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Afghanistan will receive new reserves, but it will not be able to use them – the IMF

The International Monetary Fund said that the new government in Afghanistan is cut off from using fund reserve assets days before the nation was set to receive almost $500 million, depriving the Taliban of key resources.

The country has been in line to automatically receive new reserves, known as special drawing rights or SDRs, on Monday as part of a recently approved IMF plan to inject $650 billion of liquidity into the troubled global economy. While Afghanistan will still receive the assets, it won’t be able to use them because the new regime lacks international recognition, the IMF said.

“As is always the case, the IMF is guided by the views of the international community,” an IMF spokesperson said by email Wednesday. “There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access SDRs or other IMF resources.”

By the IMF’s rules, all 190 members get the assets allocated on their balance sheets, with the total divided roughly proportionately based on their share of global economic output. For Afghanistan, that’s 0.07% of the total, or $455 million. The vast majority of nations will be allowed to exchange the reserves for cash to pay debt or provide fund pandemic health spending.

But Afghanistan is suspended from doing so, joining a small set of countries, including Venezuela and Myanmar, who will receive the assets at the IMF but be unable to control them due to a lack of international recognition.

That’s a blow to the new Afghan government in a nation that despite U.S. efforts over 20 years to boost the economy and banking sector remains largely in a primitive state. Almost three-quarters of the country’s nearly 40 million citizens live in rural areas, while a majority of the banks are in the three major cities, according to World Bank data.

The Afghan currency isn’t accepted for cross-border trade, leaving the nation dependent on U.S. dollars and an informal transfer system used frequently in the Muslim world known as hawala. The centuries-old trust-based method of moving cash underpinned international trade throughout the Middle East and South Asia before the advent of modern banking. It continues to be a central part of the financial system in many of those countries, particularly in Afghanistan.

The Biden administration had been taking steps to prevent the Taliban from being able to use the IMF-allocated reserves, according to a Treasury official. A group of 18 Republican lawmakers also wrote to U.S. Treasury Secretary Janet Yellen and asked her to intervene at the IMF to prevent the Taliban government from using the reserves.

The U.S. has frozen nearly $9.5 billion in assets belonging to the Afghan central bank and stopped shipments of cash to the nation, an administration official confirmed on Tuesday. Any central bank assets that the Afghan government has in the U.S. will not be available to the Taliban, which remains on the Treasury Department’s sanctions designation list, the official said.

Among the issues that Afghanistan needs to resolve is leadership of the central bank. Ajmal Ahmady, the governor of Da Afghanistan Bank, or DAB as the institution is known, fled the country earlier this week. DAB has $9.5 billion in assets, a sizeable portion of which is in accounts with the New York Federal Reserve and U.S.-based financial institutions.

“The government isn’t recognized, and that will take a while to sort out,” said Mark Sobel, a former U.S. representative to the fund’s executive board and longtime Treasury Department official now at the Official Monetary and Financial Institutions Forum.“Even then, I don’t know that there’s a central bank governor or someone who the IMF can call up and deal with. There’s no way that gets sorted out in the next few weeks.”

While the U.S. can’t unilaterally change the recognition of a country within the international community, the nation is by far the IMF’s biggest shareholder, with 16.5% voting share, almost three times the sway of Japan and China, the next biggest. American views often carry significant influence at the Washington-based fund.

U.S. Secretary of State Antony Blinken may be pressuring other nations not to recognize the Taliban. He spoke with counterparts in both China and Russia on Monday following reports that the two nations were open to working with the Taliban.

China provided the Taliban a crucial boost of legitimacy in late July when it endorsed the organization’s “important role” in governing Afghanistan. But in talks with the Taliban and Afghan government last week, the administration of U.S. President Joe Biden underscored that it, along with its partners, won’t grant legitimacy to any government that takes over the country by force.

In terms of gauging international recognition, the IMF often relies on the United Nations as a reference point, though it can also poll members directly for their viewpoints, Sobel said.

“It is extremely unlikely that the Taliban will have access in the immediate term to the SDRs in a usable form — meaning the ability to access them and exchange them for dollars, euros or otherwise,” said Douglas Rediker, another former U.S. representative at the IMF executive board and a senior fellow at the Brookings Institution.

“If the Taliban becomes both the de facto and de jure government of Afghanistan, in full control of the instrumentalities of power, then it will be difficult for the IMF to deny them access to the SDRs,” Rediker said. “But that does not mean that there won’t be huge efforts to avoid that outcome.”

Source: Bloomberg

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