Afghanistan

Afghan parliament clears major hurdle to IMF aid

Oct 15, 2011

KANDAHAR  Oct 15:The Afghan parliament on Saturday agreed to pay back the government for bailing out Kabul Bank last year, a move that could pave the way for a new line of credit for the country from the International Monetary Fund, according to Afghan and Western officials.

The vote in the lower house of parliament approved a supplementary budget intended to begin recapitalizing the country’s central bank for the $825 million it spent to prevent the collapse of Kabul Bank last year, after revelations that Kabul Bank’s leadership funneled hundreds of millions of dollars to its own shareholders and Afghan officials.

The agreement by parliament was the most significant remaining “prior action” that the IMF demanded from the Afghan government before agreeing to a new program for the country, according to officials familiar with the negotiations. The absence of an IMF program had blocked tens of millions of dollars in foreign development aid to Afghanistan.“This is a huge step forward,” said one Western official said of the parliament decision. “It’s a clear commitment by the government to pay for Kabul Bank.”

The scandal at Kabul Bank last year threatened the country’s entire financial system. The bank’s executives doled out nearly $1 billion in illicit loans to bank shareholders and other prominent Afghans, including relatives of President Hamid Karzai and Vice President Mohammad Qasim Fahim. The scandal forced the Afghan government to take over the bank, split it in two, and attempt to collect some of the outstanding loans.

Parliament agreed to paying up to $825 million over eight years minus however much the government is able to collect of the outstanding loans. The first payment is for $51 million, according to parliament member Obaidullah Ramin.

After a visit by IMF officials to Kabul earlier this month, there had been an agreement at the staff level to move forward with a new program, but the plan still needs approval from the management and board. The IMF board is expected to consider approval around mid-November.

The other reforms the IMF and donor countries were pushing for include legally binding and collateralized repayment plans from shareholders, as well as a declaration from the Afghan government on how it intends to proceed with the criminal cases of individuals at Kabul Bank. No bank employee has been successfully prosecuted so far.“The supplementary budget was approved, but this does not mean that the criminal case of Kabul Bank will be closed,” Ramin said.

(The Washington Post)

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