US Economic Policy in Afghanistan Doomed it: From Dogmatic Privatization to Neglect of Rural Sector

(By Graciana del Castillo via The Boston Review)

. . . The promises made by President Bush in April 2002 to help rebuild Afghanistan in the tradition of the Marshall Plan created high expectations among the Afghan population after the rout of the Taliban and the Bonn Agreement of December 2001. But despite costly international efforts, Afghanistan has relapsed into conflict and become one of the most aid-dependent countries in the world. The failure of peace negotiations with the Taliban, the upcoming presidential elections in April 2014, and the impending complete withdrawal of U.S. and NATO combat troops by the end of this year have contributed to uncertainty and instability in the country. Meanwhile, the population has grown to 33 million (from around 23 million in 2002), and the economy remains highly dependent on drugs, imports, and aid.

Afghanistan is not unique, of course. The success rate of peace transitions in countries torn by civil war since the end of the Cold War is dismal: roughly half the countries that embarked in a multi-pronged transition to peace involving security, political, social, and economic reconstruction—either through negotiated agreements or military intervention—have reverted to conflict within a few years. Of the half that managed to maintain peace, a large majority ended up highly dependent on foreign aid. What can the history of the last two decades teach us about how to improve international assistance to Afghanistan and to other countries coming out of conflict in the Middle East and North Africa?

One thing that recent history teaches us is that, because economic reconstruction takes place amid the multifaceted transition to peace, it is fundamentally different from development in countries not affected by war. Economic reconstruction has proved particularly challenging because Afghanistan must reactivate the economy while moving away from the economics of war—that is, the underground economy of illicit activities (drug production and trafficking, smuggling, arms dealing, extortion,etc) that thrives in situations of war and makes the establishment of governance and the rule of law extremely difficult. To succeed, economic reconstruction requires peace-building activities like the reintegration of former combatants, returnees, and other conflict-affected groups into productive activities, as well as rehabilitation of services and infrastructure. As John Maynard Keynes argued at the end of World War I, the economic consequences of building peace are high. The imperative of peace consolidation competes with the conventional imperative of development, putting tremendous pressure on policy decisions, especially budgetary allocations. Because there cannot be economic stability and long-term development without peace, it follows that, to avoid a relapse into conflict, peace should prevail as the main objective at all times—even if it delays the development objectives.

Another thing we learned from recent history is that economic policymaking in war-torn countries at low levels of development requires a simple and flexible macroeconomic framework. . . a simpler framework would have required less foreign expertise (reducing the distortions created by such presence) and restricted the opportunities for mismanagement and corruption among uneducated and low-paid civil servants.

The restrictive monetary and fiscal framework—in conjunction with a dogmatic belief of the economic authorities and their foreign supporters in trade liberalization, privatization, and private sector–led development, severely restricted the role of the state in reactivating investment and employment. Moreover, donors channeled about 80 percent of their aid through NGOs or U.N. agencies rather than through the government budget and according to government priorities. As an example, the Spinzar cotton company, by then a state-owned enterprise, could have been part of a government project to reactivate the cotton sector but was put up for privatization instead.

Not every aspect of the macroeconomic framework failed. The exchange rate policy worked well. The Minister of Finance opted to introduce new afghani bills issued by the central bank (Da Afghanistan Bank) rather than adopt the dollar or another foreign currency as the International Monetary Fund recommended and as other countries emerging from war often do to help stabilize their economies. In a currency exchange supported by the U.S. Treasury that began in October 2002 and was completed in only four months, the afghani became an important symbol of sovereignty and unity, restoring confidence in the domestic currency.

But a stable currency was not enough to reactivate production. Perhaps the most serious mistake was the neglect of the rural sector—on which roughly 75 to 80 percent of the Afghan population depends. Efforts to move the economy directly into higher productivity through commercial agriculture were misguided since it takes time to build infrastructure. Instead, the government should have used aid to provide subsidies and price support mechanisms to promote subsistence agriculture. Such measures would have improved the livelihoods of the large majority and given them a stake, however small, in the peace process.

The neglect of the rural sector drove production away from licit agriculture to drugs. Without other viable options, farmers increasingly turned to growing poppies. They got support from traders who provided credit and technical advice for future production, bought the opium in situ, and shared the risks. Drug production took the best available land, replacing food crops and necessitating large food imports. At the same time, drug production financed the insurgency, created insecurity, and promoted corruption among government officials and other stakeholders…

Read the whole thing at The Boston Review


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5 Responses

  1. .
    I think the #1 thing we learned about “development assistance” in the Afghan War is that CERP (Commander’s Emergency Response Program) is of no net benefit to the locals.
    That was another Petraeus scam.
    It empowered US Commanders to leverage bribes as a combat force multiplier.
    Who is surprised that US military units cannot leverage bribes to locals effectively ?

    And yet the US Congress wanted to put even more money into that bottomless pit.

  2. .
    As part of a predominantly Afghan-American Team, I helped put together a bid for the “Stability in Key Areas – Herat” program in 2011.
    We planned to put over 2,000 locals to work, in the line of work each of them already knew.

    The job went to one of the USAID’s top 10 Contractors (those 10 get about 85% of all USAID money,) who employed around 80 American Expats and about 80 locals, mostly as their security guards,

    USAID lacked clarity on who was supposed to benefit from those development dollars.

  3. Really really makes me wonder what we’ve been up to in Afghanistan for the last few years…. however it may help explain the “sudden” surge in severe malnutrition popping up all over … though I doubt the children of the rural poor make it to the big city hospitals which are “at a loss” to explain it.

    link to

    I find myself increasingly alarmed at our apparent lack of competence, our inability to achieve just-about-anything … we apparently have been unable even to ensure that sufficient humanitarian aid is being delivered to keep the at-risk children fed.

    Thanks for the article. I’ve read that our intense road-building has had the paradoxical effect of bringing the war and instability to rural areas previous so remote as to be for the most part untouched. Those same roads, in theory, might have made at least the transportation of humanitarian food aid easier. I though the linked article above was extraordinary for what it never mentioned — Yes, it’s a mystery.

  4. For all the national blood and treasure we lost there Congress might have well issued Letters of Marque and kept the military home.

    We made insurmountable mistakes. We allowed women to remain subordinate, allowed the poppy fields to bloom, took too long to figure out that FET (Female Engagement Teams) and ADT (Ag Development Teams ) often working together could bring women and children’s level of living up. We would have had to turn the countries way of life upside down at first but it could have been done.

    Giving the amount of money we did to local commanders only created a culture of corruption. We would have been better off sending over goat herds branded with USA on them, helped families build micro farms with poultry and food gardens. And, if the population was really good a 1950’s era Ford tractor. Something maintainable by the locals.

    We made a very common American mistake…thinking that greenbacks solve any problem no matter what the century the populace is living in.

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