Press Action ::: Karzai's Economy

Wednesday, August 18, 2004

Karzai's Economy

By Abu Spinoza

Hamid Karzai knows how to dress. But can he run an economy? He sure knows how to run one for the ruling class, warlords, and associates. The Afghan economy is run in collaboration with the International Monetary Fund (IMF), which acts as the messenger boy and bounty hunter for the Treasury-Wall Street complex. In a recent assessment, the IMF gave Karazi & Associates high marks for the performance of the Afghan economy. The IMF says “the authorities have met all of the indicative quantitative targets set out under the SMP [staff monitoring program], and virtually all the structural benchmarks,” and that the regime has pursued “prudent macroeconomic policies,” much to the IMF’s liking.

The facts on the ground for the Afghan people remain quite grim. The IMF itself reports that “downward revision in GDP growth for 2003/04, from 23 percent to 16 percent, largely reflecting lower-than-anticipated output in the agricultural sector. Inflation has been somewhat higher than expected during the first quarter of 2004/05, reflecting primarily increases in rents and the prices of other non-tradable goods.” Note that the Afghan economy is at a low base due to years and years of devastation and that agriculture is the main source of subsistence for the rural peasantry. Per capita annual income is expected to be US$246 in 2004/05.

The policies that the Afghan authorities are pursuing are typical of post-conflict countries that fall into the Western orbit, namely, “prudent macroeconomic policies.” This means restrained fiscal policy and monetary policy. More often than not such policies choke prospects for growth and the development of local enterprises. The IMF advocates structural reforms that lead to “rationalizing the public sector” by quickly and all too rapidly liquidating and privatizing state enterprises. The IMF also requires the national authorities to create “sound financial systems.” Attempts to impose sound financial systems without due consideration of the fruitful role of credit and informal financial networks can have debilitating effects on generating industry and employment.

Afghanistan under Hamid Karzai does not have much of a say of its economic policy. The aid donors dictate what economic policies Karzai and successor rulers will follow. Their executive agents, such as the IMF-World Bank, offer detailed instructions and even write the project proposals. Western consultants and their local collaborators earn hefty fees, while Karzai & Associates accumulate private wealth and other rewards. This is business as usual as soon as a country falls into the Western orbit. Alas Afghanistan is no exception.

Abu Spinoza is an economist.

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