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West puts financial pressure on Afghanistan

Shiva Singh by Shiva Singh
20 August 2021
in Diplomacy News

Brussels (Brussels Morning) Western countries and institutions are turning to financial warfare in the fight against the Taliban, with the US freezing the Afghanistan central bank (DAB)’s assets.

The US froze billions of dollars in DAB’s currency reserves held there and US President Joe Biden stopped shipments of dollars to Afghanistan last week. DAB Acting Governor Ajmal Ahmady warned this action would harm Afghans, according to DW reporting on Friday.

Ahmady stressed that Afghanistan relies “on obtaining physical shipments of cash every few weeks” due to a substantial currency account deficit and warned that “the amount of such cash remaining is close to zero.”

“We can say the accessible funds to the Taliban are perhaps 0.1-0.2% of Afghanistan’s total international reserves,” he pointed out and predicted that the Taliban will have to limit access to dollars.

Ahmady expects inflation to rise and the local currency to continue dropping, stressing that this will hurt the poorest the most.

The US also blocked Taliban access to the Afghan government’s accounts that are managed by US banks, including the Federal Reserve System, according to The Wall Street Journal.

Development aid halted

Several Western countries have stopped sending development aid to Afghanistan, which the country relies on to keep its economy afloat. In 2020, Afghanistan received close to US $8 billion in international aid.

The International Monetary Fund pointed to a “lack of clarity within the international community regarding recognition of a new government” and suspended Afghanistan’s access to around US $340 million in foreign exchange reserve assets.

Hans-Jakob Schindler, a former coordinator of the UN’s team that monitors extremist groups, pointed out that Afghanistan’s reserves are insufficient to “run the country in a sustainable manner.”

He predicted that militants will not put an end to drug production in Afghanistan, as they announced they would, noting that “the commanders on the ground basically have no other income.”

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