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Afghanistan was invaded and occupied by the Soviet Union in 1979, in the attempt to rescue and consolidate the pro-Soviet regime in place. It took 10 years
before the USSR could withdraw its forces, having been delayed by the fierce resistance of anti-communist mujahidin forces, supplied and trained by the US,
Saudi Arabia, Pakistan, and others. The pro-soviet regime survived for two years and a half, contrary to the expectations of many, and then fell in April
1992, having outlived its own mentor, the USSR. Fighting subsequently continued among the various mujahidin factions, but the fundamentalist Islamic Taliban
movement had been able to seize most of the country. In addition to the continuing civil strife, the country suffers from enormous poverty, a crumbling
infrastructure, and widespread land mines.
Afghan internal politics since the fall of the Taleban regime has been dominated by the Loya Jirgah elections, which were widely expected to be decisive in
establishing the balance of power between the different factions in the future government. Even if these were never meant to be strictly speaking political
elections and despite the assurances by the interim government that the warlords will not be allowed to interfere, the military factions in control of the
various areas of the country determined the outcome to a fair extent. While the local warlords resist the idea of being pushed aside, after having determined
the local politics for so long, at a higher level the various political groups are worried about their share of power in the future government and are
jockeying to expand their influence. In particular, two factions were very active in trying to buy influence in the regions of Afghanistan and in
pre-determining as much as possible the outcome. One is the Panjsheri wing of Jamiat-i Islami, which is at present the strongest component of the Karzai
government and needs to maximise its support within the Jirgah, if it wants to maintain its role in the future government. For this reason, it tried hard to
maximise its number of delegates at the Loya Jirgah. Even more importantly, the Panjsheris are also establishing a strong hold on the new national army, which
is being formed, and on the state bureaucracy. The other faction, or rather alliance, includes the other main wing of Jamiat, led by former prime minister B.
Rabbani, and several other Islamist groups, collectively known as "the Jihadis", including the warlord who rules Western Afghanistan, Ismail Khan. The return
of the old King Zahir Shah at the end of April was interpreted by many Afghans as a further sign that peace might really be at hand, a feeling that was
already prompting hundreds of thousands of Afghans to come back to their native country from Pakistan or Iran. By mid-June, 1,200,000 had already done so.
However, the return of the former king has also caused tensions within the interim administration between royalists and anti-royalists.
The international politics of the Afghan crisis is characterised by a row between the US and Iran, which is being accused of meddling in Afghanistan, with the
aim of destabilising the interim administration of Hamid Karzai. Iran fears the establishment of a government dominated by the monarchists in Afghanistan and
sympathises with all the Afghan factions that share the same feeling. Russia is rather indifferent to the internal politics of Afghanistan, but wants to
ensure the presence of a government compatible with its geopolitical aims. Its strongest links are with Jamiat-i Islami, a party mostly composed of Tajiks,
which it supported during the war against the Taliban. The former Soviet republic of Tajikistan is a Russian 'de-facto' protectorate, a fact that also favours
Russia's alignment with Afghanistan's Tajiks. Moreover, some of the top generals in the Jamiat-led new Afghan national army, are former generals of the old
communist regime and they still have good contacts in Moscow.
While Pakistan and Uzbekistan continue to keep a low profile, the role of the US in affecting events in Afghanistan is undoubtedly dominant, but continues to
encounter limits to its action. The Bush administration did exercise a considerable pressure on ministers of the Karzai government on several occasions,
especially Defence Minister Fahim, whose conduct increasingly appears biased. Perhaps more importantly, the US have been building their own "party" among
Pashtun warlords in Southern and Eastern Afghanistan, whose help they want to enlist in the hunt for the remnants of Al-Qaida. Not even the US, however, has
been entirely successful in steering Afghanistan in the desired direction. These warlords, for example, are now exploiting their privileged access to funds
and resources to try to establish their own hegemony over entire regions, but are facing a growing local opposition. Moreover, even Karzai himself has openly
refused to endorse American allegations against Iran.
