Category: Travel

Econ 101:  How to help Afghans?

The world is rightly looking for ways to help Afghans without helping the Taliban (until or unless the Taliban forms a government the world is willing to recognize). Washington Post: “How to help Afghans without aiding Taliban”  In this Post article Anthony Faiola states that “The biggest problem isn’t a lack of food. Rather, it’s the disappearance of what had been the lifeblood of the Afghan economy — Western cash.” This mischaracterizes the problems of Afghans thus confusing our understanding. In this note I attempt to clarify the “cash” aspect of Afghanistan’s problems.

But first there is no escaping the fact that the cut back of foreign aid is reducing the income (and the goods that income buys) available to Afghans. Mention is often made of the approximately 10 billion US dollars of the Afghan government’s funds frozen in deposits abroad. These funds cannot be used until a new Afghan government is recognized with the authority to claim them. But these funds are not part of the lost revenue to the Afghan government. They are the wealth–the previous income saved–of the government (whoever that will turn out to be). The savings that we accumulate from our incomes for retirement or whatever is our wealth not our current income (though it can be drawn on to augment current income).

In recent years (prior to the Taliban take over) the Afghan government’s operating expenditures were 16 to 18% of Afghanistan’s GDP while its domestic revenue was 12 to 14% of GDP. The balance of its financing plus all development expenditures were from donors. The hope is that squeezing the Taliban “government” financially will add to the incentives for them to quickly form an inclusive government meeting international norms of human rights. Unfortunately, it is not possible to shut off the flow of funds to the government without also starving the Afghan people.

While the Ghani government has been replaced (temporarily) by Taliban leaders, the institutions (ministries and agencies) of government remain, but with new management. Of the government’s operating expenditures roughly 80% was for wages and salaries. Thus, the government could more or less finance its wage and salary expenses from its own domestic revenue without donor support. Indeed, all salaries have been and continue to be paid in the central bank (Da Afghanistan Bank — DAB) and presumably in the other government ministries as well, albeit with delays. However, the real value of these incomes is being reduced because of increased inflation (an indirect form of taxation). DAB and other government agencies have largely stopped providing economic and financial data since the Taliban take over.  IMF First-Review-Under-the-Under-the-Extended-Credit-Facility

None the less, freezing Afghanistan’s deposits abroad (DAB’s foreign exchange reserves held abroad) has created monetary problems within Afghanistan because of the inability to import the cash (dollar banknotes) on which the economy depends. Afghanistan remains a largely cash economy. Most payments are made in cash. Though inflation has been low in recent years (generally 2-4%), inflation in earlier decades was relatively high and thus Afghans held and transacted in US dollars quite extensively. Around 70% of bank deposits are in dollars. The availability of USD banknotes for local payments is thus very important. These were mostly supplied by the New York Federal Reserve Bank from the dollar deposits that DAB maintains there (and now frozen).

Prior to the Taliban takeover, the normal operation of DAB’s monetary policy consisted of receiving US dollars from the government (largely from donor grants) and depositing the equivalent value of Afghani in the government’s accounts. The government disbursed these Afghani to its employees in wage and salary payments (generally by electronic deposits to employee bank accounts). Without offset, the resulting creation and injection of these Afghani would be inflationary. DAB drains (buys back) this excess base money by auctioning some of the dollars it received from the government (sufficient to stabilize the dollar exchange rate) and capital notes of DAB. The government’s deposits of dollars with DAB took the form of credits to DAB’s dollar account with the New York Fed. From these deposits DAB pays the Federal Reserve to fly USD banknotes to Kabul as needed for DAB’s dollar auctions.

In mid-April 2021, when the U.S. announced its intention to withdraw the rest of its military personnel by September, an increased outflow of dollars by Afghans wanting to protect their wealth put the Afghani exchange rate under pressure. Acting DAB Governor Ajmal Ahmady (his appointment was never approved by Parliament) increased dollar auctions to stabilize the exchange rate. “Afghan central bank drained dollar stockpile before Kabul fell” As the amount of dollars in its vaults ran down, it used USD banknotes that it held on behalf of banks (approximately $700 million USD). The delivery of additional cash from New York expected in July never arrived and DAB’s balances at the New York Fed are now frozen until a new government is recognized so that no more dollar cash can be purchased from the Federal Reserve by DAB.

As an aside, I was surprised during a 2009 visit to Zimbabwe—as part of an IMF team following Zimbabwe’s dramatic hyperinflation during which it dollarized—to learn that there was an active private market in dollar banknotes supplying Zimbabwe from South Africa:  “Hyperinflation in Zimbabwe”

In the days just before and after the American evacuation in August 2021 public demands to withdraw dollar cash intensified but DAB had largely used up the dollars in its vaults (both its own and those held for banks). In response, on August 14 DAB imposed limits on the amounts that could be withdrawn each day. This fed public concern that their banks were running out of dollar banknotes and triggered runs on the banks. DAB was even running low on Afghani banknotes, which might have replaced dollars. Without access to its deposits abroad DAB is unable to purchase additional dollar cash nor pay for printing additional Afghani. For a largely cash and heavily dollarized economy this drying up of cash liquidity is very disruptive and the basis of the statement that people can’t buy the food that might be available.

In addition to the cash shortage, Afghans are also lining up to withdraw their deposits out of concern for a possible bank failure. Aid cut offs and civil strife have damaged many firms resulting in arrears on their bank loan payments. This threatens to push bank illiquidity into insolvency. Even if DAB had USD and AFN cash to lend or sell to banks with fully performing loans, DAB is currently unable to buy or lend against these illiquid bank assets. Moreover, the Office of Foreign Assets Control (OFAC) of the U.S. Treasury has sanctioned payments to many Afghan entities and activities blocking many payments to and from abroad by Afghan banks and uncertainly about the application of the sanctions regime has made banks overly cautious about executing payments for their customers.

