Rebuilding Afghanistan

16. 01.02 

By: Abdul Aziz Babakarkhail 

Introduction:

War and invented armed battles among warring groups have resulted in the destruction of physical infrastructure; production means and facilities have been ruined. As a result, flow of goods and production inputs are disrupted while-the labor force has had to either been displaced or fled the country, leaving Afghanistan with (i) a severe brain drain and (ii) degradation of labor quality owing to discontinuity with its work. 

The rule of law, public security and political stability has been largely absent. Armed battles – a derivation of the political rent seeking games, staged by the warring factions to attain absolute political power – have resulted in pure anarchy. Consequently, political, social and economic institutions have become non-existent, and the socio-economic dynamics of the anarchy have invented the war economy. The war economy is comprised of opium production, drug trafficking and extraction of natural resources as well as foreign patronage aid, smuggling of transit trade goods and printing of Afghani (Afghan currency) banknotes. The anarchy and the war economy reinforced each other, keeping Afghans hostage to the vicious circle of conflict and poverty. 

The introductory paragraphs are meant to give us a general picture on the social, political and economic spheres of today’s Afghan society. In the rehabilitation and rebuilding process we should deal with the problems arising from the three mentioned areas (political, social and economic) and their sub-areas. The reconstruction of a war-torn country such as Afghanistan must not be limited to the installation of physical capital alone. 

A strong interdependence exists amongst the major three areas. A negative movement in one generates an adverse shock in all three, particularly in the economic area. In Afghanistan, political instability and insecurity produce economic distress and discourage foreign and domestic investments. On the human capital side, security and political stability are both needed for the Afghans in diaspora before they can return and become active in the rebuilding process. The return of Afghan intelligentsia will complement the technical, academic, and managerial foreign assistance, which, to some extent, are provided as loans to Afghanistan.  

Therefore, reconstruction plans may not overlook this critical interdependency. With a comprehensive reconstruction strategy we will be able to involve the whole Afghan nation in the rebuilding process, thereby breaking down the vicious circle of conflict and poverty. 

Reconstructing Afghanistan also triggers great challenges. The best way to meet these challenges is to revive institutions in political, social and economic dimensions. Furthermore, there must be concerted efforts to build an efficient and effective government bureaucracy staffed with highly qualified professionals. There should be tightened and clarified standard for hiring civil servants. Only through organized and well-planned reconstruction efforts could we lay down a sound foundation for a stable and prosperous Afghanistan. 

Specification of the priority areas:

Firstly, it is worth noting that this paper is not a blueprint for reconstruction. Since reconstruction is a rather significant and crucial undertaking, a multidisciplinary forum should therefore devise the blueprint. It is also timely to emphasize the fact that there is a need to understand how the reconstruction process should look like and what challenges lie ahead in its implementation. Perhaps a scenario analysis could be the best approach for describing the reconstruction plan by specifying the priority areas and identifying the possible challenges. 

The existence of a strong link amongst the three aforementioned building blocks necessitates that rebuilding processes must proceed simultaneously. Their convergence will be the realization of a long aspiration by Afghan people for a stable and economically prosperous Afghanistan. Following is a discussion of the three major areas and their sub- areas:

Political rehabilitation: The only curing prescription for the ailing Afghan political landscape lies in the empowering of its citizens to take part in shaping their political destiny. Mass participation is possible if and only if politics are institutionalized. The barrel of gun should leave its place to the rule of law. Power should move to people via democratic institutions in due time. The following issues must be resolved in order to convert Afghanistan from a failed state to a functioning and mature one:

- rebuilding of an effective and efficient state bureaucracy

• legislative institutions
• judicial institutions
• administrative force
• constitution
• human rights
• national military force
• election
• freedom of the press

Social rehabilitation: Twenty-three years of war has struck a sever blow to Afghanistan’s social system, rendering many of its institutions either paralyzed or obsolete. A concerted effort is necessary in order to rebuild all of the following areas:

