Afghan National Army soldiers take a break during an operation in Alingar District, Laghman province. (Credit: DVIDSHUB/Flickr)
Afghan National Army soldiers take a break during an operation in Alingar District, Laghman province. (Credit: DVIDSHUB, Afghan army soldiers'/Flickr licensed under ) (via:

Efforts to transform overnight insecure and destitute societies into liberal democracies with free-market economies, predominant private sectors, and independent central banks have been most disappointing: over half of the countries that transitioned to peace with the support of UN-led or US-led operations relapsed into conflict within a decade.

At the same time, the large majority of countries in the war-to-peace transition, including both those that relapsed and those that managed to keep a tenuous peace, ended up unable to stand on their own feet, with unviable economies and high aid dependencies, even for food security. Afghanistan has the infamous record of having both relapsed into conflict and become the most aid-dependent country in the world.

A dialogue of cultures and civilisations – among strikingly different national and foreign stakeholders in war-torn countries, each with different views, interests, and beliefs – failed to take place as these countries embarked in cookie-cutter multidisciplinary transitions to peace, stability, and prosperity. In its absence, and despite the peculiarities of each case, foreign interveners steered countries at low levels of development, coming out of intra-state wars, into transitions involving simultaneous and ambitious security and political transformation, national reconciliation, and economic reconstruction.

In the absence of a rigorous theoretical and practical debate on how to carry out reconstruction, national policymakers and foreign interveners, including the international financial institutions (IFIs), proceeded as if ‘economic reconstruction’ was ‘development as usual’ in countries not affected by conflict. Moreover, foreign interveners used their advice and lending conditionality to promote the rapid transformation of war-torn countries into mirror images of Western societies, ignoring both the expensive war-related needs and the idiosyncrasies of those countries’ own security needs, political and religious beliefs, culture, and socio-economic characteristics.

Using Afghanistan as the template, and relying on the author’s experience and research of the past 25 years on economic reconstruction of war-torn countries, this report analyses three policies that were particularly problematic in the country: attempts to impose ‘military solutions’ with ‘development’ activities on the side and as an afterthought; delays in moving away from the ‘economics of war’ (profitable underground economy) into the ‘economics of peace’ (optimal policies often not possible or desirable; conflict-sensitive economic policies necessary to avoid relapse); and failure to take advantage of aid lessons from the past, and hence repeating some of the same mistakes related to both US and Soviet aid in the 1940s and 1950s.

This report posits that it is the perfect time to start a dialogue between national policymakers and foreign interveners on how to put Afghan reconstruction on track. For that purpose, it proposes two small-scale pilot experiments involving the creation of Reconstruction Zones and the use of aid to establish Basic Income Programs. This is offered on the basis that military solutions alone are not going to succeed in turning Afghanistan’s vicious circle into a virtuous one of investment, inclusive growth, human development, security, prosperity, and self-reliance.


In the Foreword to Rebuilding War-Torn States (Oxford, 2008), Nobel Laureate Edmund S. Phelps noted that it could have been expected that – in the aftermath of civil wars or other internal chaos – countries would find their footing again and set about to make up the lost ground regarding their development (Phelps, 2008, pp. vii-x). But rebuilding poor countries from the ashes of intra-state wars – rather than inter-state wars – in the quarter century since the end of the Cold War has proved quite unnerving and has revealed the misguided economic policies and misplaced priorities of foreign interveners in supporting war-torn countries.

It could have been expected that the Marshall Plan – with its stellar record of setting the stage for world peace and prosperity – would provide the basis for economic reconstruction in the post-Cold War period. Although the Plan provided important lessons, it took place in a radically different political, security, social, and economic context. For that reason, a new paradigm was required.[1]

The European Recovery Program, the official name of the Marshall Plan, took place in industrial countries with educated labour forces and with strong political and economic institutions. Countries included in the Plan not only had policy frameworks in place that could easily be adapted to ‘economic reconstruction’ in the post-war period, but there was no need for ‘national reconciliation’. In fact, following inter-state wars, former combatants returned to their own countries and did not need to coexist amicably with former enemies in the same space. Thus, in the post-World War Two context ‘economic reconstruction’ referred mostly to the rehabilitation of basic services and infrastructure for the reactivation of world production and trade.

The term ‘economic reconstruction’ had to evolve over time due to radically different conditions in the post-Cold War context. Economic reconstruction in the new context has taken place in countries at low levels of development, with young and fast-growing populations, with weak policy and institutional frameworks, with large macroeconomic imbalances, and with a scarcity of savings.

It was thus that economic reconstruction required a broader definition: it had to include not only the rehabilitation of basic services and infrastructure destroyed during the war, but had also the modernisation or creation of basic macro and microeconomic institutional, policy, legal, and regulatory frameworks necessary for policymaking, for the reactivation of the economy, and for the effective and transparent utilisation of aid. Economic stabilisation was also necessary to address the large internal and external macroeconomic imbalances of the past.

Efforts by foreign interveners[2] to transform overnight insecure and destitute societies into liberal democracies with free-market economies, predominant private sectors, and independent central banks have been most disappointing: over half of the countries that transitioned to peace with the support of UN-led or US-led operations relapsed into conflict within a decade.

At the same time, the large majority of countries in the transition – including both those that relapsed and those that managed to keep a tenuous peace – ended up unable to stand on their own feet, with unviable economies and high aid dependencies, even for food security. Afghanistan has the infamous record of having both relapsed into conflict and become the most aid-dependent country in the world.[3]

Nad e Ali District Centre, wheat seed from the wheat seed distribution program is handed out to local farmers. Image taken in Nad e Ali, Helmand Province, Afghanistan. (Credit: DFID - UK Department for International Development/Flickr).

Wheat seed is handed out to local farmers. Image taken in Nad e Ali, Helmand Province, Afghanistan. (Credit: DFID – UK Department for International Development/Flickr). (via

A dialogue of cultures and civilisations – among strikingly different national and foreign stakeholders operating in war-torn countries in the post-Cold War context, each with different views, interests, capacities, and beliefs – failed to take place as these countries embarked on a cookie-cutter multidisciplinary war-to-peace transition.

In its absence, and notwithstanding the peculiarities of each particular case, foreign interveners steered countries at low levels of development, coming out of intra-state war, into a four-pronged transition:

As wars or military intervention for regime change ended, institutions for public security had to be established or modernised so that violence and crime would give way to public security (‘security transition’ or ‘security sector reform’).

Lawlessness, repressive government, and violations of human rights had to succumb to the rule of law and participatory governance, both at the national and local levels (‘political transition’ or ‘political reform’).

Ethnic, religious, ideological, or class confrontation had to give way to national reconciliation so that former enemies could return to the same villages and coexist in peace (‘social transition’ or ‘national reconciliation’).

And ravaged and mismanaged war economies had to reconstruct and transform into functioning economies enabling former combatants, other conflict-affected groups, as well as ordinary people to earn a decent and honest living in a sustainable way (‘economic transition’, ‘economic reconstruction’, or ‘the economics of peace’).[4]

The four aspects of the multi-pronged transition to peace are closely interrelated and reinforce each other. Failure in any one of them puts the others at risk. It is understandable, and to be expected, that such an overwhelming transformation should necessarily take time, require large amounts of foreign funding and expertise, and confront enormous challenges.

At the same time, there exists among these four aspects what is called ‘reverse causality’. Although political reform, national reconciliation, and economic reconstruction may prove futile without security, security will not take root without progress in those three areas. This two-way process, often ignored, has proved to be critical to a successful transition to peace, stability, prosperity, and self-sufficiency.[5]

Empirical evidence of the last quarter century shows that because economic reconstruction needs to take place amid this multidisciplinary transition and is constrained by it, it is fundamentally different from ‘development as usual’. The experience of countries as far apart as Afghanistan, Liberia, and Iraq shows that, unless the political, security and/or reconciliation objectives of peacetime prevail at all times, peace will be ephemeral. Policies that pursue purely economic, development, and/or financial objectives, as if the risk of conflict were not high, can have tragic consequences. Indeed, economic development without peace, security, and reconciliation cannot take root and be sustainable.

Most national and international policy debate, media accounts, and the academic literature have largely focused on the security, political, and social transitions to the neglect of the economic one. This has been the case notwithstanding the fact that economic transformation of war-torn countries – the focus of our analysis – is fundamental for the other aspects of the transition to succeed. As Lord Keynes posited in the end of World War One, peace has serious economic consequences (Keynes, 1920).

In the absence of a rigorous theoretical and practical debate on how to carry out economic reconstruction (as took place at the time of the Marshall Plan), national policymakers and foreign interveners – particularly the international financial institutions (IFIs)[6] and the bilateral development agencies (most notably USAID) – proceeded as if ‘economic reconstruction’ were ‘development as usual’[7] in countries not affected by conflict.

Moreover, foreign interveners used their advice and lending conditionality to promote the rapid transformation of war-torn countries into mirror images of Western societies, ignoring the expensive war-related needs of reconstruction and national reconciliation, as well as the idiosyncrasies of those countries’ own security needs, political and religious beliefs, culture, and socio-economic characteristics.

In the new post-Cold War context, the challenge of countries at low levels of development became to create viable economies. As wars ended, countries emerged with little income, production, or savings and therefore could not invest and had to rely mostly on foreign aid (foreign savings), to finance large fiscal and external deficits.

At the same time, these countries had fast-growing and young populations, which were often enlarged by large numbers of returnees after the war was over. This created an enormous demand on the country’s provision of public goods and job opportunities in relation to its supply.

In the new context, economic reconstruction thus acquired a ‘holistic meaning’ involving activities ranging from the economics of boosting yields for small farmers for subsistence purposes to the business of getting initial access to capital, technology, and infrastructure for the creation of small- and medium-sized enterprises, as well as to the many aspects of the provision of health, education, safety, and security for families and children. Additionally, reconstruction involved the design of policies targeted at the reactivation of other investment, production, and trade, including in the rural sector where a large part of the population normally lives. It also involved policies for the management of aid.

However, because most of these countries failed to reactivate the economy in an inclusive and sustainable way – despite often high and much publicised rates of growth – and because foreign aid has often been scarce, untimely, and/or poorly utilised, countries found it difficult to improve security and promote reconciliation (an expensive proposition) at the same time, exhibiting more than an even chance of relapsing into conflict.

Using Afghanistan as the template, and relying on the author’s personal experience and research of the past three decades on countries in crises, this special report will analyse what has gone wrong with foreign intervention in Afghanistan during the last 15 years, and what, if anything, can be done to improve the situation going forward, particularly as President Trump announced a mini-surge in US troops in August 2017.

Building more effective states, replacing the war economy with a licit one, and improving governance so that countries can stand on their own feet has acquired a new sense of urgency in Afghanistan and elsewhere. Extremist groups such as Hezbollah, Hamas, al-Qaeda, the Taliban, Boko Haram, the Islamic State (also known as ISIS, ISIL, Daesh, or IS-Khorostan), among others, increasingly recruit people by providing jobs, services, and other needs to those deprived of them due to government failures in the provision of public goods and opportunities to make a living. Reducing the war economy must take priority given that these groups finance themselves mostly through the drug trade, racketeering, and other related activities. This is particularly difficult to do in insecure areas lacking alternative livelihoods.

As the case of Afghanistan perhaps best illustrates, high rates of growth do not suffice because they have mostly benefited a small domestic and foreign elite (including Afghan expatriates). The inability to reactivate the economy in an inclusive and sustainable way, together with a lack of effort to move promptly and effectively out of the war or underground illicit economy, made joining the insurgency a ‘survive or starve’ decision for many Afghans, including many who did not necessarily share the dogmatism or even the political views of the groups they joined. Both national policymakers and foreign interveners shared responsibility for this failure in Afghanistan.

The renewed sense of urgency also relates to the growing global repercussions of failed state-building interventions. Leaving aside the human cost, war-torn countries have a disproportionate political impact and large financial consequences. By the end of 2014, with Iraq and Afghanistan together accounting for only 0.3 percent of global output (less than a third of one percent), the United States had spent roughly $1.6 trillion (or $20,000 per American family of four) in the two wars that are still raging in both countries. In addition, the US government will have to spend billions of dollars in non-budgetary expenditure accruing on pensions and disability payments to US veterans.[8] In the United States, not surprisingly, an increasing number of people are saying that all that money should have been spent more effectively in rebuilding inner cities and other areas of the country where Americans are in great need.

Moreover, as we have painfully seen in the Middle East, Central Asia, the Maghreb, and Sub-Saharan Africa, failed states create large numbers of refugees and displaced populations and become incubators for terrorism, trafficking of drugs and people, smuggling, extortion, and other illicit activities. As such, they become a source of regional and global instability.

In this regard, three policies that were particularly problematic in Afghanistan included attempts to impose ‘military solutions’ with ‘development’ activities on the side and as an afterthought, (illustrated by the allocation of funding); delays in moving away from the ‘economics of war’ (profitable underground economy) into the ‘economics of peace’ (when conflict-sensitive economic policies, rather than optimal or first-best policies, are necessary to avoid relapse); and failure to take advantage of aid lessons from the past, and hence repeating some of the same mistakes related to both US and Soviet aid in the 20th Century.

The report is structured as follows: Part one cursorily describes historical factors that have a direct bearing on the Afghan economy, polity, and/or idiosyncrasy. Since Afghanistan became a nation in the mid-18th Century, the country has provided a story of continuing political struggles to unify the different ethnic and religious groups and to manage complex relations with neighbours. These struggles also took place regarding efforts to modernise the country, to change women’s customs, to create sustainable economic development in the different regions, and to ferociously resist foreign rule and interference, despite large volumes of aid and technical support.

Only by analysing the experience of the past is it possible to understand how misguided the centralised political framework established at Bonn was and how inappropriate some of the ‘shock’ reforms adopted to modernise the country were. The historical perspective is also necessary to understand how the economic framework set up in the aftermath of military intervention after 9/11 was not only unrealistic for a country like Afghanistan, but totally inadequate given the shortage of Afghan skills and resources, and the tremendous needs that the country had after more than two decades of war.

It is also necessary to understand how little attention donors paid to early problems with aid in Afghanistan. Part one also describes four types of economic projects in the 20th Century which are particularly relevant to an analysis of the adequacy of aid and reconstruction policies in the new millennium.

Part two analyses the context in which Operation Enduring Freedom took place and briefly describes the Bonn Agreement stipulations that affected economic reconstruction amid political and security reform and social transformation. Regional factors affecting the implementation of the Bonn Agreement are also mentioned, as they are in other parts of the report.

Part three assesses the overall reconstruction strategy and identifies six specific factors which, although they are not independent of each other, have been major impediments to an effective war-to-peace transition in Afghanistan. It also discusses how those factors had major responsibility for the 2014-16 financial crisis that followed as US and NATO combat troops winded down in 2014 and a new coalition government took over.

After discussing how off-track Afghanistan’s reconstruction stands after 15 years of foreign intervention, Part four argues that it is a perfect time to start a dialogue between national policymakers and foreign interveners, with the participation of other experts, on how to put Afghan reconstruction on track. For that purpose, Part four proposes two small-scale pilot experiments involving the creation of Reconstruction Zones and the use of aid to establish Basic Income Programs on the basis that military solutions alone are not going to succeed in bringing the insurgency into negotiations.

Without a peace solution, the Afghan situation is not sustainable. The purpose of both pilot projects is to encourage the government, foreign interveners, investors, donors, and communities to engage in win-win projects, avoiding some of the aid ineffectiveness and fragmentation of the past, and contributing to replacing foreign investment and exports for aid to reduce dependency. These projects could be discussed as part of the dialogue among different stakeholders since they could facilitate the so-far elusive transition towards a more peaceful, stable, prosperous, and more independent Afghanistan. Concluding remarks will follow.

1. Afghanistan: Historical background[9]

1.1. Political and security developments

Foreign conquerors, nationalist policies, foreign aid, different ethnicities and religions, economic and social reforms, and the old Silk Route linking China to Rome have combined in complex and different ways throughout Afghanistan’s history to mould the country – including its economy, its politics, its culture, its language, and its people. At the same time, history affected the various regions, cities, and communities differently depending on their location and relations with neighbours across the border.

The cities, full of history, architectural jewels, and beautiful and proud peoples, and the rugged mountains, valleys, gorges, and passes that link them in convoluted and striking ways, provided the stage for famous battles of ancient times and more recent ones. They also provided the livelihoods for a fast-growing population that relies today, almost as much as it did in the past, on agriculture and livestock.

Despite brewing problems, Afghanistan was at peace internally and with its neighbours until the late 1970s. At the time, it was easy to fall in love with the striking beauty of the landscape and the populace and even the dignified poverty that existed in a country of 15 million inhabitants. Afghans themselves recall pre-1978 times as times of peace and harmony when Kabul was known as the Paris of Central Asia.

For millennia, Afghan nationalism and idiosyncrasies developed amid an unusual variety of foreign influences. The Afghan territory was “the meeting place of four cultural and ecological areas: Middle East, Central Asia, South Asia, and East Asia” (Fizgerald and Gould, 2009, p. 19). Due to a variety of invaders over the centuries, political, economic, and cultural influences (Persian, Hellenistic, Mongol, Turkish, Central Asian, and Hindu) and religious influences (Zoroastrianism, Buddhism, and Islam) were very much present to different degrees in different parts of modern Afghanistan.

Persian influence predominated in the area until 1748 when Ahmad Durrani, a Pashtun of the Abdali tribe, created the Afghan Durrani Empire (1748-1823). Thus, the Afghanistan we know today only became a nation in the mid-18th Century to the east of Persia (modern Iran). Afghanistan was ruled by Emirs or Shahs until Zahir Shah was deposed after forty years of rule and the monarchy came to an end in 1973.

In its heyday, the Durrani Empire extended Afghan control from Mashhad (in north-eastern Iran) in the west to Kashmir and Delhi (in northern India) in the east, and from the Amu Darya river in the north to the Arabian Sea in the south. According to Louis Dupree, an American anthropologist and archaeologist who was a scholar of Afghan history and culture, next to the Ottoman Empire, the Durrani was the greatest Muslim empire in the second half of the 18th Century (Dupree, 1973, p. 334).

In the 19th Century, two empires contested power in Afghanistan in what became known as the Great Game: The Russian Empire in the north (in territory now belonging to Afghanistan’s neighbours Turkmenistan, Uzbekistan, and Tajikistan) and the British Empire in the south and east (what is today Pakistan). In the 80 years starting in 1839, this led to three Anglo-Afghan wars fought at such great cost in terms of lives and treasure that they have become legendary.[10]

While Ahmad Shah created an empire, it was Abdur Rahman who is remembered as the founder of modern Afghanistan. In 1880, after the second Anglo-Afghan war, he became Emir (1880-1901) and established a centralised state with control over territory covering present-day Afghanistan. This territory fell within delineated borders, which he negotiated with Russia, British India, and Persia.

To eliminate the existing decentralised government system in which the regions and the tribes historically maintained a high degree of autonomy – a system that dated from the time of the Persian emperor Cyrus I – Abdur Rahman had to resort to brutal suppression of ethnic tribes including fellow Pashtuns. Issues of government centralisation and decentralisation have, historically, played a role in state-building and economic development in Afghanistan, which were not addressed properly after 9/11 and have haunted reconstruction efforts since.[11]

Upon assuming power, Abdur Rahman ceded control of the Khyber Pass and various areas of what is Pakistan today to Britain and agreed to conduct its diplomatic affairs and foreign policy in accordance with British interests. More troublesome for Afghanistan’s future was his acceptance of the 1,510-mile Durand Line, a line drawn in 1893 by Rahman himself and Sir Mortimer Durand, a British diplomat and civil servant of the British Raj, to demarcate the limits to their respective spheres of influence and improve diplomatic relations and trade. Established at the end of the Great Game, the line in fact established Afghanistan as a buffer zone between British and Russian imperial interests in the region. In exchange for Afghan goodwill at the time the Durand Line was demarcated, the British started subsidising the Afghan state, which might have been an early catalyst for the Afghan state’s increasing addiction to foreign aid.

