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Afghanistan on the blink of crisis as IMF rejects Government proposals

June 17, 2011‐ Kabul, Afghanistan

Afghanistan Bank Crisis
With the International Monetary Fund rejecting the proposals by the Afghanistan Government, it appears that Afghanistan banks are on the blink of a collapse. IMF rejected the proposals for resolving the Kabul Bank scandal but the Government says 95% of the suggestions are already complied.

Depositors of the nation's largest private bank Kabul Bank are withdrawing several hundred millions of dollars daily from the bank as the trust worthiness of the bank is on the blink. This is worrying the present CEO of the bank Khalilullah Frozi. The Government-appointed commission blamed the regulators for not acting timely and allowing the bank to extend questionable loans. The loan scandal was so bad that there were not even any formal documents that reflect that the loan was extended and hence the question about how they will be recovered.

Added to this, the Afghanistan Government is having a huge cash crunch and this was coupled with the IMF rejecting to release funds. This means that most countries will no longer be able to give generous donations or funds to the country. Even the $US70 million payment from the World Bank's Afghan reconstruction trust fund was automatically gets withheld. This means that the day to day operations of various Government works will be rechecked twice before the funds get released. As a matter of fact, Afghanistan depends largely on foreign aid money to run its day to day business. And this isn't a good situation.

There are three things that IMF suggested in regard to the Kabul Bank scandal. Firstly Kabul Bank needs to be nationalized. Secondly, the rights of the shareholders have to be stripped and finally, the unrecovered loans are to be put into receivership.

Apart from these, there are two more things that Afghanistan needs to do to convenience IMF. Afghan taxpayer's money, and not the funds from the foreign aid, has to be used for the repayment of $US820 million taken out of the central bank reserves in 2010 to prop up the bank. Secondly, criminal investigations have to be initiated against the people who are behind the Kabul Bank scandal and get back the interest-free loan money that was extended to them. While the Government is working on complying with the two points, it is finding tough to do it. The MP's have already rejected one of an earlier attempt for the use of tax payers money to an extent of $US73 million. The Government is now considering a supplementary budget which it intends to presented soon. The MPs say that assets of the shareholders, managers and other people behind the bank scandal should be sold.

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