• health and nutrition
• education
• landmines
• employment
• peace building on the community level
• vocational training and skill learning
• demobilization of the warring factions
• restoring a national Afghan identity
• women’s active participation in at work and politics
• environment
• combating corruption

Economic reconstruction: Before we discuss the areas under this topic, it is appropriate to study international aid in realm of reconstruction and the challenges in economic policies that lie ahead. International aid can be given as grants and loans. Loans can be concessional (soft) and hard; concessional loan is repaid over a long period with an easy repayment schedule. To understand how financial aid functions in the economic institutional context, we need to know some basic relations in national income accounting. Let C, I, G, X and M denote respectively consumption, investment, public expenditures, export and import. Let S and T respectively indicate saving and tax revenues. The national income identity is as follow:

C + I + G + X º C + S + T + M 

In simple words, total expenditures º total allocation

Rearranging the identity, we obtain:

(I + G) – (S + T ) = ( M – X)

In the reconstruction process Afghanistan will be the recipient of an unprecedented increase in investment (I) and public expenditures (G), implying (I + G) >0 while saving (S) and tax revenues (T) are zero, ( S + T ) £ 0. On the other hand imports (M) will increase since Afghanistan will import capital goods while exports total X £ 0. International aid that comes as a cash flow will finance domestic macroeconomic shortage of resources, (S + T). In addition, the aid will finance imports or deficit in Afghanistan’s balance of trade, (M – X) >0.

Economic policy implications of the aid: Afghans begin the reconstruction with high inflation and unstable currency. In the short term, the flow of cash will enable the authorities to stabilize the currency and control inflation – though not an easy task considering the country’s minimal production capacity. In the intermediate term, the government needs room for maneuvering fiscal and monetary policies in order to stabilize macroeconomic fluctuations and unexpected shocks. These challenges will be manageable with a sustained flow of aid to the new Afghan government. However, in the long run, Afghanistan will face serious policy issues unless sound economic policies are instituted and monitored closely. 

In the long run, it is expected that the Afghan economy is on a steady-state growth path and Afghans are capable of servicing their debts. In reality, macroeconomic problems inherited from the short and mid-term policies of the reconstruction process will, in the long-run, constraint the free maneuvering of economic policies. The most visible of these problems will be inflation and an unstable currency. Issues related to the instability of a currency trigger flight of capital to safer destinations, thereby reducing national reserves. Finally, in addition to the debt burden, the economy will end up in an inflation trap  

Could Afghanistan meet its future challenges?

A carefully co-ordinated reconstruction effort combined with an elaborate and sound economic policy could provide a solid base for the economic recovery. In order for a country to develop and experience growth, the authorities should strive to form and improve as well as make optimal use of (1) physical capital, (2) human capital, (3) natural resources including land, minerals and energy reserves, and (4) innovations and technology. An effective use of these elements is possible through allocation by the market itself. However, conscious efforts must be made in order to help the market function efficiently. Though war has degraded these resources greatly, the reconstruction community can salvage and improve upon their utilization through careful co-ordination and discipline. 

Since Afghanistan had a centrally planed economy prior to 1992, authorities must execute an appropriate institutional framework. A centrally planned economy is no longer a viable option for Afghanistan. Nor is a rapid transition to a market economy at such early stage. A hybrid system of planned and market economy is most fit for the current environment. 

The most appropriate strategy for enlarging productive capacity of Afghanistan is to attract both national and foreign investment. In order to achieve this goal, Afghan authorities must avoid strict regulations on investment. Instead, rules and regulations should be designed to encourage investment. The following are the priority sub-areas under the rubric of economic reconstruction that need to be focused on: 

• Physical infrastructure
• Agricultural or rural sector
• Financial system
• Urban informal sector
• Energy and natural resource sector
• Traditional export sector
• Statistic Central Bureau
• Formation of human capital
• Innovations and technology
• National tax system

Physical infrastructure: Physical infrastructure is the most important investment that must be undertaken in the reconstruction process. A developed infrastructure is necessary for improving the citizens’ quality of life and the economy to function properly. In other words, developing of public utilities and public works has both economic and social returns. Last, re-engineering of the infrastructure must meet the demand of the modern age. The following sub-areas come under the rubric of the physical infrastructure: 

Public utilities: Power, transportation, telecommunications, clean water, sanitation, sewerage.

