Afghanistan: Money can be the milk of Taliban moderation

Will the realities of needing a functioning economy to run Afghanistan effectively be enough to temper the worst of the Taliban’s policies?

The World Today
4 minute READ

Dr Vanda Felbab-Brown

Director, Initiative on Nonstate Armed Actors and Senior Fellow, The Brookings Institution

Victorious on the battlefield, the Taliban now confronts the hard challenge of governing – and not the shadow governance it has effectively practiced for years but the real difficulty of running the country. Nowhere will this challenge be bigger than in managing the Afghan economy. 

That does not mean Western economic pressure can either radically transform the Taliban or easily bring the regime down through bankruptcy. At best, a skillful use or denial of Western aid combined with other tools can shape the Taliban’s behaviour only at the margins to reduce its worst policies. 

Still such pressure and incentives should be tried without worsening an already precarious and deteriorating humanitarian situation in the country.

The rentier state

For decades, Afghanistan has been a country dependent on foreign aid and illicit economies. Formal legal revenues made up a much smaller portion of the country’s revenues and the government’s operating budget. 

The EU and several of its members have long threatened aid cutoffs if the Taliban took over the country, declared an Islamic Emirate, and violated human and women’s rights. Now the Taliban has done all of that. 

The US immediately froze $9.5 billion in Afghanistan’s central bank assets. The International Monetary Fund blocked access to $460 million. And the EU has suspended aid. International donors had been providing 75 per cent of the government’s operating budget, and the US and NATO had paid around $4 billion each year to fund the Afghan forces.

Cash liquidity in Afghanistan may drop which will drive up inflation – including food prices

The immediate effects of the financial squeeze in place is that cash liquidity in Afghanistan may drop which will drive up inflation – including food prices – while disadvantaging Afghanistan’s poorest and the hundreds of thousands of internally displaced people. 

It may also mean soon the Taliban government will lack money to pay civil servants or teachers unless it can maintain its long-standing revenues from transport and illicit activities, which is uncertain.

Where are the donors?

Non-western countries may stump up, but the signs do not look promising. Saudi Arabia, which along with the United Arab Emirates (UAE) has recognized and funded the Taliban since the 1990s, has lately not been generous with its aid to Pakistan and elsewhere. The UAE has used fairly small pots of money to cultivate specific political proxies and militias rather than give large financial packages, while Pakistan, long supporting the Taliban militarily, is economically stagnating. 

China is concerned by security challenges and high levels of corruption

Iran, as with Russia and China in recent years, has made its peace with the Taliban, formerly its enemy. However, it has been bankrupted by US sanctions so, although seeking good relations with the Taliban, has not been generous with economic aid to Afghanistan. 

China has the deepest pockets but has not rushed in to extract the presumed $1 trillion worth of minerals beneath the Afghan dust, much to the chagrin of the Ashraf Ghani government which sought to cultivate China to get such extraction going. 

Concerned by security challenges and high levels of corruption in Afghanistan, China only bought a few licenses to preempt others but ended up investing little into building extraction infrastructure or actually extracting. Nor did China include Afghanistan in its Belt and Road Initiative (BRI). 

China, Russia and Iran will also not be focusing on human and women’s rights and political pluralism in their economic bargaining – at best, they will protect their political clients while pursuing their own counterterrorism interests.

Transport to the rescue

Whether the Taliban manages to keep the lucrative transport trade through Afghanistan will depend on whether it sufficiently satisfies those counterterrorism interests of China, Iran, Russia, and Central Asia. 

China opposes any support for Uighur militants from Afghanistan, including the Taliban’s Uighur units. Russia and Central Asia do not want to see any activities of the Islamic State (IS) in Khorasan to leak into Central Asia and beyond. Iran also does not want terrorism leakages into its territory. 

Taxing the transport trade through the country has long been the Taliban’s strategy

Only if the Taliban keeps its commitment to prevent the leakage terrorist activity into their countries from Afghanistan will they keep their borders open and transport trade thriving.  

