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Afghanistan: Outdated Banks Force Karzai To Carry Aid As Cash

With $4.5 billion in reconstruction aid for Afghanistan pledged by donors at a conference in Tokyo in January, officials in Kabul are hoping to push forward quickly with rebuilding their war-shattered country. But the bureaucratic delays involved in transferring funds through Afghanistan's barely functioning banking system are slowing the flow of help. From Kabul, RFE/RL correspondent Ron Synovitz reports on the problem and some steps being taken to improve the situation.

Kabul, 19 February 2002 (RFE/RL) -- When Afghan interim leader Hamid Karzai returned from a visit to the United Arab Emirates a week ago, he was carrying an unusual gift from the government there -- a $1.6-million pile of cash that had been earmarked for reconstruction aid in Afghanistan.

Across most of the world, aid disbursements of such a size are usually sent through sophisticated and secure international banking channels. In addition to being convenient, modern wire transfers of money allow the process to be closely monitored and audited.

But after more than 20 years of war, Karzai said Afghanistan's banking system is in no position to process large wire transfers of aid from abroad.

"The president of [the United Arab] Emirates, his Highness Sheikh Zayed, gave me $1.6 million in cash. That was a tremendous help," Karzai said. "So with that cash money, we immediately are capable of sending money straight to all of the provinces of Afghanistan."

Karzai said the gift of cash from Sheikh Zayed bin Sultan al-Nahayan allowed the interim administration to bypass many of the normal government channels in Afghanistan that would have slowed the disbursement of the urgently needed aid. The Afghan leader said it has enabled him to sign decrees that send the funds directly to ministries and provincial administrations.

"We have decided not to send this money through the bureaucratic channels of the government, which is normally a very, very long procedure. We have deposited this money in the emergency accounts of the government," Karzai said. "Emergency accounts are the accounts that we use for earthquakes, for floods, for things like that. All of that $1.6 million has gone to the emergency accounts and can be released with my signature in very quick time through the Ministry of Finance and the central bank. So this money has been treated with such importance."

The image of Karzai returning from a foreign visit with a briefcase containing more than $1 million in cash aid is a telling one. Most countries that have promised financial help for Afghanistan are unlikely to allow their aid disbursements to be made in such a manner.

At stake is some $4.5 billion in reconstruction aid that was promised to Afghanistan at an international donors conference in Tokyo in January.

Karzai recently said it is critical to improve the central bank's operations so that it can handle such transactions and get the reconstruction effort moving. For now, he said, cash disbursements remain the quickest method of getting aid to the intended recipients.

"[Sheik Zayed's gift] was delivered in cash because they knew [it] was going to be difficult [to send it through the central bank]. So they were very nice in that way," Karzai said. "We immediately had the money, and we put it in the banks here. We also [are setting] up a bank account in the Emirates for [other] quick transfers of money for the reconstruction of Afghanistan until we have our own central bank in order."

The governor of the Afghan National Bank, Abdul Qader Fetrat, told RFE/RL today that he agrees completely with Karzai's evaluation of the country's banking system.

"Our banking system is that of the 1940s. It has not yet been developed to the standards of an international bank. Our systems are very rudimentary. Our banks are not listed in the international banking system," Fetrat said. "Due to lack of an appropriate or efficient telecommunications system, we are not able to transfer funds directly via wire transfer from abroad to our banks inside of Afghanistan. That's why we have to transport cash from abroad into Afghanistan and disburse it here."

However, the Afghan National Bank does have at least eight branch offices abroad -- in New York, London, and Hamburg, and in the Pakistani cities of Karachi, Peshawar, Quetta, and at Chaman, a town that lies close to the Afghan-Pakistan border on the road between Quetta and Kandahar.

RFE/RL has obtained the names of some 40 foreign banks where the Afghan central bank holds accounts.

Those include major Western institutions such as Bank of New York, Chase Manhattan Bank, Citibank, American Express, Deutsche Bank, National Westminster, Union Bank of Switzerland, ABN AMRO Bank, and Banque Nationale de Paris.

Other accounts have been maintained by the Afghan National Bank since the early 1990s at the Bulgarian Foreign Trade Bank in Sofia, the Czechoslovak Commercial Bank (CSOB) in Prague, Bank Handlowy in Warsaw, Bank Melli Iran in Tehran, and Jugobanka in Belgrade.

Fetrat said a delegation from the International Monetary Fund (IMF) is expected to arrive in Kabul around the end of February to work with the central bank on areas where reforms are needed -- such as banking supervision, accounting procedures, and risk management.

"Our banks are in need of radical reforms and in need of radical restructuring. I just want to make sure that there is transparency and efficiency in the system. I want to make sure that everything goes through the proper channels and there is no misuse of funds at all," Fetrat said.

The IMF and World Bank also have promised to provide modern computers and communications equipment to ease transfers of international aid.

A team of 15 financial experts from the World Bank and IMF are currently working in Kabul with Afghanistan's Finance Ministry to improve the laws and regulations that govern the collection of revenues, budget matters, and customs issues. That team is due to leave the country on 21 February.