The Durand Line, which Afghanistan still does not recognise, became the country’s de facto border with Pakistan from 1896, thus depriving Afghanistan of any rights over the Pashtun tribes on the other side of the Line. The Durand Line has been a constant source of problems between the two countries.

While the British continued to influence foreign affairs, Abdur Rahman focused on building the state, including the adoption of a legal and tax system, the improvement of the civil service, the manufacturing of consumer goods and of new agricultural tools, and the establishment of the first modern hospital. In building the state, Abdur Rahman was particularly keen to keep powerful neighbours – whether friends or foes – outside his kingdom, which he did by resisting railways, telegraphs, and other such innovations of the time. In this process, he managed to create some degree of stability, which his people had not known before, but it came at the cost of strong government centralisation and harsh punishments for crime and corruption.

Despite serious efforts by the Sultan of the Ottoman Empire, who was the spiritual ruler of Islam, and by a German military mission to the country on one side, and pressure from the British on the other, Habibullah, the Emir of Afghanistan at the time, maintained the country’s strict neutrality during World War One. His policies were not popular, and he was assassinated in 1919.

Amanullah, his favourite son, succeeded him as Emir and was the last of thirteen rulers of the Emirate of Afghanistan (1823-1926), since he appointed himself Shah (King) in 1926, founding the Kingdom of Afghanistan (1926-1973). Immediately upon assuming his role as Emir, Amanullah launched a surprise attack on British India, unleashing the month-long third Anglo-Afghan War in May 1919.

Dupree noted that it was at that time that the Soviets started providing subsidies to Afghanistan and sent Amanullah a gift of thirteen airplanes plus pilots, mechanics, transportation specialists, and telegraph operators. In the mid-1920s, the Soviets also laid telephone lines and started building roads (Dupree, 1973, p. 451; Bossin, 2004, p. 76).

With the British Indian army exhausted by the demands of World War One, and with strained relations between Britain and Russia following the communist revolution of 1917, the British signed the Treaty of Rawalpindi on 19 August 1919, relinquishing control over Afghanistan’s foreign affairs. To honour the triumph, Afghanistan celebrates that day as Independence Day. The treaty, however, also mentions the Durand Line for the first time as a “frontier” (Dupree, 1973, pp. 442-43).

Amanullah was a reformer and after assuming the throne early, he pushed for reforms to modernise his country. After a trip to Europe and Turkey, where he met President Mustafa Kemal Atatürk in Ankara in 1928, he tried to emulate the modernisation and secularisation that Atatürk had managed to advance in Turkey. With support from his Foreign Minister, Mahmud Tarzi, Queen Soraya’s father, an ardent supporter of education for women, he drafted the first constitution and had it approved by a Loya Jirga (grand council). The 1923 constitution made elementary education compulsory for all citizens, gave all subjects of Afghanistan equal rights and duties according to Sharia and the Laws of the State, and made them all eligible for employment in the civil service.

In what may have been a harbinger of events after 9/11, such foreign-inspired reforms quickly alienated many conservative tribal and religious leaders (mullahs). Indeed, as philosopher George Santayana famously quipped, “Those who cannot remember the past are condemned to repeat it.” US and allied forces in Afghanistan in the new millennium pushed for many of the drastic reforms that had doomed Amanullah. Together with his failure to build an army, Amanullah’s reforms forced him to abdicate in 1929.

Army Sgt. 1st Class Jeffrey Cesaitis, Provincial Reconstruction Team Zabul, secures an area at a bridge construction site in the Zabul province of Afghanistan. Members from the U.S. Army Corps of Engineers inspected the progress and quality of several bridges being built in the area. The PRT consists of members from the Air Force, Army and civilian agencies. (Credit: U.S. Army Corps of Engineers/Flickr)

The U.S. Army Corps of Engineers inspect several bridges being built in the Zabul province of Afghanistan. (Credit: U.S. Army/Flickr) (via

With the support of tribes that opposed modernisation and that had been forcefully repressed since Abdur Rahman Shah, Habibullah Kalakani, a notorious “Tajik bandit and folk hero,” advanced his forces over Kabul and became briefly the first Tajik and only non-Pashtun monarch in Afghanistan. He was defeated in October of that year, providing what Poullada argued was “a severe setback to national unity” (Poullada, 1974, p. 40).

Amanullah’s cousin Nadir Khan became the new Shah in 1930. Nadir Shah abandoned Amanullah’s far-reaching reforms in favour of a more gradual approach to modernisation and promulgated a new constitution. As Dupree described it, “Islam pervades the 1931 Constitution,” which established that the king had to be a Hanafi Sunni (thus excluding other Sunni and Shia Muslims) while at the same time providing rights to Hindus or Jews if they did not violate the “ordinary rules of conduct and propriety,” without defining what these were. At the time, about 80 percent of Afghans belonged to the Hanafi Sunni sect, the most liberal of the Sunni groups (Dupree, 1973, pp 463-71; Rashid, 2010a).

The constitution also “permitted the religious leaders much more freedom than they had enjoyed under Abdur Rahman (who had sought to destroy their political power and wealth), Habibullah (who had tolerated them), or Amanullah (who had tried to create a secular state)” (Dupree, 1971, pp. 463-71).

During Nadir Shah’s rule, Russia lost the favoured position it had enjoyed during Amanullah’s reign. Nadir Shah managed to pacify the south but needed to improve roads and communications to deal with hit-and-run Russian operations in Afghanistan to fight Uzbek insurgents that took refuge in Afghanistan. This brought Nadir Shah closer to the British, who provided him with £170,000 in cash, 10,000 rifles, and five million cartridges, the only aid he ever received (Dupree, 1973, p. 461).

Nadir’s unfortunate assassination in 1933 interrupted but did not reverse his conservative and cautious approach to the problem of national unification (Poullada, 1974, p. 42). Nadir Shah’s 19-year-old son Mohammad Zahir succeeded him to the throne and ruled for 40 years (1933-73) as the last Shah of Afghanistan. During the first 20 years, he ruled with the assistance of his uncles on his father’s side, who succeeded each other as prime ministers.[12]

Afghanistan also maintained neutrality during World War Two. Given its location, between British and Soviet spheres of influence, this was understandable despite the increasingly close ties the country had with Germany. In the aftermath of the war, Afghanistan provided an economic battleground for Cold War rivalries, with both the Soviet Union and the United States providing large amounts of aid in efforts to influence Afghan policies (as discussed below).

In 1953, Zahir Shah appointed his cousin and brother-in-law Mohammed Daoud Khan as prime minister. Daoud tried to establish closer relations with the Soviet Union while also courting the United States for aid. A year later, he passed the first law encouraging foreign investment to offset the lack of internal financial and technical resources needed for the path of modernisation he was embarking on.

In 1963, Zahid Shah asked Daoud to step down. As Amanullah Shah had done earlier, Daoud had provoked the wrath of the mullahs by ordering his minister’s wives to unveil during the celebrations for the fortieth anniversary of Afghan’s independence. But perhaps the most important factor leading to the crisis that caused his dismissal was Daoud’s appointment of a Loya Jirga to reconsider the ‘Pashtunistan’ issue in 1961 – that is, his efforts to unite all Pashtuns, including those across the Durand line that marked the de facto border with Pakistan. Daoud’s promotion of the ‘Pashtunisation’ issue and the closing of the border with Pakistan – a key trading partner – created serious economic problems for landlocked Afghanistan (Bossin, 2004, p. 77).

The areas on both sides of the Durand Line separating Pakistan and Afghanistan have seen a lot of history since then. In the 1980s, these areas provided sanctuary to the Afghan mujahedeen – a diverse group of ‘freedom fighters’ that included radical Islamic groups – fighting against Soviet troops that had invaded the country in December 1979. After 9/11, these same areas provided an early refuge for Osama Bin Laden and a base for Taliban and other insurgents to carry out attacks on Afghanistan as well as US and NATO forces. They have also been areas of heavy US drone attacks, which led Pakistan once again to close the border in 2011, after a dispute with the United States.

For the last ten years of his rule, Zahir Shah took a more active role in government. In 1964, he promulgated a liberal constitution providing for a bicameral legislature, with one-third of the deputies appointed by the king, one-third by the people, and the remainder by the provincial assemblies (Dupree, 1973, pp. 565-87).

While his efforts at building democracy did not go far and unofficial extremist leftist parties thrived under his rule, his cousin and former prime minister, Mohammad Daoud, deposed Zahid Shah in 1973 and ended the monarchy. In 1978, a bloody communist coup d’état ended the short-lived Daoud presidency (1973-78) and led to the Saur Revolution.

The Soviet invasion of Afghanistan in 1979 was allegedly at the request of, and in support of, the weak communist government in power in Kabul. Afghanistan was to become the last political battleground of the Cold War. The mujahedeen – with heavy financing from the CIA – announced a jihad against the Soviets. The Soviet-Afghan war was fought in rural areas. This led to their destruction but did not much affect Kabul or other large cities in the country.

Soviet paratrooper in Afghanistan during the Soviet Afghan War. (Credit: Oleg Zabyelin/Flickr)

Soviet paratrooper in Afghanistan during the Soviet Afghan War. (Credit: Oleg Zabyelin/Flickr) (via

Kabul, however, was destroyed both physically and economically by the brutal civil war that followed the Soviet withdrawal, and was divided in two phases: the first one from the Soviet withdrawal to the collapse of the Soviet-backed government of Najibullah (1989-92); and the second one from the end of Najibullah’s government and the continuation of the war among different mujahedeen commanders to the beginning of the de facto Taliban regime (1992-96). Opium production and trade fuelled the civil war and weakened the Kabul government.

After several years of fighting, which had caused devastating damage to Kabul and other cities and in which all kinds of human abuses had taken place, Mullah Mohammed Omar, who had fought the Soviets, organised a new armed movement – the Taliban or ‘Koranic students’ in Arabic – in 1994. These were drawn from madrassas or Islamic theology schools set up in refugee camps in Pakistan. Taliban is the plural of ‘Talib’, or student (Rashid, 2010a).

The Taliban developed with the backing of Pakistan’s intelligence services (ISI). The Taliban grew out of Kandahar, a violent and chaotic city in the south controlled by corrupt and ruthless commanders or warlords not affiliated with the interim government set up in Kabul in 1992 after the Soviet Union collapsed and the government of Najibullah crumbled.

The Taliban took power in Kabul in 1996 and served as de facto rulers of the country until the end of 2001 when they fled the city, almost three months after the start of Operation Enduring Freedom. By then, arms trafficking and smuggling were widespread, and the only domestically produced exports were narcotics and some illegal timber and gemstones.

1.2. Economic and social developments

By 1978, when the communist government took over, the role of the state and its interaction with the private sector had changed in fundamental ways, from the state subsidising private industries in the 1920s at the time of Amanullah Shah, a strong reformer, to socialist policies and five-year development plans adopted in the late 1950s by Zahir Shah, the last king.

It was during Mohammad Daoud’s period as prime minister (1953-63) – long before the communist coup in April 1978 – that the Afghan economy adopted statist policies where industrialisation and other development policies were led by the state rather than by the private sector.

Impressed by the economic developments in Soviet Central Asia, India, and Turkey and blaming the private sector for a lack of funding and poor technical and managerial capabilities, Daoud decided that direct government intervention was necessary to hasten economic growth. It was thus that Daoud formally introduced five-year development plans, the first one covering the years 1957-61. Just as it had in the private sector, poor technical and managerial skills in the government hounded both this plan and its successors spanning the period 1957-77.

Daoud’s foreign policy drew most attention, notably breaking from past practices of excluding great power competition within its borders, permitting and even encouraging that Afghanistan provide an economic battleground for Cold War rivalries. Poullada argued that this allowed “Afghanistan to obtain a very substantial economic infrastructure with little, if any, prejudice to its independence” (Poullada, 1974, pp. 42-43; USG, 1986, p. 145).

Thus, while a subsidiary of Morrison-Knudsen built the Arghandab Dam in 1952 and the Kajaki Dam on the Helmand River in 1953, both part of the Helmand Valley and Arghandab Valley project (discussed below), and financed through US aid, in 1954 the Soviets made a large loan for two grain silos, flour mills and bakeries, and an asphalt factory to pave Kabul’s streets. The Soviets also offered barter trade where goods rather than money were exchanged, guaranteeing higher prices for Afghan exports of wool and raw cotton. In response to Soviet aid, the Americans increased their own assistance levels, and aid transfers from both countries then rose into the early 1960s (Dupree, 1973, p. 507; Brant, 1974; USG, 1986; Fitzgerald and Gould, 2009, p. 93).

The five-year plans consisted of lists of projects designed to solicit foreign aid, but they did not establish priorities nor did they provide reliable cost estimates for the projects (USG, 1986, pp. 145-146; Dupree, 1973, pp. 626-648; Bossin, 2004, pp. 79-85). In a landlocked country like Afghanistan, infrastructure is critical for its economic development, and that was the focus of development plans after World War Two.

Rather than an integrated strategy for economic development – where synergies between the projects could be exploited to increase productivity – the development plans led to a fragmented strategy where isolated projects here and there had only limited impact. In addition, poor technical and managerial skills in the government haunted Prime Minister Daoud’s development plans, as they were to haunt the neoliberal reforms adopted after 9/11.

While the earlier five-year development plans relied heavily on Soviet foreign aid and experts, the latter relied largely on US foreign aid and experts. In both cases, national ownership over policies and programs was limited, and Soviet and US experts designed plans with little knowledge of local conditions.

Although there was some growing awareness that it was important to make an indigenous effort to organise and execute the development plans with national resources, Afghanistan’s fiscal effort was weak and government funding for projects was always lacking because tax collections were so low. Agriculture, the economy’s largest sector, was slightly taxed since land and livestock taxes had been fixed and were not adjusted to reflect high inflation. By 1972, these taxes represented just one percent of total government revenues. Tax collection was hindered by difficult geography, poor tax administration, and widespread corruption (USG, 1986, p. 146; Brant, 1974, p. 92). Thus, the government relied mostly on taxes on exports and imports, which were easier to collect.

During the 1950s and 1960s, Afghanistan received $1.3 billion in aid. This represented $150-$170 per person in total, an amount roughly equal to or even larger than the country’s income per capita, perhaps the highest level of aid accruing to any country in the world. This allowed the country to finance its development budget, overcoming the major constraint imposed by the country’s low tax revenue (USG, 1986, pp. 146-47; Basketter, 2008).[13]

Daoud’s revision of the ‘Pashtunistan’ issue in 1961 – that is, his intention to unite all Pashtuns, including those across the Durand line, led to a breakup of relations with Pakistan and the interruption of transit trade, essential for exports out of Afghanistan, a landlocked country. The economic cost of the Pakistan border closure was high despite the establishment of a new Iranian transit route a year later. Prices, especially of food, increased by over 100 percent because of this problem (Dupree, 1973, Chapter 23 and pp. 539-54, 560; Poullada, 1974, p. 42-43).

At the same time, President Kennedy had cut aid to Pakistan’s military regime and had sought to improve ties with India. Pakistan reacted by seeking Soviet assistance in the exploration of oil and gas. These policies, together with the closure of the Pakistan-Afghanistan border, had all kinds of political and economic repercussions, the most important of which was the disruption of American exports of machinery and supplies to Afghanistan that rotted in Pakistani ports and largely increased Afghan trade dependence on the Soviet Union (Fitzgerald and Gould, 2009, pp. 101-03; Dupree, 1973, p. 565).

The pendulum between state and private sector-led development shifted once again as Daoud stepped down in 1963. The new government believed that the private sector should play a larger role in industrialisation and other productive activities. The government took some measures to improve the business climate in the country, including the liberalisation of imports of intermediate and capital goods to promote local industry, and passed a foreign and domestic private investment law in 1967.

The mediocre performance of the economy and the perceived slowdown in development were the main causes leading to Daoud’s coup d’état against his cousin, Zahir Shah, which ended the monarchy in 1973. Ruling with the support of leftists, including moderate communists, Daoud’s statist policies were greatly strengthened once again. He nationalised all banks, and the government assumed control of many industries previously held by Bank-i-Melli, the private development bank. Like the first and second plans, the fourth five-year plan (1973-77) focused predominantly on large-scale, long-maturing projects. By 1975 – even three years before the communist coup – most industrial concerns were state owned (Dupree, 1973, pp. 634–40).[14]

With several good harvests, agriculture had recovered from the 1971-72 drought. Despite the emphasis of the development plans on developing infrastructure and industrialisation, agriculture production remained the engine of the Afghan economy. In the late 1970s, agricultural production was vibrant and the country had achieved food security (at least under normal weather conditions).

Afghanistan was famous as an exporter of fresh and dried fruits, karakul skins, carpets, and cotton. The northern city of Kunduz, surrounded by fertile agricultural land producing cotton, wheat, rice, millet, fruits and other crops, and home to the Spinzar Cotton Company, a successful exporter, was known as ‘the hive of the country’. In the west, the city of Herat was known as ‘the breadbasket of Central Asia’. In the south, Kandahar acted as the main trading centre and as a market for fresh and dried fruits, grains, sheep, wool, cotton, and tobacco. The city had plants for packing, canning, and drying fruits, and for manufacturing woollen cloth, felt, and silk.

In the south, the Helmand Valley irrigation program survived after initial problems discussed below and, by the mid-1960s, had opened-up thousands of acres of land in Helmand and Kandahar provinces – where most of the opium is now produced and where most surge troops were sent to fight the resurgent Taliban in 2010. In the late 1970s, these provinces were full of green oases with trees, vineyards, and orchards (pomegranates, apricots, cherries, figs, peaches, and mulberries) that bloomed in the spring, and crops (mostly wheat) that sprouted at that time.

A combination of higher cotton exports, a reduction of food imports, and the export of labour to the oil-rich countries in the Persian Gulf greatly improved the balance of payments of Afghanistan in the late-1970s – that is, the net monetary transactions between the country and the rest of the world. As a result, the central bank was accumulating international reserves and the national currency, the afghani, appreciated in value relative to other currencies (USG, 1986, pp. 151-52).

Despite the many economic and social achievements, the overall development effort was disappointing and the economy remained largely dependent on traditional agriculture in small plots of land and livestock production often carried out by nomadic people.[15] There were a few, mostly low-productivity, small-scale industries producing things like soap, leather goods, and seed oils for local consumption. Productive investment, with the exception of cotton, cement, and a few other industries, was limited. At the same time, most large infrastructure projects had long gestation periods, without a noticeable impact in increasing production and trade in the short run.

Before the communist coup of April 1978, the Soviet invasion of December 1979, the civil war that followed Soviet withdrawal (1989-92) and continued after the collapse of the Najibullah government (1992-96), and the Taliban’s de facto rule that followed (1996-2001), Afghanistan was dignified, if poor, at peace internally and with its neighbours. During the decade-long Soviet occupation (1979-89), the rural population bore the brunt of the war. In addition, four years of serious drought had, by 2001, decimated agriculture and livestock production.

