Afghanistan passes key hurdle to release aid funds

Reuters News
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Posted: Oct 15, 2011 10:13 AM
Afghanistan passes key hurdle to release aid funds

By Hamid Shalizi

KABUL (Reuters) - The Afghan parliament, in a critical step for the release of blocked foreign aid funds, agreed on Saturday to start repaying the central bank for its bailout of Kabulbank, with a first installment of $51 million.

Only two lawmakers voted against the bill, which provides for the repayment of up to $825 million in total over eight years, according to a finance ministry statement on the vote.

Parliamentary approval of the repayment was a condition for renewal of an International Monetary Fund (IMF) support program, halted since last September when news of the Kabulbank crisis began to emerge.

Politically well connected Kabulbank had doled out hundreds of millions of dollars in unsecured and undocumented loans to Afghanistan's elite, including sitting ministers and a former warlord, before the dramatic discovery of the fraud last year.

Western officials described the bank as a "Ponzi scheme."

An IMF program is a critical seal of approval that most international donors say they want to see before they pledge aid, so the dispute has blocked millions of dollars of funds.

IMF staff have reached an agreement with Afghanistan on a three-year $129 million loan, which is expected to be considered by the fund's board in November.

To secure the IMF money, Afghanistan still has to follow up some commitments, and approval of the repayments to Da Afghanistan Bank, the central bank, was among the most critical.

"I want to thank Parliament for approving this very significant step in the path of resolution of the Kabulbank," Finance Minister Omar Zakhilwal said in a statement.

"Completing the last requirement to enter a new IMF program is an extremely significant milestone in transition to increased Afghan responsibility for security and development."

Zakhilwal said recently that the country had made progress toward re-establishing Kabulbank, the largest private lender in the country, after hiving off the bad loans.

"Fortunately, I can say now that the bank has got out of the danger zone," he told journalists in Kabul.

The finance ministry said in its statement on Saturday that $70 million of over $800 million in fraudulent loans issued by Kabulbank had been recovered, assets worth $110 million had been seized and a further $350 million of loans restructured.

Officials say they could ultimately recover close to 80 percent of the total loans, the finance ministry added, which is a more optimistic assessment than anti-corruption officials made earlier this year.

A senior anti-corruption official said earlier this year that with interest included, Kabulbank had about $926 million in outstanding loans, almost all of which was at risk.

Azizullah Luddin, chairman of the High Office of Oversight and Anti-corruption, said in May he was confident around $350 million would be paid back and that possibly an additional $250 million could be recovered.

Charges have been filed against two shareholders and seven bank officials and are expected to be filed against several other people, the finance ministry said in the statement, without giving further details.

(Additional reporting by Zhou Xin; writing by Emma Graham-Harrison, editing by Jane Baird)