The Status Of The Afghan Economy Under Taliban Control : Planet Money : The Indicator from Planet Money As the Taliban assumes control of Afghanistan, uncertainty looms over an already-fragile financial system. Today on the show, we look into Afghani currency and the Afghan central bank, how it worked before and the questions of this precarious present moment.

The Taliban Controls The Afghan Economy. Now What?

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It has been devastating to watch what's happening in Afghanistan right now. A week after the Taliban marched into Kabul, a video of evacuations of Americans and Afghans who helped U.S. forces were streamed across the world. There is little clarity on what comes next. Even those living in Kabul are not quite sure what is going to happen.

UNIDENTIFIED PERSON: We want to have the peace in our country.

VANEK SMITH: This is a Kabul business owner we called up this week. We are not naming him for his safety, but he runs a small grocery store in the capital. He sells vegetables, cold drinks out of his house. And he says, from his corner at least, it's just been really quiet.

UNIDENTIFIED PERSON: From our side, it's normal because the people stay at home. And some markets is open, some markets is closed.

VANEK SMITH: He told us the banks are closed, schools are closed, though some banks were starting to reopen today in the capital. And he says he's noticed that the prices of things are starting to go up.

UNIDENTIFIED PERSON: This one week, the prices is too high.

VANEK SMITH: What about your prices? Have you changed them?

UNIDENTIFIED PERSON: No. Up to now, we are not changing our price.

VANEK SMITH: Of course, that was before twin bombings outside the airport today.

This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith. Today on the show, the Taliban has taken control of Afghanistan and, with it, an economy worth $20 billion. But what does that mean exactly?

ALEX ZERDEN: I wouldn't want to be an Afghan businessperson right now. I think things are only going to get worse, at least in the short term, with sanctions being still very live against the Taliban.

VANEK SMITH: After the break, we talk with Alex Zerden, a former financial attache for the U.S. embassy in Kabul. He tells us about the economic reality facing Afghanistan and its next government.


VANEK SMITH: From 2018 to 2019, Alex Zerden led the Treasury Department's office at the embassy in Afghanistan. He says when he was over there, they planned for an event like what he saw on TV last week, with Americans being escorted on military planes out of the country. But he never thought he would actually see it happen.

ZERDEN: It is 10 times, 100 times, worse for the Afghan civilians just on the street. But, you know, the idea that a bad event would happen and you have to leave the embassy, you always kind of prepare for that. And, you know, given the violence in Afghanistan, given the environment that I was in in 2018 and 2019, it's always something that's on your mind, but, you know, it's something you never want to have to execute on.

VANEK SMITH: After fielding a flurry of texts from friends and people who had worked with him in Afghanistan, Alex got to thinking about what might happen to the country's fragile economy. Afghanistan has a $20 billion economy according to the World Bank. And about three-fourths of its budget is dependent on the U.S. and other international aid. And here's the thing - there are existing sanctions against the Taliban that have been in effect for more than two decades, sanctions imposed by the U.S. and international partners. And now the Taliban are back in power, that money's frozen, including its rainy day fund.

ZERDEN: So that number is roughly about $7 billion, 7- to 8 billion, of Afghanistan's international reserves that are parked outside of Afghanistan. It's to provide import coverage in case of a catastrophic emergency. But they were doing really well with that. So they had about 14 months of buffer at the peak. And so that's really healthy. That's thumbs-up from the IMF, World Bank, U.S. government about that buffer because Afghanistan is in a very difficult spot. And so the international community wanted to support Afghanistan having those reserves.

VANEK SMITH: But now, that buffer's not available. And that's not the only problem.

ZERDEN: The other part was the suspension of U.S. dollar shipments into Afghanistan. So a shipment of dollars was supposed to arrive on Sunday morning when the Taliban took over, and that money didn't arrive. And so that - the Afghanistan economy is heavily dollarized and heavily cash - physical cash dependent.

VANEK SMITH: This is just like a shipment of bills?


VANEK SMITH: Is this, like, a normal thing? It was like a crate of cash or something...