After the communist coup in the spring of 1978, Washington ordered its engineers and other experts to pack their bags, together with all those US citizens living in ‘Little America’. As journalist Rajiv Chadrasekaran observed, “It would not be the last time America would fail to achieve its goals in Afghanistan” (Chandrasekaran, 2012, p. 33).

After the Soviet invasion of December 1979, and with the mujahedeen waging jihad against the occupiers, the war was fought mostly in rural areas. The laying of 10 million landmines destroyed agricultural life and production, which had major and grave consequences. At the same time, with Soviet support and to pay for their loans (a difference with post-9/11 when aid was mostly in the form of grants), Afghans greatly developed natural gas production and exported it to the Soviet Union.[16] In the process, this increased the share of mining in total exports and raised government revenue (DIA, 1983, pp. iv, 1–3; USG, 1986, pp. 156-57, 174).

While the rural sector suffered greatly from Soviet attacks, Kabul was destroyed physically and economically by the brutal civil war that followed Soviet withdrawal in 1989 and lasted until the Taliban took over Kabul in 1996.

Political and economic events and consequences are often intertwined in complex and unexpected ways, both across borders and spilling over to countries well beyond borders. Great powers often make unilateral decisions that other countries, which have political and economic agendas of their own, may find difficult to support. For more than three decades, Afghanistan has been both a pawn and a major protagonist of international political and economic events.

Although the purpose here is not to analyse the 1980 US grain embargo, and what Nobel Laureate Robert Mundell called the ‘Afghan Effect’, which are detailed elsewhere (del Castillo, 2016, Chapter 9, pp. 95-100), suffice it to say here that Afghanistan provides the best illustration of how a country with such small weight in global production and trade (about one fiftieth of one percent) can have such a profound foreign policy and economic impact on other countries – from affecting elections and having other political effects on superpowers (the United States and the Soviet Union), to large economic and political impact in countries in South America (Argentina and Uruguay).[17]

In revising US policies towards Afghanistan in August 2017, President Trump should have considered that present-day Afghanistan, just as ancient Afghanistan, is not only moulded by wars and foreign intervention but is itself an influencer, not only over countries in the region, but even over faraway parts of the world.

1.3. Lessons for reconstruction after 9/11

The United States and the Soviet Union competed to modernise the Afghan economy during the Cold War. As a harbinger for what was to be the situation after 9/11, many of the aid projects – both US- and Soviet-led and financed – faced all kinds of problems. At the same time, while many projects led by foreign interveners stumbled, others under Afghan leadership and entrepreneurship proved able to achieve success without, or with minimal, foreign intervention.[18] This was an inconvenient truth that both the Afghan government and foreign interveners preferred to ignore in the new millennium, where large volumes of aid were wasted in corruption, or provided employment to foreign experts and contractors, with aid funds largely returned to donors in the form of wages and profits.

An understanding of the economic consequences of 20th Century events is important, not only for improving policymaking in the future, but also because they set up the initial conditions for the economic reconstruction of the country in the new millennium. Initial conditions are not only the benchmark against which to measure progress. In the case of Afghanistan, initial conditions were particularly important in order to understand how unrealistic or misguided national and aid policies and/or priorities were in Afghanistan in the post-9/11 period.

It was most unfortunate that little attention was paid to the mistakes incurred in prior development and aid policies throughout the 1940s and 1950s. It would have saved much blood and treasure. Lives of US and NATO troops and foreign contractors, and billions of taxpayer dollars in donor countries, were wasted to carry out counterinsurgency policies to win the hearts and minds of the Afghan population, despite the failure of similar attempts by the Soviets and even by the Americans in the 1940s and 1950s (Kalinovsky, 2011; Dupree, 1973).[19]

Four types of Afghan economic projects in the 20th Century are particularly relevant to an analysis of the adequacy of aid and reconstruction policies in the new millennium. The first one is the Spinzar Cotton Company built in the 1930s, allegedly utilising 5,000 full-time employees and financed by Bank-i-Melli (National Bank), acting as a private investment bank (Dupree, 1973, 410; Barfield, 2010, p. 5).

This is the kind of project that the international community could have reactivated after 9/11 to create livelihoods for Afghans after years of war, even if the lower price of cotton would not have made it as profitable as in the past. By then, however, the Spinzar plant was in state hands; and the government, with support from the Bretton Woods institutions – the International Monetary Fund (IMF) and the World Bank – wanted to set up a perfect neo-liberal economic framework, in which state-owned enterprises would be closed or privatised.

The second type included two large irrigation projects of critical importance to a country like Afghanistan, where irrigation is key to agriculture. The rural sector employed 75–80 percent of the labour force and accounted for 90 percent of exports. Half of the investment of the five-year development plans in agriculture went to these two projects, one led by the United States and the other by the Soviet Union.[20]

Experimental Agriculture Farm in Lashkar Gah, Helmand Province. (Credit. DFID - UK Department for International Development/Flickr)

Experimental agriculture farm in Lashkar Gah, Helmand Province. (Credit. DFID – UK Department for International Development/Flickr) (via

Contrary to the situation in the new millennium, it was widely recognised at the time that agricultural exports were the primary source of foreign exchange earnings, and that to expand exports, it was necessary to reclaim new lands, construct new and reconstruct existing irrigation systems, and introduce mechanisation, the use of fertilisers and better seeds (Chandrasekaran, 2012, pp. 17-18; Brant, 1974, pp. 93-94).

The first irrigation project was in the Helmand and Arghandab valleys. To carry out his vision, Zahir Shah looked to the United States to launch an enormous development project to transform the provinces of Helmand and Kandahar through irrigation, to settle about 5,500 nomadic and landless families (Dupree, 1973, pp. 499-507). It was in this area where decades later President Obama sent most surge troops to fight the resurgent Taliban in 2010.

These two provinces provided an early record of US foreign assistance gone sour in Afghanistan. It is not possible to discuss all the aspects that went wrong with the project in the Helmand and Arghandab Valley, but the details are provided elsewhere (Dupree, 1973, pp. 482-85; USG, 1986, Chapter 3; Chandresakaran, 2012). Suffice it to say here that some of the problems experienced at the time with this project were harbingers for problems with aid to Afghanistan post-9/11, resulting from inadequate policies for the problem at hand and/or from foreign interveners’ ignorance about local conditions and sensibilities.

Among the most notorious American mistakes was ignoring the fact that policies that worked in the United States were not necessarily best for Afghanistan. In fact, some could even be counter-productive. The Helmand and Arghandab Valley Authority to administer the project was modelled on the Tennessee Valley Authority in the United States and set up in 1952. However, the conditions – including human skills and government administrative capabilities – were strikingly different.

Zahir Shah hired Morrison-Knudsen, the giant US engineering firm that had constructed the Hoover Dam and the San Francisco Bay Bridge but who had not as much experience in irrigation in countries at low levels of development and with difficult terrain. Their first project was to widen the road from the Pakistani border to Kandahar so that everything, including ‘the smallest and simplest pieces’ could be imported from the United States (Chandrasekaran, 2012, p. 20), a mistake repeated frequently after 9/11.

By the time Morrison-Knudsen found that the soil was too shallow and that below it lay an almost impermeable layer of sub-soil that whenever flooded – as Afghan’s tended to do to irrigate their lands – would evaporate and leave salts in the soil that impeded cultivation, the company had already spent $20 million ($185 million in 2016 dollars). This was well above the initial contract for $17 million, and the company had little to show except for “one short road, one diversion dam, and one incomplete canal,” as US Ambassador to Kabul Louis G. Dreyfus, Jr., wrote in a cable to the State Department.

In response, Morrison-Knudsen recommended expanding the project despite reservations from the government (Chandrasekaran, 2012, p. 20). This was very much also the approach of foreign contractors in both Afghanistan and Iraq in the new millennium when things did not go right – as if enlarging something that was not working was going to solve the problem.

By the time Morrison-Knudsen made their recommendation, competition from Russia and African karakul pelts had brought down international prices of skins, a key export, reducing the Afghan government’s tax and foreign exchange revenue and hence its ability to finance development. As a result, the Afghan government started borrowing from the US Export-Import Bank.

The financing and implementation of the Helmand and Arghandab Valley Project was also negatively affected by the lack of transparency and accountability of US contractors in Afghanistan in the 1940s and 1950s and the incompetence of the U.S. International Cooperation Agency, a predecessor of U.S. Agency for International Development (USAID) in dealing with them. It was not until USAID was created in the early 1960s that new experts discovered that the design of the main canal had been fatally flawed from the very beginning (Chandrasekaran, 2012, p. 29).

The second irrigation project in the Nangarhar Valley near Jalalabad in eastern Afghanistan – led by the Soviets – did not perform much better. The project contemplated the creation of canals and drains, as well as a dam and a reservoir. This project was also affected by some of the poor-design problems of the US irrigation project as Soviet experts also lacked an understanding of local conditions and local materials, and neither were they aware of the nature of the soil and of the spring floods. This impeded improvement in agriculture and required large quantities of topsoil to be trucked in at high cost.[21]

Thus, despite these two large investments, production of wheat (common among most Afghan farmers) and a main staple of the Afghan diet, was growing only 1.5 percent annually in 1962-72, well below the population growth rate of over two percent. With the food situation greatly deteriorating with the drought of 1971-72, an estimated 80,000 people starved to death before any assistance could reach them (Brant, 1974, pp. 104–06; USG, 1986, p. 148; Rubin, 2002, p. 79; Fitzgerald and Gould, 2009, p. 120).[22]

By the end of the 1960s, US government (USAID) experts believed that they could solve the problem of anaemic farm production by introducing high-yield varieties of wheat. They introduced seeds that would ripen in half the time, allowing farmers to plant two crops a year with each one expected to yield twice as much wheat as before. What they did not expect was that migratory birds, which flew over the crops right before the harvest, would “get fat and the farmers would not” (Chandrasekaran, 2012, p. 31).

Some have noted that these problems were also present with other donors and with other sectors. Dupree, for example, believed that neither German, nor Italian or Japanese work proved of any material consequence because of “lacking in understanding of local materials”. He mentioned as an example that these donors had constructed collapsible small dams and bridges that washed away at the first big spring floods (Dupree, 1973, p. 479).

The third type of project that would have been relevant to improving aid policies in the new millennium referred to various projects that ignored local realities and offended national sensibilities and were therefore not sustainable over time. A most notorious example was the construction in the 1950s of ‘Little America’ in the capital of Helmand province, emulating the design of an American city and of life in the United States. Throughout Afghan history, different emperors, kings, and even the communist leaders in the early 1980s made efforts at rapid modernisation of the economy and society that failed. These experiences provided lessons that foreign interveners should have analysed carefully but completely ignored after 9/11, with déjà vu effects.

The last type of project that was relevant to the post–9/11 economic reconstruction involved the series of five-year development plans designed to solicit foreign aid starting in the late 1950s. By consisting simply of lists of projects to request foreign financing without establishing priorities, these plans led to a fragmented strategy where unconnected projects had only limited impact. Just like following the Bonn Agreement of 2001, an integrated strategy for economic development – where synergies between the projects could be exploited to increase their effectiveness and productivity – was lacking. Moreover, as with many of the post-9/11 projects, those in the five-year plans often had long gestation periods which meant that people did not feel the impact for many years and did not have an incentive to show support.

In addition, poor technical and managerial skills in the government haunted Prime Minister Daoud’s development plans in the 1970s, as they also haunted the neo-liberal model adopted in the early 2000s. While the earlier development plans relied heavily on Soviet foreign aid and experts, the latter relied largely on US foreign aid and experts. In both cases, national ownership over policies and programs was limited, which made the strategy unsustainable over time.

2. Economic reconstruction after 9/11

2.1. US military intervention and the Bonn Agreement

11 September 2001 (9/11) was a sad day in New York City with two planes crashing into the Twin Towers killing thousands of people. Within two hours, the two towers had collapsed, as had other buildings in the World Trade Center and the vicinity. For a while, this attack seemed to have broken the spirit of New Yorkers – largely believed to be unbreakable. Other terrorist attacks followed the same day with a third plane crashing into the Pentagon and a fourth one, heading for Washington DC, crashing in a field in Pennsylvania after passengers confronted the terrorists.

It surprised no one that Operation Enduring Freedom – the official name given to the Afghan war – was planned immediately following the 9/11 attacks and launched a few days later on 7 October. The decision was taken after the Taliban’s refusal to hand over Osama Bin Laden and other al-Qaeda fighters that they were harbouring in the country. The US government had evidence that these groups had been behind the attacks.

It was in this way that President Bush’s War on Terror began. On that October day, American and British forces started an aerial bombing campaign against the Taliban and al-Qaeda targets. Ground troops from the Northern Alliance were able to intensify their fighting protected by US-led air force strikes. The Northern Alliance, officially known as the United Islamic Front, consisted of a group of former mujahedeen commanders allied to fight the Taliban that had taken Kabul in 1996. Although in the early period most commanders were Tajik, by 2000, commanders from other ethnic groups had also joined the Alliance.

The American-led operation’s objective was to topple the Taliban and to dismantle the al-Qaeda network and capture its leaders. This would be achieved by targeting Taliban military installations and terrorist training camps. At the same time, the operation would aim to end Pakistan’s ‘creeping invasion’ into Afghanistan to support the de facto Taliban government and to replace it with an internationally acceptable Afghan government (President Bush, “Address to the Nation”, 7 October 2001; Saikal, 2005, p. 199). Two months later, the Northern Alliance – with strong air support – captured the important city of Mazar-i-Sharif, gained control of northern Afghanistan, and took over Kabul after the Taliban saw mass defections and fled the capital. In the south, the Taliban retreated to its base in Kandahar and were defeated in December 2001.

The most publicised battles against remnants of the Taliban and al-Qaeda took place in the eastern part of Afghanistan, on the Afghan side of the Durand Line on the border with Pakistan. These were the Battle of Tora Bora in December 2001 and Operation Anaconda in March 2002. In Tora Bora, Osama Bin Laden supposedly escaped with the help of the mujahedeen leader who allegedly had invited Bin Laden into Afghanistan. In both operations, US and allied forces supported the Northern Alliance in clearing large areas of the Taliban, forcing it to flee to the FATA tribal areas on the Pakistani side of the Durand Line. It is from this territory, claimed by Afghanistan over the years, that the Taliban and al-Qaeda attacked the military and police in Afghanistan from 2003.[23]

As Michael Ignatieff argued in the New York Times magazine in 2002, the way you win a war determines what kind of peace you can build. The United States put less than 1,000 people on the ground in Afghanistan after 9/11 to win a war that was fought by 75,000 Afghan troops. Thus, it was not surprising that the proxy forces that won the war – the leaders of the Northern Alliance – would take a prominent role in the emerging government. Those leaders were, by then, referred to as warlords and most of them had their own militias (Ignatieff interviewed by Nolan, 2002).

The political framework for the post-9/11 period was established in Bonn, Germany. Four groups met under the auspices of the UN to forge a future for their country: The Northern Alliance; the Rome group of former King Zahir; the Peshawar group in Pakistan; and the Cyprus group of exiles in that country. Among them, these groups represented all major ethnic groups – Pashtuns, Tajiks, Uzbeks, and Hazara. But the militarily-defeated Taliban – mostly Pashtuns from the south – were excluded under the naïve assumption that the Northern Alliance with US and allied support had completely vanquished them, and that they would vanish henceforth.[24]

On 5 December, the Bonn Agreement was signed, calling for a “broad-based, gender-sensitive, multi-ethnic, and fully representative government.”[25] This foreign-conceived political framework resounded as wishful thinking at the time rather than a realistic possibility for a country with such a complex history, culture, religion, mix of ethnicities, economy, and illiteracy rate.

Lt. Gen. Douglas Lute, assistant to the President George W. Bush and Deputy National Security Advisor for Iraq and Afghanistan, meets with Bamyan province Governor Habiba Sorabi, at the governor’s palace, 9 May 2006. (Credit: The U.S. Army/Flickr)

US Lt. Gen. Douglas Lute meets with Bamyan province governor Habiba Sorabi, at the governor’s palace, 9 May 2006. (Credit: The U.S. Army/Flickr) (via

As award-winning journalist Ahmed Rashid wrote in The Taliban, “[t]he Bonn agreement was not a peace treaty: the vanquished were not represented” (Rashid, 2010a). Moreover, Bonn made no provision for a ceasefire or for the demobilisation of forces. Lakhdar Brahimi and Francesc Vendrell, from the UN, which had sponsored the agreement, were later to regret that there were no Taliban present in Bonn. Neither did the UN make any effort to organise subsequent talks at which the Taliban would be represented (Vendrell, 2011). Yet, as Rashid noted, given the quick, unexpected end to the war, the dangerous political vacuum in Kabul, the late realisation in Washington that an interim government would be necessary and the desire by outside players to prevent a full-scale foreign occupation, the Bonn agreement was the best and least contentious compromise possible (Rashid, 2010a).

The Bonn Agreement may well have been the best agreement that could be reached at the time but was not a good harbinger for a successful war-to-peace transition. Governments can only make peace with enemies. Moreover, the same mujahedeen or warlords that the Bonn Agreement empowered and praised as the champions of peace were those that had fought the Soviets in the 1980s, ruled Afghanistan in 1992-96 (an era of civil war and widespread human rights abuses that held terrible memories for many Afghans), and played a key role as part of the Northern Alliance in defeating the Taliban after 9/11.[26]

In fact, as Francesc Vendrell has rightly noted, it had been their “rapaciousness and ill governance [that] had facilitated the Taliban take-over in 1996” (Vendrell, 2011). The Bonn Agreement not only legitimised the position of the warlords, but it also legislated what was to be an unworkable relationship between the warlords and the central government, which was indeed difficult to change (Vaishnav, 2004, p 253).

Ignatieff argued that despite the rich heritage of inter-ethnic hatred, most Afghans feel they are Afghans first and Uzbeks, Hazaras, Tajiks, or Pashtuns second. While the Afghan warlords often get their cash and guns from neighbouring countries like Iran, Pakistan and Uzbekistan, none of them really wanted to dismember the country. In his view, the warlords did not threaten the cohesion of Afghanistan as a nation; they threatened its existence as a state (Ignatieff, 2002). As discussed later, warlords appropriated a large part of the border import taxes from the very beginning, depriving the central government of its only income, increasing corruption, and making good governance impossible.

Notwithstanding the serious shortcomings of the Bonn Agreement, Afghanistan embarked on a complex and multi-pronged war-to-peace transition, with the specific challenges of the Afghan context (del Castillo, 2008). Thus, the repressive and militaristic theocracy of the Taliban, as well as the ruthless warlords of different ethnicities and other groups that had been involved in the long and ever-changing civil war, were expected to give way to the rule of law, inclusive and participatory government, and respect for human, gender, and property rights (the political transition).

Crime and violence were expected to lead to improved public security and adequate enforcement institutions had to be built (the security transition). Ethnic, religious, sectarian, or ideological confrontations that led to civil war and the fragmentation of the country, with serious regional implications, were expected to give way to national reconciliation. This was necessary so that enemy factions could live again with each other and in peace with their neighbours, and address future grievances through peaceful means (the social transition).

In addition, the war-and drought-ravaged, mismanaged, subsistence, and largely illicit economy was projected to become a stable, functioning, and inclusive economy so that the country could stand on its own feet, and those affected by the conflict, as well as ordinary people, could have jobs and earn a decent and legal living (the economic transition).