Taxing the transport trade through the country has long been the Taliban’s strategy – in the 1990s, this brought the Taliban as much money as drugs. At the peak of NATO’s surge in Afghanistan when 150,000 of its soldiers were in the country, the Taliban’s ‘taxes’ on truckers supplying NATO likely even surpassed the Taliban’s income from drugs, being tens of millions of dollars at least, maybe up to $100 million annually. 

The poppy tightrope

Heroin production brings in hundreds of millions of dollars and the Taliban has sponsored and taxed the heroin economy since the 1990s. Highly labour-intensive, the poppy economy has been a principal source of employment in Afghanistan along with the security sector. 

Those who attempt bans – as the Taliban did in the 1990s – or eradication – as the international community and the Afghan government did post-2002 – find themselves facing significant losses of political capital and violent opposition.

The Taliban will likely bargain with the international community for recognition and economic aid before attempting any extensive bans

As in the 1990s, the Taliban will likely bargain with the international community for recognition and economic aid before attempting any extensive bans. But it also understands Iran, China, and most importantly Russia, would be pleased to see bans even in the absence of alternative livelihoods which take decades to develop.

Another risk of trialling a shutdown of the poppy economy is losing its established European market to be replaced with synthetic opioids. Chinese- and Indian-produced synthetic opioids, preferred by traffickers over bulkier heroin, have swept North American drug markets with devastating consequences. India’s tramadol, already a key substance of abuse in Africa, can replace Afghan heroin there, and possibly Afghanistan can expand its emerging meth production.

Regimes can long survive under sanctions and exist on illicit trade even as their legal economies have tanked, and people become impoverished. These economies can also be more traditional, reliant on minerals, timber, wildlife, or drugs. Or they can be more sophisticated based on ransomware and counterfeits.

Not every dollar is the same

Under terrorist and other sanctions, the Taliban cannot put its illicitly-generated revenue into international financial systems, a major hurdle which will inhibit legitimate investors. 

China, Iran and Russia and global money-launderers and fixers may be willing to share their knowhow of avoiding US sanctions

China, Iran and Russia and global money-launderers and fixers may be willing to share their knowhow of avoiding US sanctions through virtual currencies and unregulated money exchange platforms but that would be a steep learning curve. 

Financial sanctions will also make it difficult – or impossible – for international NGOs to continue providing humanitarian aid to Afghanistan where some 14 million people already exist in conditions of malnutrition and where COVID-19 gravely increased poverty. 

The Taliban knows how to deliver a brutal order, suppress crime, and provide swift dispute resolution but it does not have the capacity to build hospitals, deliver medical care, and build modern water, electricity, and infrastructure systems. It needs technocrats and foreigners to perform these functions or the services will wither. 

Humanitarian exceptions to sanctions

For essential humanitarian reasons, giving international humanitarian NGOs exceptions from the terrorism sanctions makes great sense, especially as impoverishing people further will not bring the Taliban regime down.

And economic sanctions, even blanket and resolute, will not make the regime embrace democracy and human rights – in fact, blanket sanctions are likely to make things worse not just for Afghan people but also in making the Taliban even more intransigent. Setting unrealistic objectives such as preserving the freedoms and rights of the 2004 constitution will go nowhere. 

US and international bargaining should centre on specific money accounts for specific asks

US and international bargaining should centre on specific money accounts for specific asks focused on ensuring the worst of the Taliban’s oppression is avoided, such as a prohibition on women leaving households without male guardians, no education for women, and no employment opportunities. 

These economic tools must be supplemented by offering or denying specific Taliban commanders visas, and access to specific international forums for a Taliban government, both temporary and conditioned. 

In the foreseeable future, the best outcome is an Iran-like regime, which means being brutal and authoritarian but with technocrats, some changes of executive power under a supreme council, and a legislative body, as well as giving covered women access outside the house and to education, healthcare, and some jobs. 

The research reported here was funded in part by the Minerva Research Initiative (OUSD(R&E)) and the Army Research Office/Army Research Laboratory via grant #W911-NF-17-1-0569 to George Mason University. Any errors and opinions are not those of the Department of Defense and are attributable solely to the authors.