POLITICAL DANGERS INTEREST IN AFGHANISTAN'S ECONOMIC CRISIS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00472A000700020016-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 7
• Document Creation Date: December 16, 2016
• Document Release Date: September 16, 2004
• Sequence Number: 16
• Publication Date: April 5, 1965
• Content Type: MEMO

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Political angers Inherent in Afghanistan's
Moonomic Crisis
cal Stakes
1. Sese time during the next year,, one o
factions in the Afghan cabinet will probably win a
quiet, often dull debate on economic policy. The
issue, sometimes unrecognised, is whether to accept
near-integration of the Afghan economy with that of
the Communist world. While the outcome of the debate
will profoundly affect Afghanistan's ability to main-
tain its independence, the decision say be difficult
to recognize since it may emerge gradually as an
accumulation of individually unremarkable policy
actions regarding trade and development.
2. Afghanistan is in deep financial trouble.,
syWtomIzed by a budgetary deficit about double
maximum figure deemed tolerable by the International
Monetary Fund. In recent months the Kabul regime
has been so short of funds that It has been unable
to pay the salaries of many of its employees. The
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question is r hetbear the government will finally decide
to take the easy gray out and rely more heavily on
Soviet support, or whether it V ill undertake reforms
that old be economically more $ phisticated and
politically were difficult.
a to Action
3. 'fire longer Afghanistan indulges in "chaarge
account living" without estebliejing any aid way of
paying its bills as they fall due, the worse its
financial predicament be so* s. Although speedy remedial
action in needed,, procrastination IS the rule of the
day. A year ego deeiaelons were being postponed until
after the new constitution was mod. Now the excuse
in the "need" to t for the election of a new National
awaadbly
which i
t
,
s
o convene in Otb
coer.
d. These excuses are used t
hid
o
e the real
gweesole to getting of With the Job--th, i sse be--
U two cabinet factions. go decisive action is
likely until the ling interv.nes. The Cabinet Is
more er less evenly divided between those who think
in terms Of solving economic problems by governnont
intervention, control, sad planning a those who
think in terms of encouraging private enterprise and
i thz
i
t
g
t
he market nechi A
ansst.s is often
ti
for v ttal1.r help, While the free
ts
pt rners are tinctively Inclined to
to MOOR to the Pros World.
5. The ling likes to maintain a rough balance
between the two faottans as he makes new allfppOintwmets
in order to facilitate his own control of the govern-
Wit. Neither side in likely to be able to break the
i ns thout the King's support.- ,'i King,, however,
pressureas become politically-unbearable. Xe to not
accustomed to think a
- ~ - - -
out cone
apparently not developed r_ wwftwwn 441M ,yes
any cefv'icti*ns of his own.
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 d* The chances arm V%4%&%.UV
~.r...~..s~a " A ug on certain funda
v_ KAN ..4..6,46
well
h
w
o look to the Tres World,
%PA
to are led by Prime Minister Tannf _ T
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F 9 better aaan even
the sing, less he acquires some conviction* of
About t lh...a.r~...~..s_sY
will eventually come! dowse on *Udb m4 A.
Trade and vet nt _ arable ~I
7. Afghanistan r a present financial problem are
the price it is paying for its ambitious program of
o Fre
the" i-aided develtepmestt projects. Roughly two-thirds
are being built with Communist assistanc e*
the bal* . with Pro* World aid.
So go fair, if ttssistan?a economic development
p program has concentrated heavily on $infrastruccre"
projecar, that J31 projects such as roads, tunnels,
d power and irri
We* %FAae, and afrport?. Then
facilities will it aete3re
possible to build new
factorises, to get raw materials, and to ship products
to market. They do not in th*mselves, however, in.
crease the amount of goods on the market. As local
materials and labor have to be paid for in the con.
struction of these projects, they add greatly to the
Money supply and ther
to ` s
e
if. The Afghan Government boa secured money to
pay for local costs of projects, mainly by "borrowing"
from the central bank, that is, by printing it. As
the money supply has expanded faster than domestic
production, there have been two adverse effects. The
first in inflation. The second is a chronic trade
imbalance as domestic production has failed to satisfy
the incread demand for goods and an the demand for
imports has increased.
ign 0. Since imports have risen faster than exports,
fter+er1
exchange has become scarcer.
a fourth of Afghanistan's imports Approximately come from Japan., which
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t $100000000 has. been set on the nt Of
banks at any MW time. These rupees 'My be speat
only for a restricted list of items which are not
desired in Afghanistan.
24.
of Indian goods available for
d^be exgaaded to incl ude some of the
goods presently imported from Japan, this action
alone could reduce Afghanistan* deficit with Free
World trading partners by as such as 20 percent.
Since India now produces such goods in quantity,
such a move would be of little moment to the Indian
economy. Prime Minister astri apparently showed
considerable sympathy for this view when he set with
Prime Kinieter Tusuf some months ago in fro, but
turning to New f lki ran into considerable
opposition from Indian officials.
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