Exclusive US and Taliban make progress on Afghan reserves, but big gaps remain

KABUL/WASHINGTON, July 26 (Reuters) – US and Taliban officials have exchanged proposals to release billions of dollars of Afghan Central Bank’s overseas reserves into a trust fund, three sources familiar with the talks said, indicating progress in efforts to ease the crisis. economics in Afghanistan.

However, significant differences remain between the two sides, according to two sources, including the Taliban’s refusal to replace the bank’s top political appointees, one of whom is subject to US sanctions like many of the movement’s leaders.

Some experts said such a move would help restore confidence in the institution by isolating it from the interference of the Islamist militant group that seized power a year ago but is not recognized by foreign governments.

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Freeing up money may not solve all of Afghanistan’s financial problems, but it will provide relief to a country grappling with a slump in foreign aid and an ongoing drought and earthquake in June that killed 1,000 people. Millions of Afghans face a second winter without enough food.

A Taliban government source, speaking on the condition of anonymity, said that while the Taliban do not reject the concept of the trust fund, they are opposed to a US proposal for third-party control of the fund that would hold and disburse the returned reserves.

The United States has held talks with Switzerland and other parties about creating a mechanism that includes the trust fund, through which payments will be determined with the help of an international board, according to a US source who declined to be named. in order to discuss the matter.

The US source added that one possible model could be the Afghanistan Reconstruction Trust Fund, a fund managed by the World Bank to receive donations of foreign development assistance to Kabul.

«No agreement has been reached yet,» said Shah Mehrabi, a professor of Afghan-American economics who is a member of the Supreme Council of the Central Bank of Afghanistan.

The US State Department and the Swiss Federal Foreign Office declined to comment. The Central Bank of Afghanistan did not respond to requests for comment.

The section to be reckoned with

US Special Representative for Afghanistan Thomas West, speaking at a conference focused on Afghanistan in Uzbekistan on Tuesday, welcomed the dialogue.

“We have made it clear that recapitalization of the (Afghan) Central Bank and the Afghan financial system in the future is possible provided that reasonable and serious steps are taken to professionalize the Central Bank, strengthen AML/CFT structure and its independence,” he said.

There are reserves estimated at about nine billion dollars outside Afghanistan, including seven billion dollars in the United States since the Taliban overran Kabul last August with the withdrawal of US-led forces after 20 years of fighting the militants.

Foreign governments and rights groups have accused the Taliban of committing abuses, including extrajudicial killings during and after the insurgency, and the movement has curtailed women’s freedoms since the restoration of power.

The international community wants the group to improve its record on women’s and other rights before it is officially recognized.

The Taliban have promised to investigate the alleged killings and say they are working to secure Afghans’ rights to education and freedom of expression within the parameters of Islamic law.

positive movement

Mehrabi, the Taliban official and senior diplomat, said that during talks in Doha last month, the Taliban presented their response to US officials on the US proposal for a mechanism to free Afghan assets.

Experts warned that the release of funds would only lead to temporary relief and that new revenue streams were needed to replace direct foreign aid that financed 70 percent of the government’s budget before it stopped after the Taliban seized power.

But some saw the exchange of suggestions as a glimmer of hope in the possibility of creating a system that would allow the release of Afghan Central Bank funds while ensuring that they were not accessed by the Taliban.

Negotiations over assets and other issues faltered after Washington canceled meetings in Doha in March when the Taliban reneged on their promise to open girls’ secondary schools. Read more

«It is a positive step in general,» Mehrabi said, and that the Taliban did not reject the US proposal, adding that he had not seen the Taliban’s counter-offer.

The Taliban official said the group was open to allowing a State Department-designated contractor to monitor the Central Bank of Afghanistan’s compliance with anti-money laundering standards, and that monitoring experts would be able to go to Afghanistan.

But the official added that the Taliban were concerned that the US idea might create a parallel central banking structure, and were unwilling to fire senior political appointees including Deputy Governor Noor Ahmad Agha, who is subject to US terrorism sanctions.

The American source denied that the proposed trust fund would serve as a parallel central bank.

initial fund

Negotiations focused on the initial release of the $3.5 billion US President Joe Biden had ordered «for the benefit of the Afghan people» out of the $7 billion in Afghan reserves held by the New York Federal Reserve.

The other $3.5 billion is being challenged in lawsuits against the Taliban stemming from the September 11, 2001 attacks on the United States, but the courts may decide to release that money as well.

West said in February that money allocated by Biden would likely be used to recapitalize the reformed central bank and the crippled banking system.

Afghanistan’s economy went into a tailspin after the Taliban seized power, with the central bank’s overseas reserves frozen, Washington and other donors halting aid, and the United States halting hard currency shipments.

The banking sector collapsed on the verge of collapse and the Afghan national currency fell sharply.

The World Bank says it has strengthened, despite the lack of dollars and the persistence of Afghans. High unemployment and rising prices, caused by drought, the COVID-19 pandemic and the Russian invasion of Ukraine, have exacerbated the humanitarian crisis.

Experts said the release of foreign funds with the central bank would help it stem the crisis.

“You need a central bank that regulates the value of the currency, regulates prices, and ensures liquidity for imports,” said Graeme Smith, senior advisor at the International Crisis Group. «It’s not optional (or) people won’t eat.»

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(Charlotte Greenfield and Jonathan Landay reporting) Additional reporting by Michael Shields in Zurich and Muhammed Sharif Mammatkulov in Tashkent. Editing by Mike Collette White and David Holmes

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