World Bank Is Withholding $70 Million as Afghans Try to Resolve a Scandal

The delay is part of a looming crisis surrounding Kabul Bank negotiations that could force the Afghan government to dip into badly needed cash reserves and imperil future development projects, according to Western diplomats. It also stands to deepen the crisis in confidence in the government at a key moment, as NATO forces begin handing over security responsibilities in seven areas of the country next month, Western diplomats say.

The World Bank-managed Afghanistan Reconstruction Trust Fund, which receives money from international donors, was scheduled to deliver $70 million on June 11 for incentive programs intended to reward the government for meeting certain benchmarks in areas like public administration reform. But the payment was contingent on the International Monetary Fund’s renewing its main credit program for the country, which was suspended in September as the banking crisis worsened.

“That money hasn’t gone to the government by the deadline of June 11, and the donors are undecided whether to say to the government, ‘You’ve lost it forever,’ or to just hold it back,” said one Western diplomat, who spoke on the condition of anonymity.

With no program in place, Western donors have suspended payments to the reconstruction trust fund. In addition to providing incentive money, the trust fund finances about half the non-security costs of government, including salaries for civil servants. No donor nation has given money to the fund in the last three months, the diplomat said.

At the current spending rate, the fund stands to run dry sometime next month, which could force the Afghan government to dip into its reserve funds to pay the salaries of some 250,000 civil servants on its own. The government reserves are deep enough to do that for now, the diplomat said, but such a move could hamper the government’s ability to become self-sustaining as foreign aid money draws down, which is expected to occur over the next few years.

The continuing discord between the Afghan government and the monetary fund over the banking crisis is a “litmus test” of the country’s governance, said a senior Western diplomat, who also spoke on the condition of anonymity. “And all of us have held to the view that the I.M.F. program is of paramount importance to show the Afghan government’s commitment to transparency, especially when it comes to Kabul Bank, which is critical to regain the confidence first and foremost of the Afghan people, but also to the international community.”

The banking crisis erupted in August when depositors made a run on Kabul Bank in a panic after government officials learned of $300 million in losses and demanded the resignation of the bank’s president and chairman. Banking specialists and others feared the crisis at Kabul Bank could prompt a run on solvent banks and threaten to destabilize the country’s financial system.

The bank was the nation’s largest private financial institution, and its politically connected shareholders included the brothers of President Hamid Karzai and First Vice President Muhammad Qasim Fahim. By January, the estimated losses had reached as much as $900 million.

In April, the Afghan government presented an overhaul plan intended to resolve the crisis by splitting the bank in two: one unit would take over the bank’s branches, deposits and good loans, and the other would be set up as a receivership to try to collect bad loans.

Afghan officials and diplomats at the time hoped the plan would persuade the monetary fund to resume its credit program. But Raphael Anspach, a spokesman for the monetary fund, said Friday that important issues still needed to be addressed, “including actions to ensure that problems that led to the collapse of the Kabul Bank do not recur.”

“The timing of how fast to move forward depends on how quickly the authorities act on the remaining issues,” he added, without providing specifics on the outstanding issues.

Among the steps the monetary fund had been pushing were that the Afghan government put the Kabul Bank in receivership to try to collect as much as possible from the bad loans and that it prosecute those who defrauded the bank. But so far, no one has been charged; in fact, a presidential commission last month cleared some of the most politically connected borrowers.

The commission, appointed by President Karzai to assess responsibility for the wide-ranging fraud scheme, said last month that 207 borrowers, including members of the president’s cabinet and Parliament, had taken out undocumented loans. But the commission absolved the brothers of the president and the first vice president of any wrongdoing. The commission concluded that, so far, only about $347 million was expected to be repaid.

The monetary fund has also been pushing the government to pass a supplemental budget to recapitalize the Central Bank for money it spent keeping Kabul Bank afloat, said Najibullah Manali, an adviser to the Afghan finance minister.

“We sent this proposal to the Parliament but the Parliament rejected it,” he said. The Karzai administration will try again when Parliament reconvenes in August, Mr. Manali said.

Sharifullah Sahak contributed reporting from Kabul.

