Afghanistan is set to receive nearly half a billion dollars from the International Monetary Fund (IMF) next week, but it’s unlikely the Taliban will be able to touch any of it.
The largest-ever allocation of IMF Special Drawing Rights (SDRs), equivalent to $650bn, is set to go into effect Monday, including an estimated $460m in SDRs for Afghanistan. But the IMF has pressed pause on letting the Taliban exchange the SDRs for hard currency. Instead, Afghanistan joins countries like Myanmar and Venezuela who receive IMF assets but can’t utilise them.
“As is always the case, the IMF is guided by the views of the international community,” IMF spokesperson Gerry Rice said in a statement Wednesday. “There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access the Special Drawing Rights (SDRs) or other IMF resources.”
Earlier this week, 18 members of the United States Congress urged US Treasury Secretary Janet Yellen in a letter (PDF) to make sure that “nearly half a billion dollars in unconditional liquidity” does not go “to a regime with a history of supporting terrorist actions against the United States and her allies”.
It’s just the latest development in efforts to keep Afghanistan’s assets out of Taliban hands. So what money does the group have access to, and what is the state of the Afghan economy? Here’s what you need to know.
What was the status of the Afghan economy before the Taliban took over?
Struggling. The country’s economy is “shaped by fragility and aid dependence,” according to the World Bank, with 75 percent of public spending funded by grants.
That aid was already set to decrease by around 20 percent from 2016-2020 levels this year after “several major donors provided only single-year pledges” during the 2020 Afghanistan Conference, “with future support made conditional upon the government achieving accelerated progress in efforts to combat corruption, reduce poverty, and advance ongoing peace talks,” the World Bank said.
Now, with the Taliban in charge, it’s uncertain whether any of those conditions will be met, potentially further reducing the foreign aid the country relies on — including in the form of SDRs.
What is an SDR, exactly?
An SDR is an international reserve asset created by the IMF from a basket of currencies including the US dollar, Japanese yen, Chinese yuan, the euro and the British pound.
While not an official currency itself, the SDR is like an artificial currency that IMF member states can exchange for freely usable hard currencies like US dollars.
Countries can exchange their SDRs for those freely usable currencies at a fixed exchange rate, which changes daily and is posted on the IMF’s website.
How many SDRs does Afghanistan currently have?
Just over 37 million, which is equivalent to about $52.5m, according to the latest SDR exchange rate. Monday’s allocation, however, will boost that number to 323.8 million SDRs, or just under $460m, according to the IMF.
What other assets does Afghanistan have?
Da Afghanistan Bank (DAB) – the country’s central bank – listed 784.6 billion afghanis ($10bn) in assets for the period ending June 21, according to its bank statement (PDF), including 102.7 billion ($1.3bn) in gold and 28.7 billion ($366m) in foreign currency cash reserves.
Are all of those assets held in Afghanistan?
No. Like many developing countries, Afghanistan holds some of its assets overseas, including in the US, where the Taliban is the subject of economic sanctions.
For example, the country had more than 101 billion afghanis ($1.3bn) worth of gold stored at the Federal Reserve Bank of New York at the end of 2020, according to an independent auditor’s report (PDF) prepared at the end of last year.
DAB’s acting governor, Ajmal Ahmady, tweeted a breakdown Wednesday of where the bank’s major reserves are held, confirming $7bn are with the US Federal Reserve, including $1.2bn in gold.
The major investment categories include the following assets (all figures in billions)
(1) Federal Reserve = $7.0
– U.S. bills/bonds: $3.1
– WB RAMP assets: $2.4
– Gold: $1.2
– Cash accounts: $0.3
(2) International accounts = 1.3
(3) BIS = $0.7
— Ajmal Ahmady (@aahmady) August 18, 2021
So what happened to the money the Afghan central bank has in the US?
It’s currently frozen. The US confirmed it froze $9.5bn in assets DAB has in accounts with the Federal Reserve and other American financial institutions to keep the Taliban from accessing them.
Before Kabul fell, the US had also stopped shipments of dollars to the country, Ahmady tweeted as he fled the country earlier this week.
