February 16, 2011 / 12:53 PM / 9 years ago

Afghan bank crisis clouds future European aid-EU

* IMF may end support for Afghan government over Kabulbank

* EU will review aid commitments without IMF programme

* Nearly $600 million at risk in country’s top private bank

By Paul Tait

KABUL, Feb 16 (Reuters) - European donors will have to review their commitments to Afghanistan if a fraud crisis at the country’s top private bank is not resolved satisfactorily, Europe’s top diplomat in the country said on Wednesday.

The International Monetary Fund (IMF) has painted a grim picture of the Afghan government’s handling of the Kabulbank crisis, other diplomats told Reuters, an assessment that could lead to the fund deciding not to renew its support programme for aid-reliant Afghanistan.

Corruption, bad loans and mismanagement have cost Kabulbank hundreds of millions of dollars and the government’s inability to come up with a serious solution has caused growing concern among Afghanistan’s international partners.

The Kabulbank scandal, in which at least $579 million has been put at risk, has added a banking crisis to Afghanistan’s troubles, which already included a growing insurgency and political paralysis.

A decision by the IMF not to renew its support programme would have a knock-on effect among donor nations who have contributed billions of dollars in aid to Afghanistan since the Taliban were toppled by U.S.-backed Afghan forces in 2001.

“We will not be able to realign our development projects to the Afghan priorities if, due to the Kabulbank, the IMF programme is not restored and sound national priority programmes are not prepared,” European Union Ambassador Vygaudas Usackas told Reuters.

European governments have come under increasing pressure from a war-weary public to end troop commitments in Afghanistan, with many signalling a withdrawal over the next few years or a refocusing of efforts towards training and redevelopment.

In many cases and to varying degrees, aid from donor countries and agencies is mandated on an IMF programme being in place. Donors contribute about 70 percent of the Afghan state operating budget, itself dwarfed by billions more in direct aid.


An IMF team left Afghanistan on Tuesday after more than a week of meetings with Afghan officials, including Finance Minister Omar Zakhilwal and Central Bank Governor Abdul Qadir Fitrat, over the Kabulbank crisis.

Western diplomats in Kabul said the IMF had given a “very pessimistic” assessment of the government’s handling of the scandal at the politically well-connected bank, and described the crisis as “hugely serious”.

The Kabulbank crisis has further muddied an already complicated picture in Afghanistan, where Washington will soon begin a gradual drawdown of its combat troops as part of a plan to hand security responsibility to Afghan forces by 2014.

The IMF and the Afghan government and central bank are at loggerheads over what to do with Kabulbank: the IMF wants it placed in receivership and sold quickly to stem losses but the government wants a gradual rehabilitation and sale.

In Washington, the IMF said late on Tuesday the bank should be placed into receivership as part of the government’s plan to stabilise Afghanistan’s financial system.

The political fallout is potentially huge, mainly because of strong political ties between Kabulbank and the government.

Among three senior Kabulbank executives and shareholders under investigation is Mohammad Haseen, the brother of First Vice President Mohammad Qasim Fahim.

Another major shareholder is Mahmoud Karzai, the brother of President Hamid Karzai. Mahmoud Karzai, a dual U.S. and Afghan citizen, is not under investigation in Afghanistan. (Editing by Alex Richardson) (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)EGH

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