Economic Reconstruction in Afghanistan

They were focused, first, on the stimulation of the economy and the economic development in agriculture as the first objective. The second objective is the education system. The third objective is the health care system. And the fourth objective is creating capacity within the new Afghan government to administer public affairs and the government of the country.

What I'd like to do today in conclusion, since it's the end of the conference is sort of put in perspective what we're facing here. A lot of what happens in reconstruction is visible in the newspaper because you can take pictures of it. But, in fact, the most important thing in any reconstruction effort--and I think this is my tenth reconstruction undertaking that I worked either in the NGO sector or in the--at USAID during the first Bush Administration. Then I was at USIP -- United States Institute for Peace -- to write this book on the North Korean famine. And in all of these there are patterns of repetition we see from one reconstruction effort to another.

But the central part of this is this: If the economy does not start moving--the private sector economy to create jobs and employ people, then everything else will fail. If we succeed in doing everything but the economy does not work, the reconstruction will fail. So there's a direct connection between the economic reconstruction of Afghanistan and the success of the whole reconstruction effort, both to produce tax revenues to permanently sustain the Afghan government and public services of the country, but, too, to drive the jobs to draw people away from the two other economies that are quite dysfunctional that have developed over the past two decades.

And I want to talk about that for a minute. There are actually four economies operating simultaneously in Afghanistan. We did an analysis--I sent Sue Lautze, who is an excellent micro-economist, who worked for me in the first Bush Administration 12 years ago, she's one of the professors at the Feinstein Famine Center at Tufts University. And I sent her in in March, April, May and she interviewed with a team of Afghans carefully chosen and trained 1,200 people and the interviews were two to three hours each across the country, all geographic regions, all ethnic groups, all social strata. They interviewed people from the upper class, the middle class, the working class, and the most destitute; in order to get a picture of Afghan society.

And the results -- the report she wrote is available on our Web site, it's quite extensive. And it's very interesting. There are things we did not understand that were going on because they were invisible. One of them is the debt crisis. The way people have survived in Afghanistan is going heavily, heavily into debt. Middle-class families now have no assets left, they've sold everything. Many families, many men and women, rely on their children to make enough money to support the families because they cannot leave their homes, because they are so heavily in debt, the money lenders will embarrass them or humiliate them publicly. And the Afghan people are very proud. They do not want to be humiliated. So they don't leave their homes. The only people that can leave are the children because the children will not be harassed. We did not know--we knew that there was a problem. We did not know the level of it until Sue Loutsi's report came out. I mean Afghans knew it, but the outside world did not understand it.

And so we initiated a series of things. We started doing this in January because I heard rumors of this debt crisis. And what it was--we went through the NGO community, which I know there's a controversy about this. But in December when we started this, there was no Afghan interim administration. It just formed in late December as I recall and it wasn't completely functional at that point and we started--we did the rest of these grants in January, as the government was up and running.

And they were to create public sector short-term jobs that last between two weeks and six months. They are 1.8 million jobs, cash-for-work; 1.2 million jobs with food-for-work. And they are designed to bring small amounts of money and food into family households to relieve some of the debt burden the families are facing because that will also help the people who loaned the money because the money was loaned legitimately--I'm not suggesting there was anything wrong with it. The way people survived was being able to borrow money. And if that system of borrowing money in Afghanistan had not existed, a much larger number of Afghans would have died last winter. That is the most important coping mechanism. But we need to strengthen it because it works very well, it's just it's under so much stress now that if we go through another winter without doing something to get a lot of income at the local level to the smallest people, the most destitute people, that system will not function through the next winter, so we need that help that.

And these 3 million jobs, even though they're short-term, they are not permanent, they are not, you know, a permanent way of employing people. The four economies that exist in Afghanistan are: Number 1, the poppy economy, that's no surprise to anyone. Ahmed Rashid, in his book, "The Taliban," reports that in the region there were about 50,000 heroin addicts 15 years ago in Iran and in Pakistan--we're not sure how many there are in Afghanistan. I didn't know there were any and President Karzai on the plane with Ashraf Ghani [ph] told me, when we were going to Washington in January, there was a huge problem within Afghanistan of drug addiction because of this terrible plague of the poppy crop. And they said we have a problem, too, but there were 50,000 drug addicts in the two countries, neighboring next to Afghanistan and he reports that now there are 5 million drug addicts. So there's been a dramatic increase through this chaos in the number of drug addicts in this area.