UN and other aid organizations have experience in other countries with delivering wages and other payments to targeted recipiences (teachers, healthcare workers and potentially even government employees) without the funds passing through the government’s hands. This approach is needed and is being developed for use in Afghanistan. OFAC sanctions are being modestly relaxed and UN and other aid agencies have begun funding the importation of dollar cash for humanitarian assistance projects. The use of digital mobile phone payments, such as M-Paisa and HesabPay, should be promoted and exploitation to the extent possible.  “Use of mobile phone payments” The United States needs to and has been gradually relaxing its payment restrictions to make this possible.

The Taliban leadership needs to take urgent steps to establish a new inclusive government that can and will be recognized internationally thus unfreezing Afghanistan’s (and DAB’s) deposits abroad and eliminating its cash shortage and restoring development assistance. In the meantime, in addition to the urgent need for humanitarian assistance that bypasses the Taliban, the New York Federal Reserve, or any other doners, should consider a loan to DAB to finance immediate shipments of dollar banknotes to Kabul. Da Afghanistan Bank Law adequately protects the central bank from government interference in its conduct of monetary policy and bank supervision. As a condition for restoring USD currency shipments to DAB, the Federal Reserve (and the UN) should obtain an agreement from the Taliban government to fully respect that law and appoint qualified people to its Supreme Council and Executive Board.

Until Afghanistan has a proper government, and its economic development can resume, Afghans, many of whom are very poor to begin with, will suffer unnecessarily depressed incomes. The lack of cash is adding a further, tragic, and quite unnecessary disruption to the lives of a long-suffering people. This can be and should be fixed urgently. Any such assistance will somewhat reduce the financial pressure on the Taliban, but a total financial squeeze on the government will fall on the people of Afghanistan as well.

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I worked in Afghanistan as a member of the IMF program and technical assistant teams from January 2002 until mid 2015. I am grateful to Syed Ishaq Alavi for his insights and comments on this article. Mr. Alavi was Advisor to the governor of DAB from 2010 to early 2013, Director General Monetary Policy Department of DAB from early 2013 to mid 2018, and advisor to the Executive Director of the International Monetary Fund for Afghanistan, Algeria, Ghana, Iran, Libya, Morocco, Pakistan, and Tunisia from June 2018 to August 2020. For the sake of their security, I am not naming those who helped me with this article who remain in Afghanistan.

Never Again

On this 20th anniversary of the 9/11 attack on America, many of us are saying “NEVER AGAIN”. What those saying it mean will determine the future of our country.

If “never again” means to you that we will never allow attacks on our homeland again, you are saying that out of your fear you chose safety over liberty. You support the authoritarian, repressive measures of the so-called Patriot Act and the related government intrusions in our privacy and liberties in the name of greater security. This is not the spirit of those Americans who continue to get into their cars to drive to work or wherever despite automobile accidents killing ten times more Americans every year as American soldiers who have died in Afghanistan in the past 20 years.

For me and thankfully for many other Americans, it means that we will never again surrender to the fear that blinded us to the tragic mistakes of American aggression in Afghanistan, Iraq, Libya, Somalia, Syria, and Uganda. Lawrence Wilkerson explains our self-destructive behavior in the following interview. COL Wilkerson was a senior official in the Bush administration when it launched the Iraq invasion. Now he calls it a mistake born of rage and fear. https://www.cnn.com/videos/tv/2021/09/10/amanpour-wilkerson-9-11.cnn

We have the most powerful military in the world. No military force could protect us at home (to the extent that our safety depends on military force) better. When it comes to its effectiveness in offensive attacks on other countries, its effectiveness is less clear and its effectiveness in efforts to rebuild the countries it has occupied…… well this fantastic three hour discussion reveals it as worse than zero https://www.youtube.com/watch?v=GkjsjBknWfo

We once revered and defended our liberty above all else and we were respected and envied around the world. We prospered. Over the last twenty years we have gradually, year by year, squandered our cherished traditions and our standing and respect in the world has declined as a result. Former President Trump signed an agreement with the Taliban promising to remove all American troops from Afghanistan by May 1 of this year. It was a bad agreement, but our departure was many years overdue. President Biden extended our stay for a few more months but has now honored Trump’s commitment. Why our military was unable to prepare properly for our withdrawal from Afghanistan with this two-year notice is a mystery we need to investigate.  

Never again should mean that we never again act out of fear. https://wcoats.blog/2021/09/05/nation-building-in-afghanistan-2/

Nation Building in Afghanistan

The lesson of Afghanistan is not that the US is washed up as a great power. The lesson is that the US is such a great power, militarily and economically, that it is continually tempted to try hopeless things that nobody else on earth – including China – would ever attempt.  David Frum

On July 8, 2021, President Biden said that: “the United States did what we went to do in Afghanistan: to get the terrorists who attacked us on 9/11 and to deliver justice to Osama Bin Laden, and to degrade the terrorist threat to keep Afghanistan from becoming a base from which attacks could be continued against the United States.  We achieved those objectives.  That’s why we went.
We did not go to Afghanistan to nation-build.” “Remarks by President Biden on the drawdown of U.S. forces in Afghanistan”

In fact, except for killing Osama Bin Laden, we had achieved those objectives before I arrived with an IMF team in January 2002 to contribute to building a more effective government. Finding and killing Bin Laden was delayed until May 2, 2011, because of the redirection of American efforts to the ill-advised and illegal war in Iraq. So why were American troops still occupying Afghanistan until August 30, 2021?

