IMF

Adviser: IMF stops payment over Afghan bank crisis

AP News
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Posted: Jun 17, 2011 7:43 AM
Adviser: IMF stops payment over Afghan bank crisis

The International Monetary Fund stopped an expected $70 million reconstruction payment to Afghanistan over concerns about its lax financial oversight following the near-collapse of the nation's largest private bank, a government adviser said Friday.

The halted payment shows the displeasure of the IMF and other international donors as Afghan officials have yet address the continued turmoil surrounding Kabul Bank, which handles the pay for government workers, soldiers and police in Afghanistan.

If donors remain unsatisfied, that could halt the billions of dollars that flow into a country reliant on foreign aid and fighting a resilient Taliban insurgency.

"It is a problem for the government. It is a problem for the country," said Najib Mamalai Ajid, a senior adviser for the Afghan finance minister.

Ajid told The Associated Press that officials expected the IMF to stop the payment.

The Afghan had government offered a series of proposals to overhaul its financial system following the Kabul Bank crisis. Those plans apparently did not satisfy the IMF, whose officials could not be reached for comment in Afghanistan on Friday, a government holiday.

New proposals to overhaul and provide financing will go before the Afghan parliament in coming weeks, Ajid said.

The Kabul Bank crisis began last year, as the public discovered the bank made hundreds of millions of dollars in questionable loans to shareholders _ including the elder brother of President Hamid Karzai. Some used the loans to buy luxurious mansions in Dubai, United Arab Emirates. Others used the money to invest in risky prestige projects like an airline and shopping malls in Kabul.

Many of the loans were made "undocumented," so there was no system to ensure they were paid back.

A report by Afghanistan's anticorruption office released last month showed about $467 million of outstanding loans were made without appropriate documentation or collateral. A recent USAID inspector general report estimated that fraudulent loans diverted $850 million to bank insiders.

Regulators swooped in and later split the bank between good loans and bad loans. A government report blamed the bank's near collapse on regulators at the Afghan central bank. The central bank chief said he asked for forensic auditing help from the IMF and the U.S. Treasury Department as soon as he heard about the scandal.

A halt in international donations could be disastrous for Afghanistan. The U.N. has said some $70 million in spending for government activities could be withheld without IMF support. The World Bank says 97 percent of the gross domestic product in Afghanistan is linked to spending by the international military and donor community.

The IMF, international allies and the central bank chief have called for criminal prosecutions over the loan scandal. However, an investigatory commission said that any decision on whom to charge will be made by Karzai.

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Associated Press writer Amir Shah contributed to this report.

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Jon Gambrell can be reached at http://www.twitter.com/jongambrellAP