The prospects for a quick recovery of the Afghan economy do not look very good. International donors have pledged US$4.5bn, but only a trickle of that money
has reached Afghanistan so far and the interim government is unable to raise funds on its own, as the provincial governors withhold any income deriving from
taxes and customs. Government revenue from domestic sources is still minimal, covering only 3-4% of the requirements. The international organisations have
decided that the Afghan government will be in charge of the reconstruction process, but now demand a properly scrutinised process of allocation of resources.
They also appear to expect the interim government to act towards the eradication of the poppy fields in several regions of the country, but so far the Karzai
administration has had only a very limited success in this regard. The UN expects a harvest of 1,900-2,700 tons of opium this year, much short of the peak of
4,600 tonnes reached in 1999, but still much more than 74 tons of 2001. Even discounting the many allegations of fraud that have been surrounding the
operation, it is obvious that a great deal more has to be done in order to reduce the impact of the Afghan opium on the European markets.
The focus of the reconstruction effort is expected to be initially in investment on transport infrastructure, which is in extremely bad shape. Iran is
expected to be at the forefront of those in 2002, in part also due to the greater economic dynamism shown so far by neighbouring western Afghanistan, and has
already budgeted the necessary resources, especially for a railroad leading from Iran to the Afghan city of Herat. Longer-term projects are also beginning to
be discussed, but the plan for a 850 km pipeline crossing Afghanistan, despite the support of both the Turkmen and the Afghan governments, is likely to
struggle to find suitable funding and might take a long time to be realised, if ever. The project also features the export of Afghan gas through the main
pipeline and smaller pipelines from the Afghan gas fields of the North to Kabul and some other areas, where it could be used to provide energy for industrial
and mining activities. However, Afghan gas, or at least that from previously exploited fields, is of low quality and could have difficulties in finding a
buyer in a market that is soon going to be awash with gas from Dubai and Iran.
In the meanwhile, the government has been struggling to bring the money supply under control yet and as a consequence the local currency (Afghani) has
fluctuated wildly. This has negatively affected whatever economic life is left in the country, with traders and state employees being hit especially badly.
Update No: 07 - (24/06/02)
Democracy to Afghanistan?
The completion of the Loya Jirgah election process at the beginning of June marked a further step forward in the establishment of a new, more stable regime in
Afghanistan. Not everything went as planned, though. The reduction of the role of monarchists through the allocation of a disproportionate number of seats to
some provinces controlled by the Islamists, together with influence-buying in those areas of the country where the Islamists have weaker roots, have not been
enough to give a majority in the Jirgah to any of the alliances which are vying for power. Despite all the attempts to pre-determine its outcome and use it as
little more than a rubber stamp to legitimise decisions taken elsewhere, a significant opposition emerged from its ranks to prevent a completely smooth
transition from the interim government to the provisional one. The main source of such opposition is represented by some hard-line 300 monarchist delegates,
elected mostly in the southern Pashtun belt. Moreover, some liberal delegates were also elected in Kabul and among the professional groups, who are entitled
to some seats according to the arrangements made for the Loya Jirgah. Predictably, an attempt by the monarchists to have former king Zahir Shah appointed head
of state failed, despite having been initially signed by more than half of the 1,500 delegates to the Jirgah. After the withdrawal of the candidature of Zahir
Shah, allegedly due to US pressures, a compromise between moderate monarchists, the Panjsheri faction of the Jamiat-i Islami, the Jihadi alliance led by Prof.
Rabbani, the Hazara-based Hizb-i Wahdat and the Jumbesh-i Milli of Rashid Dostum allowed the election of Hamid Karzai as head of state with a large majority.
The compromise apparently consists in maintaining a government acceptable to international allies, but without challenging the power of warlords and "old
politicians", several of whom retained their positions in the new cabinet, announced on 19th June.
Towards a new currency?
After the April currency crisis, the Afghan central bank succeeded in stabilising the Afghani at around 36,000 to a dollar, a far cry from the high of 11,000
recorded in December 2001, but still significantly better than the low of 45,000 of April. The end of the Loya Jirgah selection campaign contributed to this
achievement, as warlords and politicians stopped paying off large sums of money to buy support. It is clear, however, that a long-term stabilisation of the
currency will require the replacement of the Afghani with a new one, as there are still estimated to be significant reserves of unspent funds in the hands of
the warlords. Moreover, while the Northern Afghani issued by warlord Rashid Dostum is considered to have legal value by Kabul, it will clearly have to be
replaced, which gives a further incentive to opt for a new currency.
Working with neighbours
Given the continuing delays in the delivery of the promised funds by international donors and the impending Loya Jirgah, up to the second week of June the
interim government could do little else than continuing to sign agreements with neighbouring countries. At the end of May it was the turn of Uzbekistan, whose
government agreed on taking part in the building of the Shiberghan-Herat-Kandahar highway and on more general cooperation deals in the economic field.
Potentially the most important agreement of the pre-Loya Jirgah period could however be the one signed shortly after in Islamabad between the leaders of
Pakistan, Afghanistan and Turkmenistan for the construction of a gas pipeline connecting the three countries. The Afghan government is especially keen on this
project because of the expected US$205m in transit fees it might earn every year, once the pipeline is completed, and because of the prospect of exporting
Afghan gas too through the pipeline. However, finding the necessary funds for the projects continues to look an arduous task. Given the current low oil
prices, private investors are unlikely to be attracted to it and the governments involved hope to attract funding from the World Bank or the Asian Development
Bank. Executives from Unocal, the US oil company previously involved in a similar project during the Taleban era, declared that today they are more interested
in other projects elsewhere. The Turkmen government is now trying to involve in the deal Itera, a Russian gas company. Itera is actually showing some interest
and has send analysts to Afghanistan to explore the ground, but the company has long had difficulties in raising funds for its projects, due to its low credit
rating. It might therefore not be able to sustain a major part of total costs estimated at US$2bn. In addition to these problems, international financiers who
for years have withheld the necessary funds for the Baku-Tbilisi-Ceyhan pipeline, with the experience of what happened to pipelines in Chechnya at the behest
of local warlords and in thinly policed countryside, are deeply cynical about the ability to keep such a pipeline, once built, operational.
Afghani minister signs US$8m deal to rebuild Kabul airport
Afghanistan and the International Civil Aviation Organization have signed a deal to rebuild the airport in the country's capital, Kabul, and reinstate air
traffic control services, Canadian Press has reported.
The Afghan government will pay US$8.2m for the project, which is part of a larger US$37m initiative by the aviation organisation to restore the war-torn
country's civil aviation system. Zalmai Rassoul, Afghanistan's minister for civil aviation and tourism, said the project is urgently needed.
"I think it's very important because the peace and stability of Afghanistan depend, in my opinion, on the project of reconstruction,'' Rassoul told a news
conference. "Reconstruction provides jobs to Afghans." ICAO president Assad Kotaite said getting Afghanistan's air system back in line with international
levels, in accordance with the organization's standards, is a top priority. "A fully operational civil aviation system is crucial to the reconstruction of
Afghanistan and to its future economic development,'" said Kotaite.
Rassoul planned to visit Ottawa to discuss federal assistance to train air traffic controllers and to buy two new aircraft from Bombardier. Afghanistan
airspace, closed from September 16th to February 15th as part of the ongoing conflict to rid the region of al-Qaida forces, is of strategic importance for
air traffic between South-East Asia and Europe, said Kotaite.
There are currently three air routes available to commercial traffic over the country. Civilian flights are operated by the United Nations and Ariana,
Afghanistan's national carrier.