In an August 18, 2021, interview with George Stephanopoulos, President Biden explained what happened asking: “Then what happened? Began to morph into the notion that, instead of having a counterterrorism capability to have small forces there in — or in the region to be able to take on al-Qaeda if it tried to reconstitute, we decided to engage in nation-building. In nation-building. That never made any sense to me.”  “Biden’s claim that nation building Afghanistan never made any sense”

George W Bush opposed nation building in his 2000 presidential campaign. In his memoir, Decision Points, he states that “After 9/11, I changed my mind.” Already by April 2002, he stated that “We know that true peace will only be achieved when we give the Afghan people the means to achieve their own aspirations. Peace will be achieved by helping Afghanistan develop its own stable government.” He was right. However, as he noted: “Our government was not prepared for nation building.” He was right about that as well.  “Bush on nation building and Afghanistan”

The U.S. officials responsible for “nation building” in Afghanistan knew little about its history and culture. They foolishly imposed an alien Western style government dropped on a diverse people as if from a drone. The US military is an excellent machinery of war. The best in the world. However, it does not have the skills required for “nation building.” Our military couldn’t even recruit the right solders or provide the training they needed to fight on their own, much less build a proper military organization. “Afghanistan combat interpreter Baktash Ahadi: U.S. cultural illiteracy”  And attempting nation building at the point of a gun is bound to fail.

And why did the Afghan soldiers that Americans trained for decades not fight to defend the existing government? “Afghan forces were demoralized by neglect, corruption and ethnic bias among their superiors. Often they went without pay and ammunition, and sometimes without rations….  ‘The why is corruption, the why is poor leadership,’ John Sopko, told The Washington Post in 2017, ‘If leadership is poor, the people below don’t care, and they wonder why they have to die.’” “Afghanistan U.S. troop withdrawal”

On Sunday August 15, 2021, Taliban forces walked into Kabul and took over the government without a shot.  “The Band of Brothers and Afghanistan”   But what did they take over or replace? And did 20 years of so-called nation building make any difference.  “Nation building” is often given a bad name because it has too often been associated with the imposition of a “government” by an occupying military force as with imperialism.  Afghanistan is a very different place than it was 20 years ago. Both the nation and its government and its institutions have changed considerably. We can hope that the Taliban has changed as well.

Governments consist of ruler/decision makers, and the institutions that administer whatever it is that the government does. A nation extends beyond its government to include civil society, and social and cultural norms. The Taliban have displaced Afghanistan’s President Ashraf Ghani, who fled to Uzbekistan then to the UAE rather than step aside for a transition period as had been agreed. Afghanistan’s Chief Executive Officer, Abdullah Abdullah, remained and with former President Karzai is discussing the composition of a new government with Taliban leaders.

“Taliban co-founder Mullah Abdul Ghani Baradar will lead a new Afghan government….  Haibatullah Akhundzada, the Taliban’s supreme religious leader, will focus on religious matters and governance within the framework of Islam.

“While the Taliban have spoken of their desire to form a consensus government, a source close to the Islamist militant movement said the interim government now being formed would consist solely of Taliban members. It would comprise 25 ministries, with a consultative council, or shura, of 12 Muslim scholars, the source added.

“Also being planned within six to eight months is a loya jirga, or grand assembly, bringing together elders and representatives across Afghan society to discuss a constitution and the structure of the future government, the source said.”  “Taliban co-founder Baradar will lead new Afghanistan govt”

Prior to the fall of Kabul, the government of Afghanistan consisted of the cabinet of ministers, provincial governors and the national assembly, with a democratically elected president serving as the head of state, head of government and commander-in-chief of the Afghan Armed Forces. It appears that the new government will retain the same administrative units. In addition to the central bank (DAB), which I advised, these would include functions such as Foreign Affairs, Internal Affairs, Finance, Economy, Agriculture, Energy and Water, Justice, Information and Culture, Education, Industry and Commerce, Transportation, Women’s Affairs, Public Health, Mines, and of course, National Defense. Though the U.S. did a poor job developing Afghanistan’s National Defense institutions, more experienced international agencies made considerable progress in developing more efficient and effective agencies in many other areas. Of at least equal importance, a generation of Afghan men and women have grown up expecting their place in the world to reflect their skills and accomplishments (merit) rather than who they knew.

I have written earlier about the dramatic progress in modernizing the central bank’s operations. It was achieved in the proper, traditional way of “nation” and institution building. We explained best practice for central banks derived from the experiences of established central bank and the approaches we thought would fit best with Afghanistan’s existing central bank and economy. But DAB’s management and staff made the decisions of what to embrace and how to move forward and we offered guidance on designing and implementing those decisions. “BearingPoint Afghans”

But one institution can’t develop independently of what is happening in the rest of the country. In particular, developing the rule of law is critical and difficult. An example was provided by DAB’s (the banking supervisor) confrontation with a corrupt President and Attorney General over the resolution of the insolvent and criminal Kabulbank in 2010-12. The founders and owners of Kabulbank (President Karzai’s brother Mahmood was the third largest shareholder) had rapidly grown this newly licensed local bank into the country’s largest depository and had lent almost all of its deposits to themselves. During the global financial crisis of 2008, many of Kabulbank’s owners’ investments failed and they were unable to repay their depositors. DAB’s banking supervisors were blamed for weak supervision and even arrested and jailed in disregard of the provisions of the central bank law. The scandal revealed considerable corruption, but the supervisory resolution of the bank somewhat strengthened (modestly) the rule of law in the process.  “Afghan President Ghani’s attack on corruption”    “The Kabul Bank Scandal”

Another huge set back to the impressive development of DAB resulted from President Ghani appointing an unqualified friend, Ajmal Ahmady, as Acting Governor of the central bank. He fired many of the best of the BearingPoint Afghans and brought in his own small group of cronies. Mr. Ahmady’s appointment was rejected by the Parliament, but he illegally remained in his post.  The Taliban (???) have now appointed Haji Mohammad Idris as the Acting Governor of the central bank. “Mr. Idris was head of the Tabliban‘s finance section, but he has no formal financial training or higher education.”  “Haji Mohammad Idris”

These examples are meant to illustrate the distinction between a government’s leaders and its administrators. Time will tell whether our “nation building” efforts with DAB survive the attacks on it from Afghanistan’s leaders (current and past). But as a result of the nation building efforts of many international bodies, Afghanistan is a very different and better place, and its young population has very different expectations, than twenty years ago. I hope that the Taliban leaders that have taken over the government are also very different than their repressive and brutal forebearers of twenty years ago.

