Afghan Leader Faces Huge Task After Inauguration
Sun Dec 5, 7:37 AM ET By David Brunnstrom
KABUL (Reuters) - Hamid Karzai will be sworn in as his country's first elected president Tuesday, facing a huge amount of more work to rebuild a land still traumatized by more than a quarter century of war.
The interim ruler of Afghanistan since the Taliban's overthrow in 2001, Karzai will be sworn-in at the fortress-like presidential palace in Kabul in a ceremony to be attended by Vice President Dick Cheney and Defense Secretary Donald Rumsfeld among other dignitaries.
Cheney will become the most senior U.S. official to visit Kabul since the Taliban's overthrow, underscoring the importance Washington still attaches to a country it invaded in pursuit of perpetrators of the Sept. 11 attacks before becoming engaged in a multi-billion dollar nation-building effort.
The inauguration comes three years after a U.N.-sponsored international agreement in Bonn in 2001 first mapped out a new future for Afghanistan after the Taliban's fall.
For Washington it will be a welcome opportunity to divert attention from its problems in Iraq.
But for Karzai, who handsomely won the Oct.9 presidential election, the official inauguration will not mask the massive task he faces in rebuilding and reuniting a country shattered by more than 25 years of fighting.
Crucial to his chances of success will be whether he feels himself strong enough to sideline factional powerbrokers who have used private militias to pursue individual rather than national agendas in the past three years, diplomats and analysts say.
"What Afghans voted for on Oct. 9 was not just for Karzai but for political change. If Karzai doesn't act on that and push a reform agenda, I think he will quickly lose his legitimacy he earned in the presidential elections," said Andrew Wilder, director of the Afghan Research and Evaluation Unit, a think tank.
CABINET CLOSELY WATCHED
Formation of Karzai's new cabinet has been the subject of intense deliberation and aides say its announcement will be delayed until after the inauguration.
Its make up will be closely watched by international backers to see whether Afghanistan can chart a course of reform away from warlordism and weak central control and an economy dominated by illicit drugs.
At the weekend, Human Rights Watch said Karzai had a strong popular mandate and now needed to act boldly to end a culture of impunity and exclude warlords from positions of influence.
Karzai will find himself under increasing pressure to contain a massive narcotics industry the United Nations warns risks turning Afghanistan into a narco-state dominated by drug barons.
And all the while his troops, aided by an 18,000 -strong U.S. military force, will find themselves increasingly engaged in the battle against a Taliban-led insurgency that has claimed well over 1,000 lives since August last year.
U.S. ambassador and close Karzai ally Zalmay Khalilzad held out an olive branch to the Taliban last week, offering an amnesty to those who laid down their arms, but this was immediately thrust aside by the guerrilla hierarchy.
Taliban spokesman Abdul Latif Hakimi said that despite billions of dollars of aid promised after Bonn, Afghans were facing more hardship today and had sunk into a new era of immorality and lawlessness thanks to international intervention.
"Afghans should not expect any good to come from the Kafirs (infidels) and the Taliban jihad will continue until we evict the Americans and other infidels," he said.
Security for the inauguration will be extremely tight and Kabul's NATO-led peacekeeping force says it has stepped up ground and air patrols in recent week to guard against rocket strikes.
A measure of the fears is that VIPs attending have been asked to supply their blood groups as a precaution.
Despite the Taliban view, many Afghans have welcomed the foreign intervention that brought Karzai to power, but say it is now time for him to repay their trust by speeding up reform.
"The international community has brought peace," said 42-year-old Kabul businessman Ahmad Kabir. "There have been lots of improvements -- for example, schools and universities are now open for both boys and girls and this is a big difference.
"But now Karzai must act to get rid of the warlord system and give positions to professionals who will work for the future of our country and our people."
Taliban Wanted List to Be Drawn
By STEPHEN GRAHAM, Associated Press December 5, 2004
KABUL, Afghanistan - The United States could cut its forces in Afghanistan next summer if Taliban militants accept an amnesty to be drawn up by President Hamid Karzai and neighboring Pakistan, the senior U.S. commander here said Sunday.