It was not anticipated that, by failing in any of these areas, the others would be put at risk. Otherwise, the distribution of resources would have been different (as discussed below). Moreover, foreign interveners’ unrealistic expectations about this transition also denied or ignored the experience of the previous decade that without addressing the root causes and consequences of conflict, the country would likely relapse into war, as indeed it soon happened.

Despite the ambitious and costly agenda, promises by President Bush in April 2002 to help rebuild Afghanistan in the tradition of the Marshall Plan created both surprise and strengthened the high expectations for the transition. As an editorial in the New York Times commented at the time, for a man who ran for president dismissing nation-building, George W. Bush surprisingly vowed to lead an international effort to rebuild Afghanistan on the model of the Marshall Plan. Combined with his pledge a month earlier in Monterrey, Mexico, to boost American aid to poor countries by 50 percent over three years, the Afghanistan offer suggested a sharp turnaround of his early thinking about development aid (New York Times, 19 April 2002).

President Bush’s announcement on Afghanistan, which was to remain just that, had also raised expectations among the Afghan population that security and economic conditions were going to improve in the short run. Optimism regarding Afghanistan’s prospects was widespread among scholars, practitioners, and journalists alike. For Milan Vaishnav, Afghanistan would be the site of the 21st Century’s first major post-conflict reconstruction (Vaishnav, 2004, p. 244).

For Leader and Atmar, the multipronged transition that Afghanistan was embarking on would mean nothing less than changing the political economy of the country from one based on unaccountable and arbitrary military rule, oppression, predation, and illicit economic activity to one based on democratic civilian governance, rule-based authority, a thriving and legal private sector, and political freedom (Leader and Atmar, 2004, pp. 166–67).

For Edward Girardet, a journalist who had covered the country since the time of the Soviet invasion, there was a window of opportunity: “Like everyone else, I assumed that with the Taliban gone, al-Qaeda dismantled, a new and open government would be installed to oversee a vibrant recovery process” (Girardet, 2011, p. 329).

Despite some delays, the political framework at first proceeded smoothly and largely in accordance with stipulations in the Bonn Agreement. Hamid Karzai, a Pashtun leader from Kandahar, was elected at Bonn to head the Interim Authority. Many believe that Zalmay Khalizad, an Afghan-American in the US delegation to Bonn (and later US Ambassador to the country in 2003-05), supposedly played a key role in favouring Karzai and side-lining the former king, Zahir Shah. For many Afghans, the king remained a unifying figure despite not having been an effective monarch. Ambassador James Dobbins, who was the US representative at Bonn and later America’s first post-9/11 special envoy to Afghanistan, strongly refuted such claims, arguing that Karzai was everyone’s choice and probably the only one that the four groups could support (Dobbins, 2008).[27]

Soon after Bonn, UN member states recognised the Interim Authority as the repository of Afghan sovereignty empowered to make all policy decisions at the national and international levels. The Authority would also occupy the Afghan seat at the UN General Assembly, which had been denied to the Taliban for being considered a de facto rather than a de jure government.

In March 2002, the UN established UNAMA (United Nations Assistance Mission in Afghanistan), and Lakhdar Brahimi was appointed to head it. He envisaged a ‘light footprint’ role for UNAMA, limited to facilitating the political process established at Bonn (in contrast to previous operations in Kosovo and East Timor where the Security Council had given the UN a ‘trusteeship mandate’ to assume all executive and legislative decisions). Not surprisingly, he left the UN agencies to lead economic reconstruction, the perfect recipe for the development-as-usual approach that the so-called Brahimi report had recommended in 2000.[28]

At the same time, the UN Security Council authorised the establishment of the 5,000-strong International Security Assistance Force, known as ISAF, to help the Interim Authority to create a secure environment in Kabul and to build a civilian police force and new military forces. ISAF would thus coexist with Operation Enduring Freedom to fight terrorism in the country.[29]

While Brahimi envisaged a limited role for the UN civilian mission (‘light-footprint’), he was opposed to the military and security approach of the US Pentagon (an approach known as ‘nation-building lite’), and worked to expand ISAF’s mandate outside the capital.

Foreign interveners’ initial support for the Afghan government took place within this political and security framework. Despite the overall weakness of the civil service, Karzai managed early on to appoint a small group of qualified and well-paid experts to critical positions, many of them Afghans from the diaspora. At the same time, and perhaps unsurprisingly given the key role they had had in routing the Taliban, warlords held top positions in the cabinet (interior, defence, and foreign affairs), in the security forces, and in various provinces. Also unsurprisingly, violations of human rights continued unabated. Impunity, justice, and accountability – three basic issues that countries normally need to address in the early phase of the war-to-peace transition – were left unresolved in Afghanistan (Donini, 2004; 2012).

The same Security Council Resolution that created ISAF called on member states to provide “long-term assistance for the social and economic reconstruction and rehabilitation of Afghanistan and welcomed initiatives towards this end.” Despite all the shortcomings, an estimated two million refugees returned to the country in 2002 alone – a sign of confidence and hope in the political transition, but also a reminder of the pressure that peace-related demands would exert on the financial and technical resources of the government and on foreign interveners (UNHCR, 2003).

In June 2002, Karzai convened a Loya Jirga (grand council) of about 1,500 tribal and ethnic leaders. The Loya Jirga in turn appointed the Afghanistan Transitional Authority and selected Karzai to head it for a period of two years. This authority was charged with drafting a new constitution (which was submitted to a constitutional Loya Jirga for approval in late 2003 and was formally ratified by Karzai in January 2004), and with preparing national elections to elect a fully representative government in late 2004.

During this period, the Transitional Authority was also responsible for economic management and policymaking and exercised all executive powers. However, since there was no legislative body until after the parliamentary elections in September 2005, the Transitional Authority had to adopt laws and regulations by executive decree – not always a simple proposition for a transitional government.[30] Many of the neo-liberal economic policies adopted during this period not only lacked parliamentary blessing, they did not even have much support within the cabinet. As a result, these policies lacked national support and in fact were not even widely known among the population at large, something that is essential for effective implementation and sustainability of government programs.

In October 2004, Hamid Karzai became the first democratically elected president of Afghanistan, winning 55 percent of the eight million votes that were cast. Despite fraud complaints, the election result was not contested.

But security had already started to deteriorate in 2003. In its best sarcastic style, The Economist reported that both Vice President Dick Cheney and Secretary of Defence Donald Rumsfeld, attending the presidential inauguration, were delighted to celebrate success in the war against terror. All the same, “neither thought it wise to stay the night. The old regime and the al-Qaeda terrorists it harboured might be down, but they are still capable of killing” (The Economist, December 2004).

President Karzai made some efforts early on to reduce the power of the warlords and some expected that after being elected with a strong majority, he could do more. By contrast, after the election, he reversed some of his earlier efforts to keep warlords at arm’s length.[31] He made, however, important changes in his cabinet. The most significant perhaps was replacing the key minister of finance, Ashraf Ghani, who had been associated with the establishment of an economic framework and policies that were clearly unpopular.[32] As discussed later, such a framework was not only inadequate for Afghanistan but violated basic premises for effective reconstruction. Not surprisingly the country soon reverted to war.[33]

The complex and inflexible economic framework established in Afghanistan was exactly the opposite of what war-ravaged Afghanistan needed to be able to implement the ambitious and multi-pronged transition to peace, which the country had embarked on with the support of foreign interveners. It was naively believed from the very beginning that the political framework of the Bonn Agreement could be implemented without a serious effort at economic reconstruction, and that security would not suffer in the process.

As Ambassador Dobbins explained, “Nation-building . . . as those responsible for the operations defined their objectives at the time, was not primarily about rebuilding a country’s economy but about transforming its political institutions” (Dobbins et al., 2003, p. 161).[34] Not surprisingly, while the transition had begun with bells and whistles, it soon lost momentum and began to show cracks. An unrealistic and misguided policy of having the political and security framework firmly in place before fully engaging in economic reconstruction and national reconciliation unnecessarily deprived the people of Afghanistan of a quick improvement in their lives and livelihoods in the early phase of the transition – even if at the low levels of economic development that they had known in the pre-1978 era.

In January 2002, Marina Ottaway and Anatol Lieven of the Carnegie Endowment for International Peace discussed the fantasy of the Bonn Agreement to create a modern state in Afghanistan and the lack of capacity of foreign interveners for creating such a state. As they pointed out, “[w]hat the people of Afghanistan need most urgently, and the international community can help them obtain, is the cessation of war and the possibility of pursuing basic economic activities free from brutal oppression, ethnic harassment, and armed conflict. They need to be able to cultivate their fields, sell their products, go to market, send their children to school, receive basic medical care and move freely around the country. In the long run, much more would be desirable, but the first step should simple be to re-establish a degree of normal life, even if it is not life in a modern state…. More ambitious state-building plans must be left for another generation, and to the Afghan themselves” (Ottaway and Lieven, 2002, p. 7).

This common-sense policy recommendation was exactly what Afghanistan needed and foreign interveners miserably failed to provide. In the same vein, a group of experts hosted by the Council on Foreign Relations in New York that included Barnett Rubin and other distinguished Afghan experts had warned that vast sums of money should not be thrown at the country. It would be much better to work slowly and carefully with Afghans. Above all, the recommendation was that the bulk of international recovery operations should focus on rural areas, where 80 percent of Afghans lived. Afghans needed to feel that recovery was changing their lives.[35]

Despite these and other early warnings, and more than a decade of experience supporting economic reconstruction in war-torn countries – in places as far apart as El Salvador, Mozambique, and the former Yugoslavia – foreign interveners went for a big-bang approach in Afghanistan. A minimalist approach would not only have served Afghanistan better, but would have been better suited to the interests, commitments, and preparedness of foreign interveners.[36]

2.2. The ambitious multipronged transition to peace, stability, and prosperity

Despite serious warnings, Afghanistan’s policymakers, cajoled by foreign interveners, engaged in building up the country in the mirror image of a modern Western state – rather than on what was possible given initial conditions, historical idiosyncrasies, and human and capital resources in the country.

Many of the reforms in which the country engaged – to promote women’s rights and strengthen civil society, to create a strong and independent central bank, as well as other neoliberal policies – were conflict-insensitive and accounted only for the support of a small Westernised urban elite. Such policies, however, were alien to the large rural majority of the population and were highly resisted by warlords and religious leaders. In fact, some modernisation policies, particularly those to unveil women, had notoriously brought down a king and a prime minister in the past, as discussed in Part one.

Moreover, despite all the expectations reinforced by President Bush’s promises, it soon became clear that his administration had no great desire to rebuild Afghanistan or even to provide sufficient troops for its security. Within weeks of winning the war in Afghanistan, the US government started planning the invasion of Iraq, and pulled out troops and Special Operations Forces from Afghanistan (Rashid, 2010a).

At the same time, since aid is never sufficient or timely to finance all the critical peacebuilding activities that are necessary, the rapid, effective, and inclusive reactivation of the economy is critical to the overall success of the war-to-peace transition. Delays in starting economic reconstruction also led to unnecessarily high levels of humanitarian assistance – to achieve minimum levels of consumption rather than investment (del Castillo, 2008). This put the country on an early path of high food and aid dependency (Ottaway and Lieven, 2002, pp. 4–5).

Following the Bonn Agreement, Afghanistan embarked on a complex and challenging war-to-peace transition that was variously referred to as ‘state-building’ (the construction of a functioning state) or ‘reconstruction’ (to account for wartime destruction even though much needed to be built rather than reconstructed). Others referred to it in broader terms as ‘peacebuilding’, or even ‘nation-building’ (the construction of a nation), a much-derided term in the Bush Administration.

In a country of high geopolitical interest and at a very low level of development such as Afghanistan, a relationship between the Afghans and foreign interveners – the United States and its allies – that would support the fledgling government and national security forces through policy advice, technical assistance, and aid became particularly challenging. As Ignatieff noted, the intervention should not have been an exercise in colonialism, but it often felt like one to the Afghans (Ignatieff, 2002).

What follows is a cursory description of the factors that have mostly affected the war-to-peace transition in Afghanistan, brought the country back to conflict, and contributed significantly to the notorious failure of foreign intervention in Afghanistan post-9/11, where the country slowly relapsed into conflict and developed a serious aid addiction.

Historically, the Afghan central government has been weak in comparison with the strength of micro-societies which have functioned as “autonomous enclaves shaped by ethnic, tribal, sectarian and linguistic allegiances and the role of dominant personalities”. This changed with the conflict. After the conflict, rather than micro-societies revolving around traditional tribal, religious and ethnic leaders, they were formed around armed commanders or “warlords” (Saikal, pp. 193 and 200).

As discussed in Part one, the only historic exception was the strong centralised government at the end of the 19th Century of Abdur Rahman (1880-1902). Abdur Rahman had only been able to create a centralised state by waging war against his own people at high cost. The dynastic rivalries were suppressed but the Afghan state was left “ill equipped to cope with the new social and economic challenges that would characterise the twentieth century” (Barfield, 2010, pp. 5, 166).

While the Bonn Agreement did not establish the nature of the central government or its relations with the micro-societies (Saikal, 2005, p. 2002), the 2004 Constitution established a ‘unitary’ type of government in the Islamic Republic of Afghanistan. In this centralised regime, which pleased the West but was foreign to Afghans, provincial councils were not given any autonomous powers.

As Nobel Laureate Roger Myerson noted, bright hopes for new democracies in Afghanistan and Iraq soon faded. His work on these two countries[37] is pivotal to understanding what went wrong with foreign intervention supporting political and economic transformation in post-9/11 Afghanistan. What follows picks up some of his most relevant points for our analysis (Myerson 2011, 2014a, 2014b, 2014c).

Myerson argues that foreign interveners should have been more careful in determining the political nature of the state that was being built, since the feasibility and financial cost of the intervention depends critically on the way that the state distributes power (which in war-torn countries includes economic aid). As a political system, the state puts some people into positions of power and induces the rest of the nation to accept their authority. The distribution of power (including economic aid) was a key ingredient in many of the problems that Afghanistan faced in the new millennium.

While analysts often debate whether a nation may have moved too quickly into a presidential election, Myerson argues that local elections did not take place early enough and that by delaying them, fewer promising leaders would compete for the presidency – not the best way to promote plurality and a democratic process. In Afghanistan, decentralisation in the political and economic sense could also have broadened support for the regime, reduced its dependence on foreign interveners, and made reconstruction more effective in rural areas.

A member of 9 Parachute Squadron 23 Engineer Regiment keeps watch during the construction of the next phase of Route Trident in Helmand, Afghanistan. A digger is pictured moving the foundations of the road in the background. (Credit: POA/Sean Clee/Defence Images/Flickr)

A member of the UK’s 9 Parachute Squadron 23 Engineer Regiment keeps watch in Helmand, Afghanistan. (Credit: POA/Sean Clee/Defence Images/Flickr) (via

Foreign interveners can have a political impact for years to come. The interim leader’s ability to build the first national patronage network can become a decisive advantage over all potential rivals. Thus, in handing ‘interim’ authority to one leader – as the Bonn Agreement did to Hamid Karzai – “foreign interveners were effectively choosing the long-term leader of the nation” (Myerson, 2011, p. 7).

One strong national leader pleased foreign interveners but alienated local leaders who were not aligned with power in the capital. The presence of foreign forces defending the authority of the state strengthened incentives to centralise power around the national leader. By contrast, elected local political leaders would have to build up their reputations at the local and national level by providing good governance, including the provision of security and public goods. In this way, local leaders would become accountable to citizens in their constituencies since they would only be re-elected if they could prove their competence.

At the same time, a decentralised system can create a broad class of local leaders who have a positive expected stake in defending the new political system. This would reduce the government’s reliance on foreign forces (or peacekeeping operations, as the case may be). In Myerson’s view, in the same way that competition among firms in markets can reduce profits and yield better value for consumers, so competition among political parties in a democracy would reduce elite privileges and yield better public goods. In Afghanistan, the empowerment of traditional local political leaders with a direct stake in the regime would have been particularly important, both to ensure better security and governance in the provinces as well as to provide better options for leadership at the national level.

In the absence of responsible local leadership, many parts of the country became the perfect breeding ground for warlords and insurgencies to take root and thrive. In the early period, warlords in key provinces controlled a major proportion of the tax revenues derived from customs tariffs collected at border crossings in their respective areas of influence, particularly at major border crossings in the borders with Pakistan and Iran.

Myerson’s political paradigm has found serious problems with Afghanistan’s public finances during the post-9/11 intervention. In economic terms, the political system that foreign interveners created had grave consequences, since the central government’s domestic revenue averaged only five percent of GDP in the first five years (del Castillo 2017: 145–46, 197). By lacking basic resources, the government of Afghanistan was restricted in the way it could perform its basic functions – providing security, justice, human rights protection, basic services to the population at large, and the creation of alternative income programs to replace earnings from drug production and trafficking. Unable to provide such functions, the government found it hard to acquire political legitimacy.

At the same time, the combination of the large demand for funding peace-related programs and the lack of budgetary revenues strengthened the country’s foreign aid dependency. Domestic resources are sine qua non for effective reconstruction. In their absence, the government of Afghanistan could not take ownership of its own programs, which doomed many of them to be unsustainable (del Castillo, 2008, p. 131). This was particularly the case after the withdrawal of foreign combat troops in 2014 when many off-budgetary projects carried out by foreign interveners, including foreign forces, were passed on to the national budget.

Not surprisingly, advances in the political transition specified in the Bonn Agreement did not lead to peace and stability. Making peace after more than two decades of war required overcoming daunting security challenges. Spoilers – factions who saw the new political regime as inimical to their interest, power, economic well-being, or ideology – used violence to undermine the regime.

In addition to failing to create responsible local leaders, as Myerson argued, the other most important factor contributing to the failure to establish security early on and in a sustainable way was the delay in establishing foreign security in Afghanistan. Because ISAF’s mandate impeded it from operating outside the capital, security in fact soon deteriorated after Operation Enduring Freedom. US reluctance to support ISAF’s expansion outside Kabul allowed warlords and other spoilers to disrupt reconstruction in various parts of the country. Most importantly, it also eroded initial goodwill towards the American presence and degraded popular support for the government (Vaishnav, 2004).

In October 2002, Abdullah Abdullah, a Tajik who was then foreign minister (and is, since 2014, chief executive of the National Unity government), wrote in an op-ed in the Washington Post that delays in creating a national army and police forces were leading to an incipient sprouting of the insurgency (Abdullah, 2002). By mid-2003, as security deteriorated further, it became clear that the belief that the Taliban had vanished had been wishful thinking. Security experts such as Seth Jones have attributed Taliban early gains to the failure of the government to provide effective police protection (Jones, 2010).

Moreover, failure to stop warlords’ illegal appropriation of customs duties from the very beginning became, together with income from drug production and trafficking, the two major sources of corruption and illegal income in the country, a scourge whose impact only increased over time.

NATO assumed permanent command of the ISAF in August 2003 in what became the Alliance’s first deployment outside Europe. According to NATO’s secretary-general, this was “the most complex and perhaps the most challenging mission that NATO has ever taken on.” This was partly because of the operation’s emphasis on reconstruction (Dombey et al., 2006).

As the command of 5,000 international forces in the country was turned over to NATO, ISAF soon started its phased expansion to other parts of the country. In an editorial titled “High Risks in Afghanistan”, the New York Times warned, however, that the numbers considered for ISAF’s expansion – less than 550 troops – were too small (New York Times, 17 November 2003). In June 2004, Doug Bereuter, who was still a Republican US Congressman from Nebraska with responsibilities related to NATO, presaged, “In Afghanistan, failure is a distinct possibility unless allied leaders demonstrate the political will to deploy the necessary assets quickly” (Bereuter, 2004; Goodson, 2006).

