Afghanistan seeks foreign donors after IMF talks fail

JEDDAH Tue Jun 28, 2011 12:06pm EDT

Related Topics

Related Interactive

JEDDAH (Reuters) - Kabul is pursuing talks with international donors for foreign aid after a breakdown in discussions with the IMF left millions of dollars in aid in limbo, Afghanistan's finance minister said on Tuesday.

Foreign aid is expected to decline sharply in the coming years, especially after the Kabulbank scandal which strained relationships with donors, Omar Zakhilwal told Reuters in an interview in the Saudi port city of Jeddah.

"No doubt Kabulbank has complicated our relationship with donors. Our hope is that the donors will not make a political issue out of this, which to some extent they have ... it is a very technical issue, not a political issue," he said.

On Monday, Afghanistan's central bank governor said he resigned his post because he feared for his life following his role in investigating the scandal.

Corruption, bad loans and mismanagement cost the politically well-connected Kabulbank, Afghanistan's biggest private lender, hundreds of millions of dollars in what Western officials in Afghanistan openly call a classic Ponzi scheme.

AID MONEY BLOCKED

The International Monetary Fund rejected Afghanistan's plans to deal with the failed lender amid other broader financial concerns - a move that automatically blocked the payment of $70 million in aid from foreign donors.

"I have personally disengaged myself precisely for the reason (that Kabulbank) has been politicized," said the finance minister, who has said talks with the IMF were "a waste of time."

"If an issue is politicized you cannot solve it by technical discussions," he said on Tuesday.

Afghanistan relies on foreign aid for about 40 percent of its operating budget and all of its multi-billion dollar bilateral reconstruction and development projects.

Zakhilwal said the country is still in talks with donors to ensure aid continues to Afghanistan even after a drawdown of foreign military forces.

He said the country will ask those nations to reinvest some of the funds saved in military spending in the Afghan economy.

Zakhilwal added that Kabul would consider raising debt, tapping its own mineral resources or borrowing from the Islamic Development Bank to finance infrastructure projects in order to lessen its reliance on foreign aid.

Experts have said Afghanistan could face a major financial crisis when all foreign troops leave by 2014, but Zakhilwal said he was optimistic about the future.

"That (2014) is still three years ahead of us and I am optimistic that within the next two years we should be able to do things that would avoid or mitigate the negative consequences of the reduction in aid if there is any," he said.

But resolving the Kabulbank scandal will be a key factor and Zakhilwal said the investigation would continue despite the departure of Governor Abdul Qadeer Fitrat. "As the head of the central bank he was responsible for the supervision of the Kabulbank failure and therefore was responsible to answer the tough question as to why it happened under the nose of the central bank," he said.

"The right way to deal with this, particularly if you are responsible, is to not run away from it but to confront it.

"I have confronted it even though it is not my direct responsibility."

(Writing by Shaheen Pasha; editing by Stephen Nisbet)

FILED UNDER: