cruel and short-sighted. The important question that should be asked is who will compensate the Afghan victims due to 9/11?" he said.

A board member of Afghanistan's central bank stressed that the country's assets should belong to the Afghan people.

"All of the foreign official reserves ($9.1B - $7.1B in the US and $2B in Europe) belong to Afghan people. President Biden in his public statement have also stated likewise. The decision to release part of the funds is short-sighted, unconscionable, and will continue to hurt the millions of Afghan children, women and families that are suffering from one of the worst economic and humanitarian crises around the world," Shah Mehrabi, an economics professor at Montgomery College in Maryland who has been a member of the Board of the Central Bank of Afghanistan since 2002, told Sputnik.

Stabilising Afghan Currency

After more than 20 years of US presence in Afghanistan, the withdrawal of US forces and the subsequent takeover of the Taliban left the country in a state of despair and chaos. Millions of Afghans tried to flee the country, while millions of others in the country were in need of humanitarian assistance.

In January, the United Nations launched a funding appeal of more than $5 billion to support the humanitarian response in Afghanistan.

Following the Taliban's takeover last August, the exchange rate of Afghani to US dollars jumped from under 80 Afghani to over 100 Afghani to one US dollar.

Mehrabi suggested that the country’s foreign reserves would be best utilised to stabilise the exchange rate of the Afghan currency.

Taliban members inspect near the site of a blast in Jalalabad on September 18, 2021.

© STR

"The current crisis in Afghanistan requires urgent actions based on the proposal that I outlined back in September. The Central Bank of Afghanistan (DAB) should be allowed limited, monitored and conditional access to Afghanistan’s foreign reserves to perform its core functions of price stability and reducing volatility in exchange rate, more specifically $150 million per month out of $7.1 billion at NY [New York] to stabilise the economy," he said.

The Afghan central bank’s board member explained how ordinary Afghans could benefit from a stabilised currency.

"Use of these reserves should be done for the sole purpose of the auction to defend the value of Afghani (Afghanistan’s currency vs USD and other currencies, and maintain price stability.) This process can be independently monitored and audited with an option to terminate in the event of misuse. Through this process, the purchasing power of Afghani will increase and enable Afghan people to purchase essential food (oil, sugar, food and other commodities)", he said.

Azizi added that the Biden administration needed to come up with a more efficient plan when handling the $3.5 billion already pledged to the Afghan people.

"There is a lot of speculations but honestly few suggestions as to how to deal with the Afghan funds without ending up in the hands of the Taliban. Spending the funds through international NGOs and UN agencies proved not very effective in the past. Much of that fund will be spent on admin costs and human resources. The suggestion by the Biden administration to establish a kind of fund is not detailed and will require more scrutiny and transparency", he said.

While previous foreign aid offered assistance to some Afghans, creating new employment opportunities and offering decent new jobs to ordinary Afghans would be a better long-term solution to the country’s economic woes, both experts stressed.

* An organisation under UN sanctions for terrorist activities