Afghan update

The heart-breaking attack on Ukraine by Russian troops has distracted our attention from the tragic misrule (or failure to properly rule) of the Taliban in Afghanistan. An Afghan official I worked with over the last twenty years, who was able to leave Kabul on one of those final fights at the end of August 2021, sent me the following report on conditions in Kabul. I am not revealing his name for his safety and the safety of his family.

“The economy is getting worse day by day, businesses facing many problems, shopkeepers complain less sales, poor people hardly find one time meal, hunger is increasing, at DAB [the central bank], the payment system has been stopped, APS, FID and many other depts are paralyzed, they haven’t managed to print new banknotes, girls’ high school still closed, bomb blasts occurred in many mosques recently during Holy Month of Ramadan and only poor civilians killed, and many more problems.

God help people of Afghanistan.“

Indeed. Over the last twenty years Afghanistan gradually developed and strengthened its institutions of government. After toppling the elected government of Afghanistan, my hope, and the hope of the West, was that the Taliban would form an inclusive government that would build on that progress. It hasn’t happened. The new Taliban “government” has not even been able to solidify itself. If it fails, Afghanistan will suffer another (or continuing) civil war.  “Nation building in Afghanistan”

The former Canadian ambassador to Afghanistan, William Crosbie, commented that: “Hope is certainly receding that the TB will work towards a political settlement to make its military takeover a lasting peace. Our argument to those neighbouring countries and non-Western partners (e.g. China) has been that the TB regime is not sustainable as a Pashtun, TB clique relying on fear.  Quite apart from the economic devastation of a non-functioning government and private sector, the ethnic and tribal rivalries and other extremist groups will resort to the tactics that the TB used so effectively. And they will prove just as destructive.” 

God help the good people of Afghanistan.

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.

My travels to Afghanistan

Afghanistan: Rebuilding the Central Bank after 9/11 — My Travels to Kabul

By Warren Coats

Kindle and paperback versions available at:  “Afghanistan-Rebuilding the Central Bank after 9/11”

Watching the collapse of the twin Trade Towers in New York on September 11, 2001 on the TV in my hotel room in Bratislava, I never imagined that I would be in Kabul several months later and spend 212 days there spread over 19 trips from January 2002 to December 2013 to help modernize Afghanistan’s central bank–Da Afghanistan Bank (DAB). I learned more than I taught and share the highlights in this book. I became friends with many wonderful Afghan people, and bonded with my IMF team members. DAB was almost completely rebuilt. Watching its eager young staff mature into effective managers was a joy. Whether it will last in Afghanistan’s uncertain political and cultural environment is an open question.

I learned as much as I could about Islam and its internal struggle to denounce Islamism (radical Islamic fundamentalism). I share details of the collapse of Kabulbank, Afghanistan’s largest bank, and the corruption surrounding it and its resolution. The IMF’s presence and work in Afghanistan was not without tragedy. The IMF’s resident representative, in whose guest facilities we stayed, was killed in a terrorist attack. And I learned much about walls.

Previous Books

One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina

by Warren Coats (2007)   Hard cover: One Currency for Bosnia

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

The weekend in Kabul

Friday is the “weekend” in Muslim countries. Thursday afternoons people (who have jobs) tend to leave early. This Thursday our IMF team scheduled no outside meetings in order to work in the Guesthouse on drafting our report. Around 2:00 pm I decided to stop fighting my drowsiness and take a short nap. As I was about to stretch out on my bed, I heard a loudspeaker announce: “Duck and cover, duck and cover. Stay away from windows” which was repeated several times. I was too sleeping not to nap but decided to lie down on the floor next to the bed so as to be out of sight of the window, which in any event has shatter proof glass.

I had invited Scott Brown, now with USAID here in Kabul, for dinner at the Guesthouse for Thursday evening. Scott and I had first met in Sarajevo, Bosnia and Herzegovina in 1996. We had both worked in Kosovo and Iraq as IMF staff as well. When the Canal Hotel (UN headquarters) in Baghdad was bombed in 2003, which started the deterioration of security in Iraq, Scott was seriously injured and largely lost the use of one of his arms. During dinner I mentioned the Duck and Cover announcement during the afternoon and he explained that it was the weekly practice drill at the U.S. Embassy (a few blocks away).

Today, Friday, is a beautiful sunny day. I was able to take an afternoon break from our work to sit out in the yard and smoke one of the Cuban cigars given to me by the Swiss National Bank (SNB) the previous week following a twenty year anniversary of the Swiss membership in the IMF and participation in its technical assistance program. The SNB’s first undertaking with IMF technical assistance was my mission to Kyrgyzstan and the National Bank of the Kyrgyz Republic in 1992. I was join for cigars by three other members of our team before we returned to the drafting of our report, suspending our work at midnight until tomorrow morning (good night).