So if Taliban was attempting by stimulating this poppy crop, which they did do, they organized it and they stimulated the production of poppies; they said to destroy the West, well it also had bad effects within the region for Afghan people.

The UN.estimates that in 2000 $1 billion in income was taken in by 30% of the population. So a large part o the economy in the year 2000, according to this UN report, which I have to say I was surprised at in terms of the extent of this problem. But it is part of the economy.

The second economy is the war economy. It's been going on for 25 years, since the 1978--the chaos started in 1978. That includes (inaudible) it includes the militias and the warlords. It includes kidnaping, holding people for ransom. It includes the gun markets, the weapons markets. It's not--neither of those two economies is the basis that anybody, any educated Afghan, any poor person Afghan want the future of their country to be based on. It was a result of war and I have to say it exists in every country in different forms when economies--formal economies break down people survive by these kinds of economies all over the world, whether it be the Balkans or in Africa or in Central America, anywhere in the world, the same kinds of dysfunctional things take place. The question is, how can we get the legitimate economy moving again to replace these dysfunctional economies.

The third economy is the humanitarian aid economy. And that's not bad, but it's not good, either. I have to tell you, ultimately, the aid economy is not sustainable. Even though they're doing constructive things many of the functions that were carried out by the aid community, which AID is part of--the donors--really need to be carried out by the Afghan government and the Afghan people themselves with their own tax revenues. And that will help over a period of years by creating a tax system that functions to do that. Right now, that's a transition that we're going to have to have to move those functions from these NGOs, whether they're local NGOs or international NGOs or U.N. agencies or IOM or ICRC to the public sector in the community.

The fourth economy is the agricultural economy. I talked about that the other day, but I want to repeat it again. It is absolutely essential that the principal source of legitimate income for people in Afghanistan be revived. And that is the agricultural economy. It's wheat production, it's the animal herds. I saw some apples for sale in--I think it was in January, Kabul that were huge. I thought they had been imported from Washington state because, in fact, they're the largest apples, I think I've ever seen. And they were perfect apples, they were wonderful apples. I ate one of them. Someone said, that's not from Washington state--I thought it might have been from Israel or Europe or something. This are Afghan apples. One of the few orchards that was not destroyed are still producing the finest--probably the finest apples in the world. And that used to fuel a lot of exports in fruit and nuts and vegetables, which was the bread basket of that area of Central Asia. That economy needs to be revived, it is a legitimate part of Afghan culture. So the people know, the older generation of people. The problem is a lot of young people have never been brought up in the agricultural economy and their parents and grandparents will have to train them in how to do that because the skills, we fear, have been lost.

That will do a lot to employ people in the rural areas and that is what a large part of our focus will be. I mentioned yesterday that we'll be importing 48,000 tons of an improved variety seed that is drought-resistant and will increase wheat production by 80 to 100 percent. This was developed by International Seed Institutes through the World Bank over a period of many years. The seed has been tested in Afghanistan in all areas. Farmers love it and we expect an increase of 772,000 metric tons of wheat over the next two years as this seed is produced. We distributed 7,000 tons of it in the spring and 24,000 more tons have been purchased this summer and will be distributed this fall for the wheat crop this fall. And that will move out in the rural areas.

We need to also protect the animal herds. The neighboring countries have very serious animal diseases. I'm not going to mention which ones, but there's Rinderpest. Afghanistan, for whatever reason, maybe it was the aid program or it was the ministry of agriculture--whatever the reason was, most of these animal diseases did not exist in Afghanistan. What we want to avoid happening is when the animal herds that were devastated during the drought are reconstituted by bringing animals in from neighboring countries, we don't want to bring their animal diseases with them. And so we signed up now a grant, working with the ministry of agriculture, and some of the international veterinary institutes to immunize all of the animals as they cross the border into the country. These are private transactions. They're not our animals, but no herder is going to object if we protect their animals as they're brought in the country from these diseases.

