Billions in cash flees Afghanistan, economy threatened

KABUL (Reuters) - Wealthy Afghans are carrying about $8 billion -- almost double the state budget -- in suitcases out of the country each year, an amount likely to rise as the exit of foreign troops nears and threatening to ruin the fragile economy, a senior official said.

In an interview with Reuters, deputy central bank governor Khan Afzal Hadawal said confidence in the economy had eroded to such a degree over more than a decade of war that cash was pouring out of Afghanistan in suitcases and carry-on bags, taken to safe havens in Dubai and elsewhere.

Sitting in his office in the run-down Kabul central bank building, Hadawal put little faith in a the government's recently imposed $20,000 limit on cash being taken out.

"The measures will not stop the money from going out," he said. "We definitely prefer them to invest inside the country. Everything depends on security. If it doesn't improve, nobody will invest their money where there is no security."

U.S. plans to wind down the war make officials like Hadawal nervous. The Americans want to replace large combat formations with advisers, and perhaps special forces, as foreign combat troops prepare to withdraw at the end of 2014.

It will then be up to ill-equipped Afghan forces to take control of security.

If they fail, Afghanistan could again face civil war and prolonged instability, making foreign investors and wealthy Afghans even more reluctant to keep any money in what is already one of the world's most turbulent nations.

Asked if 2014 was too soon for foreign combat troops to head home, Hadawal said: "There are a lot of things that need to be done. We still need foreign assistance."

SUITCASES WITH $8 BILLION IN CASH

Hadawal estimated that up to $8 billion in cash leaves Afghanistan's airports every year, half of it from Kabul alone.

"The $8 billion being taken out is double the total assets of the (central) bank," said Hadawal. It is also nearly double the size of last year's national budget.

A U.S. government audit report last year found it was almost impossible to track where much of the billions of dollars spent on security and development projects in the last decade had gone given the country's dysfunctional financial tracking system and poor bank oversight.

Afghans have for years locked their wealth in overseas banks and property, with Dubai and its man-made Palm Jumeirah island favored locations. Some $8 billion alone is thought to be stashed away in the Arab emirate.

Afghanistan's economy is heavily dependent on foreign aid and the proceeds from being the world's largest producer opium producer.

In 2009, ahead of the last Afghan election, millions of dollars -- much of it of questionable origin -- made its way out of the country in suitcases and even on pallets loaded into aircraft, according to police at Kabul's main airport.

Former vice president Zia Masood was stopped entering Dubai carrying cash worth $52 million but released without question, according to a cable from the U.S. embassy in Kabul that appeared later on the website Wikileaks.

The outflows, and an expected sharp drop in foreign aid, the backbone of Afghanistan's budget, could take a heavy toll on the Afghan economy, said Hadawal.

U.S. economic and humanitarian aid to Afghanistan fell from $4.1 billion in 2010 to $2.5 billion in 2011. U.S. aid will be even lower this year as Washington shifts to sustainability projects, which they say require lower levels of funding.

The eventual withdrawal of foreign forces, whose hard currency trickles into the economy, could also hurt finances.

"At this stage you see we are dependent on foreign aid. If it stops and security does not improve, the economy will not be sustainable," said Hadawal.

"If security remains the same, we can't even put an ATM out in the provinces because we fear that someone will blow it up and take the money."

(Editing by Jonathan Thatcher)

Source: http://news.yahoo.com/billions-cash-flees-afghanistan-economy-threatened-073942525.html

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