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Thousands of Afghans Rally in Kabul to Reject Any Peace With Taliban

The meeting, organized by a former intelligence director, Amrullah Saleh, and attended as well by Abdullah Abdullah, a former presidential candidate, was a frontal attack on the current government’s policies, and speakers denounced both Al Qaeda and the Taliban. The organizers promised that if they were not listened to, they would “go to the streets and protest.”

Under the name “a gathering for justice,” the meeting was attended overwhelmingly by Afghans from the north and particularly from Panjshir Province, the home of the Afghan icon Ahmed Shah Massoud, who was killed by suicide bombers backed by Al Qaeda two days before the Sept. 11, 2001, attacks. Panjshir is also the home province of Mr. Saleh and Mr. Abdullah.

Both men have long experienced friction with President Hamid Karzai: Mr. Karzai forced out Mr. Saleh, and Mr. Abdullah withdrew from a runoff election against Mr. Karzai in 2009 because, he said, the voting would be rigged. “The Taliban and Al Qaeda are terrorists,” said Mr. Saleh, as he looked out across the crowd, many of them young people. “They have destroyed our lands and houses, dishonored our wives and families.”

Then Mr. Saleh addressed Mr. Karzai: “You call them your brothers, this is oppression — to this nation; they are not our brothers,” he said in a criticism of Mr. Karzai’s frequent reference to the Taliban not as enemies or terrorists but as “upset brothers” or “angry brothers.”

The meeting struck a strongly nationalist tone and seemed aimed at generating the kind of grass-roots movement that has swept the Middle East. It was advertised on Facebook, radio and television stations, as well as in local newspapers.

Banners in Dari, one of the official Afghan languages, around the edge of the large tents were critical of the government: “The international community should not support Karzai for deals with the Taliban;” “Don’t step on our national interest by making deals with the Taliban;” “Every government organ is screaming with corruption, let’s root it out.”

The meeting was held in the parking lot of one of Kabul’s many immense wedding halls, and the manager, who asked that his name not be used, said that his staff had set out more than 10,000 chairs. Almost every one was filled, and overflow crowds gathered outside to listen to the speeches over loudspeakers.

The dominance of northerners at the gathering raised the issues of the growing tension over the prospect of a peace deal with the Taliban and the very different outlooks of the predominantly non-Pashtun north of Afghanistan and the overwhelmingly Pashtun south.

“As you know, one tribe, one circle has governed Afghanistan,” said Rasullah Paya, 22, a Kabul University student, referring to the Pashtuns, the ethnic group of Mr. Karzai. “From now on we don’t want one circle, one tribe, one nation, to run the government,” said Mr. Paya, who is from the Hazara ethnic group and is originally from Parwan Province, which is also in the north.

In fact, the government’s senior figures come from all ethnic groups, but perhaps because there is general frustration with day-to-day corruption and inefficiency, people feel deeply disenfranchised.

Others were even blunter. Abu Bakr, 32, from Panjshir Province, said, “We came today to participate in this gathering, to express our hatred of the Taliban and of the High Peace Council.”

The peace council, with more than 60 members, picked by Mr. Karzai, has been involved in reaching out to the Taliban and other insurgent groups to persuade them to lay down their weapons and join the government.

Mr. Saleh worked for Mr. Karzai until last June when insurgents attacked a peace jirga held in Kabul with rockets. In the wake of the attack, Mr. Karzai forced both Mr. Saleh and the interior minister at the time, Hanif Atmar, to offer their resignations because they had not pre-empted the attack. While Mr. Saleh is a Tajik, Mr. Atmar is a Pashtun, and they have criticized the government’s failure to root out corruption and to take a tough stand against the Taliban.

Underlying the reason for the gathering and on the minds of many in attendance was Mr. Karzai’s recent meeting with senior Pakistani officials at which the two countries’ leaders pledged to work together to bring peace to the region. However, in private the Pakistanis pushed for changes in Afghan policies, urging the country to draw closer to China and implicitly distance itself from the United States.

After the meeting, several local newspapers released what they said were lists of Pakistan’s demands to Afghanistan. While some of the demands were completely fabricated, others appeared to have been mentioned at the meeting, and the overall lack of transparency, coupled with the recent revelation that Osama bin Laden was living near a Pakistani military compound, has exacerbated people’s suspicions of Pakistan.

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