News / Asia

Uncertainty Over Security Pact Drives Final Nail Into Afghan Bubble

U.S. troops listen to U.S. Defense Secretary Chuck Hagel as he speaks at Camp Bastion, Helmand Province December 8, 2013.
U.S. troops listen to U.S. Defense Secretary Chuck Hagel as he speaks at Camp Bastion, Helmand Province December 8, 2013.
Reuters
When Afghan President Hamid Karzai announced he would delay signing a vital security pact with the United States, amid the hubbub of dismay, the Afghan elite gathered in the room might have heard the sound of the country's economic bubble bursting.
 
Since late November, when Karzai defied a consensus in favor of the bilateral security agreement (BSA) that had been reached by elders at a loya jirga, or grand assembly, almost every reliable economic indicator has got worse.
 
The country's currency, the afghani, hit a record low of 59.84 to the U.S. dollar on Dec. 5. That sparked a series of flow-on effects, pushing up prices for essential items such as firewood, groceries and cooking gas by at least 25 percent.
 
“Not signing the security pact has done a lot of damage to economic perceptions in Afghanistan,” central bank governor, Noorullah Delawari, told Reuters.
 
“(It) caused a big spike in inflation because business deals here are done in dollars,” he said, adding that the central bank has pumped a record $170 million into the market this week in a bid to prop up the currency.
 
The security agreement is designed to shape the U.S. military presence in Afghanistan beyond 2014. The United States says that without the deal it would consider withdrawing all troops, leaving Afghan forces to fight the Taliban on their own.
 
If U.S. soldiers leave, other NATO nations are likely to follow suit, putting in jeopardy the $8 billion Afghanistan receives in foreign aid every year.
 
Concern about prospects had been growing anyway but the impasse over the security pact exacerbated both the fears and the volatility of the currency, prompting many Afghans to snap up U.S. dollars.
 
“Businessmen are very worried about the future and are buying dollars at a very high rate. It's the most unusual buying I've seen in years,” said Najibullah Akhtari, head of the Afghan money exchange union.
 
“The central bank is trying to reduce the damage done by  uncertainty by pumping more dollars into the market, but it won't help in the long run.”
 
Referring to Karzai's decision to delay the security agreement with the United States, he added: “It's ridiculous. Some people want American dollars, but not Americans.”
 
At Kabul's bustling main money exchange market, dealer Zemarai Jan carefully sorted afghani notes before placing them on three-foot-high piles - so high he could barely be seen behind them.
 
“Everyone is looking to buy dollars,” Jan said.
 
Boom to bust
 
Other economic indicators suggest a boom fed by billions of dollars in foreign aid is moving towards a bust.
 
Realtors say house prices and rents have fallen by almost 40 percent this year, with a particularly large fall occurring since Karzai made his statement.
 
“Business has dropped to virtually nothing in the past three weeks,” said Sayed Jawed Amiri, owner of the Dunya-e-Jadid (New World) real estate agency.
 
Abdul Wajid, chief auditor at Ghazanfor bank, said deposits fell by about 15 percent, or $20 million, in the last month. The drop in deposits restricts lending and investment, setting up a vicious circle of economic depression, he said.
 
“The month since the loya jirga recorded the lowest investment rate in Afghanistan in recent history,” said Khan Jan Alokozay, deputy head of the Afghanistan chamber of commerce.
 
Investment across the country had fallen by 30 percent in the 11 months to November, he said, but Karzai's defiant stand after the loya jirga precipitated a further 10 percentage point drop, taking the decline for the year to 40 percent.
 
Wafihullah Latifi and his brothers own Kabul's newest shopping center, the brightly colored six-story Park Mall, which boasts a 3D cinema, a swimming pool and room for more than 160 shops. But so far, they have only been able to fill the bottom three floors with tenants.
 
“There is a huge decrease in demand for space in our mall since President Karzai rejected signing the BSA,” Latifi said.

You May Like

N. Korea Sentences American to 6 Years Hard Labor

Matthew Miller's brief trial Sunday comes two weeks after 24-year old Miller and two other American detainees appealed to the US government to help free them More

Pakistan Rejects Afghan Criticism of 480-kilometer Border Trench

Military spokesman tells VOA the project is part of administrative and security measures taken to secure the mountainous border with Afghanistan More

Photogallery Typhoon Kalmaegi Makes Landfall in Philippines

Storm makes landfall late Sunday, cutting power and communications lines and forcing people to flee to higher ground More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Scotland Independence Bid Stokes Global Interesti
X
Henry Ridgwell
September 12, 2014 8:35 PM
The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video Palestinians Turn to Rebuilding Gaza

After almost two months of conflict in Gaza, Palestinians are preparing to rebuild the isolated Mediterranean enclave with assistance from abroad. Meanwhile, an international human rights group has found that Israel likely violated international laws of war during some of its attacks on Gaza. Zlatica Hoke has more.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Middle Eastern Church Leaders Highlight Christians’ Plight

Patriarchs of Eastern Rite churches came to Washington this week to draw attention to the attacks against Christians in Syria, Iraq and elsewhere in the Middle East. VOA’s religion correspondent Jerome Socolovsky has more.
Video

Video Americans' Reaction Mixed on Obama Strategy for Islamic State Militants

President Barack Obama’s televised speech on how the United States plans to “degrade and destroy” the group known as the Islamic State reached a prime-time audience of millions. And it came as Americans appear more willing to embrace a bolder, tougher approach to foreign policy. VOA producer Katherine Gypson and reporter Jeff Seldin have this report from Washington.
Video

Video Authorities Allege LA Fashion Industry-Cartel Ties

U.S. officials say they have broken up crime rings that funneled tens of millions of dollars from Mexican drug cartels through fashion businesses in Los Angeles. Mike O'Sullivan reports that authorities announced nine arrests, as 1,000 law enforcement agents fanned out through the city on Wednesday.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid