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Cablegate: Central Bank Governor Says Elections Delay Spooking

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBUL #3326/01 2910942
ZNY CCCCC ZZH
R 180942Z OCT 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 2235
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0917

230142
2009-10-18
09KABUL3326
Embassy Kabul
CONFIDENTIAL
09KABUL3095
C O N F I D E N T I A L KABUL 003326

SIPDIS

E.O. 12958: DECL: 10/14/2019
TAGS: EFIN PREL AF
SUBJECT: CENTRAL BANK GOVERNOR SAYS ELECTIONS DELAY SPOOKING
INVESTORS, HOPES TO REMAIN IN POSITION

REF: Kabul 3095

Classified By: CDDEA Ambassador E. Anthony Wayne for reasons 1.4 (b)
and (d).

1. (C) Summary: Central Bank Governor Abdul Qadeer Fitrat reports the
Central Bank faces investor wariness stemming from the uncertain
Presidential election, but the Bank's primary focus remains
macroeconomic stability and piloting new projects. Fitrat reported
has not met with President Karzai in two months and is uncertain
about his own future, especially given enemies he has made in
Parliament. In a meeting October 13 with Ambassador Wayne, Fitrat
singled out the Minister of Higher Education as a corrupt official
whom a new president should replace. Fitrat highlighted his own
efforts to combat corruption and said Karzai had supported him in his
efforts to remove corrupt Pashtany Bank leadership. End summary.

FINANCIAL DEVELOPMENTS
----------------------

2. (U) In an October 13 meeting with the Coordinating Director for
Development and Economic Affairs, Fitrat touted the success of a
pilot mobile salary payment program for 47 Afghan National Police
(ANP) in Wardak province and hoped to expand the project to other
provinces (ref). The Afghan Government is also considering expanding
the program to the Ministry of Energy and Water for electronic bill
payments and to the Ministry of Education for teachers' salaries. A
new mobile banking regulation is currently in the comment period and
Fitrat expects the Central Bank's Supreme Council to approve it in
early November.

3. (C) Fitrat noted approximately $600 million in capital left the
country prior to the August election. While at least 30 percent of
this amount has returned, Fitrat expressed concern that an unclear
election will cause investors to keep their money out of
Afghanistan's financial sector. On a brighter note, inflation stood
at a record low of negative 12 percent (with core inflation at 3.2
percent). Food and fuel stockpiles and donations, combined with a
record agricultural crop, have pushed down prices, Fitrat said.

4. (C) Fitrat pointed to his anti-corruption initiatives, including
the launching of investigations and firing, demoting, or transferring
those found responsible. The Central Bank Governor fought for a
prison sentence for the Jalalabad treasurer, despite five calls a day
from parliamentarians advocating for the official and the threats
against him. Fitrat added that President Karzai told him to fire the
head of Pashtany Bank for corruption and while he cannot do so,
Fitrat has asked the Ministry of Finance to remove the bank's entire
supervisory board, credit officer, and loan officer and also to
install and utilize core banking software. According to Fitrat, the
Finance Minister said in June that he would act in two weeks, but
Zakhilwal still has not done so.

POSSIBLE ECONOMIC FALL OUT
FROM THE POLITICAL SITUATION
----------------------------

5. (C) Agreeing donors want to move ahead and want a validated Afghan
Government as a partner, Fitrat also said any appearance of political
turmoil over the elections results would repel investment. Such a
development would undercut progress Fitrat and others have made to
date in improving the financial climate.

6. (C) Discussing his situation two years through his five-year
appointment, Fitrat said Afghan law mandates that the Central Bank
governor and members of the Supreme Council cannot be fired without
proof of incapacity, fraud or criminal activity and must be given a
chance to appeal to the President. However, in Afghanistan,
anything can happen, he said. Fitrat said some Parliamentarians had
asked him to take illegal actions and he had not complied; these
members may have complained to President Karzai. The two have not
spoken in person in two months, and Fitrat said he hopes the
President still has positive feelings toward him. Fitrat said he
wants to stay in his position, but if the next president decides to
replace him, he will depart peacefully.

BUT THINKING ABOUT WHAT MIGHT
HAPPEN UNDER A NEW GOVERNMENT
-----------------------------

7. (C) In response to Ambassador Wayne's question about priorities
for a new government, Fitrat said the mortgage industry will need a
capital infusion. The Central Bank is moving forward with plans for
a stock exchange, a credit information bureau, and a banking
institute. He added that ineffective cabinet ministers should be
removed and cited the Minister of Higher Education as an example.
According to Fitrat, the Ministry demands bribes to recognize foreign
university degrees, and he pointed to his own notetaker, whose
bachelor's degree from Pakistan is not valid in Afghanistan, even
though it was good enough for the IMF to hire her and for Williams
College to accept her, from where she received a master's degree in
Economics. He said Russian-educated mafias control universities
and keep other faculty members out. He also criticized the Attorney
General's office as corrupt and said the mid- and lower-level
judiciary is corrupt. He agreed with Ambassador Wayne's suggestion
that the next president pursue a clean government initiative.

EIKENBERRY

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