As security continued to deteriorate and as it became clear that it was one of the main constraints on Afghanistan’s effective utilisation of aid, Barnett Rubin and some of his colleagues recommended putting security first, since all recovery would prove futile in a chronically insecure environment.

Although security may well be a precondition for the success of the overall transition to peace, the political, social, and economic transitions will in turn affect the security conditions in the country. Reverse causality had the following effects: on the one hand, the absence of effective political leadership at the local level and unnecessary delays in creating the national security forces and in deploying sufficient ISAF troops throughout the country put security at risk. This allowed warlords and their militias to continue controlling large parts of the territory – and the customs revenue and drug profits that came with them. On the other hand, there were only feeble efforts at economic reconstruction and national reconciliation during the first years of the transition. These are two fundamentally political processes that required political leadership and resources to succeed and efforts to carry them out were missing in Afghanistan.

Economic reconstruction to restore economic activity and the livelihoods of the large majority was unnecessarily delayed in the expectation that the central government would establish the perfect economic framework for a modern market-based economy, including the establishment of policies and institutions that would normally take years to be in place (Rubin et al., 2003, p. 1).[38]

At the same time, for national reconciliation to succeed, local militias had to be disarmed, demobilised, and reintegrated into society, the security forces, or the productive economy. Such reintegration was essential for the warring factions to be able to engage in activities that could provide an alternative and legal livelihood and that would keep them away from combat and drugs. Although in his October 2002 article, Abdullah stressed the need to demobilise and reintegrate more than 600 thousand armed men across the country (Abdullah, 2002), the program lagged.[39] This clearly indicated the lack of priority that foreign interveners and the interim government gave to a type of program that had proven elsewhere to be sine qua non for national reconciliation and for the consolidation of peace and stability.

Moreover, the lack of legal jobs for productive reintegration and the delays in the creation of security forces, which were another possible venue for reintegration, were major impediments that would haunt the implementation of the program in following years. In a fragmented country such as Afghanistan, reconciliation was key so that former adversaries could overcome their past grievances – including from ethnic cleansing; mostly against the Hazara (predominantly Shia Muslims) – and be able to live peacefully with each other.[40]

To overcome the sharp polarisation and confrontation resulting from decades of conflict was indeed a major challenge that required the provision of social services in an equitable and fair manner. It also required the establishment of an adequate institutional framework to create trust and respect for human rights, to facilitate the resolution of disputes, and to foster better relations between former enemies so that they would be able, as they moved forward, to address their grievances through peaceful means. The latter was important since new conflicts would inevitably arise in the transition due to many factors, including the pressure put by returnees and displaced population on land, water, and other resources; disputes over political decisions; specific ethnic issues and how the government dealt with them; and family-based issues, often revolving around the status of women.

The challenges of the social and economic transitions were closely interrelated in the case of the reintegration of disarmed groups and other groups affected by the war, including refugees and the internally displaced population. The reintegration of these groups into society and productive activities was critical in order to restore social cohesion in the communities. Productive reintegration, however, was made difficult by the inability to reactivate the economy in an inclusive, dynamic, and sustainable way to provide opportunities for these groups, despite many years of high growth and large volumes of aid.

Policymakers, analysts, journalists, and pundits alike have paid more attention to the political, security, and social transitions (particularly the provision of education and health, including to women) to the neglect of the economic one. The economic transition, however, is fundamental for the others to succeed. It is understandable that rigged elections, killings of civilians, kidnappings and executions, freezing and starving children in refugee camps, sex slavery in ISIS-held Iraq and Syria, and other such horrifying acts against women make better headlines from war-torn countries than economic developments, particularly in a country such as Afghanistan, which has no economic significance to the global economy or to capital markets.

Contrary to Kosovo and East Timor at the turn of the millennium where the UN assumed temporary trusteeship, or to Iraq a few years later where the United States assumed temporary occupation, Afghanistan was a sovereign country at the time of the transition and thus could make sovereign decisions. However, as a poor society destroyed over the years by foreign forces (rather than by civil conflict alone) and with a history of humanitarian intervention, Afghanistan had to fight to chart its own reconstruction path and formulate its own economic policies.

As we mentioned earlier, since there was no legislative body until after the parliamentary elections in September 2005, Karzai had to adopt laws and regulations to establish the macroeconomic framework by executive decree, not always a simple proposition for a transitional government or even for a president lacking legitimacy.

The Karzai government presented donors with four major reports detailing its strategy for development. In all of them, the government provided ‘development as usual’ strategies and policies that had proved ineffective in the reconstruction and peace consolidation of war-torn countries in the past. Indeed, as I have shown elsewhere, of the 21 examples in which the UN had set up peacekeeping and peacebuilding operations in countries going through the multi-pronged war-to-peace transition since the end of the Cold War, well over half of them relapsed into conflict, at great cost to the international community. These interventions included both UN-led (Rwanda, Angola, Timor-Leste, and Central African Republic) and US-led ones (Iraq and Afghanistan) (del Castillo, 2017, 100-16).

As we will discuss in Part three, the misguided economic policies and misplaced priorities of a ‘development as usual’ approach was a major factor behind the country’s ominous record: Afghanistan both returned to conflict and fell into an aid dependency from which it will take decades to detox.

3. An assessment of reconstruction policies

3.1. Misguided policies, misplaced priorities, misallocated resources and the illusion of success

Misguided economic policies, misplaced priorities and misallocation of funding plagued the post-9/11 foreign intervention in Afghanistan. In analysing the problems of such intervention, it is worth remembering that in the late 1970s, agricultural production was vibrant and the country had achieved food security (at least under normal weather conditions). Before the Soviet invasion, the civil war, and the Taliban rule that followed, Afghanistan was dignified if poor, at peace internally and with its neighbours, although at extremely low levels of development. During the decade-long Soviet occupation, the rural population bore the brunt of the war. In addition, four years of serious drought during Taliban rule had, by 2001, decimated agriculture and livestock production.

In designing economic policies in the new millennium, Afghan policymakers and foreign interveners ignored both the high risk that the country faced of relapsing into conflict following military intervention and the Taliban rout, as well as the dreadful initial conditions in which the country had fallen after years of war and drought. Under such conditions, they proceeded as if the country could become a successful development story overnight.

Seven specific factors – which are by no means independent of each other – were perhaps the largest impediments to Afghanistan’s ambitious multi-pronged transition and had major responsibility for the 2014-16 financial crisis that followed as US and NATO combat troops winded down in 2014 and a new coalition government took over.[41]

Path, timing, and sequence of economic policies and structural reform

The path, timing, and sequence of economic policies and structural reform have proved to be of key importance for effective post-conflict reconstruction.[42] Afghanistan’s policymakers and their foreign supporters tried to move Afghanistan from the ‘economics of war’ to ‘the economics of development’ – as if the country was not at high risk of reverting to conflict.

When the risk of conflict is high, as it always is in countries in the war-to-peace transition, empirical evidence in the aftermath of the Cold War shows that they cannot move directly to ‘the economics of development’ and engage right away in optimal or first-best economic policies – even if that must be the long-term objective.

There is enough evidence to show that to reduce the high risk of conflict, countries need to go through an intermediate and distinct phase – interchangeably referred to as ‘the economic transition’, ‘economic reconstruction’, or ‘the economics of peace’. During this phase, policymakers must adopt conflict-sensitive policies that may not be optimal from a purely economic or financial viewpoint. Development programs must start during this phase (to send children back to school, to provide people with basic care, and other such needs), but these programs must be carried out under the premise that – because basic development needs compete for resources with critical peace-related programs necessary to avoid conflict recurrence – the latter must always prevail during this intermediate phase. At any rate, development will not prosper if conflict reoccurs (del Castillo, 2012a).

Ignoring such evidence, national policymakers and foreign interveners focused on adopting the perfect framework and first-best economic policies, rather than engaging in effective ‘economic reconstruction’ to ensure that the Taliban and other insurgent groups would not have grounds to return.

Under normal development, that is, in the absence of high conflict risk, policymakers have the luxury to plan economic policies with medium-and long-term horizons in mind. In war-torn countries, policymakers lack such a luxury and they often need to adopt emergency policies which they know may create distortions or waste in the longer run, but without them, the country would revert to conflict. Under such difficult conditions, policymakers need to adopt conflict-sensitive economic policies that are well-designed in order to lower the specific risks in the country (del Castillo, 1995, 2008, 2017).[43]

Thus, in Afghanistan the reactivation of investment, employment, and other livelihoods in a peace-supporting environment would have required that Afghanistan moved along the following path:

Figure 1[44]

A new strategy for Afghanistan 1

Afghanistan’s challenge of moving away from the ‘economics of war’ – that is the ingrained practices of the underground economy involving illicit, rent-seeking, and highly lucrative activities – was particularly tough, since it required overcoming the interests of spoilers who benefited from such activities.

Because economic reconstruction takes place amid the complex and multi-pronged transition to peace and stability – not independently from it – it is fundamentally different from development as usual – a basic premise for effective reconstruction. In fact, economic policymaking in countries in this transition is constrained by many political, social, and security priorities, all competing for scarce resources critical to ensuring that the country can move forward in peace.

By skipping the intermediate phase and adopting optimal macroeconomic policies and best practices right away – as if conflict risk had been eliminated with the rout of the Taliban in December 2001 – Afghanistan’s reconstruction suffered from the very beginning.

There is no reason whatsoever why the macroeconomic framework and best practices in economic policymaking of advanced countries – which have strong institutions, professional civil services, good infrastructure, relatively efficient goods and financial markets, and enough resources to cover their basic needs – should have been imposed on a fragile war-torn country like Afghanistan, where all those features were absent. Even development-as-usual policies and best practices in developing countries without violent conflict are often undesirable if the paramount objective is to make peace and stability irreversible.

At the same time, and while the country was falling back into conflict with the return of the Taliban, national policymakers and international interveners rejoiced and complimented themselves on the rapid growth. Indeed, the Afghan economy grew rapidly during this decade, with GDP showing rates of over nine percent a year on average in 2002-2013.[45] But such growth was mostly achieved by increased construction and other investments (including foreign direct investment) geared to the presence and the specific needs of the large number of foreign troops and expatriates in the country, a presence that was expected to be seriously curtailed by end-2014.

Gharaka road, passing through Daman district, Kandahar province. (Credit: Ishaq Anis/Rumi Consultancy/World Bank/Flickr)

Gharaka road, passing through Daman district, Kandahar province. (Credit: Ishaq Anis/Rumi Consultancy/World Bank/Flickr) (via

Although such growth created employment while it lasted (with the construction sector growing fast during several years), it also created large distortions in prices, resources, and priorities. Moreover, such growth was neither sustainable nor directed towards creating a ‘peace dividend’ in terms of better services, food security, and income opportunities for the large majority of the population. Unsurprisingly, the rate of growth collapsed to slightly over one percent a year on average in 2014-2016.

Neoliberal dogmatism and the macroeconomic framework[46] 

In designing the macroeconomic framework during his tenure as minister of finance, Ashraf Ghani (President of the National Unity Government since 2014) ignored the fact that the development of inclusive capitalism in Afghanistan, as in other war-torn countries, required a simple and flexible macroeconomic framework. This basic premise for effective economic reconstruction is necessary to allow for strong state intervention to ensure that the economy is reactivated in a fair, dynamic, and sustainable way. Without it, it is difficult if not impossible to reintegrate former combatants and other conflict-affected groups into productive activities, as well as to rehabilitate services and infrastructure, a sine qua non for moving the country into a virtuous circle of peace, stability, prosperity, and self-reliance.

In establishing the macroeconomic framework to provide “the enabling environment for the operation of the private sector” (Afghanistan, 2002b),[47] some policy decisions worked well and facilitated the transition, but others became major impediments by depriving the government of the required ‘simplicity’ – to operate with an unskilled civil service – and ‘flexibility’ – to deal with the needs and constraints imposed by the complex multi-pronged transition.[48]

Soon after his appointment in 2002, Ghani opted to replace the existing currency with new afghani bills issued by the central bank – rather than adopting the dollar as a medium of exchange which the IMF had recommended. In the past, war-torn countries had often tried to build up government credibility by adopting a strong foreign currency as medium of exchange. Both Kosovo and East Timor had adopted foreign currencies at the time of UN trusteeship, the first one adopting the Deutsche Mark, soon replaced by the euro, and the second one adopting the US dollar. By contrast, Afghanistan decided to issue a new domestic currency to replace the old afghani, since counterfeiting of the old currency was widespread. As in Iraq soon after, the currency exchange took place on time and effectively against all odds, given the geography of the country (del Castillo, 2008).

But a stable currency is clearly not enough to reactivate sustainable production. Other parts of the framework that Ghani designed with the expectation of moving the country into the 21st Century overnight, and with little support even within his own cabinet, proved to be a complete disaster from which the country never recovered. The lack of civil service capacity to deal with the framework’s complexities required the hiring of foreign experts at tremendous cost to the state, as well as all kinds of training for local civil servants. According to the World Bank, one-quarter of Afghanistan’s aid went into technical assistance and capacity-building which were required by the framework’s complexity and low levels of education (World Bank, 2011, p. 196).

In particular, the monetary and fiscal framework was clearly inadequate for a war-torn country. By presidential decree, and with support and approval from the IMF and the World Bank, a central bank framework was put in place in 2003, which included a ‘no-overdraft’ rule for budget financing and ensured that the central bank was independent in the pursuit of price stability. The complex and inflexible monetary and fiscal framework – including the total independence of the central bank (with the government losing control on monetary policy) and with the no-overdraft rule to avoid deficit financing – created serious problems for financing economic reconstruction and national reconciliation, particularly as aid was inadequate for certain projects, or delayed. Such a complex and constraining framework did not exist in other war-torn countries (del Castillo, 2008).[49]

The framework deprived the government of the ability to reactivate subsistence agriculture and minimise food aid, as well as to reactivate other kinds of legitimate business activities and to promote other job-creating investments in basic services and infrastructure. Thus, the government failed to support pro-poor policies in the rural sector, despite the rhetoric in many government and donors’ reports of the need to do so.

Neoliberal dogmatism and a lack of resources precluded the Karzai government from adopting active policies to support the sector through the provision of subsidies and price-support mechanisms. Without the latter, it proved difficult to move away from the underground economy, particularly from the production of poppies and trade in opioids. In turn, the drug sector undermined security and impeded the establishment of good governance and the rule of law.

The dogmatism imbued in the framework also precluded the government from reactivating employment and economic activity in the industrial sector, even if it had to be done initially at low productivity levels or even operating in the red. For example, rebuilding the Spinzar Cotton Company could have created thousands of jobs, as it had in the past, despite the fall in cotton prices. However, because during the communist regime it had become a state-own enterprise, it was put up for privatisation. Employment creation in the area could have been critical at the time to keep armed individuals occupied and out of trouble.

As Edmund Phelps rightly noted,

The idea promoted by some multilateral and bilateral donors that the war-torn countries can afford to follow laissez-faire policies – that in these countries unfettered markets work best and only the advanced countries need the paraphernalia of subsidies, licenses, regulations, corrective taxes, and so forth – is a costly ideology. In a war-torn country where the economy has been devastated and may not bear the fruits of centuries of experimentation and diversification, there may be a need for judicious and well-designed departures from laissez-faire – just as the United States in the early years of the republic adopted some of the infant industry ideas of Alexander Hamilton. Prohibitions against any and all interventions in the market place in a country whose institutions and culture have been destabilized seem dogmatic and injudicious (Phelps, 2008, p. ix).

Moreover, the macroeconomic framework limited government possibilities for performing functions that were imperative to earning legitimacy among the population, such as the provision of public services. It also suffered from the government’s efforts to move the economy directly into higher productivity activities through commercial agriculture. Building the necessary infrastructure takes time and the impact of delays on production reflected badly on the government.

Neglect of the subsistence agricultural sector and food insecurity

At the same time, rather than focusing on the reactivation of the rural sector as a main economic priority given conditions discussed above, Ashraf Ghani had other more grandiose plans. The neglect of this sector was particularly puzzling given that the lives and livelihoods of 75 to 80 percent of the population was rural and depended heavily on agriculture and husbandry. This remains so today, even if family income is often supplemented in various ways, with some of its members working in the bazaar, local police, transportation, or other such activities in rural areas (Mansfield, 2016; Fishstein, 2016).

Initial efforts to move the economy directly into higher productivity activities through commercial agriculture projects required building the necessary infrastructure, which took time. By delaying production, the population was not able to feel a quick impact on their lives and livelihoods – the so-called peace dividend – through which the population could have acquired a stake in the process, and would have been less likely to support the Taliban and other insurgent groups.

While high productivity growth must be the longer-term objective once the risk of conflict has waned (that is, during the development-as-usual phase), initially Afghanistan should have supported subsistence agriculture and other low-productivity production to keep people fed and occupied. This would have reduced the need for food imports that the country could ill-afford and the need for farmers to produce poppies or join insurgencies purely for economic needs, as many did and still do.

The government should have adopted less than-optimal economic policies – including subsidies, price support mechanisms, and every other tool in its arsenal – to promote food production and to ensure a swift move from illicit production, even if the legal activities remained in the informal sector for quite some time. The government should have done this despite the low productivity that such activities may have had initially, and despite the need that this would create to compensate farmers handsomely to shift from poppies to legal crops providing much lower income.

The Afghan economy should have moved along the following path:

Figure 2

A new strategy for Afghanistan 2

This path would have facilitated the return to food self-reliance (which the country had achieved before the war) and allowed farmers to support themselves in a legitimate and dignified way. Just as importantly, it would have limited the pervasive political and security impact of warlords, corrupt government officials, and the insurgency empowered by the high profits in the illicit sector. Optimal policies, institutions, elections, governance, security, human capacity, and jobs in the formal sector should have followed – rather than being a precondition (del Castillo, 2016a, pp. 64-65).

Afghanistan also failed to follow two other sequences that have proved necessary for effective reconstruction. Ignoring a key lesson from the Marshall Plan that was relevant to reconstruction in the post-Cold War period, Afghanistan was unable to move away from humanitarian aid – to provide people with minimum levels of consumption – and transition quickly into using reconstruction aid effectively – to create investment and self-reliance.

As discussed above, while dynamic growth must be a longer-term objective, in the short-run, the main objective should be to improve security and to ensure a rapid improvement in people’s welfare – but to do so through investment rather than humanitarian aid, which builds up dependency.[50] Prolonging a country’s dependence on humanitarian assistance or on external financial and technical support – as the government of Afghanistan has done – also caused it to lose ownership of its own policies, which made many such policies unsustainable.

Afghanistan was also unable to move away from aid and into foreign direct investment and exports. This also impeded Afghanistan’s transition towards self-reliance.[51] In fact, despite the greatly publicised potential in mining, foreign direct investment as a share of GDP grew to 4.5 percent in 2005, mostly in construction and other sectors geared to the expatriate community, collapsing thereafter. In fact, it averaged only less than 0.5 percent in 2010-2016. This is one of the factors behind Afghanistan’s aid trap, discussed below.

Missed opportunity to control the drug sector 

In 2000, as the Taliban searched for international approval, it imposed a ban on opium production (but not trafficking).[52] Poppy production collapsed and was practically eliminated. From over 4,500 metric tonnes in 1999 – its peak during Taliban rule – production fell to 200 metric tonnes in 2001 – about the same level existing just before the Soviet invasion at the end of 1979.