Any reduction in the 18,000-strong mainly American combat force in Afghanistan would relieve the U.S. military, stretched thin by the much larger deployment in Iraq. Still, the force is unlikely to shrink before parliamentary elections slated for April.
"By next summer we'll have a much better sense if the security threat is diminished as a result of, say, a significant reconciliation with large numbers of Taliban," Lt. Gen. David Barno told The Associated Press in an interview.
"That will change the security dynamics tremendously," he said.
Afghan officials have repeatedly urged supporters of the former ruling regime to abandon the fight or return from exile to help rebuild the country shattered by 25 years of war and a debilitating drought.
The Taliban, extreme Islamic fundamentalists who ruled Afghanistan and provided sanctuary for al-Qaida leader Osama bin Laden, were removed from power in a U.S.-backed invasion after the Sept. 11 attacks on the United States.
But plans for a reconciliation program have emerged only since Karzai's landslide victory in the landmark Oct. 9 presidential election. Such a program could anger ethnic minorities who suffered under the Taliban as well as regional powers, such as India and Iran, who are wary of Pakistan's influence in the region.
Barno said Karzai, who is to be sworn in as Afghanistan's first popularly elected leader on Tuesday, is to produce a list of Taliban members who are considered beyond rehabilitation and pass it to Islamabad.
The government of Pakistani President Gen. Pervez Musharraf would then "review it and make any comments on it, and I think there'll be a collectively subscribed-to list that says here (are those) who we all believe we're going to go after," he said.
"As that list gets finalized here ... we'll see both countries moving forward to look to arrest and bring to justice those individuals," Barno said. He said the final number could be whittled down to less than 100.
Meanwhile, the U.S. military will start a register of lower-level Taliban members willing to return to their villages and live in peace. The step would be a precursor to a reconciliation plan the Afghan government has yet to formally announce.
"There'll be great interest in those first few figures who come in to see how they're treated, to see if they're protected or not," the general said. "If it works, I think that there will be a significant number of people following it up.
"You'll see some of it starting in December, or in January for sure," he said.
The military hopes the Taliban's failure to derail the Oct. 9 vote has persuaded a significant number of the rebels that the insurgency has no future, easing pressure on U.S. troops who have failed to crush a rebellion along the Afghan-Pakistan border.
Commanders say the Taliban are divided internally and that the authority of fugitive Taliban supreme leader Mullah Mohammed Omar is fraying. Supporters of renegade Afghan leader Gulbuddin Hekmatyar, a group viewed as smaller but more fanatical than the Taliban, Barno said, are also signaling their willingness to give up the fight.
"We're in a democratic transition in the country. The presidential election was part one of that. The national assembly elections here in the spring will be part two of it, and that's very much the centerpiece of our military efforts," Barno said.
Karzai has said his new Cabinet, to be announced within a week of his swearing-in, will have new faces. It is speculated that they could include Taliban-linked figures.
Barno said he also expected to see "significant changes" among provincial officials, some of whom have been criticized for eliminating local rivals by denouncing them as Taliban supporters — a tactic American commanders concede they have fallen for.
That, too, could help reduce the need for U.S. ground troops, particularly as the fledgling Afghan National Army pumps out more graduates from its American-led training program and NATO looks to expand to the west of the country.
"We're going to maintain our connections to the Afghans here over the long haul ... but we may not need the same force strength if the security situation continues to improve," Barno said.
Afghanistan seeks world support to fight drug
KABUL, Dec. 5 (Xinhua) -- Afghanistan on Sunday called upon the international community to help fight against the booming poppy cultivation in the post-war country, a ranking Afghan official said Sunday afternoon.
"Poppy plantation is illegal and defames Afghanistan. We are determined to fight against the menace and eliminate it but we will not achieve the goal unless the world community assists," Deputy Interior Minister on Narcotics Mohammad Daud told reportersat a gathering devoted to counter-narcotics strategy here.