While the new government will no doubt leave many of the institutional structures in place that have been developed over the last two decades, from which they and the country have benefitted, the big question is what policies and rules they will establish under the name of Sharia law, especially with regard to the rights of women. The Taliban have their own internal factions that need to be sorted out and their earlier version of Sharia was an extremely harsh interpretation not shared by most Muslims. The Taliban has pledged to treat women and others fairly, within the dictates of Sharia Law. Other Muslims will need to convince the Taliban to moderate their earlier interpretations of what that means. The United States, the EU  “EU sets five conditions for future operational engagement with Taliban”, China, Russia, and the international organizations, have enormous financial and diplomatic leverage with which to encourage the Taliban government’s better behavior. They should be used vigorously to help build a better Afghanistan. Early signs are not encouraging, but these are early days. One Afghan friend changes locations every night in the hopes of not being found. Other friends are afraid to leave their homes at all.

The idea that we should refuse to cooperate with the new government and should oppose it at every turn from the outset is bone headed. Just ponder the alternatives for a second. Do not think that it is easy for me to sit here in my comfortable Bethesda home and urge us to give the Taliban a try. My days begin with heart wrenching pleas for help from Afghan friends and strangers. I challenge you to read the following account of dashed hopes without weeping: “After a university falls in Afghanistan a DC organization scrambles to keep students safe and still learning”   

Efforts to achieve a better Taliban government this time around may be a long shot, but the alternatives of a return to civil war and worse yet the return of American and NATO troops are not pretty either. The U.S. intention to cooperate with the new government in countering ISIS-K is encouraging, but, like anything else in life, not without risks.  “US may coordinate with Taliban to take on ISIS-K”  Nation building by everyone but the U.S. government over the last 20 years has not been a waste of time. Now is not the time to give it up.

Nation building is unlikely to be successful when coerced, i.e., when it is part of a military intervention. It does not follow that nation building–sharing best practice in the design and operation of institutions public and private–is an unworthy objective and undertaking.

https://wcoats.blog/2020/09/21/my-travels-to-afghanistan/

BearingPoint Afghans

Sometime around 2004 or 2005, the US Agency for International Development (USAID) contracted BearingPoint (now part of Deloitte Consulting) to recruit and mentor approximately 80 young Afghan college graduates into Afghanistan’s central bank (DAB) and Finance Ministry. These young Afghans worked in DAB and the Finance Ministry for two years while being trained and mentored by BearingPoint experts. Following these two years they were offered regular jobs in these two institutions. While some moved on to higher paying jobs elsewhere most of them stayed with DAB and the MOF. Over the years that followed they rose within these institutions, and in DAB headed many of the departments including the position of Second Deputy Governor. Working with and watching the progress of these young Afghans was one of the most enjoyable and gratifying assignments in my career with the International Monetary Fund. They were smart, honest, and dedicated to improving life in their country (including their own). They were, and I hope still are, the hope for a better future for Afghanistan.

The elected Afghan government under which these BearingPoint Afghans worked has now been toppled by the Taliban, a group that harshly ruled Afghanistan from 1996 until displaced by an American-British invasion in November 2001.  Back in 1996: “Gaining control over most of the country, the Taliban impose their rule, forbidding most women from working, banning girls from education, and carrying out punishments including beatings, amputations and public executions. Only three countries officially recognize the Taliban regime: Pakistan, Saudi Arabia and the United Arab Emirates.”  “Afghanistan conflict timeline”

The Taliban in 1996 claimed to impose Sharia Law on Afghanistan. “Sharia” translates to ‘the way’ in Arabic and refers to a wide-ranging body of moral and ethical principles drawn from the Quran and from the sayings and practices of the Prophet Muhammad. The principles vary according to the interpretation of various scholars who established schools of thought followed by Muslims who use them to guide their day-to-day lives. Many Muslim-majority countries base their laws on their interpretation of the principles of Islamic law but, despite this, no two have identical laws.”  “Taliban and Sharia Law in Afghanistan”

The Taliban imposed a very severe version of Sharia that has not been embraced by very many Muslims. It was particularly restrictive on the activities and rights of women. Twenty years later Afghanistan is a different place, and the Taliban sounds like a different organization.

“KABUL, Afghanistan (AP) — The Taliban vowed Tuesday to respect women’s rights, forgive those who fought them and ensure Afghanistan does not become a haven for terrorists as part of a publicity blitz aimed at reassuring world powers and a fearful population.

“Following a lightning offensive across Afghanistan that saw many cities fall to the insurgents without a fight, the Taliban have sought to portray themselves as more moderate than when they imposed a strict form of Islamic rule in the late 1990s. But many Afghans remain skeptical — and thousands have raced to the airport, desperate to flee the country.

“Older generations remember the Taliban’s previous rule, when they largely confined women to their homes, banned television and music, and held public executions. A U.S.-led invasion drove them from power months after the 9/11 attacks, which al-Qaida had orchestrated from Afghanistan while being sheltered by the Taliban.”  “Afghanistan Taliban Kabul”

So, what should American policy be toward the forthcoming Taliban or Taliban lead government? What does the Taliban pledge to “respect women’s rights consistent with their version of Sharia Law actually mean? We should deploy every diplomatic tool possible to encourage/pressure the new government to live up to its promises. Former President Karzai, current CEO Abdullah Abdullah and others are currently in discussions with the Taliban leadership over terms for an inclusive government.

The alternative of nonrecognition, once there is a government to recognize, is to encourage and even support civil war. Or, God forbid, to send our troops back (there is not much chance that our NATO allies would be conned a second time into join us there again). And how did that work out for us last time? Our over used weapon of economic sanctions harms the public we should be trying to help. Our inhuman sanctions on Cuba and Venezuela are imposing horrible pain on the their citizens with little impact on their governments. “Evidence-costs and benefits of economic sanctions”

In a recent Washington Post oped Nikki Haley argued that we should not recognize the Taliban government no matter what. “Nikki Haley-America must not recognize Taliban” I respected Ms. Haley when she was Governor of South Carolina but I eventually got over her when she embarrassed us while Ambassador to the UN. “The future of Israel and Palestine” Her unqualified attack on the Taliban firmly ties her to those who were responsible for our Afghan disaster in the first place. The new Afghan government may turn out to be as bad as the previous Taliban government, but we should do everything possible to prevent that.

