Afghan cash crunch looms, millions withheld over bank

Fri Jun 17, 2011 8:21pm EDT
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By Paul Tait

KABUL (Reuters) - The International Monetary Fund has rejected Afghanistan's plan to deal with a failed bank at the center of a corruption crisis, a step that has blocked tens of millions of dollars in aid and may put development projects worth billions more at risk.

Three diplomats involved in negotiations between the aid-reliant Afghan government, donor nations and the IMF said Kabul had failed to address the fund's concerns over the scandal-hit Kabulbank by a deadline last Saturday.

That meant a scheduled payment of $70 million from the World Bank-administered Afghan Reconstruction Trust Fund (ARTF) was automatically withheld.

"It seems the IMF has rejected the Afghan government's latest proposal to solve the bank crisis," said one of the diplomats, who asked not to be identified.

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 now openly call a classic Ponzi scheme.

An IMF spokesman in Washington, Raphael Anspach, said donor countries, and not the IMF, decide when to make payments from the trust fund. "The IMF does not make those decisions nor does it prompt donor countries to disburse" funds, Anspach said.

Donors, however, look to the IMF and the World Bank as a seal of approval in their funding decisions. The IMF has failed to sign off on a new financing program for Afghanistan since the last one expired in September until the government begins to address fund concerns over Kabulbank.

One Western diplomat in Kabul, speaking on condition of anonymity, described the bank stalemate as "the IMF's second biggest problem after the Greek bailout."   Continued...

<p>Afghan people walk past a Kabulbank branch in Kabul September 14, 2010. REUTERS/Andrew Biraj</p>