Economy & Development

The Rise and Fall of the Kabul Bank – making the details public


Much has been written about the Kabul Bank crisis. A series of confidential investigations and audits have described the legal violations and technical processes involved in the bank management’s fraudulent operations, and most of these reports were fairly widely leaked. Media appearances by the various protagonists and representatives of government institutions involved in the follow-up have added to the picture and resulted in a unique mosaic of colourful detail, heated accusations and public arguments (1). But to date there has been no official public record of what happened. That will change tomorrow.

After the Kabul Bank collapsed and the government stepped in to stem the hemorrhaging of both the money and the confidence in the country’s financial system, the Afghan government and the international donors started a protracted conversation on how to deal with the crisis. The hand of the donors was strengthened by the fact that a crucial IMF loan, the Extended Credit Facility, had expired, allowing them to insist on a set of detailed benchmarks, one of which was the launch of an independent, in-depth public inquiry. The job of implementing the inquiry was given to the Independent Anti-Corruption Monitoring and Evaluation Committee (MEC), a government-appointed independent body consisting of three international and three Afghan commissioners and a Secretariat.

Based on the conditions of the IMF loan the inquiry covers the period from the bank’s licensing up to February 2012. The scope of the inquiry goes beyond the causes and technicalities of the crisis and extends to the role of the government, the central bank and the judiciary (specifically “the appropriateness, effectiveness and timeliness of the response… for the purposes of safeguarding the financial sector, deal with governance issues, and implement Afghan law”). The public details may therefore be embarrassing for quite a number of people involved. Although the report will mention no names, it will in most cases be easy to understand who is implicated.

It is not clear what the impact of the report will be. In terms of the donors, the release satisfies an important benchmark and will be counted as a positive step. On the other hand, the media attention that the report will provoke and the additional details that may be revealed – particularly on the slow, ambiguous and in some cases reluctant handling of the crisis – will undoubtedly echo among publics at home, rekindling difficult questions.

The reaction among the Afghan public is likely to be mixed. Many of the details are already known, but have not necessarily been widely disseminated. What is likely to reverberate, more than the actual substance of the report, is how the national and international media respond and, after that, what the Afghan government’s reaction is. The New York Times already opened with an article based on an earlier forensic audit – confidential, but obviously leaked – in March 2012 by Kroll, under the headline Audit says Kabul Bank Began as ‘Ponzi Scheme’. The article was extensively reported on in the national media, including the hourly news on television. President Karzai, on the other hand, reiterated his view of the international media and think tanks as spreading negative reports about Afghanistan’s future, during a speech at today’s National Industrial Conference.

The government may see the renewed media attention as the rehashing of an old case – from the beginning there has been a tendency to insist that the case was overblown, or even created, by the international media and donors. The renewed attention may be seen as part of a continued attempt to force the Afghan government into submission, among others in the context of the Bilateral Security Agreement negotiations with the US and the preparations for the upcoming elections (see also here). It is to be hoped that any rumour that may surround the release of the report will not detract from its main aim: to provide a full account of what happened and in doing so help improve the system.

(1) The Chairman and CEO of the Kabul Bank, for instance, engaged in a fascinating session of accusations and counteraccusations during a live television talk show, and more recently during the Special Tribunal’s trial proceedings that were shown on Afghan television.

 

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Thematic Category: Economy & Development