A story of travels to Kabul and a suitcase

Starting in January 2002 my flights into and out of Kabul where on the United Nations Humanitarian Air Service (UNHAS) charter planes between Dubai or Islamabad and Kabul. I would land in Dubai or Islamabad on a commercial flight, pick up my bag and check into a hotel with my other IMF colleagues for the UNHAS flight the next day. In Islamabad we stayed in the Marriott (since blown up by terrorists) and in Dubai we stayed in any number of first class hotels.

Departure the next day was from a remote part of the airport in Dubai or Islamabad to a remote part of the airport in Kabul. The idea of checking my bag through to Kabul for the convenience of not having to go through immigration to pick it up and recheck it (I was almost always in a rush to get there with no time to stop over anywhere) was a number of years off.

With the advent of commercial flights into Kabul and the ending of the UNHAS flights three or so years ago, our Dubai departures (we had given up on Islamabad after the bombing of the Marriott) moved from the small old Terminal 2 to the big modern Terminal 1 (I always found this numbering confusing). However, it was still not possible to check our bags through to Kabul. We had to wait in the immigration line, then wait while the generally unsmiling Arab immigration officer examined, then stamped, our passports, go pick up our bags, and re check them with Safi Airways, re-emigrate and fly on. The immigration officers, by the way, where just about the only Arabs I encountered in the UAE in a working capacity. Cab drivers, porters, hotel clerks, restaurant waiters and virtually everyone else who serviced us in any way were Filipinos, Indians, Pakistanis and sometimes Bangladeshis.

More recently, agreements were struck with United, BA and other airlines and Safi Airways that make it possible to check our bags through from Washington to Kabul. Thus in Dubai I could go directly from my arriving flight to the departure lounge of Safi without immigrating (i.e. transit). Shoppers will enjoy the massive collection of shops and goods in Dubai’s mammoth airport, but I am not one of them. Most of our IMF team choose to hang out in the airport for the 4 or 5 hours between flights rather than enjoy the sterile splendor of modern Dubai. Some of my colleagues worried about the risk of losing their bags if they checked them all the way through, but I preferred to take the risk in exchange for the convenience and never had a problem until the day before yesterday.

For some reason that I do not understand the check through arrangement does not seem to work in reverse. It is not yet possible to check my bag from Kabul to D.C., though there is some confusion about this. My return home from Kabul yesterday illustrates this point.

After a year of difficult and inconclusive negotiations with the authorities, our IMF team finally agreed with the authorities on a program that we thought our Executive Board could support. The measures that had been taken and were agreed to be taken to resolve the failure of Kabul Bank (potentially the largest bank fraud per capital in history) had been the main stumbling block. The amazing and shocking history of Kabul Bank is set out in detail in:

As the prospect of an agreement became clear, our short five-day visit to Kabul was coming to a close, so we delayed our early Thursday morning departure until Thursday evening. To add an extra hour and a half to the time available to us (my colleagues had gone with only a few hours sleep for the last three days as it was), the Finance Minister (our negotiating counterpart) arranged for our boarding cards to be issued and bags to be checked in the VIP lounge before we left for the airport. One of his aids collected our passports and bags and my hopeful instruction to check my bag through to Washington. When he returned to the IMF guesthouse with our boarding cards and baggage claims, he also had a bill for me for $85 for the check through arrangement. It was worth it to me not to have to recheck my bag in Dubai.

We successfully concluded the negotiations, held a donor briefing (World Bank, USAID, DFID, ADB, ISAF, UN, and others), issued a press release from Washington,, and headed for the airport. I must say that it almost made flying enjoyable again to be driven through security up to the VIP lounge (rather than having to drag our bags from a remote parking lot), skipping all the security, emigration, and check-in lines. We boarded soon there after and three hours later deplaned in Dubai.

As we entered the terminal, I was expecting to immigrate and head to the local Hilton for a good night’s sleep. But just inside the door stood someone holding up the unexpected and unwanted sign: “Coats, Jr. Warren L.  Why was I being stopped, I asked? “Follow me please.” To make a confusing story short, a reception service had been engaged to take me passed the long immigration lines to the baggage carousel and arrange for my transportation to the Hilton. As this was not what I had paid for nor wanted (though skipping long immigration lines is always appreciated), and the young lady escorting me around had her own instructions, considerable confusion ensued as we walked from one place to another until it became VERY clear that I would not be able to recheck and leave my bag there until I returned in the morning. So be it. I had a good sleep at the Hilton with my bag at my side and lugged it back to the airport in the morning and was soon on my way to London and home.

I use to hate going through London’s Heathrow airport, but with the addition of BA’s Terminal 5, I rather like it. So my three and a half hour lay over in Terminal 5 passed pleasantly (the BA wi-fi pass word for the day was “Singapore”). On the nine-hour flight from London to DC, I watched one movie, and slept the rest of the way, skipping dinner.

My suitcase drama had one more chapter. When I arrived in DC, it didn’t.  In addition, the BA office at Dulles was closed (typical British service) and its mix of automated and live human telephone service was unpleasant. Nonetheless, my bag was delivered to my door one day later (last night), in time for a quick repack and departure for Grand Cayman this morning for this quarter’s meeting of the Cayman Financial Review’s Editorial Board meeting.