Explainer: What leverage do U.S., allies have over Taliban in Afghanistan?

MoneyGram International

02/09/2021 06:00

By Andrea Shalal
    WASHINGTON, Sept 2 (Reuters) - The United States and its
allies may have left Afghanistan in the hands of the Taliban but
they still have "leverage" to make the Islamist militants honor
commitments to allow people out of the country, according to
U.S. President Joe Biden.
    This was echoed by U.S. officials and other Western leaders,
who believe the Taliban can be pressured into abandoning their
past violence and support for terrorism with carrot and stick
measures given Afghanistan's outsized dependence on imported
energy, food and foreign aid - and its shaky economy https://www.reuters.com/article/worldNews/idUSKBN2FX39Q.
    Here are some of the most important levers the West has to
press the Taliban into honoring women's rights and cooperating
with other countries:
    
    BILLIONS IN GOLD, FOREIGN EXCHANGE AND SPECIAL RESERVES
    The United States has an outsized role to play in deciding
what happens to Afghanistan's $9 billion in gold and foreign
currency reserves. Of that, $7 billion is held in the United
States, with $1.3 billion in other international accounts and
some $700,000 by the Bank for International Settlements, the
Afghan central bank governor tweeted https://twitter.com/aahmady/status/1427883009164955649
 after fleeing the country.
    Washington quickly blocked After the Taliban takeover, the
U.S. government blocked the group from accessing any central
bank assets held by the Afghan government by the New York
Federal Reserve or elsewhere in the United States, an
administration official said the Taliban from accessing any
central bank assets held by the Afghan government by the New
York Federal Reserve or elsewhere in the United States, and the
assets remain frozen.
    The International Monetary Fund (IMF) suspended https://www.reuters.com/world/asia-pacific/biden-administration-seeks-block-taliban-accessing-reserves-imf-new-york-times-2021-08-18
 Afghanistan's access to IMF resources on Aug. 18, including
$440 million in new emergency reserves.
    Washington is under pressure from some humanitarian groups,
Afghan central bank officials https://www.reuters.com/article/afghanistan-conflict-banking/afghanistan-central-bank-board-member-urges-biden-imf-to-release-funds-idUSL4N2Q31YG
 and foreign governments, including Russia, to ease the freeze
in assets and allow some dollar shipments, a move that would
likely come with stiff conditions.
    The Taliban is likely to turn to narcotics or weapons
trafficking instead, a Russian official said on Monday.   
    
    RELIANCE ON IMPORTS 
    Afghanistan relies on imports for the lion's share of the
food and fuel consumed and clothing. It imported https://wits.worldbank.org/countrysnapshot/en/AFG
 $8.6 billion in goods in 2019, topped by peat, wheat and
petroleum, according to World Bank data. Some 70% of electrical
power is imported at an annual cost of $270 million.
    The Taliban cannot pay for such imports without access to
dollars and Afghanistan's foreign currency reserves; it had
enough reserves to pay for an estimated https://www.ft.com/content/6395d167-3175-4332-8329-ae1478c616ca?shareType=nongift
 two days of imports when overseas assets were frozen. The U.S.
and allies could condition access to dollar transactions or
reserves on Taliban behavior.
    
    FOREIGN AID
    The U.S. plays a major role here too, given its influence at
both the World Bank, which oversees the Afghan Reconstruction
Trust Fund, and the IMF, and because of the billions it has
given the Afghan government and NGOs on the ground. 
    The World Bank cut off funds to Afghanistan after the
Taliban takeover. The future of the Fund is unclear.
 urn:newsml:reuters.com:*:nL1N2PV265
    Last week, the U.S. Treasury issued https://www.reuters.com/world/asia-pacific/exclusive-us-treasury-issued-new-license-ease-flow-aid-afghanistan-2021-09-01
 a limited new license for the government and partners to give
humanitarian aid in Afghanistan, a step that could encourage
other governments to do the same. 
    Before Aug. 15, grants to Afghanistan totaled around $8.5
billion a year, or about 43% of its gross domestic product. They
funded 75% of public expenditure, 50% of the budget and about
90% of government security spending.
    Any resumption of Afghanistan's access to these resources is
likely to be made conditional on Taliban behavior.     

    FINANCIAL SANCTIONS
    The Taliban as a whole, and individual Taliban leaders, are
already subject to U.S. and United Nations sanctions that
effectively ban their access to dollar transactions and the U.S.
financial system. 
    Western financial institutions are avoiding doing business
with the Taliban, so they don't run afoul of U.S. law. Unwinding
these sanctions would require a lengthy and complex process by
the U.S. Treasury, administration officials say, but the
department could grant licenses for more transactions based on
Taliban behavior.
    
    WITHHOLDING PRIVATE BANKING SECTOR SUPPORT  
    Pressure is building on Afghanistan's private banking sector
given the freeze in dollar shipments. All of the 12 banks
operating in Afghanistan require overseas banks to process
dollar transactions, and three are state-owned, making them
directly controlled by the Taliban.
    Citibank and others have halted such support to avoid any
possible sanction violations.
    The Afghan-American Chamber of Commerce, which includes
Afghan commercial banks and corporate investors, is urging U.S.
officials to allow a limited infusion of cash to regenerate
public confidence and avoid possible panic and violence.
        
    REMITTANCES
    Afghanistan also relies heavily on remittances, with such
payments from migrant workers overseas accounting for about 4%
of the country's gross domestic product.
    Western Union https://www.reuters.com/business/western-union-suspends-services-afghanistan-2021-08-19,
 the world's largest money transfer firm, and Moneygram have
both suspended such services, shutting off the flow of funds
that many families rely on to pay for food. Reopening these
services would require an easing of U.S. financial sanctions.

 (Reporting by Andrea Shalal and David Lawder; Editing by
Heather Timmons and Grant McCool)
 ((andrea.shalal@tr.com; +1 202-815-7432;))