The U.S. has suspended currency shipments purchased by Afghanistan’s central bank. Afghan assets (foreign exchange reserves, etc.) deposited abroad have been frozen including “its” access to reserves at the IMF. These may appear to be rejections of a new government, but they are not. There is no new government yet and those holding Afghan assets must keep them safe until their new owners are clearly and properly identified. The situation is much like the bank in which you have deposited money, freezing your deposits when you die until the new lawful owner is determined. There is an unavoidable, awkward period of uncertainty. It is not too late to reverse our mistake in closing our Embassy and running out while at the same time accusing the Afghan Army of behaving the same way.

It is also not true that nothing was accomplished these past 20 years. Our military leaders may have failed in their task of building a reliable Afghan Army, but many others, myself included, did not waste our time by helping Afghans build better institutions (see the story of the BearingPoint Afghans I started this article with above). See the discussion of this issue by Jonathan Rauch: “The  Afghanistan war was a partial success”

No one knows what the Afghan government will look like or which way it will go, but we all (except for the war mongers) have an interest in promoting its success, especially the hopeful, new generation of Afghans. “Can US work with Taliban”    “What do Taliban’s really want?”

And we must resist the siren calls of those who think that we can and should impose our vision and institutions on the rest of the world. We must keep our Army home to defend our homeland rather than messing with other people’s business. Our defense industries have profited enough.

The Band of Brothers and Afghanistan

Sunday night Ito and I finished the tenth and final episode of the WWII story of Easy Company of the 101 airborne division of the U.S. Army–The Band of Brothers. It is a moving and masterful depiction of the horrors of war, and its impact on those (often) brave men who fight them.  How, I asked myself, can good people do such terrible things to each other?  And why?  Who benefits (that is too obvious to answer explicitly)?

I woke up that morning to the fact that the government in Afghanistan that I had been working with for the past 20 years had been replaced by the Taliban who intends to form a new government. Fingers are being pointed all over the place in the search for fault. I am afraid that this American question is of little interest to my Afghan friends. Those who have not already left the country are holed up in their homes afraid to go to work. Their question is what the new Taliban regime will look like.

Our objective now should be to join with all other nations to exert diplomatic pressure on the new government (which potentially will have the cooperation of at least former President Hamid Karzai, CEO Abdullah Abdullah, and Islamic Party leader Gulbuddin Hekmatyar) to adhere to UN standards of humanitarian treatment of its citizens and to help them administer an efficient and honest government. America’s leadership in this regard will be critical for Afghanistan’s future.

But who should we blame for, and what lessons should we learn from, Afghans fleeing the country by climbing onto the outside of planes leaving the Kabul Airport (something I have done many times but more comfortably seated)? Working backward, President Trump gave our military leaders a May 1 deadline for leaving. It rather looks like they ignored him (tempting but not appropriate).

The speed with which the Taliban took over the country with barely a shot fired surprised most of us. We had dinner at the home of Edward and Dalya Luttwak Saturday. During the conversation I passed on the statement by an Afghan friend emailed to me that afternoon that the Taliban could take Kabul by the next day or week.  We all thought that would be impossible, thinking it might be as fast as a few months. In fact, they peaceably took over the city the next day (Sunday Aug 15).  In fact, our Embassy and Military leaders should not have been surprised. My work in Afghanistan with its central bank did not require that I be thoroughly versed on Afghan history and customs, but that is not true for our foreign policy establishment working in and on Afghanistan.

Rather than arm, train, and support Afghan fighters in regions they cared about, we pulled together a national Army with the incentive of money. In addition, the broader Afghan public did not strongly support its corrupt government and could fairly easily change sides. “Afghanistan military collapse-Taliban”  Moreover, waring tribes and political groups such as the Taliban have a long tradition of negotiating peaceful surrenders when the outcome seems clear.  “Afghanistan history-Taliban collapse”

The initial blame for our failure to “build” a strong government in Afghanistan falls on George W Bush who gave in to the Cheney/Rumsfeld fantasies of American Imperialism, and abandoned the original and sensible approach of American support of the Northern Alliance war against the Taliban. “Its plan was for small teams of CIA officers, along with Green Berets and U.S. air power, to assist the indigenous Afghan resistance—the Northern Alliance.” “Afghanistan withdrawal-CIA-bin Laden-al Qaeda-Bush-Biden-Northern Alliance” Instead we took over and occupied the country.

Rather than work with and build from Afghanistan’s traditional tribal structures, we imposed an alien, centralized government that was not understood and was generally resented outside of Kabul. Rather than elevating village chiefs to govern provinces, for example, Kabul sent strangers to oversee areas they knew nothing about. Our ignorance and arrogance were mind boggling, but sadly typical. And our military—the best in the world for waging wars— is incompetent at nation building, which should be the job of others. We couldn’t even build an Afghan Army in 20 years. “How America failed Afghanistan”  

Those who are most loudly criticizing Biden’s troop withdrawal are those most responsible for creating this mess to begin with.   “Afghanistan disaster started with withdrawals most ardent critics”  See my account of my work with the central bank in Kabul:  “My travels to Afghanistan”

A One State “Solution”

I have long been an admirer and supporter of the Oslo Accords, which set out a step-by-step roadmap for establishing peaceful relations between Israel and the West Bank and Gaza–a so called “Two State Solution.” The new HBO film, “Oslo” premiers today. Continuing the work started by my IMF colleague, Arne Petersen, I spent two years leading IMF technical assistance missions to Israel/WBGS to develop the Palestine Monetary Authority. “My travels to Jerusalem”  A growing consensus has concluded that the two-state solution is dead, and sadly I reluctantly agree. It has failed because of poor Palestinian leadership, Israeli governments (especially Benjamin Netanyahu’s) that were happy with the stalled status quo, and American governments that allowed the Israeli government to get away with it.