This could have provided a historic opportunity for the Afghan government and foreign interveners to cripple the drug sector going forward and to improve security by depriving the insurgency and terrorist groups of funding. By contrast, the delays in the creation of security forces and the lack of early support for subsistence agriculture to improve its rates of return – in part for ideological reasons but in part also due to the strict framework which impeded deficit financing – encouraged farmers to increasingly turn to growing poppies, attracted by the high prices created by the ban, and with support from traders.

While the government remained passive and foreign interveners intermittently tried eradication programs that did not work in Afghanistan (as elsewhere) but often polluted the food and water on which many Afghans depended, traders provided credit and technical advice for future production, bought the opium in situ, and shared the risks with farmers.

In this way, drug production often took the best available lands, replacing food crops and making large imports necessary. At the same time, drug production and trafficking financed the insurgency, created insecurity, and promoted corruption among government officials and the private sector, making good governance impossible to achieve.

Misguided policies and misplaced priorities resulted in the absurd situation that annual poppy production averaged about 5,200 metric tonnes a year during the 15 years of foreign intervention (2002–16), roughly about twice what it was produced during the Taliban rule (1996–2001).

Aid channelled outside the government budget

Aid channelled outside the government budget – and according to foreign interveners’ own agenda and own priorities – created all kinds of problems in Afghanistan.[53] Aid, to be effective, needed to be channelled through the national budget, to allow financing of Afghan priorities and with Afghan leadership (Schaper, cited in del Castillo 2010). Financing outside the national budget not only leads to an ineffective and fragmented aid strategy and it interferes with capacity building of the national civil service, but it is also expensive and needs to be eliminated as soon as feasible.

Channelling aid through the Afghan budget using the reconstruction trust fund administered by the World Bank was about 50 percent cheaper than having donors carry out projects themselves according to their own agenda. Channelling aid this way also had the additional advantage of allowing the government to build up its own capacity and legitimacy with the electorate, the parliament, and donors by demonstrating its ability to oversee services and become accountable (McKechnie, cited in del Castillo 2010).[54] Channelling financing through the trust fund, however, often led to slow disbursement and delays that needed to be avoided.

The target of bringing at least 50 percent of donors’ assistance on-budget was only reached in 2014. Thus, by channelling aid off-budget for so many years, donors contributed to a fragmented, cost-ineffective, and unsustainable reconstruction strategy. A piecemeal approach of having a donor build a school here, another one a road there, and still a third one or a dam elsewhere, which is what happened in Afghanistan, led to schools without teachers; to clinics without health providers, equipment, or medicines; and to roads used for drug trafficking (del Castillo, 2016, pp. 217-230, 262, 289-90).

In Afghanistan, a large part of the aid channelled outside the budget was by the US Department of Defense and the US military. The US military carried out what became known as Expeditionary Economics, which mostly referred to the reactivation of economic activity in insecure areas in Afghanistan and Iraq.[55] Their policy of spending as much as possible in many projects, hoping that some would prosper, was not only ineffective but created all kinds of price and other distortions as well as waste and corruption.[56] Since the Department of Defense was the recipient of over 90 percent of the appropriations for the Afghan war, including for Afghan reconstruction, the importance of this factor in off-budget aid allocations was important. The large amount of aid spent in insecure parts of the country created resentment against the military in more secure areas who suffered from aid misallocation and rightly argued that, by behaving well, aid distribution discriminated against them.

Institution building and long-term dependency 

Security sector reform was much needed in Afghanistan and was one of the key aspects of the multi-pronged transition on which Afghanistan embarked after the Bonn Agreement. The country needed larger and more effective forces, but it also needed to be able to sustain those forces (Rubin and Rashid, 2008). Foreign interveners, particularly the United States, supported and financed the creation of an institution that Afghanistan itself will not be able to sustain financially for years to come.

Some figures are illustrative of the humongous misallocation of resources and the fiscal problem that the country faced as it built up the national security forces (military and police), for which donors are much to blame. Even growing at an average level of close to eight percent from 2002 to 2016, Afghanistan’s accumulated GDP during this period was only $190 billion.

Of the total $115 billion that Congress appropriated for Afghan reconstruction during that period, about $70 billion (or 60 percent of the total) was allocated to equip, train, operate, and maintain its national security forces. This amount represented more than one third of Afghanistan’s GDP, on a yearly average throughout the 2002-2016 period. In addition, other countries also contributed to security sector reform, although to a much lower extent, for which there is no comprehensive data.

Since operational (current) expenditure to pay wages and pensions of the military and police forces constitute a large part of security costs, maintaining the security forces that foreign interveners created in Afghanistan is clearly dependent on donors’ financing them for at least a decade longer, and probably more. This “fiscal folly”, as I have called it elsewhere, was not only a major factor in the 2014-2016 crisis, but has deprived the large majority of Afghans of the benefits of economic aid (del Castillo, 2016, p. 235).

Failure at national reconciliation

Effective reconstruction must go hand in hand with efforts at national reconciliation. Amid interference from neighbouring countries which supported ethnic or religious groups, reconciliation in Afghanistan was particularly challenging. But reconciliation was imperative so that Afghans could work and live in peace with each other and accommodate millions of returnees and the internally displaced.

At the London donors’ conference in January 2010, the government announced with much fanfare new commitments to reinvigorate national reconciliation efforts through an “effective, inclusive, transparent, and sustainable” peace and reintegration program and to create a trust fund to finance it (Afghanistan Ministry of Finance, 2010).[57]

The experience of the last twenty years has shown that effective reintegration of former insurgents is indeed sine qua non for national reconciliation. Regrettably, even good intentions to reinvigorate reconciliation efforts at the 2010 London Conference were not translated into effective action.[58] This is not at all surprising since effective reintegration cannot take place in the absence of sustainable job opportunities for demobilised militia.

Programs based on short-term employment as well as other temporary assistance have proved insufficient in Afghanistan, as they have elsewhere.[59] Despite the large financing needs for reintegrating insurgent groups giving up the fight, as well as returnees and other groups affected by the crisis, donors that had financed humongous military and security expenditure (and were willing to continue such financing) only pledged $140 million for the reconciliation trust fund.

Also at the London Conference, participants had to recognise the humanitarian crisis that was affecting different areas of the country – particularly regarding food insecurity – and invited donors to support a 2010 humanitarian action plan. Such a request was confirmation of the misguided policies and misplaced priorities of the previous eight years. After the international community had poured in billions of US dollars in economic and humanitarian aid, and the United States and other donors had also provided billions more in counter-narcotics and security aid, a humanitarian crisis should have been avoided.

3.2. The 2014-2016 economic crisis amid a renewed security and political framework

With US troops falling dramatically from roughly 100,000 combat troops (plus 40,000 from other troop contributors) in the summer of 2011, to about 10,000 non-combat US troops (plus 7,000 others) at the end of 2014, Afghanistan entered a new and complex phase. In the new phase, foreign forces played only a non-combat role in training and supporting the Afghan security forces.

On the political front, after a protracted impasse over bitterly contested elections, a so-called National Unity Government (NUG) was established at the end of September 2014. As per this agreement, Ashraf Ghani, a Pashtun and former finance minister of the transitional government (2002-2004) took over as President, and his opponent, Abdullah Abdullah, a Tajik and former minister of foreign affairs (2001-2005), was appointed as Chief Executive Officer. A supposedly reformed Abdul Rashid Dostum, an ethnic Uzbek and warlord from a northern province, who had allegedly committed all kinds of human rights abuses in the past, and switched alliances repeatedly during the civil war, assumed the post of First Vice-President.

This compromise, reached after US Secretary of State John Kerry cajoled and pushed for it, was not contemplated in the Afghan Constitution. Because of this, the agreement included a commitment on the part of the government to convene a Loya Jirga within two years to consider an amendment to the Constitution. This would establish the post of executive prime minister to replace the interim post of chief executive officer that was created by presidential decree.

The elections were marred by serious accusations of fraud, the coalition government was established outside the framework of the constitution, the size and payment of the security-forces was determined in Washington DC, undermining democracy, and the large majority of the population lived in destitute conditions. Nevertheless, the UN Secretary-General optimistically hailed it as the “first democratic transfer of leadership” and “another milestone in the country’s political transition.” More realistically, an expert on Afghanistan privately referred to the new political arrangement as “the US imposition of an extra-constitutional governing structure on the country after brazenly fraudulent elections.”[60]

At the same time, donors were encouraged by the policies of the new president, a former World Bank official who was very good at making all the appropriate sounds, which pleased donors and troop contributors. On a trip to the United States in March 2015, Ghani indeed said all the right things about supporting democracy, anti-corruption policies, gender rights, and inclusivity. His National Unit Government put together an ambitious new vision for realising self-reliance through the promotion of peace and increased productivity, revenues, and growth. But has the new government made a real positive start on these issues?

The Ghani government has faced increased security instability across the country with the government fighting the Taliban and other armed groups. Conflicts among the latter, including the Taliban and ISIS, known in Afghanistan as Islamic State-Khorosan or IS-K, and tensions within the Taliban, have, according to the UN, make it increasingly challenging to predict conflict trends (UN, September 2015, p. 15).

On the economics side, and not surprisingly, the government faced two major problems upon assuming power. The unsustainability of the fiscal accounts (and related aid dependency) was perhaps the most important. It was, and will continue to be, a major factor in the economic and financial fragility of the country. The other major problem was that, because the large growth in GDP during the 2002-2013 period was neither inclusive nor sustainable, economic reconstruction clearly failed to support security stabilisation and national reconciliation.

Upon my return from Kabul in June 2011, I was convinced that the economy, built on a house of cards, would collapse as combat troops left the country. The IMF, by contrast, had a positive opinion and their report of August 2012 optimistically projected rates of growth of close to six percent for 2014-2015 – way off the mark.

Indeed, the rate of growth fell from an exceptionally high 14 percent in 2012 (a year blessed with excellent crops due to favourable weather conditions),[61] to below four percent in 2013, to 1.3 percent a year on average in 2014-2015. This represented a dramatic fall indeed from the 9.3 percent average annual rate during the first decade in the transition (2002-2012).

The rapid deceleration happened as uncertainty, increased insecurity, and fewer business opportunities due to the withdrawal of combat troops and other expatriates discouraged investment in the country, leaving hundreds of thousands unemployed, particularly in the construction and transportation sectors.[62]

Investment fell to 18 percent of GDP in 2014, from an annual average rate of over 32 percent in -2002-2013. As mentioned earlier, after reaching its peak of 4.5 percent of GDP in 2005, foreign direct investment collapsed to only 0.5 percent a year on average during the last decade (2007-2016). FDI did not recover in 2015 despite the NUG being in place, which was supposedly going to facilitate the exploitation of the much-heralded opportunities in the mining sector.

This is not at all surprising. In addition to security, the business climate in general, and the inadequacy of basic infrastructure and transportation in particular, are serious constraints to investment, both domestic and foreign.[63]

In dollar terms, the GDP of Afghanistan was stagnant at about $20 billion per year on average in 2012-2014 and it fell below that level in 2015-2016. In real per capita terms (i.e., adjusting for inflation, at July 2017 prices), however, income fell from $730 a year in 2012 to below $575 in 2016. Thus, after a 15-year period of foreign intervention, unprecedented volumes of aid (which included large aid relief), and despite having started from very low levels, per capita income in real terms had only roughly doubled since 2002 ($270). Moreover, the IMF projects that per capita income will remain below $600 in 2017-2018.

As the economy decelerated and uncertainty increased, fiscal revenue fell to only 8.5 percent of GDP in 2014 (against an August 2012 IMF projection of about 13.5 percent). This meant that revenue fell by a quarter from its peak of over 11 percent three years earlier. Although the Afghan economy slowed to a snail’s pace with a concomitant sharp fall in fiscal revenues, it did not collapse thanks to the generosity of the US government and a few other donors. Through such generosity, the Afghan government was able to pay the wages of its security forces and other civil servants.

In plain words, a per capita income of roughly $575 in 2016 means that people had, on average, $1.55 to spend per day – 30 cents less than what they had at its peak in 2012. Given the increasing gap between the poor majority and the rich few, this means that the large majority has much less to spend than that. In an interview with Der Spiegel in December 2015, President Ghani acknowledged that “70 percent of the population still lives on less than $1.75 a day.” Indeed, the president was right on target during the interview in arguing that “the large sum of funds that were provided in annual assistance did little to alleviate poverty, because the government did not focus on the poor.” Despite this recognition, per capita income has deteriorated since the NUG assumed power.

No serious effort has yet been made to focus on the poor. Moreover, the problem of poverty continued to be addressed through humanitarian assistance rather than investment. In November 2014, the UN together with Chief Executive Abdullah Abdullah launched a campaign to assist the most vulnerable people (close to four million) with food, health care, water and other necessities, with a focus on insecure and hard-to-reach areas. The two 2017 Secretary-General reports on Afghanistan have detailed how humanitarian assistance continues as if the country has not been in transition for 15 years (UN, March and July 2017).

U.S. Army Soldiers from the Arizona National Guard provide security as members of the Bagram Provincial Reconstruction Team conduct a medical civic action program in the district of Tagab in the Kapisa province, 30 April 2007. (Credit: U.S. Army photo by Staff Sgt. Michael Bracken/Flickr)

U.S. Army Soldiers provide security in the district of Tagab in the Kapisa province, 30 April 2007. (Credit: U.S. Army photo by Staff Sgt. Michael Bracken/Flickr) (via

The crisis has had, and continues to have, serious repercussions. The deteriorating security situation in 2014-2015, together with lack of political space and widespread economic hardship drove “tens of thousands of young people to leave the country.” About 150,000 Afghans applied for asylum in 44 countries across the world in 2015.

At its peak in October 2015, about 65,000 Afghans arrived on the shores of Greece, the second largest group after Syrians. Besides the problem that this has created in Europe, Afghan emigration is leading to brain drain since the most educated find it easier to emigrate, and it also put pressure on the afghani, which suffered a large devaluation as emigrants sold and converted their assets into dollars to take out of the country.

In 2016, the situation reverted. The EU signed an agreement with the Afghan government in October 2016 allowing its member states to deport asylum seekers, and obliging the Afghan government to receive them. Over 800 have been deported from Germany alone but this was insignificant compared to the nearly 55,000 Afghans who were not eligible for or were likely to be denied asylum that left Germany voluntarily in 2016 (Al Jazeera, ‘More forced deportees’, April 2017). At the same time, tens of thousands of Afghan returnees and refugees from Pakistan, have moved across the Durand line, after fleeing insecurity and military operations in Pakistan as well as decreasing tolerance for Afghan refugees. This has obviously put great pressure on the government and UNHCR. Since 2002, the UN has assisted close to five million returnees.

Over the years, the drug sector has acted as another safety valve. The number of hectares planted with poppies peaked at an all-time high in 2014, as the crisis accelerated and while US/NATO forces were still in the country. While irrigated land increased by only 50 percent from 2002 to 1.8 million hectares in 2014, the poppy area under cultivation increased more than 200 percent, to 225,000 hectares in 2014, from 75,000 in 2002. Despite a large fall in the area planted in 2015, due to a combination of factors (price, weather, soil depletion, and disease), the area planted was again over 200,000 hectares in 2016.

3.3. The cost of the Afghan War and Afghanistan’s aid trap

The annual appropriations of the US Congress for the contingency operations in Afghanistan and Iraq are good proxies for the budgetary costs of these wars to the United States. Congress appropriated $785 billion – roughly $10,000 per American family of four – up to the end of 2016 for Afghanistan. Thus, the budgetary cost has been high indeed.[64]

The human cost in terms of American lives lost or ruined was also high. But putting human suffering aside, because of the many casualties and injured during the war, the real cost of the Afghan War to US taxpayers will be significantly higher than the $785 billion budgetary cost already incurred. Going forward, costs related to veteran’s benefits (pension and disability payments)[65] as well as the interest payments accrued on debt incurred to pay for the war, have been estimated by various experts at over $4 trillion.[66]

Given that there were roughly 30 million Afghans on average in the country during these years, the US spent $1800 per Afghan to stabilise their country. This was four times the Afghan average annual income per capita of $440, during the 15-year intervention.

Of total war appropriations of $785 billion, $115 billion were disbursed for Afghan reconstruction. Although the United States only allocated 15 percent of the budgetary cost of the war to Afghan reconstruction, this amount was equivalent to 60 percent of the accumulated GDP of the country during foreign intervention ($190 billion). A large part of US military and economic aid, however, was returned to the United States in the form of import payments for military equipment and other goods and services, as well as in wages and other payments to US experts and contractors, some with dubious qualifications.[67]

As we discussed earlier, of the $115 billion allocated to Afghan reconstruction, about $70 billion (60 percent) was allocated to the Afghan national security forces and $45 billion to governance and development programs, with a small part of that used for humanitarian assistance.[68]

Total aid[69] to Afghanistan was significantly larger. Adding up economic and humanitarian aid to the country, using ODA (Official Development Assistance) as a proxy, plus US security and counter-narcotics aid, the total aid figure is $135 billion up to only 2015, the last year for which ODA data are available. This number, which underestimates the real cost since it excludes non-American security and counter-narcotics aid – for which full data is unavailable – amounts to 78 percent a year on average of Afghanistan’s GDP in 2002-2015.[70] No other country has received such an amount of aid in relation to GDP for such an extended time. With that amount of money, each Afghan could have received roughly $5,000 during the 15-year intervention. Afghans must be asking themselves where all that money went.

The aid dependence of Afghanistan is unprecedented after a decade and a half of foreign intervention and much talk about the NUG’s tax collection efforts. At 11 percent of GDP, tax revenue in 2016 had recovered to its peak level in 2011. Despite this it remains at one of the lowest rates in the world. With a rate of government expenditures of about 27 percent in 2016, domestic revenue only covered slightly over 40 percent of those expenditures. It is indeed unprecedented that, after 15 years, foreign interveners continue to finance almost 60 percent of Afghanistan’s total government budget. Even more unprecedented is the fact that foreign financing still covers 58 percent of the operational budget – which included wages and pensions of the Afghan security forces and the civil service.

In addition to the fiscal situation, the external sector also reflects the aid trap in which Afghanistan still finds itself after 15 years of intervention. With exports in 2016 only one tenth of imports (and often less than that in earlier years), the current account deficit, before grants, was 37 percent of GDP in 2016. With FDI collapsing to only 0.5 percent of GDP on average in 2007-2016, Afghanistan could only finance such a humongous current account deficit through aid.[71]

4. Putting Afghan reconstruction on track 

4.1. Afghan reconstruction still off-track after 15 years of foreign intervention: A dysfunctional government, insecurity, underinvestment, and aid dependency

After forty years of conflict, and after a decade and a half of foreign intervention, the situation in Afghanistan is strikingly different from the time in the late 1970s when Kabul was known as the Paris of Central Asia. By 2017, Afghanistan is a war-torn; aid, drug, and food-dependent; insecure; and highly corrupt country of over 30 million people, with dashed hopes for which foreign interveners collectively – the British in the 19th, the Soviets in the 20th, and the Americans/NATO in the 21st Century – are much to blame.

In his first report on Afghanistan, Secretary-General António Guterres noted that the country “continued to face significant political, economic and security challenges.” With regards to the dysfunctional unity government, the Secretary-General noted that President Ghani and Chief Executive Abdullah “continued to engage in bilateral discussions to improve their working relationship” (UN, SG Report, March 2017). Despite family therapy, few analysts have any hopes for the remainder of the NUG period.