The third thing that needs to happen--the fourth--the third part of the aspect of reviving the economy is the transport economy. And several people have played it out to me, including the minister of transport, of course, Ashraf Ghani and President Karzai, that because Afghanistan is in the middle of the heart of Central Asia, the silk route, you know, the Silk Road, we had this wonderful display and--on the Mall in the last month on the silk route--I've been reading books for months now on the silk route--silk road. It's a center, of course, of--do you want to get to India, go through Afghanistan. If you want to get to Iran--back and forth to Central Asia, you go through Afghanistan. So how the truck routes function is very important. It's also potentially a very large source of revenue for the Afghan government in terms of customs.

Right now, unfortunately some of the warlords collecting those revenues. This are really revenues of the central government. And there needs to be--no really they are--should be revenues of the central government. And so what I want to talk about in a minute is how we're going to help the central government to deal with that issue.

Finally, we need educated people. Now there's a big effort to try to bring back the Diaspora, because, of course, the Afghans who leave Afghanistan to go to Western Europe, the United States, are very prosperous people for the most part and very successful people. It shows when they take their skills elsewhere, they do do very well.

How do you get some of them to come back home? We've had discussions about that and there's been some discussion in the donor community how we would assist that. But it's also true that educating Afghans through the university system is very important--I know the minister for higher education's here and he's mentioned this to me, how important it is to get the institutions of higher learning up. The donors have been sitting down working out who will specialize in what. For example, we agreed to do the radio station. The Japanese said they would do the television station. So people come to me and say how come AID's not helping rebuild the TV station, I said because the Japanese agreed to do it. Mrs. Okada [ph] came to see me and she said we'll do that if you do the radio station. And we did that. So the donor's can't do everything, they have to specialize in the things that we do well and we don't know how to do television we do very well with radio.

So the last part of what I want to say is how we're going to assist the Afghan administration in this effort of reviving the private sector economy which, ultimately, is what's essential.

We've got a proposal in Ashraf Ghani and President--the minister of finance and President Karzai have both approved this and we are now about to go out to what's called a bid--we have to go through bidding systems to do this. It will bring about over three years 52 experts from the United States. We--they're the same experts, I think, or people who've done this in at least a half a dozen other countries recovering from civil war. It's what we call an economics governance project. And it deals with the collection of tax revenues, the training of tax collectors of customs agents. We just did this project in Jordan and there's been a dramatic increase in customs collections by the training of the customs agents and the setting up of actually machinery to implement this.

It means budget planning--we're working with the Treasury Department here on that and on budget implementation. A banking reform, because there are a number of public sector banks that probably should be privatized, Mr. Ghani wants us to look also at 200 private enterprises--public enterprises that are state-owned, they're remnants of the Marxist system. And we need to move that he wants to the private sector, which is a good thing to do, we support that so that's another part of this. And also to rationalize the trade and tariffs regime so that they're consistent with economic plan for the country.

And, finally, for a regulatory framework. What is the commercial law of the country because business people are not going to invest in a country unless they have some judicial system and commercial code in order to protect their investment. Colin Powell likes to say all capital is a power. It does not like risk. Business people don't like risk anywhere in the world. And so, it's very important that the system be set up that deals with commercial law, the investment framework. Some of those statutes have already been passed. Recently, I talked with the minister of commerce that some of them had gone through already, but all of them haven't gone through and we've been--I was asked in January by President Karzai and Ashraf Ghani and then again repeatedly they've told Greg Buck [ph], our mission director, and they want this very badly.

So we're about to go--it'll be a three-year project and it should help set the economic governance system for the growth of the private sector economy; a very important part of establishing economic health in Afghanistan. We are committed to this we'll be here in Afghanistan for a very long time. We don't set up paid missions as I said yesterday for a couple of years, we set them up for maybe a decade or more.