So can the Taliban access any of the central bank’s funds abroad?
Probably only a small amount. In a tweet Wednesday, Ahmady estimated “the accessible funds to the Taliban are perhaps 0.1-0.2% of Afghanistan’s total international reserves. Not much.”
“Without Treasury approval, it is also unlikely that any donors would support the Taliban Government,” he added.
Therefore, we can say the accessible funds to the Taliban are perhaps 0.1-0.2% of Afghanistan’s total international reserves. Not much
Without Treasury approval, it is also unlikely that any donors would support the Taliban Government. https://t.co/UTrkms6i42
— Ajmal Ahmady (@aahmady) August 18, 2021
What about assets held in Afghanistan?
The 2020 auditor’s report on the country’s central bank showed there were 12.5 million afghanis ($159,600) worth of gold bars and silver coins held in the bank’s vault inside Afghanistan’s presidential palace, which the Taliban now controls.
Also in the hands of the Taliban are around $362m in foreign currency cash holdings, which “consist almost entirely of US dollars and were held at the bank’s head offices and branches as well as the presidential palace,” Reuters news agency reported.
Does the Taliban have other sources of funds?
Yes — but not all of them are legal.
The Taliban has always relied on criminal activities to fund itself, “including drug trafficking and opium poppy production, extortion, kidnapping for ransom, mineral exploitation and revenues from tax collection in areas under Taliban control or influence”, according to a United Nations Security Council report published in June.
How much income does the Taliban itself have?
That’s a tough question to answer exactly, but the UN Security Council report estimates the group has an annual income of between $300m and $1.6bn annually.
The UN noted that “external financial support, including donations from wealthy individuals and a network of non-governmental charitable foundations, also account for a significant part of Taliban income.”
The group has also sought to exploit Afghanistan’s mineral wealth, and the UN reports that “profits from the mining sector earned the Taliban approximately $464 million” in 2020.
Where does the current economic situation leave the Afghan people?
In an increasingly precarious position. More than 47 percent of the country already lived below the poverty line in 2020, according to data from the Asian Development Bank, and 34.3 percent of people with jobs live on less than $1.90 per day.
Most households rely on the low-productivity agriculture sector for their income, and security issues, corruption and political instability have all held back private-sector development, leading Afghanistan to rank 173rd out of 190 countries in the World Bank’s 2020 Doing Business Survey.
Unemployment stood at 11.7 percent in 2020 pre-Taliban rule, before people began fleeing the country and some women were dismissed from their jobs.
Ahmady summarised the grim picture in a tweet Wednesday, predicting depreciating currency, surging inflation and rising food prices.
Therefore, my base case would be the following:
– Treasury freezes assets
– Taliban have to implement capital controls and limit dollar access
– Currency will depreciate
– Inflation will rise as currency pass through is very high
– This will hurt the poor as food prices increase
— Ajmal Ahmady (@aahmady) August 18, 2021
Dialogue NB Seeks To Rebuild An Inclusive Economy Through Conversation – Huddle – Huddle Today
MONCTON – Dialogue NB CEO Nadine Duguay-Lemay says the business community has an integral place in a conversation about building a more equal and just New Brunswick.
That very conversation will take place on September 27 in Moncton with Dialogue Day 2021.
“When we talk about anti-racism, notions of equality, diversity, acceptance and inclusion and all those notions we celebrate, it’s not something we can do on our own,” said Duguay-Lemay.
“The business community actively needs to participate, if anything, because those topics concern them. That’s why you see so many business support the event.”
The volunteer-led non-profit organization plans to host an inclusive conversation on Monday at Moncton’s Crowne Plaza and virtually, online.
Dedicated to building social cohesion in New Brunswick, the sold-out event will feature discussions about racial justice in the workplace, rethinking the economy as it recovers from the pandemic and how to be a better ally to Indigenous people.
The event, which has sold out of in-person seats, will feature Jeremy Dutcher, a Wolastoq singer, songwriter, composer, musicologist and activist from Tobique First Nation, as its keynote speaker.