As the report describes, the security situation has continued to worsen since the NUG took power in September 2014. In 2015, the UN reported a record number of Afghan civilian casualties since it started compiling data: over 3,500 civilians were killed and 7,500 injured during the year (Jolly, 14 February 2016).  The UN reported continuing deteriorations in security in 2016 and into the new year (ibid.) when the government only controlled roughly half of the territory, although much more in terms of people, since it still controls large cities.[72]

In mid-2017, the Secretary-General reported positive efforts between Afghanistan and Pakistan to improve relations despite occasional border clashes. At the same time, he reported no discernible progress on peace talks with the Taliban (UN, SG Report, July 2017).

SIGAR also reported that security incidents had increased in the first half of 2017 as compared to the same period last year, especially in eastern Afghanistan. Insurgents and terrorists carried out several deadly high-profile and insider attacks. Following a major suicide attack in the centre of Kabul that killed as many as 150 people on 31 May 2017, the NUG took several steps to increase capabilities in major population centres and to incentivise the Taliban to reconcile with the government (SIGAR, July 2017). Few believe that the Taliban will be willing to negotiate from a position of strength and with an increasing number of foreign troops and airpower in the country.

In fact, right after President Trump’s announcement of his new strategy for the Afghan war, the fugitive Taliban leader Akundzada, claiming that the Taliban had established “administration over more than half of the country,” said that “the main obstacle in the way of peace is the occupation.” He also stated the determination of the Taliban to “liberate” the rest of the Afghan territory from foreign “invaders” (Gul, 30 August 2017).

By mid-2017, several top US security officials have characterised the war in Afghanistan as a military stalemate that, if left unchecked, could deteriorate further in favour of the insurgency. President Trump approved an increase in troops which most estimate as an additional 4,000 to those already in the country (SIGAR, July 2017).

In May, the US Director of National Intelligence argued that, “Kabul’s political dysfunction and ineffectiveness will almost certainly be the greatest vulnerability to stability in 2017.” In June, the Secretary-General representative in Kabul noted that “Afghanistan’s broad political consensus was fraying,” as various sides accused the others of “acting against the national interest.” SIGAR noted that political rifts deepened following the 31 May suicide attack and reported large and often violent protests breaking out in response to the bombing. Grievances, increasingly of an ethnic nature, have led to opposition demands on the NUG, including the full implementation of the political agreement on the formation of the NUG; decentralising Afghanistan’s budget; and holding the presidential, parliamentary, and district council elections on time (SIGAR, July 2017).

The economic situation deteriorated just as much in 2014-2016, with the economy stagnating and the rate of investment falling to only 18 percent of GDP a year on average during this period.

The World Bank shows that poverty increased substantially to almost 40 percent of the population in 2013-2014, as compared to 36 percent in 2011-2012. As a result, 1.3 million more Afghans are unable to satisfy their basic needs. After 15 years of deep involvement in the country, the Bank reckons, “there are not enough jobs to meet the needs of a fast-growing labour force and provide livelihoods to illiterate and unskilled Afghans.” While growth is projected at two-three percent in 2017, the Bank estimates that Afghanistan needs sustainable growth of eight percent to satisfy the increasing needs of its population and come out of the aid trap the country is currently in (World Bank, 2017b).

The huge investment in security, especially after the 2009 surge, did not paid off.[73] Afghanistan was ranked as the most violent country in the 2016 Global Peace Index and in seventh place in the Failed States Index.

Despite the large amount of economic aid relative to its size, the country’s performance remains in the bottom 10 percent in the Human Development Index, with its ranking hardly improving since 2008. Basic health services coverage has increased to almost
60 percent of the population, but infant and maternal mortality remain large in regional comparisons. Life expectancy, despite its growth, is still only 60 years of age. Literacy remains at below 40 percent, the mean years of schooling is still 3.6, and in rural areas only one in fifteen women can read or write.

In the 2016 Corruption Perception Index, Afghanistan is ranked in the bottom five percent, among 176 countries, and in the 2017 Basel AML Index Afghanistan remains the second worst, surpassed only by Iran in terms of risk of money laundering and terrorist financing.

With an increasingly dysfunctional government, unprecedented levels of violence and insecurity, increasing ethnic cleavages, low investment and huge aid dependency, it is about time that the NUG changes its ‘business as usual’ policies to confront the deep political, security, social, and economic crisis the country is in. At 10.5 percent of GDP, the World Bank projection for domestic revenue in 2017 is still below 2010 and 2011 levels. The government needs to make a much more significant fiscal effort before it can bring its high dependency on aid down to more sustainable levels.

With imports of goods and services amounting to 40 percent of GDP and exports only six percent, the external deficit – which is the best indicator of the countries’ reliance on foreign aid/savings[74] – remained at about 36 percent of GDP in 2016. With official grants amounting to 40 percent of GDP, the country was able to finance the huge deficit and even accumulate international reserves (IMF, 2017a).[75]

To increase investment, both domestic and foreign, while security remains challenging, the NUG and foreign interveners will have to think outside the box on how to create confidence and growth, at least in certain areas. The World Bank recommends something that should have taken place since the very beginning, that is, the need to focus on more inclusive growth than in the past, especially in rural areas, and improving access to markets and rural-urban linkages (World Bank, 2017b).

4.2. How to move forward: Two small-scale pilot programs

This may be the perfect time to have a dialogue between the NUG and foreign interveners in Afghanistan – with the participation of NUG officials and other local stakeholders, officials from the UN, the BWIs, and bilateral development agencies, as well as academic and NGOs experts – on how to move forward by putting reconstruction on track. Both the NUG and officials from bilateral and multilaterals agencies have a lot at stake in the sense that their policies have clearly led to the unsustainable situation the country finds itself in and they may find it difficult to openly recognise this fact. For this reason, academics and practitioners who have not been directly involved in policymaking in Afghanistan are perhaps best placed to start such a dialogue, since they would lack any incentive to defend past policies. At the same time, they may be more likely to think outside the box, which is what Afghanistan needs at this time.

Since putting reconstruction in Afghanistan on track is a complex issue and requires a complex answer, I hope that I have provided enough substance and empirical evidence to demonstrate that Afghan reconstruction has been off-track since its beginning following the Bonn Agreement and that, perhaps more importantly, the status quo is not sustainable.

Because of the large number of stakeholders in Afghanistan and their often-conflicting goals, many of the programs required to put reconstruction on track will be controversial and will require extensive debate among various policymakers and experts on whether they are feasible, under what conditions they could be implemented, and what kind of policy, institutional, and legal framework would be necessary to make it a success.

The two small pilot programs proposed to improve the cost-effectiveness of aid and make its impact more inclusive, while at the same time helping Afghanistan get out of its aid trap by replacing aid with foreign direct investment and exports, are as follows:

4.3. Reconstruction zones

Attracting foreign direct investment – including into potentially highly profitable ventures for the exploitation of natural resources (mining, energy, and agriculture) – will not be easy due to poor security and other high risks involved in operating in Afghanistan. Indeed, business-climate problems (licensing, lack of infrastructure, utilities, skills, land grabbing, weak judiciary systems to enforce contracts, etc.), discourage investment in Afghanistan by increasing risk and making investment costlier.

It is generally true, however, that greed often prevails over common sense in potentially high-return investments, as we have seen in oil investments in Iraq, Nigeria, and other oil-rich countries. But, with the fall in commodity prices, expected investment returns on those products have also fallen.

Due to the lack of purchasing power at the local level, attracting foreign direct investment for the domestic market – the main type of investment leading to the peak in FDI in 2005 –will hardly be an option now that the number of expatriates in the country has fallen dramatically.

Many developing countries in crises, facing the need to promote investment, both domestic and foreign, under difficult economic and business climate conditions (particularly poor infrastructure and services, fiscal uncertainty), have designed different kinds of export zones to reactivate their economies. The most common are known as ‘free-trade zones’, ‘export processing zones’, or ‘special economic zones’. Mining or agricultural concessions are another type of export zone used to a large extent in Liberia.

‘Industrial parks’, such as those that the Karzai government promoted in Afghanistan in the past, not very successfully, operate in a similar way, by attracting investment through government preferences. The ‘special economic zones’, proposed by the Ghani government also fall into this category.[76]

Export zones have taken different forms and have relied on different local inputs (labour, land, or other natural resources).[77] The limited size of the zones allows governments coming out of crises to improve security, to build necessary infrastructure and services, and to provide investors with a proper legal and regulatory framework as well as different kinds of incentives to attract them. The provision of all these things in an integrated way has proved to lead to economies of scale in production and to facilitate exports.

But conflict-insensitive government policies such as giving specific tax and other preferences, providing land, and building infrastructure and services targeting the needs of foreign investors and domestic elites – while ignoring those of farmers, small investors, and local communities who account for the large majority and are often displaced by the zones – have proved to increase security risks in war-torn countries due to the likelihood of confrontation between the different groups. Investors’ policies in export-processing zones operating under harsh working conditions and often violating labour and environmental codes have also been a source of conflict, particularly in Haiti.

Moreover, by operating basically as enclaves (without connections to the rest of the economy), export zones have created all kinds of problems, particularly where they displace families and communities, take their land and other natural resources, and affect their water, food, and other means of support. This has been particularly true of large mining and commercial agricultural projects in Liberia, which led to growing confrontation between the communities and foreign investors (del Castillo, 2012).[78]

Given the crisis in Afghanistan and the need to reactivate the economy with conflict-sensitive measures, the country could consider another kind of zone – so-called ‘reconstruction zones’ – which would provide a more appropriate framework for insecure areas.[79] Since the idea is developed and detailed elsewhere,[80] suffice it to say here that the main purpose of these zones is to bring together the government (at the national and local levels), investors, and local communities to work on win-win projects, with each focusing on their own comparative advantage and each expecting to gain from the relationship. The government would provide incentives to investors in terms of taxation and regulation to operate from these zones, local authorities would support the zones in different ways and get credit for doing so, and vulnerable communities would provide labour and ensure security in the zones by keeping insurgents out. UN agencies, NGOs and others could provide technical assistance and services through this framework.

Reconstruction zones would consist of two distinct but linked areas – an ‘export-oriented zone’ in which mostly foreign investors would produce exclusively for export, and a ‘local-production zone’ where the communities would produce for local consumption as well as for the export zones.

The Nawa bazaar in Helmand Province. With the help from the Provincial Reconstruction Team and the US Marines, the bazaar was set to double in size in 2010. Image taken in Nad e Ali district. (Credit: ResoluteSupportMedia/Flickr)

The Nawa bazaar in Helmand Province. (Credit: ResoluteSupportMedia/Flickr) (via

The purpose of stimulating synergies between the export and local zones is to avoid the problems usually associated with enclave production for export, particularly with the rural communities in their vicinity that have often been displaced or have seen their ways of life and their means of production threatened by them.

It is precisely such synergy with the communities that makes these export zones fundamentally different from the export enclaves discussed earlier. While in those zones the community normally suffers from the operations of the enclaves, the reconstruction zones could help at the same time to reactivate investment; reduce aid dependency by replacing it with foreign direct investment and exports; and improve aid effectiveness. Within the borders of gated export zones, the government could provide basic infrastructure, services, security, and a stable legal and regulatory framework for foreign investors that it could not provide across the country.

Some of the infrastructure and services could be supplied through public-private partnerships with investors. Export-oriented zones would mostly exploit natural resources in the agriculture and mining sectors and process agricultural and other products. In urban areas, these zones could assemble or process low-skilled manufacturing or agricultural production utilising local labour.

The local-production zones would focus on integrated rural development of agricultural and livestock products for the domestic market (including the export-oriented zones) to boost food supplies and reduce dependence on imports, and on light manufacturing for the same market. The purpose of these zones is to address head-on the main impediments to private sector development in rural areas and in turn redress gender imbalances in this sector. By providing a level playing field for all Afghans, men and women alike, in terms of security, social services, infrastructure, credit and other basic inputs (such as seeds, fertilizers, and agricultural machinery) these zones would reactivate rural production and in turn help empower women economically, in a sector where the productivity of women is much lower than that of men because of their lack of access to basic inputs.

By redressing the bias against farmers and other small producers and providing opportunities for the communities, food production and agro-business development in the local zones would lead to more inclusive and sustainable growth. This could only be done with financial and other support from investors as well as with a more effective and integrated use of aid (including from UN agencies) and government support.[81] In exchange, the communities would ensure that security is maintained in the zones, lowering the investment risk that foreign investors face in these countries.

The dialogue among all stakeholders should include the possibility of establishing reconstruction zones, and if so, what the legal and regulatory framework for such zones should be, how local entrepreneurship can be promoted, and other such issues. For reconstruction zones to become a viable and a significantly better option than the enclave-type of zones discussed earlier – including the ones planned by President Ghani – the government needs to create a simple and flexible legal, regulatory, monitoring, and enforcement framework for these zones. Such a framework is necessary to create various links so that the country, as a whole, can benefit as much as possible from foreign investment.[82]

The prompt adoption of one or two reconstruction zones could have a practical and inspirational effect on how integrated development is far superior than the current fragmented approach. This could lead to the creation of more zones and attract more investors. Domestic investors, who have contributed tens of billions of dollars to capital flight,[83] could possibly be encouraged to repatriate them through investing in export-oriented zones.

Other ‘unconventional’ investors, including warlords, could also be encouraged to invest in reconstruction zones both to increase their wealth and to enhance security. As NYU economist M. Ishaq Nadiri has suggested, warlords in different parts of the country could use their large wealth accumulated over the years to set up reconstruction zones. In them, they could produce goods for export (pomegranates, flowers, juice, whatever) and employ their own militia and others in their ethnic communities. This would certainly improve security by keeping militias busy in productive activities and would decrease the incentive for warlords to engage in illicit activities to finance their supporters. The government could use some aid to help provide infrastructure and services for such communities and become a partner.[84]

Given the limited space of the zones, the government could more easily enforce zero tolerance for corruption within the zones (Junne, Kamphuis, and Verkoren, 2011). This would facilitate donor support going forward.

With the right framework and with the creation of business opportunities for communities, the zones could be expected to create positive externalities or spillovers among different activities in the zones in particular, and eventually to the local economy in general. By doing so, the zones could also help change people’s perception of the government and improve its legitimacy.

Once the government shows donors that it is making a sincere effort to move to the right track through the adoption of inclusive and non-corrupt policies, President Ghani should request donors to increase export finance and to open their own markets for goods produced in the reconstruction zones.[85]

Bringing the Afghan economy out of the deep crisis of 2014-2017 and lowering its aid dependence to more reasonable and sustainable levels is a must. This can only be achieved by increasing investment in a balanced and inclusive way through conflict-sensitive policies and zero tolerance for corruption.

Ghani’s strategy focusing on long-term policies is necessary but not sufficient. Moreover, it is also dangerous since the insurgency and the drug economy are gaining ground and disgruntled communities are turning against the government. The adoption of reconstruction zones – in any of the many shapes possible – could become a major policy tool to improve human security, consolidate peace, improve aid effectiveness, reduce aid dependency and corruption, and move Afghanistan out of the present crisis and into a future of self-reliance.

4.4. Basic income program

Afghanistan could also consider using aid in a small-scale basic income pilot program in Kabul. Given the great disarray with aid programs in Afghanistan, a debate should also take place on whether giving money directly to beneficiaries and under what conditions, if any, can improve aid distribution and cost-effectiveness.

There seems to be a two-pronged explanation for why many oppose giving cash directly to the poor to deal with homelessness and other indignities in industrial countries. On the one hand, there is the premise that people forge their own destinies and if they are homeless it must be because of laziness, bad decisions, drugs, or other such failings. On the other, there is also the premise that fragile fiscal situation in industrial countries would not allow cities or the federal government to do something significant and lasting to remedy the status quo.

Two interesting books come to mind when thinking about these issues. In Give Money to the Poor, published in 2010, three British development experts from the University of Manchester analyse the paradigm shifts in policies towards the poor, starting with the Poor Laws introduced in England by Queen Elizabeth I in the mid-sixteenth century, all the way to present day cash transfers.

The authors provide detailed analysis and relevant data on cash transfers – both conditional and unconditional – in six leading countries in the Global South, with old or non-existent social safety nets: South Africa, Brazil, Mexico, Indonesia, India, and China. They find that unconditional programs work better. The authors provide convincing evidence that poor families have honed their survival skills and use a little extra money wisely and creatively – “without an army of aid workers telling [them] how to improve themselves.”

As they note, each country has conducted cash transfers differently – and government spending on infrastructure, health, education and other services remains essential. Without some cash, however, poor people who lack basic food and a roof can hardly be expected to get much benefit from many of the public goods provided by the government.

To succeed, cash transfers must be fair and assured, that is, there must be wide consensus as to who the beneficiaries should be and the periodic cash payments must be guaranteed to them, at least for a pre-established period. Under such conditions, hard data shows a high correlation between cash transfers and decreases in malnutrition, infant mortality, and school dropout rates.

While the Global South had to finance cash transfers to the poor largely through taxation, in Utopia for Realists, a young Dutch historian and journalist shows that the large welfare system in industrialised countries could produce the savings necessary to finance the cash transfers. Behavioural changes on the part of the diverse groups analysed reduced the need for public financing of health, police, and courts. This means that a policy to eliminate poverty could largely pay for itself (Bregman, 2014).

In Afghanistan – as in other war-torn countries – a small part of economic and humanitarian aid could be used in a pilot program to finance cash transfers to a restricted group, with which people would pay directly for some of their basic needs. Thus, it would not require additional financing.

Such a program, however, whatever form it takes, would be very much resisted by UN agencies, NGOs, and others with large overheads for their operations, and employing their own staff and foreign consultants. Thomas Weiss’ comment that picking up the pieces after the dust of conflict has settled “has become the growth industry in the United Nations” (Weiss, 2013) is right on target.

A pilot program on basic income in Afghanistan could have many advantages. It would put the UN agencies and NGOs on notice that they need to reduce their overhead costs, become more cost-effective, and employ a larger percentage of local people. Such a program would also contribute to improved performance of national government officials working in a variety of places since they would have to deal directly with local people and become more accountable to them.

Indeed, broad-based experiments including a group of homeless people in the city of London; a community of Cherokee Indians in North Carolina, US; a first-large scale basic income experiment in Dauphin, Canada; and experiments in several other US states, show that the poor would use their basic income to improve their eating habits and to find a roof. They also show that they would consume less drugs and have less psychological and other health problems (ibid.).

Behavioural changes experienced by recipients of a basic income program invariably decreased the need for government spending in health, security, justice and in other public services (ibid.). In Afghanistan, it could also help the government deal with the three million drug addicts in the country (Associated Press, 1 March 2017).[86]

5. Concluding remarks

At the time of the Marshall Plan, a strong argument was made that reconstruction was needed after World War Two and that reconstruction would cost a pittance when compared with a military strategy to keep the peace (Dulles, 1947). This was ignored at the time that Operation Enduring Freedom was launched, as it was later in 2009 at the time of the military surge. At both times, a ‘peace-through-military’ strategy rather than the Marshall Plan’s ‘peace-through-reconstruction’ strategy prevailed.

The title of a blog, ‘We’re making real progress, say last 17 commanders in Afghanistan’ perhaps best illustrates the resounding failure of the peace-through-military strategy in Afghanistan (Kat Astronaut writing on the Duffel Blog, February 2017). General John W. Nicholson, commander of US and NATO forces in Afghanistan at the time, warned in December 2016 that the AfPak region had the greatest concentration of terrorists in the world. After 15 years, a change in overall strategy seems imperative.