The post-war Afghanistan with an output of 3,600 tones of opiumin 2003 became the single largest supplier of the raw material used in heroin manufacturing in the world and the product would have hit an all time record if the climate cooperated in the outgoing year as more farmers devoted more lands to growing poppy.
"We urge the international community to help Afghan governmentin providing alternative crops to our farmers in order to replace the poppy," noted the top Afghan official in charge of anti-drug affairs.
Replying to a question, he confirmed that the United States hadalready pledged 780 million US dollars to help the Afghan authority in its war on illicit drugs.
To eradicate the alarming phenomenon of poppy in the war-torn central Asian state, he said that the transitional government had designed shot-term and long-term plans and was hopeful to deliver within five years.
Under a counter-narcotics strategy launched in May last year, Afghanistan has planned to reduce poppy cultivation by 75 percent by 2008.
To implement the strategy, a two-day conference is going to be opened at Presidential Palace on next Thursday, two days after theinauguration ceremony of Hamid Karzai as the first elected president of Afghanistan.
Half of Afghan militias disarmed: UN program
KABUL, Dec. 5 (Xinhua) Almost a half of former Afghan paramilitary combatants have been disarmed under the ongoing UN- backed Disarmament, Demobilization and Reintegration (DDR) program, a UN spokesman said here Sunday.
"Afghanistan New Beginning Program (ANBP) informed us that so far 26,569 members of the Afghan militia forces have been disarmed, " Manoel de Almeida e Silva told newsmen at a regular press briefing.
Surveys conducted by several agencies and organizations indicate that about 60,000 armed militiamen loyal to different commanders have kept roaming in the post-war nation, mainly in the countryside while Afghan officials put the number as high as 100, 000.
The transitional government has been trying very hard to disband the remaining half of the existing militias ahead of the parliamentary elections to be held next April.
Under the DDR launched in October 2003, the Afghan administration planned to demobilize all the militias across the country and replace it with a 70,000-strong brand-new regular army, the goal is tentatively expected to be realized by 2007.
Bush Mum on Pakistan's Hunt for Bin Laden
By JENNIFER LOVEN, AP
WASHINGTON - President Bush on Saturday defended Pakistan's cooperation in the hunt for Osama bin Laden despite the inability of U.S. and Pakistani troops to find the al-Qaida leader who, Bush once declared, was wanted dead or alive.
The trail has gone cold in the more than three years since U.S. forces toppled the Taliban, bin Laden's patrons in Afghanistan, after the attacks of Sept. 11, 2001. Bin Laden, who masterminded the strikes, is believed to be hiding in the wild mountainous region along the border between Afghanistan and Pakistan.
The Oval Office meeting between Bush and President Pervez Musharraf came just days after Pakistan's army said it was pulling out of one important area along the border. Still, Bush had nothing but praise for Pakistan and Musharraf as critical to the search and the overall fight against terrorism.
"His army has been incredibly active and very brave in southern Waziristan flushing out an enemy that had thought they had found safe haven," Bush said. That is a lawless tribal region of Pakistan, near the Afghanistan border, that has been the focus of Pakistani efforts. "His army has suffered casualties and for that we want to thank their loved ones for the sacrifice that their family has made," Bush said.
Musharraf came to the White House with a committed belief that resolving the Israeli-Palestinian conflict is essential to combating terrorism. At Bush's side, Musharraf said the dispute was "the most important issue ... in the interest of peace in the whole world."
Musharraf succeeded in securing a strong commitment from Bush that the United States would take a more active role in the Mideast. "I told him this would be a priority of my administration," Bush said.
Afterward, Musharraf told reporters that Bush had agreed that settling the Middle East conflict "is the core issue, the core at fighting terrorism." A senior Bush administration official, however, said Bush did not go that far.
Grateful for Pakistan's hard line against Islamic extremists and for the capture of al-Qaida suspects, the United States nonetheless has a delicate relationship with Pakistan and is aware of the need to avoid roiling Pakistan's internal politics. Musharraf's support of the United States threatens to endanger him at home.
