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Thursday, 21 March, 2002, 00:20 GMT
Afghanistan's new economic start
Afghanistan starts its new financial year on Thursday with more money but far greater challenges than ever before.
Last year, the virtually defunct economy was battered beyond belief. The budget was obliterated by war while public sector workers were left unpaid.
However, the war-torn nation starts its new financial year with substantially more money than in previous years.
And the key difficulty ahead lies not in securing funds, but in working out how to manage the influx of aid.
More than a billion dollars of aid will be fed into the economy during the new financial year alone.
That aid is Afghanistan's only chance to rebuild, ensuring economic stability and reducing poverty in the long term.
"Suddenly there are 101 expatriate agencies here, renting properties, buying carpet and paint and pushing the price of everything higher," said Dr Jo de Berry, a development adviser for Save the Children based in Kabul.
The rent of Save the Children's Kabul office increased from $500 a month before 11 September to $6,000 a month in January, forcing it to move to new premises.
"It's becoming much more expensive to do what we do, but there is also much more money around," explained Dr de Berry.
The influx of dollars, together with renewed political optimism, has seen the local currency strengthen dramatically, from about 70,000 Afghanis to a dollar before 11 September, to 35,000 Afghanis in March.
That has made life much more expensive for many civil servants, aid workers and traders who are paid in dollars but must buy clothes, fuel and food in Afghanis.
The currency fluctuations have hit traders who deal in goods across the border to Pakistan particularly hard.
Cross-border trade with Pakistan makes up a good chunk of the informal economy in a country which is otherwise almost entirely dependent on agriculture.
But - as with almost everything in Afghanistan - no one knows how long current circumstances will prevail.
Many aid agencies are considering putting up the salaries of their Afghan employees to compensate for the squeeze.
"But nobody knows whether the strength of the Afghani will be a blip or a sustained trend," Dr de Berry said.
According to the International Monetary Fund (IMF), there are three currencies in circulation and more being printed.
And this risks making the fragile economy even more vulnerable.
"Unless the issuance of new Afghan banknotes not backed by the central bank is stopped, it could lead to massive inflation and destabilise the economy," the IMF warned.
The Afghan authorities are clear that a new, single currency will have to be established, but devising a new currency which is acceptable to all parties is proving to be a lengthy and controversial process.
The need to solve the currency difficulties and establish a budget for the new financial year have both been highlighted by the IMF as priorities.
Also on the list for urgent action is the need to improve the work and efficiency of key institutions such as the ministries and the central bank.
Speaking to the World Bank president earlier this year, Hedayat Amin-Arsala, Finance Minister of the Interim Administration, called the chance to rebuild "a great opportunity".
"Our institutions have been substantially weakened, but they are there. We will need support to help us rebuild these institutions and to revive our economy," he said.
"We do have a great opportunity now: we should not think in terms of taking Afghanistan back to where it was in 1978 [pre-conflict]. We must think creatively, embracing strategies and technologies for Afghanistan to leap ahead on a faster development track."
Victims of nature
Paul Chabrier, the IMF's Middle East director, estimates that it will take two to three years to see the economy functioning reasonably well, provided that security is re-established over the whole of the territory and that the basic infrastructure for agriculture is reconstructed.
The country's agriculture-dependent economy has been devastated by the war and remains severely hampered by the vast areas of countryside covered in land mines.
Aid agencies estimate that emergency food relief will be needed for at least another year.
Where farmers are at work again, only a third of the usual amount of crops are thought to have been planted due to a lack of both seed and rain.
"The real key to the whole economy is the end of the drought," said Gareth Price, Afghanistan expert at the Economist Intelligence Unit.
And neither the interim government nor the IMF and the World Bank is able to control that.
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