Afghanistan bank line

TAXPAYERS TO BAIL OUT AFGHAN BANK? WHITE HOUSE CLAIMS 'NO'

By ADAM B. ELLICK, The New York Times

KABUL, Afghanistan — In a bid to fend off the threat of a nationwide financial crisis, the Afghan government scrambled to shore up Afghanistan’s largest bank on Saturday after lines of frantic depositors mobbed the bank for a third day.

The efforts, which an Afghan official said could include the injection of Afghan government funds into the privately owned Kabul Bank, are meant to head off the run on the bank by its customers, who have withdrawn more than $200 million in the past few days amid fears of a wider economic collapse.

Officials said the Afghan government had not decided whether it needed to bail out the bank. But the Afghan Central Bank has pulled in funds from abroad, including $300 million that had been held in the United States Federal Reserve Bank, to have money on hand to guarantee the bank’s liquidity, American officials said.

A small team of advisers from the United States Treasury Department was in Kabul providing technical assistance, but American officials said no United States funds would be involved in the effort to rescue the bank.

The panic began last week when the Central Bank ousted the bank’s chairman and the chief executive officer, after discovering that the bank had lent hundreds of millions of dollars to allies of President Hamid Karzai and poured money into risky real estate investments in Dubai.

The crisis threatened to undermine confidence in Afghanistan’s fledgling financial system, which was built under American guidance after the collapse of the Taliban government in 2001. Among the clients of the bank is the government, which pays the salaries of about 250,000 public employees through the bank, including those of security officials and the military.

The bank, whose major shareholders include a brother of Mr. Karzai and a brother of the first vice president, helped finance the president’s election campaign last year and lent luxury apartments in Dubai rent-free to well-placed officials. Those connections helped shield the bank from scrutiny, officials said.

The Afghan government has since appointed a chief financial officer of the Central Bank to run the Kabul Bank, transferred $100 million to the bank to ensure it could pay salaries of government employees and promised to guarantee investors’ deposits.

An American official described those moves, as well as the withdrawal of Afghan reserves from the United States and other central banks, as prudent steps a bank regulator should take in such a crisis.

But on Saturday they appeared to have done little to stem the panic. Thousands of nervous depositors were lined up outside the bank’s central branch in Kabul by 6 a.m. to withdraw their savings. Hundreds of men pushed and shoved their way to the front, while others waited behind them for hours in the sauna-like swelter of the lobby, making it impossible to discern where the lines ended and began.

Furious customers shouted angry complaints. An elderly woman cried out in distress.

But the teller drawers were largely empty and most customers left empty-handed. “What should I give you when I have nothing to give?” a teller told one agitated customer.

Similar scenes were reported at branches in other cities.

To read more, visit: http://www.nytimes.com/2010/09/05/world/asia/05kabul.html

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