Afghanistan hits back over U.S. aid spending report

KABUL Tue Jul 26, 2011 8:50am EDT

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KABUL (Reuters) - Afghanistan's government hit back Tuesday over a U.S. watchdog report on aid spending in Afghanistan last week, saying several assertions in the report were wrong and that future audits needed to be "more balanced and accurate."

Afghanistan's finance ministry said while it welcomed outside scrutiny, any funds that had been misused or ended up in the hands of insurgents were not the government's responsibility because only a fraction of aid flowed through state coffers.

The ministry also said its relations with the current U.S. Treasury Attache had been "strained" over the past year and that it looked forward to resuming a "professional" partnership when an "effective" replacement had been selected.

The comments follow a report released last Wednesday by the Special Inspector General for Afghanistan Reconstruction (SIGAR), a watchdog created by U.S. Congress to scrutinize how U.S. aid money is spent in Afghanistan.

The finance ministry said it was "disappointed" that in the eight months spent in Afghanistan, the auditors "were unable" to meet with any senior finance ministry official.

"The government would welcome the opportunity to participate in future audits, strengthening Afghan capacity and resulting in more balanced and accurate findings," the ministry said, adding that "several assertions ... misrepresent the facts."

In the report, SIGAR said Afghan President Hamid Karzai had banned U.S. government advisers from the central bank and that the atmosphere there had become "hostile" for U.S. officials training bank regulators and trying to uncover financial crimes.

The central bank has been at the center of controversy for months and its governor, Abdul Qadir Fitrat, resigned in June saying he feared for his life over his role investigating the collapse of Kabulbank, the country's biggest private lender.

The bank handed out hundreds of millions of dollars in unsecured loans to a roster of the country's elite.

The Afghan government called his resignation "treason" and charged Fitrat was partly responsible for the fraud scandal.

Fitrat, who chose to announce his resignation in the United States, said "high political authorities" in Kabul had undermined the central bank's effort to investigate Kabulbank. The Kabulbank crisis has led to a suspension of IMF funds.

Tuesday, the finance ministry said the central bank "refutes that its environment is hostile to international advisers" and was seeking renewed support in implementing measures set by the IMF to strengthen its financial sector.

It said the government had recently written to the IMF's new director, Christine Lagarde, asking for her "personal intervention" in technical support for the central bank "after international support had been fully removed."

GOVERNMENT NOT TO BLAME

SIGAR also stated that Congress had appropriated over $70 billion since 2002 to implement security and aid projects in Afghanistan but neither country had done enough to ensure money was not siphoned off to militants or whisked abroad.

But Afghanistan's finance ministry said of that $70 billion less than $2.1 billion had been channeled through the government and only $46 million had been used "at the discretion of the Afghan government," representing 0.07 percent of all U.S. funds.

"Funds that are being misused, or channeled to support the activities of insurgent groups, are not the responsibility of the government," it said.

Afghanistan relies on foreign aid for around 90 percent of its spending but many international donors are reluctant to channel aid through the country's ministries because of a lack of capacity and rampant corruption.

Public sector corruption in Afghanistan is seen as worse than in any other country except Myanmar and Somalia, according to corruption watchdog Transparency International.

Karzai has acknowledged graft exists in his government but has said foreigners are also to blame.

(Editing by Emma Graham-Harrison; Editing by Sugita Katyal)

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