Afghan economy struggles on

Will the aid reach the needy?

by Briony Hale BBC News Online business staff

Afghanistan was, under Taleban rule, one of the poorest countries in the world.

After years of warfare and civil strife, mass famine was stalking the countryside as the war against Al Qaeda began.

An end to the drought is key to economic recovery

The task of rebuilding the country, its infrastructure and economy is a massive undertaking.

The World Bank estimates the cost of rebuilding Afghanistan's economy over the next 10 years at $15bn, and has labelled the country "one of the most miserable states in the world".

International donors have pledged to distribute $4.8bn of aid before July 2004, more than one third of which should arrive before the end of the year.

But while Afghanistan has the promise of more money than ever before, it also faces far greater challenges.

List of complaints

There is already growing frustration and controversy over how the aid is being released, as well as the way it is being spent.

In May 2002, Afghan Reconstruction Minister Amin Fahang complained about the slow arrival of promised aid from abroad, saying it was hampering progress in restoring roads, healthcare and education.

Pakistan has vowed to increase trade with its ailing neighbour

Shortly afterwards, the World Bank reiterated his concerns, urging international donors to pay-up.

And in August, US Defence Secretary Donald Rumsfeld again stressed that the stricken nation was receiving too little money, with too many strings attached.

In addition to the lack of funds, continuing political instability and disagreements between ethnic groups are also hampering reconstruction.

Stamp of approval

But, despite the growing dissatisfaction, there are also signs of progress.

The World Bank has given its official stamp of approval to the country's budget strategy.

The currency market has been fluctuating wildly

That approval has released a further $100m of World Bank funds to help bridge the financing gap.

Both the IMF and the World Bank have committed themselves to helping the government put the basic functions of financial governance in place and improve the work of key institutions such as the central bank.

And Pakistan and Iran have forged a landmark agreement to try and boost trade with their ailing neighbour.

Newer and better

Also looking on the positive side, Finance Minister Hedayat Amin-Arsala has called the chance to rebuild "a great opportunity".

"Our institutions have been substantially weakened, but they are there," Mr Amin-Arsala told World Bank president James Wolfensohn earlier this year.

"We will need support to help us rebuild these institutions and to revive our economy.

"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."

Recently, Afghanistan appealed to its thousands of refugees to return home to help rebuild the country, and invest in its future.

Hurdles to jump

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.

Politics and an end to the three-year drought are the most important factors in stimulating economic recovery.

But there are many other hurdles also waiting to be overcome:

Few functioning banks.

Widespread destruction of transport and commercial infrastructure.

A financing gap of up to $100m in the budget.

The management of aid flows.

An unstable currency caused by the influx of dollars.

The illegal trade in arms and drugs.