The mandate of the discussions is to ensure everyone feels heard, valued and that they belong, making diversity an asset – something Duguay-Lemay considers imperative to a functional economy.
“What I’ve found is that people don’t like to go into uncomfortable discussions. Some people want to embrace social cohesion but don’t know where to start, or are afraid of saying the wrong thing. This is our expertise – we’re good at the art of dialogue and multiple viewpoints at one table,” she said.
“We need a lot of different voices and perspectives at the table to rethink the system for the wellbeing of all. These discussions shouldn’t be happening in isolation.”
Duguay-Lemay said New Brunswick faces many economic challenges, noting a diverse workforce will help recover from those challenges.
She stressed that the business community needs to work toward a goal of truth and reconciliation, and in a call with Huddle, rebutted the metaphor of everyone being on the same boat during the pandemic.
“I’d argue we’re all facing the same storm, but not in the same boat. Some people are in yachts and some are in little boats about to capsize,” she said.
Other voices are emerging – female and Indigenous, for example – looking to address poverty and wage inequality and unfairness, employment access, systemic racism and environmental degradation, noted Duguay-Lemay, adding that the province’s 4,418 non-profits need more recognition as an economic partner.
“Inclusion is embedded in our DNA as Canadians. We’re already a country and province that abides by those laws, so it’s important to look at inclusion,” she said.
The conversations will also focus on racial justice in the workplace, how the pandemic hurt Indigenous and black Canadian employment, versus non-minorities, access to employment – and the social barriers that exist for racialized workers.
“I invite all organizations, employers, public and non-profits to look at their practices in place and ask if they walk the talk for truth and reconciliation. We’re all treaty people – how do we uphold this?” said Duguay-Lemay.
“We want to at least demonstrate to Indigenous people in New Brunswick that we hear their plight and are serious about truth and reconciliation.”
Greater social cohesion is the best step forward, Duguay-Lemay noted, adding that real dialogue can build an economy that works for everyone.
She said matters of racial justice in the workplace – and specific matters, such as owners objecting to the declaration of September 30 as a statutory holiday, contending that they can’t afford it – will be among the economic issues for which solutions will be sought.
The conversation will also focus on how the province’s recovery from the pandemic has exposed inequalities in the economy.
Duguay-Lemay stressed the need to learn from the way the pandemic exposed inequalities, and rethink a system that works for everyone.
“We need to think differently and it really shouldn’t be based on the interests of the privileged,” said Duguay-Lemay.
“As employers are looking to attract and retain talent, we hear about skill shortages all the time. This becomes a matter of attracting talent, whether from newcomers or tapping into Indigenous communities, how can we make our workplaces more equitable and inclusive?
The event will feature an “eclectic” round table of specialists, artists, activists and experts from numerous sectors, and identities in New Brunswick, with opportunities for networking, inspiration for change with concrete examples and skills to help become a social leader.
With the economy, we may be heading back to the 1970s – The Globe and Mail
Kenneth Rogoff, a former chief economist of the International Monetary Fund, is professor of economics and public policy at Harvard University.
With the disastrous U.S. exit from Afghanistan, the parallels between the 2020s and the 1970s just keep growing. Has a sustained period of high inflation just become much more likely? Until recently, I would have said the odds were clearly against it. Now, I am not so sure, especially looking ahead a few years.
Many economists seem to view inflation as a purely technocratic problem, and most central bankers would like to believe that. In fact, the roots of sustained inflation mainly stem from political economy problems, and here the long list of similarities between the 1970s and today is unsettling.
In the United States, following a period in which the president challenges institutional norms (Richard Nixon was the 1970s version), a thoroughly decent person takes office (back then, Jimmy Carter). Abroad, the U.S. suffers a humiliating defeat at the hands of a much weaker, but much more determined adversary (North Vietnam in the 1970s, the Taliban today).
On the economic front, the global economy suffers a lingering productivity slowdown. According to the Northwestern University economist Robert Gordon’s magisterial account of innovation and growth, The Rise and Fall of American Growth, the 1970s marks a turning point in U.S. economic history, thanks to a sharp slowdown in meaningful economic innovation. Today, even if productivity pessimists grossly underestimate the phenomenal gains the next generation of biotech and artificial intelligence will bring, a large body of work finds that productivity growth has been slowing in the twenty-first century, and now the pandemic looks to be inflicting another heavy blow.
