Amid Kabul Bank meltdown, Afghans question U.S.-style capitalism

The rapid turnabout in Kabul Bank's fortunes has led Afghans to question Western-style free-market capitalism.
By David Nakamura and Ernesto Londoño
Washington Post Foreign Service
Wednesday, September 8, 2010; 10:49 PM

KABUL - Kabul Bank became the pride of Afghanistan's financial system by offering the conveniences and thrills of 21st-century capitalism: branches in far-flung provinces, plentiful ATMs, and lottery prizes of cash and houses.

But the scene outside the bank's headquarters Wednesday was far from that modern ideal: Police used batons to beat back hundreds of government employees desperate to cash their paychecks amid fears that Kabul Bank will go bankrupt because of alleged corruption among its top executives.

This rapid turnabout in Kabul Bank's fortunes has led Afghans to question whether Western-style free-market capitalism is just another broken U.S. promise, along with secure neighborhoods, transparent elections and ambitious development. Many here blame the United States, saying it did not provide strong oversight and alleging American complicity in last week's financial meltdown.

"The problem with the U.S. is they always implement the modern formula in Afghanistan, and that's not possible in a country like this," said Siddiq Ahmad Usmani, chairman of the Afghan parliament's Budget and Finance Committee. "They're responsible for whatever crisis will come to our country."

Depositors have mobbed Kabul Bank over the past week, withdrawing $300 million of its $500 million in cash assets. Some have sought to move their money into accounts at one of two national banks run by the Finance Ministry. Those two banks have received new deposits this week totaling $60 million, a ministry official said.

But many others who closed their accounts said they intend to keep their money at home. Only 5 percent of Afghans have a bank account, so this vote of no confidence could be devastating to the nation's fledgling banking sector.

"I would never keep my money in the bank," said Shafaq Gebarn, 31, an employee at the Education Ministry who was among scores waiting outside a Kabul Bank branch this week to cash his paycheck. "I'd rather keep it in a pot at home. I'll get a pistol and two hand grenades to protect it."

For centuries, Afghans conducted financial transactions almost exclusively through the "hawala" system, a trust-based network of money handlers who took cash deposits and arranged for them to be collected by clients' business partners or relatives in other provinces. The deals were sealed with handshakes rather than paperwork.

Even today, some Afghans say they prefer the hawala system because of its personal touch. Bari Hashimi, 50, an executive at a financial company, said he intends to withdraw the $10,000 he has deposited in Kabul Bank.

"These things that have happened in the last week have destroyed our trust," Hashimi said. The hawala system might not be perfect, he added, "but at least if it's a person [you know], you can get your money back by any means."

A bar to terrorist funds

Because hawalas operate with no official oversight and produce virtually no paper trail, their popularity was a major concern for U.S. officials after the Sept. 11, 2001, attacks. American officials sought to implement a Western-style banking sector in Afghanistan that would make it more difficult for terrorists to get money, while promising Afghans that a regulated financial system would be more reliable and trustworthy.

Over the past nine years, U.S. officials have spent millions of dollars building Afghanistan's banking sector from the ground up. Treasury Department and USAID officials worked alongside the Afghan Finance Ministry and the government-controlled Central Bank, designing a financial system that now has $3.6 billion in assets.

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