(Adds comments from IMF mission chief starting in fifth paragraph.)
Nov. 15 (Bloomberg) -- Afghanistan secured a $134 million loan from the International Monetary Fund to ease a withdrawal of international military forces and shore up the economy after the country took steps to strengthen its financial system.
The IMF’s executive board today approved the three-year loan program, according to a statement on the Washington-based lender’s website. The action immediately enables an initial disbursement of about $18.9 million, the statement said.
The decision signals conditional approval of policies in Afghanistan, which may enable the disbursement of $100 million that had been withheld by the Afghanistan Reconstruction Trust Fund pending an agreement. Still, authorities must do more to restore confidence in the financial sector by acting more aggressively to recover assets and prosecute those responsible for fraud related to the collapse of Kabul Bank, IMF Deputy Managing Director Nemat Shafik said.
“After the collapse of Kabul Bank, the authorities took action to contain the situation and prevent a broader financial meltdown, including providing a full deposit guarantee,” Shafik said in the statement. “Asset recovery and legal actions against the architects of the fraud have lagged and need to be pursued more forcefully. It is important that the relevant prior action is fully met before the first review of the program.”
Afghan authorities estimate that the Kabul Bank assets they are trying to recover are worth $935 million, IMF mission chief Axel Schimmelpfennig told reporters on a conference call today. They have also signed voluntary repayment agreements with shareholders worth $270 million, he said.
The government took over Kabul Bank, the country’s biggest commercial financial institution, in September 2010. Two former executives of the bank were arrested in June on charges of embezzling more than $900 million.
Azizi Bank, another domestic lender, will also boost its capital by $10 million this year and by as much next year after an agreement with the central bank because of volatility on its balance sheet, Schimmelpfennig said today.
Audits for the 10 banks of Afghanistan are continuing, he said.
Shafik highlighted Afghanistan’s economic progress, citing growth that has averaged more than 10 percent in the last five years and moderate inflation.
“Over the next three to five years, the withdrawal of the international military presence and expected decline in foreign aid will pose significant economic and policy challenges,” Shafik said. “The government will have to take over activities currently financed by donors, including shouldering a larger share of security spending.”
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