IMF sets new $133.6m loan for Afghanistan

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WASHINGTON, Nov 16 (AFP): The International Monetary Fund (IMF) approved a new $133.6 million loan for Afghanistan yesterday, after a year of difficult talks stalled by the massive Kabul Bank scandal. Fund officials said Kabul had made progress on cleaning up the financial system and beginning the recovery of hundreds of millions of dollars stolen from Kabul Bank, which they termed a "Ponzi scheme" involving many powerful Afghan businessmen and officials. The IMF immediately will release $18.9 million as a first tranche of the loan, which will also clear the way for bilateral donors to release some $100 million through the World Bank- managed Afghanistan Reconstruction Trust Fund, an IMF official said. Nemat Shafik, IMF deputy managing director, said the Afghan economy continued to grow strongly, averaging over 10 per cent in the last five years with moderate inflation. She also credited authorities with containing the Kabul Bank collapse and preventing the meltdown of Afghanistan's financial sector. But she said Kabul needed to keep pushing to recover some of the more than $900 million lost when Kabul Bank imploded from massive fraud and corruption. "Asset recovery and legal actions against the architects of the fraud have lagged and need to be pursued more forcefully. It is important that the relevant prior action is fully met before the first review of the program." The Afghan finance ministry welcomed the three-year loan, saying it will support "a broad program of initiatives covering critical reforms in the banking and financial sector, building further on fiscal reforms within its customs and revenue departments and bringing improved public financial management." The IMF said the loan is aimed at helping the government transition toward greater self-reliance as the international military presence in the country is scaled back and foreign aid declines over the next five years. "The government will have to take over activities currently financed by donors, including shouldering a larger share of security spending," it said. That will require better government management of monetary and fiscal policy and supervision of the financial sector, it said. IMF mission chief for Afghanistan Axel Schimmelpfennig told reporters in a conference call that Kabul's leaders "have made good progress" on dealing with the weaknesses that led to the Kabul Bank scandal, which had cost the government $825 million. The bank, then Afghanistan's largest, had to be taken over by the central bank last year amid accusations that powerful former executives siphoned off more than $900 million, some of which was used to buy luxury properties in Dubai. Since then Kabul Bank has been placed into receivership, and its profitable operations could be sold off next year, according to Schimmelpfennig. "They have started an in-depth forensic audit of Kabul Bank to clearly establish who is the ultimate beneficiary of the fraud," he said. "Once you know who has benefited and who owes, what, you can go after the money," he said. The government has already reached voluntary repayment agreements with cooperating shareholders covering some $270 million, $33 million of which has been recovered. The bank has also received $40 million in payments on existing loans, and has some $153 million in assets to be sold off, he said. Some of the money will go to the Afghan central bank to repay its costs in the crisis.