Israel has behaved like most other colonial powers of the last century and in many ways worse. It has populated its Occupied Territories with illegal Jewish settlements and has carved up the West Bank with walled off, exclusively Jewish highways that make normal life for the Palestinians impossible.  It is small wonder that Palestinian youth are fed up and revolting. It is either ignorance or dishonesty to blame the tensions on Hamas, the bad guys in Gaza–the Israeli prison of Palestinians between Egypt, the Mediterranean and Israel proper, and cut off from the rest of the West Bank. “How Israel lost the culture war”

But of course, Palestinians outnumber Jews in the land of Canaan despite seven decades of effort by Zionists to attract Jews from around the world to the new Israel. This threatens the Zionist dream of a democratic Jewish homeland. The starting point for a one-state or any other solution should be the insistence that Israel honor the human rights of all inhabitances of the land it controls, i.e., from the Mediterranean to the Jordan River. A recent report of the Human Rights Watch concludes that Israel is an Apartheid state. Large numbers of Jews around the world are offended by Israel’s treatment of the Palestinians as second-class citizens. The United States has embarrassed itself and undermined its moral standing by supporting the Israeli government’s behavior.  Fareed’s Global Briefing”

One state with a constitution that protects all of its residents equally should protect Jews as well as Palestinians to live and worship as they see fit. Such rights should not depend on having Jewish governments.  More Jews live in the United States than in Israel and such an arrangement works well for them here.

I remember well being driven from Gaza to Jerusalem in 1995 by an Arab Israeli cab driver. As we chatted about the situation in the area, he volunteered that “you know, the Palestinians and Jews are cousins.” I replied that “maybe they are even brothers.” He paused and replied: “No, brothers would not treat each other this way.”  “The Economist: Two States or One?”

All Volunteer Military

In May 1967, The New Guard magazine published an article by Milton Friedman on “The Case for a Voluntary Army.”  It was a compelling case and was adopted when the U.S. suspended its military draft in January 1972. But was it correct? “45 years later Nixon-Gates commission”

In the 1960s, the drafting of 18 year old’s to fight in Vietnam was avoided by those able to go to college. This was rightly challenged as discriminatory against the poor and college deferments were replaced with a lottery system that started in 1970, which picked the birthdates at random that would then be first in line to be drafted each year. I was granted the last of the college deferments.  “Draft lottery (1969)”

While a student of Friedman’s at the University of Chicago from 1965-70, I joined with several other libertarian classmates to form the Council for a Volunteer Military to promote Friedman’s call for an end to the draft. The Directors of the Council were: James Powell, National Director; Henry Regnery, Treasurer; myself, Executive Secretary; Danny Boggs, national Filed Secretary; and David Levy, Publications Editor. Our sponsors were: Yale Brozen, Bruce K. Chapman, Richard C. Cornuelle, James Farmer, David Franke, Milton Friedman, Sanford Gottlieb, Eugene Groves, Karl Hess, and Norman Thomas: an impressively diverse group.

In 1969 President Richard Nixon establish the Gates Commission to advise him on established an all-volunteer military and appointed Friedman to the commission.  Based on the Commission’s recommendations, President Nixon signed a law in 1971 that ended the draft in January 1973.

A Rand Corporation report on the All-Volunteer Force (AVF) by Bernard D. Rostker stated that: “Although the country had conscripted its armed forces for only 35 of its 228 years — nearly all in the 20th century — the American people were generally willing to accept this practice when service was perceived as universal. However, in the 1960s, that acceptance began to erode. There were five major reasons:

  • Demographics. The size of the eligible population of young men reaching draft age each year was so large and the needs of the military so small in comparison that, in practice, the draft was no longer universal.
  • Cost. Obtaining enough volunteers was possible at acceptable budget levels.
  • Moral and economic rationale. Conservatives and libertarians argued that the state had no right to impose military service on young men without their consent. Liberals asserted that the draft placed unfair burdens on the underprivileged members of society, who were less likely to get deferments.
  • Opposition to the war in Vietnam. The growing unpopularity of the Vietnam war meant the country was ripe for a change to a volunteer force.
  • The U.S. Army’s desire for change. The Army had lost confidence in the draft as discipline problems among draftees mounted in Vietnam.”

At the time Crawford H. Greenewalt, another member of the Commission, wrote to Gates that “while there is a reasonable possibility that a peacetime armed force could be entirely voluntary, I am certain that an armed force involved in a major conflict could not be voluntary.”

“Rand research briefs”

The AVF matched or exceeding the high expectations for it. The professionalism of our Army improved. We fought 13 wars with our volunteer force: Lebanon (1982-4), Grenada (1983), Panama (1089-90), Gulf War (Iraq, Kuwait, Saudi Arabia and Israel 1990-91), Somalia (1992-5), Bosnian War (1992-95), Haiti (1994-5), Kosovo War (1998-99), Afghanistan War (2001-21), Iraq War (2003-11, 2014-2020), Somali Civil War (2007-21), Libya intervention (2011, 2015-20), and Syria (2014-present). Each was limited enough not to exhaust the supply of volunteers needed.

But a different criticism of our all-volunteer force was raised that gave me pause. Our costly and futile war in Vietnam from 1955-75 was finally ended (without admitting the defeat it surely was) in response to the growing protests in the U.S.  No such protests were raised for our imperial adventures since then. Some observers began to point their fingers at the absence of a draft and thus a military/industrial complex better sheltered from public criticism. When we campaigned for the end of the draft and an all-volunteer military, we assumed that we needed to maintain an Army for our defense. Instead, our military was deployed all over the planet (800 bases around the world) with sufficient restraint (generally) to avoid strong public push back.  “National defense”  If the average middle class family’s children were not being drafted to fight unnecessary wars in far off places, they were not as likely to complain about the billions of their taxpayer’s money being pumped into the military/industrial complex.  This was an unanticipated side effect of ending the draft that we had not anticipated.