State Bank group to set up operations in Afghanistan
During a visit to India, Afghanistan Finance Minister in the Interim Administration, Hedayat Amin Arasala, has indicated that the State Bank of India (SBI)
group has evinced interest in setting up operations in his country, 'The Hindu' has reported.
Mr. Arasala conveyed this to journalists after a meeting with the Union Finance Minister, Yashwant Sinha, on 26th May..
The Afghan Minister did not disclose details about the proposed plans of the State Bank group but only said the group had shown interest though he had no
specific information about which bank of the SBI group was interested in starting operations in Afghanistan.
Mr. Arasala also indicated that Afghanistan was reviewing the whole gamut of its financial sector policies in order to weed out the "weaknesses'' in its
banking system. "Of course, there are weaknesses in the banking system and we are reviewing the financial sector policies,'' he said.
Asked about his discussions with Mr. Sinha, Mr. Arasala said these were mainly on bilateral relations and the role of private sector in the reconstruction of
Afghanistan. India had already pledged US$100m for reconstruction work in Afghanistan and part of the money had been earmarked for various projects and
Of the sum pledged, India has already released US$30m and the remaining amount would be released as earmarked projects progress in that country.
Turkmens invite Itera to join Afghan gas project
Turkmenistan has invited international gas trader, Itera, to take part in a proposed US$2bn project to export Turkmen natural gas to Pakistan across
Afghanistan, Itera said recently, Reuters has reported.
Turkmenistan, which has huge reserves of natural gas but depends heavily on Russian pipeline capacity to export them, has touted the long-discussed route
since last year's fall of the hardline Taliban regime in neighbouring Afghanistan.
Turkmen President Saparmurat Niyazov was expected to discuss the plan at a meeting with the leaders of Afghanistan and Pakistan held in Islamabad on May
"While meeting U.S. congressmen, (Itera president) Igor Makarov stressed that Turkmen President Saparmurat Niyazov had invited Itera to take part in the
Trans-Afghan gas pipeline project," Itera spokesman, Nikolai Semenenko, told Reuters by telephone from Moscow. Makarov said that his company would take part
in "this huge political project" if it turned out to be financially viable.
Since 1994 Itera has been working closely with Turkmenistan, a desert nation of five million in former Soviet Central Asia. This year the company is due to
buy 10 billion cubic metres (bcm) of Turkmen gas and deliver another 34 bcm to Ukraine. Semenenko said Itera analysts were currently studying the situation
in war-ravaged Afghanistan. He said company delegations had already visited the country twice this year.
The idea of a gas pipeline running from Turkmenistan to the Indian sub-continent is not a new one. US company, Unocal, undertook feasibility studies of the
project in the late 1990s, but withdrew in 1998 because of fierce fighting between the purist Taliban and the opposition Northern Alliance, which held chunks
of territory in northern Afghanistan at the time.
The plan calls for a pipeline some 1,500 km (932 miles) long, including 764 km to run through northern Afganistan. Niyazov has said the proposed line may be
extended to India one day, though India-Pakistan tensions make many observers sceptical of this.
Niyazov also recently invited Russian gas giant, Gazprom, to take part in the project. In 1996 Gazprom said it was willing to buy a 15 per cent share in the
project but later decided not to participate.
FOREIGN ECONOMIC COOPERATION
Dubai-Afghan cargo movement jumps
Cargo movement towards Afghanistan has gone up by 20 per cent from Dubai, since the installation of the present interim government in December, shipping
officials said, Gulf News has reported.
"We expect another 30 per cent increase in cargo movement towards Afghanistan in a few months, once the aid agencies begin supplying materials and commodities
to rebuild the country," said Martin J. Aranha, managing director of West Star Shipping Services.
"Currently most cargo from Dubai to Afghanistan moves through Iran. Some is routed through Pakistan. A majority of the Afghanistan-bound commodities are being
sourced from the UAE and are shipped from Dubai."
