US creates fund to disburse $3.5bn of frozen Afghan bank reserves

The US has set up a fund in Switzerland to disburse $3.5bn of Afghan central bank reserves it froze after the US military withdrawal and Taliban takeover, amid growing fears about economic conditions in the country.

The Treasury announced the creation of the “Afghan fund” on Wednesday, saying it would have an account at the Bank for International Settlements in Switzerland.

Decisions about possible disbursements would have to be made by consensus, via a board of trustees comprised of one representative of the US government, one representative of the Swiss government and two Afghan economic experts.

US officials said any release of that money would be directed towards bolstering Afghanistan’s macroeconomic stability, including paying for electricity imports and covering arrears at international financial institutions, rather than for humanitarian aid.

The move follows months of uncertainty and controversy over the fate of $7bn in Afghan central bank reserves that were blocked by the US after the Taliban took control of the country in August 2021. In February, US president Joe Biden directed half of that amount to families of the victims of the 9/11 terrorist attacks while continuing to withhold the remaining $3.5bn, provoking outrage within Afghanistan.

The UN Development Programme estimates that the Afghan economy contracted 20 per cent last year and will shrink a further 5 per cent this year after economic isolation compounded the country’s troubles. About half the population, or nearly 20mn people, are experiencing acute food insecurity.

Efforts to improve ties between the Taliban and the international community have had limited success. No country has recognised Afghanistan’s new rulers, while Taliban policies such as the ban on education for teenage girls have made engagement politically toxic in many countries.

But for Afghan and international critics, western policy towards the country has exacerbated the humanitarian crisis. “The private sector cannot move money. This is why unemployment is up,” an official from Afghanistan’s central bank said, speaking before the announcement. “Why is the international community punishing the public? The private sector? Small businesses?”

US deputy treasury secretary Wally Adeyemo blamed the Taliban for the country’s economic woes, saying its “repression and economic mismanagement” had made the return of the reserves “untenable” and saying the creation of an Afghan fund would allow the use of its assets “to improve lives of ordinary people” in the country.

In a letter to the Afghan central bank this week, Adeyemo laid out the conditions that it would have to meet for its central bank reserves to be returned to the country from the new fund. Those included “demonstrating independence from Taliban political influence and interference” and a return to anti-money laundering and anti-terror financing standards that were in place before the US military exit.

The two Afghan economic experts selected to sit on the board of the Afghan fund are Anwar Ahady, a former Afghan finance minister and former governor of the Afghan central bank, and Shah Mehrabi, a professor at Montgomery College in Maryland. An external auditor is expected to monitor the fund, which will be based in Geneva.