By 2009, a former interior minister, Ali Jalali, had already warned that Afghan policymakers and foreign interveners should not be focusing all their energy on fighting and killing insurgents. Neither would they be able to use development projects to win hearts and minds as long as militia commanders, drug traffickers, and corrupt provincial and district administrators continued to pose violent threats to the Afghan government and people. In his view, the reconstruction and development of the Afghan security forces should take place within the overall state-building framework. He concluded that for success to take place in Afghanistan, security-sector reform must strengthen state-building efforts in political transformation, national reconciliation, and economic reconstruction. The three other aspects of the war-to-peace transition, in turn, must take place to improve security (Jalali, 2009, p. 30). A well-designed, inclusive, and sustainable peace-through-reconstruction strategy, which would allow the country to benefit from the reverse causality among the four aspects of the transition, is still lacking today.

This is recognised by the World Bank, which acknowledged that “there are not enough jobs to meet the needs of a fast-growing labour force and provide livelihoods to illiterate and unskilled Afghans.” This has provided a breeding ground for the insurgency. Despite several successes in killing high-level officials and disrupting the Islamic State-Khorasan (IS-K) network (SIGAR, pp. 84-85), the Islamic State, or the Taliban for that matter, do not seem to have much of a problem replacing their leaders.

A dialogue among all stakeholders, both domestic and foreign, should take place to design an effective peace-through-reconstruction strategy. As an economist working with war-torn countries, and as a political and economic risk analyst advising countries in crisis for the last 30 years, my purpose will be fulfilled if my analysis and proposals can contribute constructively to a debate on how to reverse the vicious circle in which Afghanistan finds itself today – and turn it into a virtuous one of investment, inclusive growth, human development and human rights, security, prosperity, and self-reliance.



Graciana del Castillo

Senior Fellow, Ralph Bunche Institute for International Studies, Graduate Center, CUNY




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[1] For a discussion of the Marshall Plan, see Dulles, The Marshall Plan. For a detailed discussion of how the Marshall Plan differs from economic reconstruction in the new context and the lessons for it, see Graciana del Castillo (2008, 2016a, 2017).

[2] The term ‘foreign interveners’ is preferable to ‘international community’ in this context since not all UN member states participate directly in supporting war-torn countries. The term includes the UN system (the Secretariat, programs, and agencies of the UN, including the Bretton Woods institutions; other international and regional organisations; bilateral development agencies; and NGOs). Transnational corporations, which may have an impact on the design of war-torn countries’ policies are referred to as ‘foreign investors’.

[3] For evidence on post-Cold War operations, both UN- and US-led, see del Castillo (2017, chapter 6, pp. 100-116. In particular, see Tables 6.1-6.2).

[4] These three terms are used interchangeably throughout the text.

[5] Perhaps the most complete and interrelated analysis of the four areas of the transition can be found in Davis (2011). See also d’Souza (2014). Articles in these books discuss different aspects of the transition and some of them also focus on the regional dimension of such transition.

[6] The IFIs include the Bretton Wood institutions (BWIs) and regional development banks.

[7] The terms ‘development as usual’, ‘normal development’, and ‘long-term development’ are used interchangeably throughout the text to indicate the ‘economics of development’ in poor countries unaffected by violent conflict or where the risk of such conflict has waned following ‘the economics of peace’ (see Diagram 1).

[8] For the case of Iraq, see Stiglitz and Bilmes (2009). For the case of Afghanistan, see Cordesman (2017) who cites Bilmes.

[9] Many of the issues discussed in part one are presented in more detail in del Castillo (2016a, Part I). For more on Afghanistan’s history see Vogelsang (2002), Adamec and Clements (2003), and Tomsen (2011).

[10] The first Anglo-Afghan war was “perhaps the West’s greatest imperial disaster in the East,” and “an important parable of neocolonial ambition, folly and hubris that has striking relevance to our own time.” After two years of jihad, the war ended when thousands of British troops were ambushed and killed, with only one survivor. Historian William Dalrymple (2013) describes this war and makes parallels with the post-9/11 one.

[11] As Mukhopdhyay (2014) points out, the state-building project in Afghanistan “is often distilled into a struggle on the part of a feeble center to tame its wild periphery.”

[12] For details on the last king, Mohammad Zahir Shah’s reign, see Dupree (1973, chapters 22-23).

[13] Data on aid per capita was calculated by the author with foreign assistance data provided by Dupree (1973, Chart 29, p. 630). It is not clear, however, how much this aid per capita represented in relation to per capita income at the time.

[14] Dupree details some of the aid-financed projects during the 1960s and early 1970s. See also Brant (1974, pp. 98), USG (1986, p. 151) and Kalinovsky (2011, p. 6). Articles in a book edited by Dupree and Albert (1974) also analyse the Afghan economy in the 1970s.

[15] The issue of nomadic people and their importance to the Afghan economy in the past and present is summarised in del Castillo (2016). For a detailed analysis see Ferdinand (1962), Tapper (1974) and MRGI (2008).

[16] Statistics are based on barter trade and hence difficult to assess. However, the rapid increase in trade is clear.

[17] For the best article analysing the 1980 grain embargo and its consequences, see Paarlberg (1980).

[18] See for example, Cusack and Malmstrom (2011), who discuss successful enterprises in the private-sector due to their entrepreneurship, despite the problems with the business climate.

[19] Kalinovsky provides a fascinating account of the Soviet invasion and the consequences for Afghanistan and the Soviet Union.

[20] Calculated by the author with foreign assistance data provided by Dupree (1973, chart 30, p. 646). See also Brant (1974, p. 99) and USG (1986, p. 147).

[21] Dupree (1973, p. 529) argues that, by having the Russians build a large irrigation project in Jalalabad and the Americans build commercial airfields in the north, “The imperialistic concepts of ‘zones of influence’ (i.e., United States south of the Hindu Kush; Russia north of the Hindu Kush) no longer held.”

[22] The latter notes that the World Bank and the IMF blamed corruption for this tragedy.

[23] For details on the coalition air campaigns against the Taliban, see Adamec and Clements (2003, pp. 55-66).

[24] See, for example, Girardet (2011, p. 336). For more on the Bonn Agreement and the political transition, see for example, Dobbins (2008); Ponzio (2011, 2007); and Vendrell (2011).

[25] For the full text of the Bonn Agreement, see United Nations (2001).

[26] Mukhopdhyay (2014) analyses how warlords, who had been “valuable compatriots in the fight against the Taliban,” became enemies in the post-Bonn period and affected both governance and reconstruction negatively.

[27] Farouk Achikzad disagrees. Achikzad, a former member of the board of the central bank of Afghanistan (Da Afghanistan Bank) believes that the former King was a unifying figure, around whom the various ethnic groups/factions could rally, creating an opportunity to bring about national reconciliation, security, and good governance to Afghanistan after Bonn. He argues that Professor Abdul Satar Sirat, a respected former Minister of Justice and scholar, received an overwhelming majority of the votes from delegates during the initial round of voting for the Chairmanship of Afghanistan’s Interim Administration. In his view, Sirat was passed over by the Americans in favor of Karzai after some backroom wrangling (personal discussions and email correspondence).

[28] For an analysis of the 2000 UN Report of the Panel on UN Peacekeeping – known as the ‘Brahimi Report’ – particularly as it concerns its policy implications for post-conflict economic reconstruction, see del Castillo (2008, pp. 56-57, 172, 185-186; del Castillo, 2017, pp. 81-82). For the report itself, see UN (2000).

[29] See Security Council Resolution (SCR-1386) of December 2001. In October 2003, UNSCR 1510 lifted the ISAF’s restriction on operating outside Kabul.

[30] It was also difficult for the UN to adopt both executive and legislative decisions, as it did in Kosovo. Indeed, a premise for effective reconstruction is that lack of leadership legitimacy will limit policymaking choices (del Castillo, 2008, p. 43).

[31] For details of these and other measures, see Ponzi (2007).

[32] Despite the change of the controversial minister, economic policies did not change much under future ministers.

[33] See del Castillo (2008), chapter 4 on the basic premises for effective reconstruction and Chapter 9 on Afghanistan for an early appraisal of the economic framework.

[34] Taylor (2006, chapter 2, pp. 29-69), Under-Secretary of the Treasury for International Affairs at the time, seems to contradict this. According to Taylor, planning for Afghanistan’s reconstruction began virtually in tandem with the US military’s plans for the war, and contemporaneously with the Treasury’s plan to combat terrorist financing, launched in the weeks following 9/11. As reconstruction lagged, the country moved towards a ‘peace-through military’ strategy, which in turn made reconstruction lag even more.

[35] Cited by Girardet (2011, pp. 330–31). See also Rubin (2013) on more details on the position of this group. O’Hanlon (2001) questioned early on how much aid was necessary and what form should it take.

[36] For a discussion on the preparedness of foreign interveners to support economic reconstruction in the post-Cold War period, see del Castillo (2016, Chapter 15, pp.162-75).

[37] In analysing these countries, Myerson uses his game theory theoretical models.

[38] Likewise, Addison and McGillivray (2004, p. 363) posit that efforts of donors and national actors (governments, the private sector, and communities) will not succeed in the absence of security since insecurity lowers the return on donors’ projects and distorts domestic actors’ incentives. Feil (2004, p. 40) noted that security is the foundation on which progress in other areas rests.

[39] Things did not improve much with time. Five years later, Ali Jalali (2007), a former interior minister in Afghanistan noted that “dismantling the factional militias was the key to stabilization”.

[40] These included, for example, ethnic cleansing against the minority Shia Hazara during the mujahedeen government in the early 1990s and later by the Taliban in retaliation for a massacre of their own people in Mazar-i-Sharif. See, for example, Rubin (2013).

[41] These were by no means the only factors derailing the transition in Afghanistan. For a discussion of other problems, see del Castillo (2008, pp. 175-86).

[42] For a complete analysis of these issues in war-torn countries, see del Castillo (2016b).

[43] For a detailed review on how the World Bank and IMF views on this issue evolved over time, see del Castillo, 2017, Chapter 4, pp. 59-77. By 2008, the World Bank had finally recognised that economic reconstruction is not development as usual; see Collier (2008) and Zoellick (2008).

[44] To avoid repetition, these terms have been used interchangeably throughout the text.

[45] Unless otherwise specified, data refer to the author’s own calculations, updated up to September 2017, based on data from best accepted sources: the IMF for most macroeconomic data; UNCTAD for data on foreign direct investment; UNDP for human development data; UNODC for drug data; OECD for ODA data; and SIGAR, CRS, and other US data for the cost of the Afghan War and US aid for Afghan reconstruction.

[46] De Soto and del Castillo first raised the issue of how a strict neo-liberal framework restricts reconstruction in war-torn countries in connection to El Salvador and argued that IMF policies were putting peace at risk. The authors revised the issue 25 years later. See de Soto and del Castillo (1994, 2016).

[47] This Afghan government development report, and the others that followed (listed in the bibliography) were all imbued with a ‘development-as-usual’ approach.

[48] For a discussion of the need for simplicity and flexibility as well as other basic premises for an effective framework for reconstruction, see del Castillo (2008, chapter 4, pp. 40-47).

[49] In 2017, the IMF prepared case studies on building fiscal capacity in fragile states. It found that it is easier and more tractable politically to work with existing laws, even if they are weak, to rebuild the basic fiscal functions of the state. The IMF referred to the case of technical assistance on public financial management (PFM) in Afghanistan to illustrate this lesson. Based on this case, and 15 years after intervention, the IMF concluded that “fundamental and big-bang style fiscal reforms should be generally doubted under certain conditions. This includes, for instance, proposing and drafting a country complex fiscal legislation based on models in other countries. Institution building is a long-term endeavor that demands constant commitment and building on small successes.” (IMF, Country Report No. 17/153, June 14, 2017).

[50] The two 2017 Reports of the Secretary-General on Afghanistan (March and July) clearly show that, after 15 years of foreign intervention, a large part of the Afghan population is still largely dependent on foreign aid for basic needs. This clearly disregards one of the most important lessons of the Marshall Plan, particularly relevant to the new context where low-income countries need to move out of humanitarian assistance and into reconstruction aid to create investment and self-reliance as soon as is feasible.

[51] For some of the FDI-related issues in Afghanistan and other war-torn countries, see del Castillo (2014b).

[52] Some argue that this was a savvy decision by the Taliban to increase prices by collapsing production.

[53] These are well analysed by the US Congress, Special Inspector General for Afghanistan (SIGAR, various reports). See also del Castillo (2016, pp. 135-36) for details.

[54] Schaper and McKechnie spoke at a conference I organised on “Peace Through Reconstruction” at Columbia University on 23 October 2009, and are referenced under del Castillo (2010).

[55] The term was coined by Carl Schramm (2010).

[56] The military had plenty of money to spend and as I had heard from a military commander who had spent time in Afghanistan and Iraq’s PRTs (Provincial Reconstruction Teams), “we thought that by throwing as much money as possible at the problem, we would get it solved.” For details, see del Castillo (2016, pp. 217-230). Inefficiencies, distortions, waste, and corruption are well documented by the US Congress, Special Inspector General for Afghanistan (SIGAR, various reports).

[57] For a review of previous reconciliation efforts, see del Castillo (2016, p. 192).

[58] The failures of national reconciliation efforts are well-documented in the literature. For a comprehensive analysis of past and present unsuccessful efforts with disarming, demobilisation, and reintegration (DDR) programs as well as the disbandment of illegal armed groups (DIAG) in Afghanistan, see Michael Semple (2009). Goodson (2006, pp. 148–53) discussed the failure in linking reconstruction to security in the earlier period and argues in favour of an ‘RDD’ process where reintegration precedes and paves the way for their eventual demobilisation and disarmament. Arguing along the same lines, Özerdem also suggested that reintegration might have to take place without disarmament. Their arguments need to be considered seriously in any plans for national reconciliation in the future.

[59] For the successful experience with reconciliation in El Salvador in contrast to that of Afghanistan, see del Castillo (2010a, pp.198-200). The failure in El Salvador, however, was to make reconciliation program sustainable over time. Lack of livelihood sustainability led many beneficiaries of such programs into common crime to survive. For the failure of some short-term programs for reintegration, including the clean-up of the Kabul River, see del Castillo (2016, pp. 225-26).

[60] Personal email exchange with the expert.

[61] It was not a good year for poppy production. Cold weather conditions before the harvesting season in some areas, in combination with disease for the opium poppy in others resulted in a sharp fall in yield, despite an increase in the area under cultivation.

[62] Construction had accounted for almost 13 percent of GDP a year on average in 2005-10.

[63] According to the World Bank, Afghanistan has one of the lowest rates of electricity usage in the world and only about 30 percent of the population is connected to the grid, up from six percent in 2002. Afghanistan benefits from cheap imported power that meets about 77 percent of the country’s demand, with the remainder supplied from domestic hydropower and thermal plants. The reliability of the grid, particularly in Kabul, has improved significantly over the past few years (World Bank, 2017a).

[64] For details on the cost of the war and data problems, as well as for Afghanistan aid dependence, see del Castillo (2016, pp. 231-41, 388-91). Differences in magnitude, however, reflect updating to 2017 data in this report.

[65] Due to the Afghan and Iraq wars, the Veterans’ Affairs budget more than tripled in 2011-16 to over $170 billion.

[66] For detailed information on the Afghan War, see Cordesman (2017). Cordesman also reports on data from other analysts, including Crawford (2016) and Belasco (2014). As he points out, Belasco’s estimates are as close as the United States has come to an official estimate of the cost of its wars.

[67] This is well-documented in various SIGAR reports.

[68] Part of these amounts was used for financing internal US operations in Afghanistan and for administering Afghan programs in the country.

[69] As a proxy for economic and humanitarian aid, the author used total official development assistance (ODA) data from the OECD (Organization for Economic Cooperation and Development). These data include ODA from DAC and non-DAC members as well as concessional aid from multilateral organisations. ODA is a good proxy in the case of Afghanistan since non-concessional aid to the country is almost negligible and private sector assistance such as grants from foundations and individuals is hardly ever reported. To reach a total aid figure, the author added security and counter-narcotics aid from the United States. The total aid figure, calculated this way, is clearly an underestimate for the reasons mentioned above, but principally because other countries also provided military aid and counter-narcotics. However, data on those items are not reported on a consistent basis by other countries and information is patchy.

[70] Another way to put it is that aid financed at least 80 percent of GDP a year on average from 2002 to 2015.

[71] The external (current account) deficit is a measure of the amount of foreign savings (largely donor grants in the case of Afghanistan) on which the country depends to finance its expenditure needs in excess of its own domestic savings. Thus the external deficit is the sum of the government (budget) deficit plus the private-sector gap (excess of investment over savings of the private sector).

[72] Civilians, including children, continued to experience high levels of violence and internal displacement and lack of service delivery; particularly, in unstable areas.

[73] As President Obama debated the possibility of a surge in Afghanistan in 2009, I organised an international conference at the Columbia University Center on Capitalism and Society, where I was Associate Director at the time, to emphasise precisely the need for a peace-through-reconstruction strategy, as had taken place at the time of the Marshall Plan, rather than a peace-through-military one, which was what President Obama in fact adopted with the surge announced in December 2009. More recently, Von der Schulenburg (2017, pp. 83-86) has been highly critical of the peace-through-military strategy in Afghanistan and has identified seven deadly sins of foreign intervention in the country including trying to impose peace through military forces.

[74] See footnote 71.

[75] While in 2016 exports of goods amounted to only $615 million, imports were 10 times more at $6,150 million.

[76] In September 2015, the Afghan government signed a memorandum of understanding with the Chord Group to establish a series of Special Economic Zones (SEZs) in the country as part of the Afghanistan’s economic development plan. The Chord Group is one of the world’s largest SEZ consultancies. The group is a turnkey provider of, and establishes, invests-in, develops and operates SEZs across the world.

[77] For details on these export zones, see del Castillo (2016, pp. 406-08).

[78] del Castillo (2012) presents evidence and references on specific studies where issues of risk and confrontation are analysed on the ground.

[79] For details on issues relating to the proposal of reconstruction zones see del Castillo (2011a, 2011b, 2012a, 2015b, 2016a, 2017).


[80] For a discussion of “Reconstruction Opportunity Zones” proposed by President Bush for areas along the Durand Line, or other such zones existing in the Middle East, see del Castillo (2016, “Epilogue”).

[81] The government, foreign investors, and donors could support the local zones through a variety of public-private partnerships.

[82] See del Castillo (2015b) for a discussion of features in the legal framework that could increase the impact of such zones in the domestic economy.

[83] This can be seen from the balance of payments (IMF, 2017a). ‘Errors and omissions’, which reflect discrepancies between reported inflows and outflows of money exchanges with the rest of the world showed outflows significantly larger in amount than exports. Although it is possible that Afghans make more errors and omissions than goods for export, such large outflows most probably reflect large capital flight.

[84] Private discussions.

[85] Following the 2010 earthquake in Haiti, for example, the Obama administration expanded duty-free access to the US market for goods produced in export-processing zones to make the zones more attractive to foreign investment and help the reconstruction of the country (del Castillo, 2016, p. 408). The ‘qualified industrial zones’ in the Middle East provide another precedent for preferential access.

[86] As I was finishing reading the proofs of this report, I saw a tweet from the World Economic Forum reporting the “ground-breaking social experiment” of GiveDirectly. Next month, the NGO is starting a Basic Income Program in Kenya by giving sums of money to people in 200 villages, no strings attached.


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