Afghanistan's Fiscal Cliff - By Matthieu Aikins | Foreign Policy

Afghanistan's Fiscal Cliff - By Matthieu Aikins | Foreign Policy

Afghanistan's Fiscal Cliff

Kabul-watchers are rightly worried about what the withdrawal of Western aid money will mean for one of the most impoverished countries on the planet. But everyone's asking the wrong questions.

BY MATTHIEU AIKINS | OCTOBER 17, 2012

KABUL — Afghanistan is awash in foreign aid. In 11 years of war, the United States and its allies have funneled hundreds of billions of dollars into the country. As a result, international spending is now the biggest part of the economy, making Afghanistan an "extreme outlier" when it comes to aid dependency, according to the World Bank. In 2010, for example, it received about $15.7 billion in development funding alone. That's roughly equivalent to Afghanistan's entire gross domestic product. And with $9.4 billion in public spending versus $1.65 billion in revenues in 2010-11, the country is heading off a fiscal cliff as the international community scales down its involvement ahead of transition in 2014.
But what will be the political consequences of the money running dry? For the time being, international spending has forged a bought peace in Kabul, but many of the political settlements that keep violence at bay -- the agreements and expectations negotiated between elites -- could be upended by the transition. To benefit from aid largesse, Afghans have had to cooperate. At the Kabul Bank, for instance, which was linked to major Afghan contractors employed by the United States and the International Security Assistance Force (ISAF), cooperation between competing factions enabled nearly $1 billion in insider loans to be siphoned off in recent years. The bank's financial arrangement illustrates the reigning political settlement in the country, uniting a number of national-level networks, most notably those of President Hamid Karzai, a southern Pashtun, and Vice President Mohammed Fahim, a northern Tajik. The Karzai-Fahim alliance has been crucial to stabilizing relationships between north and south in Afghanistan, and has been underpinned by the flow of international money, which provided an incentive to play along with the existing order.
This situation is replicated in hundreds of smaller, localized political agreements across Afghanistan. The country remains fragmented among rival networks of strongmen, many of whom have been co-opted by the central state and the international community. A drastic decline in funding will undoubtedly generate instability as the reigning political deals are renegotiated. Yet, even as the international community charges ahead with its exit strategy of increasing local troop levels and building bureaucratic capacity, there has been little serious analysis about the way its spending is interlinked with Afghan politics.
This week, I published a paper on Afghanistan's private security companies (PSCs) that examines the relationship between international spending and Afghan politics. Fed by the military surge, the PSC industry in Afghanistan has grown to a monstrous size, with high-end estimates of 60,000-80,000 employees in 2011, most of them armed Afghan guards. Unlike Iraq, the PSC industry in Afghanistan is largely dominated by Afghans, and as result it has become deeply interlinked with the Afghan government and local politics. Many of the newly rich PSC owners were former commanders who fought in the Soviet and civil wars and were able to mobilize networks of armed men. Some of them, like Matiullah Khan in the province of Urozgan, have become the preeminent strongmen in their areas as a result of their control over supply convoy and base defense contracts for the United States and NATO.
The PSC industry is one example of how international funding, by its sheer scale, has shaped the environment in which Afghan actors make decisions. As such, it has a lot to say about the frequently bemoaned corruption of the Afghan central government.
Take, for example, the critical southern province of Kandahar, where in 2001, the Karzai family was faced with the task of outmaneuvering its principal rival, Gul Agha Sherzai, who had from the beginning secured crucial access to U.S. military patronage. Because of his contracts with the U.S. military -- which allowed him to transform his private militias into "legitimate" PSCs -- Sherzai was initially beyond the control of the central state. But President Karzai eventually outmaneuvered him by empowering his half-brother Ahmed Wali to take control of critical contracting networks, by making patronage appointments, and using the muscle of the central government to intervene directly in private business in Kandahar.
The result was politically beneficial for Karzai, but detrimental to Afghanistan's fragile democratic institutions. The corruption of the central government, in other words, was a product of the structure and scale of the international intervention, which made contracting, not institutions, the determinant of political power in Afghanistan.
So far, the myriad donor nations, militaries, and non-governmental organizations involved in Afghanistan have mostly defined a successful transition as a technical exercise -- one defined by objectives like handing over security responsibilities to Afghan forces, enhancing the capacity of the civil service, and so forth. But the future stability of the country has less to do with Afghan troop levels than it does with whether Afghan powerbrokers can forge a more stable, indigenous order after the international money dries up. There is, perhaps, a silver lining to the coming economic decline: Afghan politicians will have to rely more on their own people and less on a top-down flow of dollars. But the reckoning will not be pretty.