The global economy suffered a massive supply shock in the 1970s, as Middle East countries massively hiked the price of oil they charged the rest of the world. Today, protectionism and a retreat from global supply chains constitute an equally consequential negative supply shock.
Finally, in the late 1960s and 1970s, huge increases in government spending were not matched by higher taxes on the wealthy. The spending increases stemmed in part from president Lyndon Johnson’s “Great Society” programs in the 1960s, later amplified by the soaring cost of the Vietnam War. In recent years, first the Trump tax cuts, then pandemic-related catastrophe relief, and now progressive plans to expand the social safety net have hit the federal budget hard. Plans to fund these costs by raising taxes only on the rich will likely fall far short.
It is true that despite all these similarities, today’s independent central banks stand as a bulwark against inflation, ready to raise interest rates if inflation pressures seem to be getting out of hand. In the 1970s, only a few countries had independent central banks, and in the case of the U.S., it did not act like one, fuelling inflation with massive monetary expansion. Today, relatively independent central banks are the norm across much of the world. It is also true that today’s ultralow global real interest rates provide rich-country governments a lot more room to run deficits than they had in the 1970s.
On the other hand, the challenges of providing for aging populations has become vastly more difficult over the past five decades (at least in advanced economies and China). Underfunded public pension schemes arguably are a much larger threat quantitatively to government budget solvency than debt. At the same time, social pressures to increase government spending and transfers have exploded across the world, as inequality becomes more politically salient for many countries, and improving growth less so. And confronting climate change and other environmental threats will almost certainly put additional pressure on budgets and slow growth.
Sharply rising government debts will inevitably make it more politically painful for central banks to raise nominal interest rates if global real rates start turning upward. High debts are already a reason why some central banks today will hesitate to raise interest rates if and when postpandemic normalization occurs. Private debt, which has also soared during the pandemic, is perhaps an even bigger problem. Widespread private defaults would eventually have a huge fiscal impact via lower tax collection and higher social safety net costs.
Today’s economic challenges are certainly solvable, and there is no reason why inflation should have to spike. Leading central bankers today such as Jay Powell of the U.S. Federal Reserve and Christine Lagarde of the European Central Bank are a far cry from pliable Fed Chair Arthur Burns in the 1970s. They both have superb staffs to support them. Yet all central banks still face constant pressures, and it is hard for them to stand alone indefinitely, especially if politicians become weak and desperate.
America’s humbling defeat in Afghanistan is a big step toward recreating the perfect storm that led to slow growth and very high inflation of the 1970s. A few weeks ago, a little inflation seemed like a manageable problem. Now, the risks and the stakes are higher.
Copyright: Project Syndicate, 2021. www.project-syndicate.org
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CANADA STOCKS – TSX rises 0.3% to 20,461.93
* The Toronto Stock Exchange‘s TSX rises 0.30 percent to 20,461.93
* Leading the index were BlackBerry Ltd <BB.TO>, up 10.1%, Bombardier Inc, up 7.4%, and Capstone Mining Corp, higher by 5.8%.
* Lagging shares were Equinox Gold Corp, down 5.7%, Centerra Gold Inc, down 5.4%, and Eldorado Gold Corp, lower by 5.1%.
* On the TSX 107 issues rose and 126 fell as a 0.8-to-1 ratio favoured decliners. There were 8 new highs and 11 new lows, with a total volume of 252.5 million shares.
* The most heavily traded shares by volume were Bombardier Inc, Tc Energy Corp and Cenovus Energy Inc.
* The TSX’s energy group rose 3.72 points, or 2.8%, while the financials sector climbed 3.74 points or 1.0%.
* West Texas Intermediate crude futures rose 1.4%, or $1.01, to $73.24 a barrel. Brent crude rose 1.35%, or $1.03, to $77.22 [O/R]
* The TSX is up 17.4% for the year.
This summary was machine-generated on September 23 at 21:23.
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