Aranha said members of the National Logistics Cell (NLC) of Pakistan, which includes several surface transport associations, have pledged to reduce the price
and duration of the journey by committing to speedy transport of goods across the Pakistan-Afghanistan border.
"Pakistan has a competitive advantage as it has a route network leading to the border, apart from regular services between Dubai and Karachi. If they can
reduce the transit time, transshipment to Afghanistan via Pakistan could be a popular alternative for goods," he said. Over 70 shipping agents, freight
forwarders and traders are expected to join a seminar titled, 'Pakistan as a gateway to trade, reconstruction and rehabilitation,' to be held in mid-June by
National Logistics Cell (NLC) of Pakistan and Pakistani consulate in Dubai, with the active support of West Star and Karachi-based Hussain Trading
The objective of the seminar is to promote Karachi's competitive edge in shipping goods from Dubai to Afghanistan.
Second Iran-Afghanistan transit border opens
The 'Tehran Times' has said that Iran, with the most historical and cultural affinities shared with Afghanistan, is trying to play an effective role in the
reconstruction of the latter.
The reasons are obvious. "The reconstruction of Afghanistan and restoration of security and stability in that country will not only speed up development and
promote the welfare of the Afghan people but also benefit the region as a whole," said the English-language daily. Afghanistan's reconstruction needs the
cooperation of its neighbours and all world countries, especially those that have pledged to provide financial aid toward this end, it reiterated.
A second border for international transit between Iran and Afghanistan was inaugurated in the region of Milak by Iranian Minister of Road and Transportation,
Ahmad Khorram, and Afghan Minister of Public Works, Abdul Khaliq Fazal. In the inaugural ceremony, the Iranian minister reiterated Iran's policy of continuing
friendship and "sense of responsibility" toward the Afghan people, the daily pointed out.
In line with that policy, it said Iran has commenced construction work on a project to asphalt 123 kilometres of the Dogharoun-Herat road and the Abrisham
bridge over Hirmand river, the project being the country's first in Afghanistan entailing an expense of US$53m. The completion of the above-stated projects in
two years would provide the much-needed link facilitating transit as well as commerce between the two countries, the daily predicted. With the opening of the
international Milak border and the construction of the international Torbat-e Heidariyeh-Sangan and Khaf-Herat railroads and Dogharoun-Herat road, landlocked
Afghanistan will have access to Iranian ports in the Oman Sea and the Persian Gulf, it went on to say.
It said the completion of the above-stated road links have shortened travel distance from Afghanistan to international waterways by 700 kilometres, a fact
once again highlighting the importance of the Islamic Republic as a bridge linking regional countries. It pointed to the opinion of political observers who
say Afghan reconstruction and the restoration of security in that war-devastated country would receive a boost once the projects are finished and which are
expected to boost the country's links with the international community.
Undoubtedly, Iran can play an important role in the transit of goods and energy from Afghanistan to consumer markets, and will also predictably contribute
greatly to the development of the region, continued the daily.
On the other hand, the implementation of the above-stated projects would increase investment not only in Iran's eastern border cities such as Khaf, Taibad,
Zabol but in the Afghan border cities of Herat, Ghourian and Zendejan as well, Tehran Times pointed out.
"Made by Afghan women" label to revitalise exports
Afghanistan is pinning its hopes on a "made by Afghan women" label to stimulate exports and give its war-shattered economy a much needed fillip, AFP News
Agency has reported.
"We have come up with two basic ideas to promote our exports," Ashraf Ghani, adviser to interim leader, Hamid Karzai, said. "The first is a label 'made in
Afghanistan' and the second is a label 'made by the women of Afghanistan'," he said proudly.
A former World Bank executive, Ghani, who arrived in Kabul just a few months ago, is brimming with ideas of how Afghanistan can develop its export potential,
notably by selling to Europe.
