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Taliban releases this photo on Tuesday Jan 11, 2022 showing its Acting Minister of National Defense Rumi Mohammad Yaghoub Mojahed (right) attends a parade of Air Force helicopters in Afghanistan.
Afghanistan’s never-ending crisis
Afghanistan has now become what the UN is labeling the planet’s worst humanitarian disaster. Indeed, last week the world body issued its largest-ever donor appeal for a single country to battle the worsening crisis there, caused by freezing temperatures, frozen assets, and the cold reception the Taliban have received from the international community since they took over last summer.
At immediate risk are 24 million people — more than half of the Afghan population — who need humanitarian assistance to survive. That’s an increase of 30 per cent from last year. Meanwhile, 700,000 people have been internally displaced by violence since 2021, mostly women and children. Afghans, already among the largest refugee populations in the world, are leaving in droves, but getting a cold reception in neighboring countries as well as in an uneasy Europe.
The regional stakes are getting higher.ISIS-K, an offshoot of the broader Islamic State movement that expanded to Central Asia and South Asia, remains a threat. Attacks by local Taliban in neighboring Pakistan are picking up. Iran, which houses remnants of the previous regime, is moving closer to the Taliban. Turkmenistan and Uzbekistan are exchanging threats with Kabul’s new rulers over military equipment or militant training camps, depending on who you ask.
This, as China sustains a secretive dialogue for mining contracts, but with a tepid interest in rescuing the Afghan economy.
But the economy needs more than rescuing. Atrophied by drought and COVID, it lies tattered by its dependency on foreign aid, which has mostly evaporated. The damage is worse than expected, for the country has suffered an immediate GDP contraction of an estimated 40 per cent since the Taliban takeover.
As the population approaches the mark of near-universal poverty, a liquidity crunch has paralyzed banking, health, and education. Public-sector employees haven’t been paid in months. Taliban soldiers, victorious in the battlefield, now protect ATM machines and food queues. The rich are selling their valuables. The poor are selling their organs. The destitute are selling their children.
Some claim that there’s a silver bullet available. If the U.S. releases the $7 billion of Afghan foreign reserves it still holds, and greenlights the Europeans to unfreeze the $2.5 billion held by them, then Afghanistan will be saved from starvation and death. But the problems ensnaring the country’s broken financial system are more complicated, and need more than just humanitarian aid.
US sanctions remain the single biggest question mark about how the world will deal with Afghanistan. For one thing, several Taliban leaders are still designated as terrorists, which means anyone who deals with them can be subject to criminal or civil penalties.
For another, the recent humanitarian exemptions granted by the US to get emergency aid to Afghanistan are not enough to address the larger problem: that Afghanistan remains cut off from the global financial system, which means that international bankers, investors, and even NGOs cannot get money into the country without violating US sanctions.
Also, the Taliban are still international pariahs. Though they have requested the unfreezing of Afghanistan’s assets, they haven't done much to gain international sympathy since they assumed power, and remain unrecognized diplomatically. They continue to deny women jobs and girls education, clamp down on journalists, and kill members of the former government.
While they’ve reneged on their promise of evacuations, the Taliban also pick fights with their neighbors and train suicide bombers.
Even if the sanctions are lifted and the funds are freed by some miracle of international consensus, the Taliban must ask themselves a tough question: do they actually have the capacity to emerge as rulers of Afghanistan and help their people?
As the journalist and author Ahmed Rashid told our own Ian Bremmer: they can rule, but they can’t govern.Flags of the U.S., Canada and Mexico fly next to each other in Detroit, Michigan, U.S. August 29, 2018.
What We’re Watching: Three Amigos reunion, Taliban are broke
The "Three Amigos" at the White House. On Thursday, Joe Biden will host the first US-Mexico-Canada summit since 2016, when Donald Trump scrapped the regular "Three Amigos" gathering, as it's known. This year the trilateral summit will focus on deepening economic cooperation among the three members of NAF— sorry, the "USMCA" free trade area. But expect Biden to get an earful from Canadian PM Justin Trudeau and Mexican President Andrés Manuel López Obrador about the "Buy American" aspects of his Build Back Better agenda, which could hurt Canadian and Mexican exporters. In particular, the Canadians and Mexicans are worried about Biden's plan to give tax credits to US-made electric vehicles. It's another example of how green policies can often raise red flags about protectionism as countries vie for leadership in climate-friendly technologies. We'll be watching to see how the three leaders iron out their differences, and also whether Steve, Chevy, and Martin show up for laughs.
Do the Taliban even need US recognition?
Back in August, when the Taliban took over, we asked whether anyone in the international community would recognize them. Now it looks like things are heading that way.
This week, the Kremlin hosted a summit with the Taliban that was attended by China, India and Pakistan, as well as all five Central Asian Republics.
The domestically-focused US, however, wasn't there. The US continues to maintain that the Taliban can't be trusted. But does it matter? In 2021 does a Taliban-led government even need American recognition to function and thrive?
Background: who's willing to recognize the Taliban?
Regional powers like Russia and China have suggested they'll recognize the Taliban, provided that the group safeguards their respective interests.
A pragmatic and increasingly ambitious China wants two things: access to Afghanistan's mineral wealth, and an opportunity to build bridges and roads across the country as part of its vision to crisscross Asia with Chinese infrastructure. Russia wants to ensure the Taliban don't give safe haven to militants targeting Russia and the Muslim-majority former Soviet republics in Central Asia.
The isolated Taliban will surely want Beijing's infrastructure investment – and the job creation that goes with it. And while it's unclear how much economic influence Russia has on the ground, Moscow has emerged as the key power-broker in recent months, suggesting it does have diplomatic clout as it tries to maintain good relations with the new government in Kabul.
Moreover, Pakistan has long enjoyed close ties with the Taliban, while Turkey has been cozying up to the Taliban as part of its effort to expand its influence in Muslim-majority countries, and stop an influx of Afghan refugees arriving via Iran. India – worried that a Taliban-controlled Afghanistan would help its arch-nemesis Pakistan launch attacks against it – wants to maintain solid relations with Kabul as well.
But… does the Taliban-led government even need the US' endorsement to function?
To a certain degree, yes. The US dominates the global financial system, with some two-thirds of international trade and lending done in US dollars. It also has sufficient control over the SWIFT system, which allows financial institutions and banks to safely transfer money around the globe. Indeed, blocking countries from this network can be extremely painful (just ask the Iranians).
The US has also used its clout at international organizations like the IMF and the World Bank to compel these institutions to suspend projects and payments to Afghanistan in recent months. Additionally, there is still some uncertainty about how US sanctions might apply to a Taliban-run Afghanistan. Anyone caught doing business with Taliban-administered banks might face the risk of sanctions, as is the case with Iran. This is hardly a solid PR ploy to attract outside investment.
What's more, the bulk of Afghanistan's foreign reserves – more than $9 billion – are tied up in US banks, and Washington has ensured that the Taliban only have access to a meager 0.1-0.2 percent of this stash. Even before the takeover, the country's economy was slated to shrink because of the pandemic. Now, a depreciating currency as a result of a cash crunch and falling imports is making matters worse: the IMF recently warned that the state's GDP could shrink by 30 percent this year.
Still, the Taliban can get support and aid from other places. Indeed, the Islamist group could turn to regional development banks for disbursements like the Beijing-led Asian Infrastructure Investment Bank, which the US is not a member of, as well as the Asian Development Bank that already has extensive operations in Afghanistan.
And if all else fails, there's always opium. The Taliban have made a mint from opium production in recent years, with the group accounting for around 85 percent of the global supply. Illicit mining activities have also proven to be a cash-cow, as has the side hustle of selling US-made weapons and vehicles left behind amid the chaotic American withdrawal.
Looking ahead. For all the banter about America being in decline, Uncle Sam still pulls (most of) the levers of power in the global financial system. The Taliban can find alternative sources of support and income – but it certainly won't be easy.
Taliban, Afghan people face economic collapse, says former central bank chief
With Afghanistan's US-held assets and most foreign aid frozen, the currency in freefall, bank cash withdrawals limited and food prices surging, former Afghan central bank chief Ajmal Ahmady says the Taliban could soon run out of money to run the country. When that happens, they'll have to cut services, so "the Afghan people are undeniably going to be hurt."
Watch his interview with Ian Bremmer on a new episode of GZERO World, airing on US public television starting Friday, September 3. Check local listings.