U.S. officials have praised Islamabad for its operations around Wana, the main town of the lawless and fiercely autonomous Waziristan region. Heavy resistance this year led to speculation that a high-profile fugitive — possible bin Laden's deputy Ayman al-Zawahri — was cornered.
Pakistani commanders now say they do not believe any of al-Qaida's leaders are in the region and said they saw no sign of bin Laden. Last month, Pakistan's army announced it was withdrawing hundreds of troops from South Waziristan.
The United States does not consider the withdrawal a downgrade in the hunt for bin Laden and others, said two senior administration officials, who spoke on condition of anonymity. In briefing Bush on Pakistan's military operations in the border areas, Musharraf said the army's focus merely has moved to the North Waziristan region, the officials said.
"They make some adjustments to their force requirements from time to time," Secretary of State Colin Powell said later Saturday after his own meeting with Musharraf. "But President Musharraf reassured us of his full engagement."
U.S. military forces are mainly on the Afghanistan side of the border. While a healthy looking bin Laden has appearing recently on videotapes, U.S. officials have sought to play down his significance in the broader anti-terror battle — shift from the days following the Sept. 11 attacks.
Four days after the strikes, Bush declared that bin Laden would be "sorely mistaken" to think he could hide from the United States. Days later, the president drew upon the "Wanted: Dead or Alive" saying from the American West when asked about his wishes for bin Laden. Today, Bush rarely mentions bin Laden.
"Of course we're concerned" about bin Laden, Powell said. "We would like him to not be on the loose. He's a terrorist. He is on the loose, but he's also under enormous pressure. ... Eventually he will be brought to justice."
Bush thanked Musharraf for his country's help in shutting down a trafficking network led by A.Q. Khan, the Pakistani scientist implicated in selling nuclear secrets to Libya, North Korea, Iran and possibly other countries.
Though Khan was pardoned by Musharraf, he is under virtual house arrest in Islamabad and officials said Musharraf pledged full cooperation in obtaining more information from Khan about the network.
Bush did not raise one area of concern — Musharraf's backtracking on a pledge to relinquish his military post by year's end. The general seized power in a bloodless coup in 1999 but had raised hopes in Washington that he was leading his country toward democracy.
Crime Increasing in the North
IWPR 12/03/2004 By Wahidullah Noori
Three failed presidential candidates with power-bases in the region deny speculation that they are behind a sudden increase in violence
Mazar-e-Sharif - An apparent surge in the number of violent crimes being committed in the Mazar-e-Sharif area since the October presidential vote has led some to speculate that three failed candidates with strong ties to the region are behind the attacks as a way to demonstrate that their authority is needed to maintain peace in the region.
It's an allegation that spokesmen for the individual commanders and the parties they're associated with strongly deny. A police official confirmed that crime appears to have increased in recent weeks, although he was unable to provide statistics documenting the size of the increase.
Some of the crimes reported include: the killing on November 2 of two farmers in the Sholgara District, 50 kilometres from Mazar, which two unidentified commanders are suspected of having committed; the discovery of a grave on November 5 containing the remains of a man, a woman and two unidentified children who appear to have been killed the previous week; the looting of a vehicle on November 7 that was loaded with goods belonging to a merchant in Gur Mar, 20 km west of Mazar; a burglary on November 10 at a house belonging to Atiqullah Samangani, the brother of the director of a power station and fertiliser factory 20 kilometres west of Mazar which police say may have been carried out by men wearing army uniforms; and the theft on November 15 of more than 6,200 US dollars from the Pakistani consultate in Mazar.
Some analysts argue that many of the crimes are politically motivated. "These individuals are behind any crime [that is committed]," said Qayum Babak, a political analyst based in Mazar, referring to Mohammad Younis Qanuni, Haji Mohammed Mohaqiq and General Abdul Rashid Dostum. "Based on the experience we have with these warlords, there isn't any doubt that they will try any possible way to maintain their power."
