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International relations

Cash for Kabul? Washington split on releasing billions to Taliban

Biden pressured to keep hard-line group out of global financial system

Taliban soldiers stand in front of a sign at the international airport in Kabul, Afghanistan, on Sept. 9.   © Reuters

NEW YORK -- Political divisions are emerging in Washington over how to use the U.S.'s financial leverage over the Taliban government in Afghanistan amid warnings that the country faces an economic and humanitarian disaster.

While some in the policy establishment argue that freezing the regime out of international aid programs risks further harming the Afghan people, conservative lawmakers say there should be no letup in the financial pressure on the Islamist group.

The debate has potentially far-reaching implications because the U.S. acts as the effective gatekeeper of the global financial system. It is the fiercest enforcer of sanctions on the Taliban and the most powerful shareholder in the World Bank and the International Monetary Fund, which both halted assistance to Afghanistan in the wake of the Taliban takeover.

Of the $9 billion the Afghan central bank holds in international reserves, roughly $7 billion are kept at the U.S. Federal Reserve, then-central bank Gov. Ajmal Ahmady tweeted in mid-August.

"We're seeing a cash crunch hitting Afghanistan at a time when it can least afford it," said Elizabeth Threlkeld, a senior fellow and the deputy director of the South Asia Program at the Stimson Center, a Washington think tank. "This is a challenge for the future Taliban government, and for policymakers in Washington and elsewhere," she said.

Cutting off access to development assistance and foreign reserves is "a double-edged sword," where any leverage that Washington attains over the Taliban "also hits the Afghan people in their pocketbooks at an already challenging time," Threlkeld said.

International aid flows accounted for more than 40% of Afghanistan's gross domestic product in 2020, according to the World Bank, and the Taliban's seizure of power has been marked by inflation; the shutdown of basic services; an exodus of refugees; and the dissolution of the Afghan National Defense and Security Forces, one of the nation's largest employers.

The U.S. Treasury has signaled that aid groups will be able to operate in Afghanistan under waivers to the sanctions regime against the Taliban, but some Democratic lawmakers have called for more clarity.

"The Taliban has been a Specially Designated Global Terrorist Group (SDGT) since 2002," a group of Democratic senators and representatives led by Sen. Dianne Feinstein of California told Treasury Secretary Janet Yellen in a letter last week. "Now, with the Taliban consolidating power, the legal restrictions that accompany this designation are having a chilling effect on the humanitarian sector and may significantly impede the delivery of vital life-saving aid in Afghanistan during this critical time."

U.S. Secretary of State Antony Blinken said Wednesday that the Taliban would have to earn international legitimacy by their actions, "and in our judgment, it cannot be earned quickly."

Conservative lawmakers last week called on the administration to rule out any relaxation of the financing freeze on the Afghanistan government. "We can and should work to establish alternative means of supporting the Afghan people, but we cannot allow any resources to be used to bolster an oppressive Taliban regime," Republican Sens. Marco Rubio and Rob Portman wrote in a letter to Yellen. They said that the central bank reserves should not be released and that the U.S. should "intervene" at the IMF to ensure that $450 million in Special Drawing Rights reserves for pandemic recovery remain blocked.

Republican Sen. Marco Rubio wrote to Yellen that Afghan central bank reserves should not be released. "We cannot allow any resources to be used to bolster an oppressive Taliban regime," he and fellow Sen. Rob Portman said in the letter.   © Reuters

Adnan Mazarei, a nonresident senior fellow at Washington's Peterson Institute for International Economics and a former deputy director at the IMF, sees little immediate prospect of the funds being made accessible. "It is not an automatic switch of monies to resume a program," he told Nikkei Asia.

"There has to be a new understanding of the situation on the ground," Mazarei said. "There has to be an international recognition. And there has to be an understanding on the economic policies and practices of any new government."

The political debate has intensified this week after the Taliban named an all-male, cleric-heavy caretaker cabinet with many members under United Nations sanctions -- and an interior minister wanted in the U.S. in connection with a deadly 2008 attack on a Kabul hotel.

"To cede Afghanistan to the Taliban is one horrible thing, but to provide recognition, legitimacy and support to the Taliban is right out of the Twilight Zone," said Richard Goldberg, a senior adviser at the Foundation for Defense of Democracies, a hawkish Washington think tank.

"Move immediately to sanctions, so that the Taliban's access to hard currency is as limited as possible," he said. "All the steps you'd take normally to reduce terrorist access to resources should be taken here."

Russia has already expressed its opposition to freezing Afghanistan's funds, warning that an economically cornered Taliban will be driven to depend on the drug trade. The Group of 20 is emerging as a possible platform for resolving some of the issues, with China potentially a key player. Pakistan, which is bearing the brunt of the refugee crisis and already hosts more than 3 million Afghan nationals, has suggested a Marshall Plan-style fund for Afghanistan.

Mazarei of the Peterson Institute predicted that different countries will resume aid programs at different rates as a consensus on the Taliban's legitimacy remains elusive.

"Europe is more at risk of refugee flows than the United States," he said. "So they would have incentives for a quicker reestablishment of some level of aid."

On the new caretaker cabinet, Mazarei said: "Regrettably, they have put in place a very 'Taliban-like' government, for lack of a better word. Without any inclusion, without any aid of using technical skills from other Afghans, I don't expect them to be able to quickly address the concerns of the international community, either about security or about human rights."

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