The Wall Street Journal Google Your News Update

The Wall Street Journal Google Your News Update

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THURSDAY, FEBRUARY 9, 2023

2/9/2023 6:06:00 PM

Why Billions in Afghan Funds Are Still Locked Away in Switzerland

In 2021, when the U.S. withdrew troops from Afghanistan, the Biden Administration froze billions of dollars the Afghan central bank kept in reserves in the U.S. Much of it was put into an account in Switzerland, and pitched as a way to help the Afghan people. But so far, no funds have been released. Wall Street Journal reporter Daniella Cheslow joins WSJ What's News host Annmarie Fertoli to explains.

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Full Transcript

This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

Annmarie Fertoli: When the US left Afghanistan in 2021 and the Taliban took over, the Biden administration made a bold move. It froze $7 billion that the Afghan Central Bank had kept in reserves in the US. The White House put much of that money in an account in Switzerland. The so-called Afghan Fund was pitched as a way of helping the Afghan people, but so far no funds have been released. Instead, the money has frozen as the US bumps up against the limits of its power to sway the Taliban. I'm Annmarie Fertoli from the Wall Street Journal, and joining me now is our DC reporter, Daniella Cheslow. Hi Daniella, thanks for being here.

Daniella Cheslow: Hi Annmarie.

Annmarie Fertoli: So tell us about the Afghan Fund. Where is it exactly and how does it work?

Daniella Cheslow: The Afghan Fund is $3.5 billion that's sitting in a bank in Switzerland. Washington announced it would create the fund last year in September. The Treasury said at the time, the point was to keep the money out of the Taliban's hands while it benefits the Afghan people. It set up a board for how it was supposed to work. There are four trustees. There's two Afghan economists. There's one Swiss diplomat and there's an official from the US Treasury. And their decisions are made by unanimous vote, which means that any one of them has veto power. In their guidelines, they can recapitalize Afghanistan Central Bank as long as it proves it's independent and can prevent money laundering and terrorism financing. I think just to go back to the basics, we're talking about funds the Afghan government pre-Taliban parked in the US as part of its financial system. The US split these funds in half. It set aside half of that money, $3.5 billion for potential payouts to families of terrorism victims who won judgments in US courts. And the Afghan Fund in Switzerland is the remainder.

Annmarie Fertoli: So the Afghan Fund hasn't given out any money yet. Why is that?

Daniella Cheslow: There are four trustees and I managed to talk to three of them. They've met once in November. They did procedural things there like naming an auditor and developing other compliance. One of the trustees, he's an Afghan economist in the US. His name is Shah Mehrabi, he's also on the board of Afghanistan Central Bank, and he told me he could see a world where the Afghan Fund releases about $80 million a month to the Afghan Central Bank. He says, "Even while the Taliban is in power, the Central Bank could still put in place controls against terrorism funding and money laundering, and then the trustees could keep an eye on the bankers in Kabul."

Shah Mehrabi: Remember here we are talking about the technocrats. We have spent 20 years at United States in terms of training people to run the Central Bank. That particular group of technocrats are still there.

Daniella Cheslow: His idea is a non-starter with other trustees I spoke to. Swiss diplomat Alexandra Baumann told me the Taliban have not given any indication that they'll let the bank run independently, and so she thought it might take years to recapitalize it.

Alexandra Baumann: So I see my role a little bit as a hen that sits on the eggs.

Daniella Cheslow: In the meantime, she says the bank could pay off Afghanistan's arrears to the World Bank so it could qualify for more age. She thought that was about $5 million.

Annmarie Fertoli: What have we heard from the Central Bank or the Taliban on this?

Daniella Cheslow: Our colleagues ask the bank in Kabul for comment. They didn't get a response. In the past, the Central Bank has said that the US must return the funds to Afghanistan. They've agreed to some outside monitoring paid for by the US. But the Taliban installed one of their own as the Central Bank's deputy governor. His background is sowing doubts in the West. His name is Ahmad Zia Agha. He's blacklisted by the US, the UN, and the European Union for alleged financing of bombings and of Taliban commanders. The US has also said the assassination of Al-Qaeda leader Ayman al-Zawahiri in Kabul this last July shows that the Taliban are creating a haven for terrorism.

Annmarie Fertoli: Meanwhile, Daniella, the economic situation in Afghanistan is troubled right now. Tell us more about what's going on there.

Daniella Cheslow: Yeah, the picture of Afghanistan's economy is pretty bleak. The World Bank estimates the economy contracted by about 30% between 2021 and 2022. The UN says malnutrition reached a record high. This is partly because of economic factors, and that includes the international community cutting off a lot of aid since the Taliban took over. There's also been a drought and flooding that impacted crops. The Afghan Fund wouldn't directly help out in humanitarian aid. That's not its role, but it could help keep inflation stable. Over the summer, Afghanistan's year on year inflation reached above 18%, which is really making it harder for people to afford food and other basic goods. It's come down somewhat since then, but it's still high. There was some fear for a while in Afghanistan that the country's economy would completely collapse. What has been keeping it somewhat stable is a pipeline of cash that the United Nations flies in. The World Bank has said that if that were to dry up, it would seriously set back what it called Afghanistan's anemic recovery.

Annmarie Fertoli: The Afghan Fund is just one part of the picture here. I wonder what you heard from other groups that are trying to help the people of Afghanistan without propping up the Taliban?

Daniella Cheslow: Yeah, that question is on people's minds in DC. The US has found ways to aid people in countries it's sanctioned like North Korea. But I think that Taliban poses a unique problem. It has banned women from working in NGOs that came out in December. Many organizations that worked in Afghanistan suspended or cut back their operations because they said they couldn't reach their targets. The result is a moral dilemma, which is what I heard from Ibraheem Bahiss at the International Crisis Group, which still has a presence in Afghanistan.

Ibraheem Bahiss: Do we want Afghans to suffer at the cost of hoping that it would change the Taliban's behavior or at least keep the Taliban tied down? Or do we want to address the crisis that the Afghan population is grappling with, even if the Taliban will benefit from the improved humanitarian situation and economic situation in the country?

Daniella Cheslow: There's a watchdog agency that looks into us spending in Afghanistan. It goes by the acronym SIGAR, it's the Special Inspector General for Afghanistan Reconstruction. It says that since the Taliban takeover, the US has spent or promised nearly $5 billion in humanitarian aid for Afghanistan and Afghan evacuees. I had a chance to speak to its director. He said that when the US froze the funds that are now the Afghan Fund, there was some hope it could be a bargaining chip to get the Taliban to moderate its ways. And now he says those hopes have come crashing down. SIGAR just put out a report, they put one out every quarter, and in it the director said, "There is no guarantee that providing or stopping American Aid to Afghanistan will change the Taliban's behavior."

Annmarie Fertoli: That's our DC reporter, Daniella Cheslow. Daniella, thanks so much for joining me.

Daniella Cheslow: Thanks, Annmarie.

Annmarie Fertoli: To hear more stories about business and politics from the Wall Street Journal, ask your Google Assistant to play WSJ What's News Podcast.

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