Qanuni, Mohaqiq and Dostum, who came second, third and fourth respectively in October's presidential elections, are the most powerful figures in the northern provinces and in Balkh. The militarised factions they are linked to, which have local commanders as members, have control over almost all the weapons in the northern region.
Mohaqiq runs the northern faction of Hezb-e-Wahdat, while Dostum heads Junbish-e-Milli. The northern branch of Jamiat-e-Islami is run by General Mohammad Atta, until recently a militia commander and now governor of Balkh province. Atta is a strong supporter of Qanuni, who is also a member of Jamiat-e-Islami.
Habibullah Rafi, a political analyst in Kabul, agreed with Babak. "The warlords are involved in all cases of violence that took place after the announcement of results of election," he said.
He alleged that the failed candidates want President Hamed Karzai to believe he can't keep control in the north without giving them positions in the next cabinet.
Representatives of Mohaqiq and Dostum have categorically denied their involvement in any increase in crime, and have pledged cooperation with the government. A spokesman for Jamiat-e-Islami, who did not want to be named, told IWPR that "gunmen in groups involved in the crimes in the northern region are not linked to our party".
Sardar Saeedi, a deputy of Mohaqiq, dismissed suggestions that Hizb-e-Wahdat has been involved in criminal activities in the region, calling them "totally baseless".
"Anyone armed does not belong to our party and we are wholly a political party," he told IWPR. "Since we were defeated in the election, we have no desire to trouble people. We are just continuing our political struggle, and we are not trying to put pressure on the government via arms or power either directly or indirectly. On the contrary, we will be cooperative with the government."
Azizullah Kargar, Dostum's deputy, told IWPR, "We are by no means involved in such matters, and these are baseless allegations that are fabricated against us. Analysts who link all [criminal] cases to us are making mistakes." It is unclear whether Karzai will award Dostum, Qanuni, or Mohaqiq seats in his next administration.
Mohaqiq, a former planning minister, and Qanuni, the previous minister of education, told IWPR last month they were willing, if asked, to participate in the new government. Dostum, deputy minister of defence before he ran for president, said publicly said that any cabinet formed without him would be "illegal."
General Khalil Ziayee, chief of security for Balkh province, offered two possible reasons for the apparent increase in violent crimes.
"One is indirect pressure by those [failed] candidates backed by weapons, and the second is the dispersal of armed men following the DDR process," he said, referring to the UN-sponsored Disarmament, Demobilisation and Reintegration programme that seeks to decommission the militia forces and retrain gunmen for civilian jobs or national army jobs.
Ziayee said be believes decommissioned militia commanders continue to hold a significant number of weapons and that some disarmed men have taken up arms again. He believes they may be responsible for the recent crimes. Meanwhile, popular frustration with the power of warlords and criminal activities continues to grow.
On November 19, in the Sang Charak district of Sar-e-Pul province, 1,000 people protested against the "cruelty and injustice" of the local commander, Abdul Rahim, who was recently decommissioned as head of Division 26. Rahim, who is a member of Jamiat-e-Islami, reportedly opened fire on the crowd, wounding one person. Residents of Mazar expressed concern about the growing level of lawlessness. Mohammed Zaman, 28, said, "If it goes like this, one day I'll be killed too."
Shah Mohammed, a street vendor in the city, said, "This situation is frightening and we are scared." Habibullah, a shopkeeper in Mazar said, "If thieves are able to loot the [Pakistani] consulate, then they could easily loot our shops." He said that the government must ensure security in the city or else normal life will not be possible.
From toting guns to selling sweets, disarmament edges along in Afghanistan
KHUSHGUNBAD - Eight-year-old Mohammed Imran thinks Jaweed, the local shopkeeper in this eastern Afghan village is "cool" because his shop is full of sweets. "Uncle shopkeeper is a cool man -- he has got lots of candies," Mohammed told AFP as he hung around outside the store.
But it wasn't long ago that local children were scared of Jaweed and people insulted the 28-year-old for being a gun-toting militiaman -- one of around 60,000 fighters loyal to local warlords and commanders across Afghanistan.