Both former President Trump and President Biden expressed their intentions to end our forever wars and, at least in the case of Biden, to strengthen our capacity to deal with the world with diplomacy. We should wish him well. And we should urge Congress to reinstate the Weinberger Doctrine, which limited the use of U.S. forces to when vital U.S. interests were at stake, and only as a last resort. “A Biden doctrine starts to take shape”

You can read my experiences in Iraq in my book: “My travels to Baghdad” and my experiences in Afghanistan in my book: “My travels to Afghanistan”.

PS. Some how I forgot that I had written on this before with a somewhat different proposal: https://wcoats.blog/2015/01/23/the-all-volunteer-military-unintended-consequences-and-a-modest-proposal/

Israel and Palestine

Who started the feud between the Hatfields and the McCoys? Who is to blame? In the case of the new nation of Israel in the land of Canaan (Palestine) we might go back to Adam and Eve or more recently to the Balfour Declaration in 1917 (see the brief history in my book “Palestine-Oslo Accords-My Travels to Jerusalem”) to see where the feuding began.

Who started it?

But let’s start this current, tragic round of fighting with the Israeli police attacks on demonstrators “rallying against the forced expulsions of Palestinian families from the occupied East Jerusalem neighbourhood of Sheikh Jarrah…. At least 90 Palestinians were wounded on Saturday [May 8] during an Israeli police crackdown on protesters outside the Old City of Jerusalem, while another 200 Palestinians were injured on Friday when Israeli forces stormed the Al-Aqsa Mosque.” Al-Aqsa Mosque, known as the Dome on the Rock in English, is Islam’s third most sacred site. Muslims believe that Muhammad ascended to heaven from this site.

 “Jerusalem court delays Palestinian Sheikh Jarrah eviction hearing”

Israel’s Supreme Court “is reviewing a judgment to evict Palestinian families from the Sheikh Jarrah neighbourhood of East Jerusalem. Their homes sit on land that was owned by Jews before Jordan occupied the eastern part of Jerusalem in 1948. Israeli law allows the heirs of the original owners to reclaim property in East Jerusalem. Yet Palestinians cannot claim their former homes in West Jerusalem (or anywhere else in Israel). No wonder Palestinian residents of the city are always ready to protest.

“The injustices elsewhere are worse. Palestinians in the wider West Bank, like those in Jerusalem, have watched Israel confiscate land and build settlements on occupied territory, which is illegal under international law. They must also deal with Israeli checkpoints and an onerous permit regime. In Gaza more than 2m Palestinians have been cut off from the world by Israeli and Egyptian blockades since 2007, when Hamas grabbed control.” “The Economist: Only negotiations can bring lasting peace to Israel and Palestine”

That is the immediate background to the dozens of rockets launched by Hamas from Gaza starting on Monday (May 10): “Palestinian militants launched dozens of rockets from Gaza and Israel unleashed new air strikes against them early Tuesday, in an escalation triggered by soaring tensions in Jerusalem and days of clashes at an iconic mosque in the holy city.” “Israeli police Palestinians clash Jerusalem holy site”

At least 30 Palestinians, including 10 children, and three Israelis were killed as tensions in Jerusalem spread west toward the seacoast Tuesday. Israeli airstrikes flattened a multistory apartment building in Gaza and rockets fired from the Gaza Strip reached Tel Aviv in an unusually far-reaching barrage that sent residents of Israel’s largest city scrambling into bomb shelters.  “Israeli clashes Palestinians turn deadly Jerusalem tensions spread”

More concerning than the exchange of rockets between Gaza and Israel, is the sharp rise of violence between Arab Israelis in Israel and between Palestinians and Israelis throughout the West Bank.  A major problem is that there are no good guys on either side. “Most Israelis are comfortable with the ‘anti-solutionism’ of Benjamin Netanyahu, the prime minister, who shows little interest in pursuing a permanent settlement with the Palestinians….  Fatah, has not done much better in the West Bank. The party’s leader, Mahmoud Abbas, is in the 17th year of a four-year term as Palestine’s president. He seems concerned mainly with preserving his own power.”  “The Economist: Only negotiations can bring lasting peace to Israel and Palestine”

Critically, the United States has failed to promote Palestinian rights, giving one-sided support to whatever Israel does.

Sadly, the winners, if we can call them that, of today’s tragic fighting are the status quo leaders (Netanyahu, Abbas, and Hamas), who have failed to address the central issues of the coexistence of Israelis and Palestinians in the land of Canaan. War, or the threat of it, are historically tested instruments for strengthening public support of existing leaders.  In a recent report on the situation in Israel, the Human Rights Watch pronounced Israel an Apartheid state.  “Israel report apartheid” The Jewish diaspora are increasingly speaking up against the policies of Israel. The United States could make a major contribution by conditioning its very large financial aid to Israel on its respecting the rights of Palestinians.  “A New U.S. Approach to Israel-Palestine”  

I shudder to think what might be happening by the time you read this.

Hate Crimes

“The shooting deaths of eight people at Asian-run spas in Georgia this week triggered a vigorous national debate Thursday over whether the mass killing amounted to a hate crime.” “Georgia hate crime law-Atlanta shooting”  These deaths (and recent attacks on Asians more generally) raise several issues that I would like to explore. 1. What is the point of hate crime laws?  The poor ladies killed in this attack could care less what motivated Robert Aaron Long, the 21 year old shooter. 2. Whose fault is it? Let’s start with the shooter (and other attackers), please. 3. What should we do about it (beyond locking the shooter, and other attackers, up)?

What is the point of hate crime laws?

“Georgia State Rep. Chuck Efstration, a Republican who helped shepherd [Georgia’s Hate Crime] bill into law, said it was intended to allow for especially stiff penalties for crimes in which “the perpetrator’s prejudices and biases are attacks not only on the victims but on all of society.  Thank goodness law enforcement will have the ability to charge this as a hate crime if the facts support that,”   [op cit]

Georgia State University law professor Jessica Gabel Cino noted that: “The majority of the victims are women, and they are Asian. Those are two protected statuses.” And what if they hadn’t been?

