U.S. President Joe Biden’s Executive Order to unfreeze $7 billion of Afghanistan’s $9.1 billion in foreign reserves has drawn angry rebukes from critics both within and outside of Afghanistan. While the decision potentially releases $3.5 billion to be used to address the unfolding humanitarian crisis in Afghanistan, the other half would remain in the U.S. for now and could be claimed by relatives of victims of the 9/11 attacks, subject to judicial review.
The Taliban swiftly denounced the order, repeating longstanding demands for the immediate release of all the former Afghan government’s foreign-held Central Bank reserves and accusing the U.S. of demonstrating “the lowest level of human and moral decay of a country and nation.” Others from across the political spectrum, many unsympathetic to the Taliban, have likened it to theft and blasted Biden’s decision as “immoral and inhumane.” U.N. representatives in Afghanistan have called for the reserves to be released in full, putting “as much money, Afghan money, as possible back in the Afghan economy” at the “earliest time.”
The White House has justified the move by saying that it will “provide a path for the funds to reach the people of Afghanistan, while keeping them out of the hands of the Taliban and malicious actors.” While the PR surrounding this announcement has been clumsily handled, it is true that this policy breaks a months-long deadlock about whether and how to release the frozen funds in the wake of the Taliban takeover of Afghanistan. However, it is unlikely to please anyone involved.
First, the legal claim of the 9/11 plaintiffs is by no means airtight. While the Taliban was allied with al-Qaida at the time of the attacks, Afghanistan’s foreign reserves were not created or owned by the Taliban and did not exist in significant quantities prior to 2001. To be fair, the Biden administration has since tried to clarify that the ultimate fate of the frozen reserves is still subject to a court decision and re-emphasized its continued support for Afghanistan. But the damage is already done.
Although the final outcome is still pending, what is certain is that Biden’s decision delivers a moral victory to the Taliban, which can now use the U.S. as a scapegoat for public anger about the worsening humanitarian situation. Those concerned that aid to Afghanistan will be seized and misused by the Taliban should worry about the precedent set here, which may embolden its members to retaliate in kind.
However, critics who demand that the reserves be released in full and redirected to pay for humanitarian relief and salaries for public sector workers are also wrong. Afghanistan’s foreign reserves are not interchangeable with humanitarian aid, nor should they be used to finance government expenditures or projects. In accordance with Afghan Central Bank Law, they must be maintained at levels sufficient to safeguard macroeconomic and price stability.
Over the past 20 years, Afghanistan has steadily expanded its foreign reserves from a paltry $500 million in 2002 to $9.1 billion today, according to Abdul Qadir Fitrat, a former Central Bank governor. Reallocating these funds to the humanitarian sector may provide short-term relief, but the rapid depletion of Afghanistan’s foreign reserves will risk destabilizing its already fragile currency, triggering inflation, and compounding the economic woes of ordinary people in Afghanistan.
While donors are right to continue delivering targeted humanitarian aid from other sources, they should also refrain from supporting more ambitious proposals to underwrite the operating costs of the Afghan state, including public sector salaries. In the first three months following their takeover of Afghanistan, the Taliban collected an estimated $400 million in revenue, which is sufficient to cover these costs — even without taking into account additional incomes the Taliban collect from informal economic activities, including drugs and illegal mining operations.
The Taliban have been collecting these revenues for months. Nonetheless, public services remain starved of funds, and most civil servants remain unpaid. Where has the money gone instead? It is impossible to know as the Taliban have not made their expenditures over the past six months public, but it is reasonable to presume that much of it has been diverted into the security sector – including compensation to the families of suicide bombers.
It is not surprising that the Taliban have resisted financing the salaries of many public servants until now, given the receptiveness international donors have shown to picking up the tab. These donors may believe that underwriting the costs of public services will provide them some leverage over Taliban policies in these areas. That is highly unlikely. The U.S. and its allies frequently struggled to enforce conditions on the former Afghan government, which was far more aligned in values. It is also not clear how donors plan to improve monitoring and avoid chronic issues such as payments to non-existent “ghosts” this time around.
To be clear, there is plenty that the international community can do to help improve the devastating situation in Afghanistan. They should continue distributing humanitarian aid on an unconditional basis and supplement critical government operations such as health services with additional emergency support as needed. Aid programs with a clear humanitarian benefit, such as demining and polio eradication, should continue. But donors should make it clear to the Taliban that financing the core operational costs of the state is their responsibility.
As for the reserves, while some economists have advocated for limited amounts to be released to Afghanistan’s Central Bank to help stabilize the economy in the immediate term, it is not clear how these disbursements could be realistically monitored. In any case, until there is more certainty about the long-term nature and stability of the current regime, the most sensible option for now is to keep the majority of Afghanistan’s reserves abroad.
Should the 9/11 plaintiffs win, the U.S. should guarantee that it will replace the lost funds with supplementary payments to Afghanistan’s foreign reserves. This is probably the only way the Biden administration can claw back some moral high ground and put this festering issue to rest.