Explainer: What leverage do US, allies have over the Taliban?

The United States and its allies may have left Afghanistan in the hands of the Taliban but they still have “leverage” to make the armed group honour commitments to allow people out of the country, according to US President Joe Biden.

This was echoed by US officials and other Western leaders who believe the Taliban can be pressured into abandoning their past policies with carrot-and-stick measures given Afghanistan’s outsized dependence on imported energy, food and foreign aid, as well as its shaky economy.

Here are some of the levers the West has to pressure the Taliban to honour women’s and human rights and cooperate with other countries:

Multibillion-dollar reserves

The US has an outsized role to play in deciding what happens to Da Afghanistan Bank’s (DAB) $9bn in gold and foreign currency reserves.

Of that, $7bn is held in the US, $1.3bn in other international accounts and some $700m by the Bank for International Settlements, according to a tweet by the Afghan central bank governor after he fled the country.

The major investment categories include the following assets (all figures in billions)

(1) Federal Reserve = $7.0
– U.S. bills/bonds: $3.1
– WB RAMP assets: $2.4
– Gold: $1.2
– Cash accounts: $0.3

(2) International accounts = 1.3

(3) BIS = $0.7

— Ajmal Ahmady (@aahmady) August 18, 2021

After the Taliban takeover on August 15, the US government blocked the group from accessing any DAB assets held by the Federal Reserve or elsewhere in the US, and the assets remain frozen.

The International Monetary Fund (IMF) suspended Afghanistan’s access to IMF resources on August 18, including $440m in new emergency reserves.

Washington is under pressure from some humanitarian groups, DAB officials, and foreign governments including Russia to ease the asset freeze and allow some dollar shipments, a move that would likely come with stiff conditions.

A Russian official on Monday expressed the government’s fear that, without fiscal resources, the Taliban may turn to narcotics or weapons trafficking to be able to support the country.

Reliance on imports

Afghanistan relies on imports for the lion’s share of the food, fuel and clothing consumed. It imported $8.6bn in goods in 2019, topped by peat, wheat and petroleum, according to World Bank data. Some 70 percent of electrical power is imported, at an annual cost of $270m.

The Taliban cannot pay for imports without dollars; it had enough foreign currency reserves to pay for about two days of imports when overseas assets were frozen. The US and allies could condition access to dollar transactions or reserves on Taliban policies.

Foreign aid

The US plays a major role here too, given its influence at both the IMF and the World Bank, which oversees the Afghan Reconstruction Trust Fund (ARTF), and because of the billions it has given the Afghan government and NGOs on the ground.

The World Bank cut off funds to Afghanistan after the Taliban takeover, and the future of the ARTF is unclear.

Last week, the US Treasury issued a limited new license for the US government and partners to provide humanitarian aid to Afghanistan, a step that could encourage other governments to do the same.

Before August 15, grants to Afghanistan totalled approximately $8.5bn a year, or about 43 percent of its GDP. They funded 75 percent of public expenditure, 50 percent of the budget and about 90 percent of government security spending.

Any resumption of Afghanistan’s access to these resources is likely to be made conditional on Taliban cooperation with the international community.

Financial sanctions

The Taliban as a whole, and individual Taliban leaders, is already subject to US and United Nations sanctions that effectively ban their access to dollar transactions and the US financial system.

Western financial institutions are avoiding doing business with the Taliban to avoid running afoul of US law. Unwinding these sanctions would require a lengthy and complex process by the US Treasury, administration officials say, but the department could grant licenses for more transactions based on Taliban cooperation.

Banking curbs

Pressure is building on Afghanistan’s private banking sector given the freeze in dollar shipments. All 12 banks operating in Afghanistan require overseas banks to process dollar transactions, and three are state-owned, making them directly controlled by the Taliban.

Citibank and others have halted such support to avoid any possible sanctions violations.

The Afghan-American Chamber of Commerce, which includes Afghan commercial banks and corporate investors, is urging US officials to allow a limited infusion of cash to regenerate public confidence and avoid possible panic and violence.

Remittances

Afghanistan also relies heavily on remittances, with transfers home by migrant workers overseas accounting for about 4 percent of the country’s GDP.

Western Union, the world’s largest money transfer firm, and Moneygram have both suspended their services, shutting off the flow of funds that many families rely on to pay for food. Reopening these services would require an easing of US financial sanctions.