Traditional laws do differentiate between first, second, and third degree murders, but if you plan to and succeed in killing someone, it didn’t traditionally matter whether you loved or hated the victim. I can understand why such information might be useful in exploring approaches to mitigating the risk of such future murders, but I don’t see its relevant to the guilt and punishment of the murderer. I do not support capital punishment, but Mr. Long should surely be put away for the rest of his pathetic life whatever motivated his killing spree.

According to Mr. Long, “he was on a mission… to stem his addiction to sex. The spas were ‘a temptation for him that he wanted to eliminate.’”  “What happened-Atlanta shooting”

In determining the length of a sentence, courts do pay some attention to the motive for a crime as well as the crime itself but a special category of “hate crimes” has always seemed troubling and unnecessary to me.

Whose fault is it?

In a free society of responsible citizens, we must never forget that in the first instance the fault for a crime rests with the criminal. But it is fair to ask what motivated the criminal. While Mr. Long’s horrible crimes do not appear to be motived by the hatred of Asian’s, there has definitely been an increase in verbal and physical attacks on Asians over the past year. Much of the press has been quite eager to point to the hate filled and divisive statements against China by former President Trump. While he is certainly guilty of poisoning public discourse on China, immigration, Muslims and related topics, it is an odd place to look first.

Animosity toward Asians, and Chinese in particular, arises in the first instance from the behavior of China (shorthand for the government of China — synonymous with the Communist Party of China). In fact, unfavorable attitudes toward China have skyrocketed around the globe over the last three to four years. “For our enemies we have shotguns explaining Chinas new assertiveness” Public attitudes toward China are lower in Australia and the U.K., for example, than in the U.S. and fell sharply well before the Covid-19 pandemic.  “China global reputation coronavirus”  Attitudes toward China began to deteriorate in the face of Chinese assertiveness in the South China Sea, violations of the one country, two systems agreement for Hong Kong, theft of intellectual property from the West, and treatment of the Uighurs in the Xinjiang region, to name a few. China’s suppression of information on the virus producing covid-19 pales in comparison to its bad behavior in other areas.

What should we do about it?

The world that objects to China’s behavior needs to stand together in pointing it out. Former President Trump’s stand-alone, bilateral approach was a failure. But it is very important when the U.S. and other governments criticize China to clearly differentiate the government of China from the Chinese people, whether citizens of China or the U.S. or elsewhere. It is the Chinese government–the Communist Party of China–that is misbehaving.

The distinction between a government and its people is important more generally. For example, those who criticize the misbehavior of the Israeli government toward the Palestinians in the West Bank and Gaza, are sometimes mistakenly accused of anti-Semitism–i.e., of being against the Jewish people. It is likely that many are reluctant to criticize the Israeli government for fear of being accused of anti-Semitism. As the Biden administration joins with other countries to criticize the misbehavior of the Chinese government, it must, and it is, clearly distinguishing the Chinese government from the Chinese people. And we, each one of us, must speak out at the sight of rude or inappropriate behavior toward Asians, or anyone else. ALL LIVES MATTER.

My Travels to Jerusalem

Palestine: The Oslo Accords before and after, My travels to Jerusalem By Warren L Coats (2021) Kindle and paperback versions available at: Oslo Accords: Before and After

An intimate account of the establishment of the Palestine Monetary Authority and related adventures by one of the International Monetary Fund’s post-conflict, transition economy monetary experts. From being stranded in the desert without a cell phone, to hearing the sound at breakfast of a suicide bomber, to meeting with Yasser Arafat, and Stanley Fischer of the Bank of Israel, the author shares his adventures in the land of Canaan over a sixteen year period.

The establishment of the State of Israel in 1948 in Israel’s ancestral homeland required dealing with Palestine’s existing residents. In the Six-Day War in 1967, Israel’s occupation of the territories given to the Palestinians when the United Nations first recognized the State of Israel (the West Bank and Gaza Strip) increased pressure to resolve that issue. The Oslo Accords offered a path to its resolution, based on an agreement between Yasser Arafat, representing the Palestinian people, and the government of Israel, to swap land for peace (the return of Palestinian lands in exchange for Palestinian recognition of the State of Israel and its right to exist in peace).

One of the elements of the Oslo Accords was the establishment of a central bank in the Occupied Territories. Between 1995 and 2011 Warren Coats lead or participated in the missions of the International Monetary Fund to assist the Palestinian Authority in establishing and developing the capacities of the Palestine Monetary Authority. This book recounts the highlights of his visits, which included meetings with Arafat, as well as Bank of Israel officials.

Previous Books

One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina by Warren Coats (2007)   Hard cover: One Currency for Bosnia

FSU: Building Market Economy Monetary Systems–My Travels in the Former Soviet Union By Warren L Coats (2020)  Kindle and paperback versions available at: FSU-Building-Economy-Monetary-Systems

Afghanistan: Rebuilding the Central Bank after 9/11 — My Travels to Kabul By Warren Coats (2020)  Kindle and paperback versions available at:  “Afghanistan-Rebuilding the Central Bank after 9/11”

Iraq: An American Tragedy, My Travels to Baghdad By Warren Coats (2020) Kindle and paperback versions available at: Iraq-American-Tragedy-My-Travels-Baghdad

Zimbabwe: Challenges and Policy Options after Hyperinflation by Warren L. Coats (Author), Geneviève Verdier (Author)  Format: Kindle Edition Zimbabwe-Challenges and Policy Options after Hyperinflation-ebook

Money and Monetary Policy in Less Developed Countries: A Survey of Issues and Evidence by Warren L. Coats (Author, Editor), Deena R. Khatkhate (Author, Editor)  Format: Kindle Edition Money and Monetary Policy in LDCs-ebook