VANEK SMITH: ...That was supposed to arrive? Oh.

ZERDEN: So the Afghan economy relies on dollars. And so for liquidity in the local economy, using Afghanis, the local currency, requires an exchange of dollars to get more Afghanis into the system. And so there is a weekly or sometimes twice or thrice weekly U.S. dollar auction held by the central bank. And this is publicly reported, and they announce the amounts of dollars sold and Afghanis purchased. And so this is a way to inject liquidity into the system. This is a signal to the market that dollars remain coming in and that the currency can remain stable, which it's done despite all these inputs that we discussed with the economic challenges facing the country.

VANEK SMITH: Alex says the stoppage of this cash infusion is a big deal. It means less liquidity on the ground where people were lining up Thursday to withdraw cash from reopened banks and ATMs. He says Afghans also rely on a money-transfer system that may soon be cash strapped.

ZERDEN: The hawalas, which is the informal money exchange system, which is really the major driver of the economy - it's this local traditional Western Union or MoneyGram system of an agent-based system to transact money around the country and around the world. And so those are running short on dollars as well, physical dollars. And so I think there's a lot of uncertainty on the ground among the Afghan banking and hawala communities, as well as the broader business community and marketplace, and tremendous uncertainty among the Afghan people about the security of their deposits.

VANEK SMITH: And meanwhile, like our grocer said, prices are going up.

ZERDEN: Yeah, prices are going up, so for basic staples. The other level set is that Afghanistan's a terribly poor country. So President - former President Ghani identified last year that 90%, or about 36 million Afghans, live below the poverty line, which is identified at about $2 a day. And we didn't talk about the drought. We didn't talk about persistent unemployment. And so it's a really, really challenged dynamic going into this crisis that's not likely to improve in the immediate term.

VANEK SMITH: Alex says it's hard for him to believe that the Taliban didn't know there would be consequences for its actions. And no one really knows how much capability the group has to run things without international aid.

ZERDEN: International assistance and heroin is what props up the economy there. I mean, and they run the heroin trade. So the fact that the Taliban was so obtuse that they were going to jeopardize this money or so unaware that they just didn't know that this money was 40% of GDP, was such a huge part of the Afghan economy, I mean, I just don't find it credible, to be honest, from the Taliban side, that they didn't know, they didn't think there were going to be consequences of violently taking over the country, of walking away from a peace process and negotiating in bad faith, making huge battlefield gains, terrorizing the Afghan population and then taking over, that there wouldn't be some type of consequences.

VANEK SMITH: So we don't know if the Taliban can run, basically, the economy of a country.

ZERDEN: Yeah, we have no visibility. I have no confidence in what their capabilities are. Is this the Taliban from the 1990s? Seeing some reflections or indications that they are more educated, some, you know, have studied abroad maybe, speak English, have some training in studies beyond kind of the core Taliban or core madrassa curriculum in Pakistan and in the tribal areas of Afghanistan as well - and so I hope they have technical capabilities.

Now, they control a government. They control a $20 billion economy. They control borders. They control a central bank, a banking system, a hawala system. They control a large military armory that they've now taken over as well.

VANEK SMITH: And of course, their control over what will happen to women.

ZERDEN: Afghanistan cannot thrive without having women in the economy, full stop. And the gains made over the past 20 years to get women educated, girls educated, to have women in the workforce, to have greater social mobility within the country and access to things like technology, education, health care, remain imperative. And that's in peril now.

And again, the policy tension right now is getting support to the Afghan people while not unjustly enriching or legitimizing the Taliban for their violence, for their treatment of women, treatment of minorities, rejection of freedom of the press, their terrible track record on human rights. And so that gives me real concern, and that's what keeps me up at night as well.

VANEK SMITH: Thank you, Alex.

ZERDEN: Thank you.


VANEK SMITH: This episode of THE INDICATOR was produced by Julia Ritchey. It was fact-checked by Michael He and Kaitlyn Nicholas (ph). The show is edited by Kate Concannon. And THE INDICATOR is a production of NPR.


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