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Thursday, April 24, 2014         

NEW YORK TIMES


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Impasse over security deal adds to Afghan ecomony's troubles

By AZAM AHMED

New York Times

POSTED:



KABUL, Afghanistan » The impasse over a long-term security deal with the United States has not only raised concerns about the future of the Afghan security forces but also put an instant and alarming drag on the Afghan business climate, already suffering as Western forces have pulled out.

Nearly every anecdotal indicator of economic confidence has turned negative in the days since President Hamid Karzai insisted on delaying his signing of the agreement, which would pave the way for a continued U.S. troop presence and billions of dollars in annual international aid after 2014, according to interviews with business leaders and Afghan officials.

Food and fuel prices have started to rise. Banks have slowed lending, and domestic travel has taken a hit. Private investment, already modest, has all but frozen.

Even the price of firewood, an essential commodity during the brutal Afghan winter, has risen steeply because of a sharp move in the currency exchange rate and the general cloud of uncertainty over the country's future.

Chopping chunks of oak at his roadside stall in northern Kabul, Gul Rahman said there was little choice for the poor hoping to keep warm during the cold months. Typically, a family of six will need up to a ton and a half of wood for the winter, sellers said.

But with wood price increases as high as 12 percent because of higher fuel costs, general fear and currency fluctuations, "there's no way out for the poor," Rahman said. "All they can do is buy less."

There is a broader fear gripping business leaders, as well as politicians. The economy relies almost entirely on foreign aid: In 2010, such aid was equal to about 97 percent of the country's gross domestic product. Spending on government activity in 2012 totaled about $10 billion, according to rough estimates. Only $2 billion of that was from the country's own revenues.

Put another way, Afghanistan earns nowhere near what it spends.

The future is hardly brighter. Despite some lingering hope that the Afghan government will eventually close deals allowing mining and resource revenue to begin coming in, economists say that the country will remain incapable of funding itself for years to come.

Unemployment is already high and likely to get worse. More than 400,000 Afghans will enter the potential labor force each year for the next five years, even as the number of available jobs is expected to contract sharply.

Anger toward Karzai is rising in the capital, with many criticizing him for digging in his heels and putting badly needed financial aid in jeopardy.

After Karzai rejected instructions from a gathering of Afghan leaders, the loya jirga, to sign the deal last month, visits by the U.S. national security adviser, Susan E. Rice, and the special representative for Afghanistan and Pakistan, James F. Dobbins, failed to make any headway. U.S. officials have warned that they are beginning to plan for the possibility of a total and final troop withdrawal by the end of 2014, which would probably jeopardize most if not all international aid.

"He is wasting the time of the nation, and the nation is paying the price," said Abdullah Abdullah, a presidential candidate in the 2009 and the 2014 elections, referring to Karzai and the higher cost of goods in the country. "Uncertainty is the worst thing you can impose on a country, especially at a time when we need to focus on the way forward."

Karzai says it is the Americans who are undermining the economy. In an interview published in Le Monde on Tuesday, he accused the United States of "psychological war against our economy, in encouraging businesses to leave Afghanistan, in encouraging capital to leave Afghanistan, in terrifying the Afghan population about the consequences of 2014."

The economy was already slowing. Growth this year has slowed substantially from the year before, from about 14 percent in 2012 (thanks to a huge agricultural harvest) to an estimated 3.1 percent this year, according to the World Bank. New business registrations have dropped from 3,500 in the first half of 2012 to 2,000 during the same period in 2013.

But the impasse has added a more immediate layer of uncertainty. Currency exchangers, fearing that the once-stable afghani will continue its slide if the deal is not completed, have started hoarding dollars.

In the hopes of preventing an economic collapse, business leaders have been lobbying the government to sign the deal, known as the bilateral security agreement, or BSA.

Khan Jan Alokozai, the acting director of the Afghan Chamber of Commerce and Industries, said business activity had dropped 25 percent across the country since the loya jirga approved the security deal in late November, citing data that his organization compiles from members, which could not be independently verified. Retail prices have increased by 15 percent during that time, he said.

Worse still for his members, unlawful fees have been levied on imported goods, he claimed. As evidence, he produced a petition, trailed by five pages of stamps and signatures, bemoaning the $2,000 unofficial tax he says his members have been forced to pay on shipping containers brought into the country during the last two weeks.

"If the BSA is not signed, things will turn back to the dark days of the past," Alokozai said. "The people now in the government were fighting like wolves in the past, and they will again."

And banks have pulled back on lending, a trend well underway before the controversy over the security agreement erupted. The turnover of cash has dropped. Deposits have dropped.

"We are taking big precautions when it comes to lending," said Inayatullah Fazli, the chief executive of Azizi Bank.

He said lending dropped to less than $60 million this year, down from about $150 million last year.

"We need to be 400 percent sure we are safe before we lend," Fazli said.

The banking sector, like nearly every other, is heavily indebted to foreigners. For instance, Azizi Bank's business largely circulates around bid guarantees, a form of financing that supports businessmen seeking to bid on infrastructure contracts in the country, projects largely financed by foreign donors. Another segment of the bank's business is handling payroll for the 60,000 Afghan government employees, all paid indirectly by foreign money.

A significant drop in aid would also greatly hurt businesses that are providing jobs for Afghans.

Zamari Kamgar, the chief executive of the Kam Group, a consortium that owns Kam Air, said business had come to a standstill.

"Everyone is waiting and watching," said Kamgar, who employs around 1,100 people in his various businesses. "They want to keep their money in case something happens."

In the past month, he said, he has seen a nearly 40 percent drop in domestic ticket sales from a year ago, a decline he attributes to fewer businessmen traveling to and from the capital.

But he is a rich man. Like a handful of other entrepreneurs, he has earned millions with his various businesses in the past decade, a wealth that affords him the flexibility to move abroad if needed and start again if his business collapses.

"But what about the people who work for me?" he asked. "Say they each feed 10 people: That's 11,000 people who go hungry."






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