Afghan carpets, made primarily by women are known around the world for their quality and craftsmanship. Ghani is counting on international sympathy for the
country, which has been wracked by decades of civil war and five years of harsh rule by the Taliban, to draw buyers.
"Once the value the women derive from their work increases, they will be able to live much better lives and then investment in a woman turns into a major
investment in education of the children and improvement of the life of the children," Ghani told AFP. But that relies on equal employment, a developing
concept in Afghanistan but one that has yet to be pronounced. As well as carpets, the authorities are looking to Afghanistan's other natural resources to
improve the economy.
"The first item on that list is our grapes, they are an enormous asset," Ghani said. "The key here is to meet health standards, certificate of origin, quality
and packaging." The goods will be certified by a non-governmental organisation which will also assess working conditions. Employees will work no more than
eight hours a day and children are banned from working, Ghani said.
Economic analysts estimate that companies moving from high-volume, low-value goods to low-volume, high-value would need government support in the short to
Herbs and spices are another Afghan asset, Ghani says. "It's a several-billion-dollar industry in Europe and the United States. We produce saffron and cumin
which could replace (opium derivative) poppy farming" he says. Ghani said textile exports would play a key role in revitalising the moribund private sector,
but that marble, "among the best in the world" and cut flowers could also boost the domestic economy. "We produce a major amount of cotton, and this could
give a significant boost to the private sector to invest in textile," he said.
Export warehouse in Peshawar to encourage Afghan trade
The Pakistan government has announced full liberalisation of trade with Afghanistan, and its permission for duty and tax-free "Export Warehouses" to be set
up at Peshawar and Chaman, The Frontier Post has reported.
These establishments will be used for storage and ready availability of construction materials for export to Afghanistan, Finance Minister, Shaukat Aziz,
said in his budget speech. "Traditionally, exports for Afghanistan were not entitled to exemption of duty and taxes due to fear of smuggling," said the
Minister. "However, because of recent events, it was necessary to promote exports to Afghanistan. Thus, permission of zero-rating and duty drawback were
allowed on exports to Afghanistan via land route.
"Moreover, Pakistani-made goods purchased by UN agencies for relief supplies to Afghanistan were also deemed as exports for the purpose of zero-rating."
Some other budget measures to facilitate exporters include a round-the-clock export facility at all customs stations, waiving of prior permission for late
examination of export cargo, reduction of time from 10 days to 3 days generally for laboratory tests reports and, where required, introduction of evening
shifts for speedier disposal of duty draw-back claims.
The Minister further said, "To allow our industry and traders to take advantage of the opportunities emerging in Afghanistan, trade with Afghanistan has been
fully liberalised. "Except for a few items on the negative list, all items are eligible for export to Afghanistan and in case proceeds are received in a
convertible currency, exports will qualify for duty draw-back."
Afghan Government to repair major highways
Afghanistan will soon hold an international tender for the repair of major highways that have been left potholed, torn by tank tracks and damaged by mines
after 23 years of war, the Afghan reconstruction minister said, Reuters has reported.
Mohammad Amin Farhang said US$100m donated by the international community had been earmarked initially to fix 750 miles of roads. "The project will be put out
to tender to foreign companies. We hope to start the project shortly because it is very important..." Farhang told Reuters in an interview.
"Afghanistan is a landlocked country and its links with other countries will have to be established overland for trade, business, investment and for its
Afghanistan's road network is largely derelict after more than two decades of fighting, beginning with the Soviet invasion in 1979. The country needs US$375m
to repair all its 2,300 miles of highways.
The eastern city of Jalalabad, near the Pakistani border, is just 110 miles from the capital Kabul but the bone-shaking journey takes around six hours, more
than double the time taken on a normal highway. Farhang said that road, which also connects Jalalabad to the southern city of Kandahar, was the top project on
the list. Another priority is a main road to the north and beyond to Central Asia.
The funds for the reconstruction of the roads are part of the US$4.5bn pledged over the next five years by international donors at a conference early this
year in Tokyo.
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