Sick of toting a gun for a living! Jaweed is one of almost 25,000 fighters who have laid down their weapons as part of a UN-backed Disarmament, Demobilization and Reintegration program which was launched in Afghanistan last May and is almost at the halfway point.
After more than two decades of war, the country is awash with weapons and privately disarmament staffs think there may be as many as five guns per militiaman, most of whom owe allegiance to local commanders.
But while only 25,000 guns have been collected, officials from the program hope that if they can break the link between local commanders and their poorly paid fighters and offer people an alternative livelihood, many like Jaweed would jump at the chance.
"I'm happy with my new life -- very, very happy," he said at his booth-like shop in Khushgunbad village some 15 kilometers (9 miles) northeast of Jalalabad, the capital of eastern Nangarhar province.
The ex-fighters are given the choice of working in agriculture, training for the police force, national army or de-mining, or setting up a small business like the shopkeeper, who said was sick of toting a gun for a living.
"I was tired of weapons, I wanted something different so I decided to become a shopkeeper," said the ethnic Pashtun, who has fought to feed his family for more than a decade.
Jaweed said he did not bear arms for a cause but simply to keep a roof over his head in his poverty-stricken village, switching sides to join whichever commander held sway over the area at the time.
First he fought for Mohammad Zaman, a regional mujahedin leader, then for the fundamentalist Taleban who ruled Afghanistan between 1996-2001, and finally he joined the forces of Hazrat Ali, another regional warlord who decided to disarm just over a month ago.
"I had no cause to fight for. I took the gun because they were paying me. I was hungry and I needed to feed my family," says the father of five children.
Time for work - Former fighters receive an initial 250 dollars to start a business and a further 450 dollars to invest in the business a month and a half later, according to the UN scheme's officer for Nangahar province, Homayoun Wafa.
Another ex-militiaman, 40-year-old Wahidullah, from Laghman province, told AFP: "I was sick of having a gun on my shoulder, it gave me nothing." "I carried a gun for 22 years, I fought the Russians, I think now it is time for work, not for fighting," he said as he came to the disarmament program office to collect his second cash package.
Afghanistan's disarmament drive only picked up speed ahead of the country's October 9 election, so it is too early to say whether demobilised militiamen might later revert to being soldiers working under local commanders.
Disarmament officials are working on incentives to offer alternative jobs, overseas travel and other sweeteners to local commanders, 80 percent of whom are illiterate and struggle to be re-integrated into civilian life.
The program is a priority for President Hamid Karzai, who won Afghanistan's presidential election having pledged to break the control of warlords and militia commanders who have mocked the central government's attempts to extend its authority into the provinces.
Disarmament staff admit that military strongmen like Hazrat Ali, who has maintained his private militia in Jalalabad even though he was appointed as police chief, are reluctant to cede power.
"The powerful warlords are resisting the program despite the fact that many ordinary militiamen are happy to be disarmed, because they fear that they will lose their power," said one official.
A US-led scheme is also underway to build a multi-ethnic national army recruited from ordinary citizens, including volunteers from among the former militiamen.
Dhaka to reopen embassy in Kabul
DIPLOMATIC CORRESPONDENT Independent Bangladesh
Bangladesh will reopen its embassy in Kabul, the capital of Afghanistan, soon.
This was stated by Foreign Minister M Morshed Khan while speaking as the chief guest at the certificate awarding ceremony at the BRAC auditorium in the city yesterday.
The Foreign Minister gave away the certificates among the 25 Afghan officials from the Ministry of Agriculture and the Ministry of Irrigation who had received a five-month training on "Managing Rural Development," organised by BRAC.
Bangladesh closed its embassy in Kabul in 1989 following civil war there.
Focussing on fraternal ties between the two Muslim countries, Morshed Khan renewed Bangladesh’s keen interest in restoring peace and participating in the reconstruction work of the war-ravaged country
"Bangladesh is eager to help develop human resources of Afghanistan. We can also provide Afghanistan with skilled manpower to meet various urgent needs of the Afghan government," he said.
The Foreign Minister recalled the role played by the people of Afghanistan extending support to the liberation of Bangladesh in 1971, particularly in the repatriation of the Bangladeshis from Pakistan.
Speaking as the special guest, Afghan ambassador to Bangladesh Akmal Ghani stressed the need for promotion of ties between Dhaka and Kabul to the mutual benefit of the two countries.
BRAC executive director Abdul Muyeed Chowdhury who also spoke on the occasion narrated his organisation’s role in developing socio-economic infrastructure of Afghanistan.
Kabul seeks IMF support for economy
By Mohiuddin Aazim Dawn
Whereas Pakistan has come out of the IMF-sponsored three-year Poverty Reduction & Growth Facility or PRGF, ahead of schedule, refusing to withdraw the last two branches worth $262 million , its next-door neighbour Afghanistan is preparing to qualify for this facility.
The IMF released last month a detailed report based on its first review of the Staff-monitored Programme or SMP for Afghanistan. This 40-page report provides an insight into the current state of the Afghan economy.
The 12-month SMP for fiscal year 05 (March 20, 2004-March 20, 2005) is aimed at maintaining financial stability and preparing the country to qualify for an IMF- supported arrangement under PRGF.
The report says that the GDP of the land-locked country may grow by 16 per cent to $5.802 billion in FY05, depicting no change in the growth rate over a year. But it says that per capita GDP may rise to $246 from $199 in the last fiscal year.
This GDP estimate excludes the opium production which, according to a recently released report of the United Nation's Office on Drugs and Crime, grew by 17 per cent to 4200 tonnes in 2004 from 3600 tonnes in 2003. The report says that the export value of this huge opium production rose by 22 per cent to $2.8 billion in 2004 from $2.3 billion in 2003.
The report says that year-on-year increase in CPI inflation during this fiscal year may reach 10.2 per cent, down slightly from last year's 10.3 per cent. Inflation used to be measured only in Kabul till the first quarter of FY05 ending in June 2004.
The government is, however, trying to extend the CPI coverage to five other main cities. Year-on-year increase in CPI inflation for the first quarter of this year was recorded at 6.9 per cent, up from 2.5 per cent in the first quarter of the last fiscal year. This can be attributed to higher house rents, increase in education fees and transportation cost and more expensive healthcare.
The report says that real GDP grew by an estimated 16 per cent in the last fiscal year against an initial estimate of 23 per cent due to lower-than-anticipated output in the agricultural sector.
The poor performance of the agricultural sector can be attributed primarily to the lingering drought affecting some regions and to a lower out turn in the hydroelectric sector, which also was adversely affected by the drought.
The external sector of war-torn Afghanistan may continue to show signs of weakness. The IMF report says that the current account deficit excluding grants may rise to $2.839 billion during this fiscal year from last year's $2.578 billion. But it says that with the donors' grants taken into account, this huge current account deficit will shrink to just $1.6 million, still up from last year's $900,000.
The Fund estimates that Afghanistan' exports including re-exports may reach $1.823 billion whereas its imports may touch $4.134 billion during this fiscal year. In the last fiscal year, exports were estimated at $1.701 billion and imports at $3.759 billion.
The IMF report says that the new Afghani, Afghanistan's currency unit, has remained strong through the first quarter of 2004/05, reflecting an increased willingness among the population, particularly in rural areas, to accept the new currency as a medium of exchange and a store of value.
Da Afghanistan Bank (central bank of Afghanistan) or DAB had introduced the new Afghani on October 7, 2002 to ensure that the country uses a single currency. Earlier, various versions of the Afghani were in circulation across Afghanistan. The new currency unit was given the worth of 1000 old Afghanis because those had lost their value to the extent that people had to carry a sack ful of them to do shopping.
The Afghani remained strong in the last fiscal year also due to prudent macroeconomic policies including strict application of a "no-overdraft rule" by the ministry of finanace and adherence by DAB to the monetary growth targets set out in the SMP.