Public works: dams, canals, irrigation, roads, urban transportation and airports. 

Agricultural or rural sector: Agriculture sector plays a significant role in Afghanistan’s development. Apart from the theoretical reason of its importance in the economic development, the agriculture sector has its own merits due to socio-economic conditions in Afghanistan. The largest share of the afghan population is settled in the rural areas. 

The well being of the rural population and availability of food in urban centers depend on the production in the agriculture sector. There are strong economic reasons to focus on the rehabilitation of this sector. First, one expects Afghanistan to be self-sufficient. Having achieved this goal, Afghans will be able to invest the foreign exchange reserves in development projects rather than importing food from abroad. Second, the production surplus could either be used to improve productivity in this sector or as investment in other sectors of the economy. 

As a result, the economy will experience a positive demand stimulus or an investment push on the supply side. However, efforts must be made to alleviate poverty in the rural sector. Reduction of poverty in the largely populated sector at the outset of reconstruction will quickly stimulate the economy. People in the rural areas should be provided with adequate health and education facilities. In addition, measures must be taken to improve productivity, for instance, by making irrigation systems as well as provision of fertilizers and improved seeds. If disparity of income and other welfare facilities between the rural, agriculture sector and the urban centers is large, it will induce migration towards urban areas. Hence, unemployment and slums in the urban areas will appear and experience a steady rise. 

Financial system:

In order for the economy to function, it needs to have a well-organized financial system. Central bank functions at the core of a financial system. The central bank controls the supply of money and supervises overall financial activities in the country. A physical building of central bank exists in Afghanistan, yet there has been nearly unlimited supply of printed money injected into the economy. Combined with low production capacity, it has therefore resulted in devalued Afghani and hyperinflation – in addition to increased armed combats. Other components of the financial system are commercial banks, saving institutions and insurance companies. 

For the stimulation of savings and investment, it is imperative to have a well functioning network of banks and credit market. 

Conclusion: 

Afghanistan’s proper reconstruction is bound to be a comprehensive and demanding task. There should be co-ordinated efforts in the reconstruction process to cover the political, social and economic spheres of the society. By doing so, Afghanistan will fend off negative and adverse shocks initiated in one area then rippled into others. Therefore, a net positive impact will result from their interaction, a desirable scenario for the reconstruction process. Arbitrary or isolated repair of war damages and visible wear and tear throughout Afghanistan does not translate into its rebuilding. One cannot exclude issues of social, human and economic development at the outset of the reconstruction process. These factors must be dealt with on a profound level. 

The areas listed above exist in abstract, not necessarily in physical terms. However, they take precedence if the aim remains restoration and establishment of functioning institutions. This way we may lay down a sound and solid foundation for the reconstruction of a prosperous Afghanistan, with the ultimate objective to enable the present and future Afghan generations to determine their political, social and economic destinies. 

Capturing the essence of efforts to reconstruct Afghanistan in terms of human development, the objectives are: 

1-Life sustenance: Afghans should be assisted and provided with basic tools to fight and eliminate poverty. 

2- Self-esteem and self-reliance: Conditions should be created so that Afghans will no longer be trapped into exploitation by individuals and groups of people. Help Afghans serve their country with dignity and honor and be respected and active citizens of a free world community. 

3-Freedom: Afghans must be released from the imprisonment of (a) want, (b) ignorance and (c) squalor.  

Help Afghans determine their destiny on their own rather than accepting the established decadent rules that have prevailed in the country for 23 years.