The IMF report says that fiscal revenue for the first quarter of 2004/05 reached Af 2.64 billion, slightly exceeding the SMP target of Af 2.59 billion. Given the high level of demand for improved security, reconstruction, and poverty reduction, the IMF mission emphasized the need for the government to try and meet its spending objectives in these priority areas while ensuring that appropriate expenditure controls are in place to safeguard and account for these resources.
Future outlook: The IMF discussions with the Afghan authorities focused on maintaining macroeconomic stability in a period of massive economic change, along with capacity building and the structural reforms necessary to support successful performance under the SMP.
The IMF remains concerned about potential downside risks to the macroeconomic outlook because of continued insecurity in a number of provinces and the re-emergence of drought. But "these appear balanced by the continuous delivery of external assistance following the March 31-April 1 Berlin donors' conference, growing confidence in the Afghani, and the expected coming on-stream of several projects in the agricultural and manufacturing sectors," says the IMF report. Besides, the pace of structural and policy reforms over the last two years has remained encouraging.
Critical measures, such as licensing of commercial banks, passage of key customs and revenue reforms, improved financial and fiscal reporting, adoption of a comprehensive current and development budget, improved public expenditure management, and some initial steps in dealing with civil service pay reform and state-owned enterprises (SOEs), are laying a strong basis for future performance.
Fiscal issues: Meeting the revenue targets set out under the programme will require concerted efforts by the authorities to address deficiencies in collection and transfer.
The Afghan government has reiterated its commitment to fully implement a wide range of planned customs and tax reforms, step up collection efforts, particularly in the provinces for customs, and eliminate tax holidays and concession agreements.
The IMF has urged upon the Afghan authorities that expenditure management must be improved if development objectives are to be met. "In spite of the slow pace of operating budget spending during the first quarter of the year, the (IMF) staff strongly supports the authorities' efforts to enforce appropriate expenditure controls to ensure accountability," says the IMF report.
Monetary policy: The built-in flexibility mechanism in the monetary programme developed with the Fund staff in March 2004 will help the DAB to continue to effectively implement a monetary policy stance aimed at lowering inflation, while guarding against currency instability.
In line with the SMP, the authorities continue to target currency in circulation and allow for some movement in the exchange rate. As designed, the monetary programme allows the central bank some room to accommodate apparent shifts in money demand.
Should the available flexibility in the monetary programme prove insufficient, the staff stands ready to discuss with the authorities the need for an adjustment of the monetary policy framework.
Close attention to available macroeconomic and financial indicators will be critical in this regard. However, as the current consumer price index (CPI)-which is limited to Kabul-is still a weak indicator for inflation across the country, relatively more attention will be devoted to exchange rate developments.
Further attention must also be devoted to better understanding the factors driving monetary conditions in Afghanistan. Monthly cash flow projections from the ministry of finance, for example, will be one crucial element in this exercise.
After the July mission, and in consultation with Fund staff, DAB exceeded the target for currency in circulation to limit the appreciation of the Afghani. Structural reforms: The authorities have taken welcome steps to begin rationalizing the public enterprise sector and create an environment conducive to private sector-led growth.
The authorities are currently conducting an assessment of the financial situation of SOEs, which will help them decide which enterprises are to be liquidated, which are to be privatized, and which are to remain in the government's portfolio.
An action plan is also being prepared to address critical deficiencies in the investment climate. Key measures are to center on reform of the commercial code, property rights, and bankruptcy legislation.
The authorities intend to continue their efforts to create a sound financial system. In this context, the central bank will work toward improving the payments system, which is an essential element in extending the delivery of government services outside of Kabul. The DAB will also proceed with bank licensing and strengthen its supervision.
In addition, the central bank is working toward having a proper balance sheet by eliminating its commercial activities and transferring non-monetary assets to the ministry of finance.
Finally, an auction process for a short-term capital note will be introduced. That will be the first step in establishing a benchmark interest rate and domestic credit market.
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