Workshop F: Credit and National Banking
By Paul Gallagher, Director of the Economic Department, Schiller Institute, USA
Not having been able to connect or participate in the Credit and Banking workshop November 7, I am simply filling out the idea presented in my video for it: generating national credit to enable participation of Afghans in funding the development of the country.
Afghanistan National Bank for Infrastructure:
Development Bonds Denominated in Afghani
Afghanistan can create an Afghan National Bank for Infrastructure (ANBI), funded by bond issues exclusively for Afghan families, institutions, diaspora Examples from the United States’ early history and the economic strategies provided then by Alexander Hamilton, its first Treasury Secretary, are relevant. Hamilton gave the United States development credit in the form of a National Bank in 1791, when it was an effectively bankrupt nation of only 4 million citizens, with no national currency, and with its economy having contracted for years after its War of Independence. That Bank and its later successors in the 19th Century, were successful.
Because the Islamic Emirate of Afghanistan has organized efficient and fair tax collection and increased the tax revenue of the country, the government is in a position to use a small portion – perhaps 1% or less — of that revenue annually to support bond issues of an Afghan National Bank for Infrastructure (ANBI), to be issued exclusively to Afghans and Afghan institutions, including Afghans in the diaspora nations, and denominated in afghanis.
This ANBI can be established within the Da Afghanistan Bank or as a new national reconstruction bank with the backing of the IEA government. Assume that the government, over the course of the first year beginning with the founding of the ANBI, provides it with an initial capital share of 2 billion afghanis. This Bank then can issue, over that year period, up to 8-10 billion afghanis in bonds purchasable by Afghans in the country or in other countries, or by Afghan institutions such as private commercial banks or business firms, and convertible into shares in the ANBI if the holder wishes.
The amount will obviously depend on the successful take-up of the first issues; bonds should include denominations as small as 500-1,000 afghanis (AFN).
The purposes of this Bank, which will initially be a small institution relative to the great development needs of the country:
- To fund relatively smaller and shorter-term infrastructure work, such as road-building, assistance in canal-building, assistance to agriculture such as irrigation systems; industrial credit to improve small and medium-sized productive businesses; even agricultural credits to farming cooperatives.
- To make the ANBI, once it is capitalized, a partner and “landing place” for development credit extended from other nations.
- To increase the circulating currency of AFN. Insofar as the bond issues are successful and are taken up by Afghans at home and abroad, they will circulate as currency within the country, be used as remittances from those in the diaspora, etc.
- Moreover, insofar as the bond issues are successful, to grant additional ANBI bonds directly to contractors and workers on projects, as payment for work—these bonds to be limited to an amount equal to the bonds sold by the Bank.
The bonds should have a long enough term to cover the time it will take to integrate the new project or improvement into the economy of the country, so bond terms of five or 10 years. The dividend or interest should be relatively low, but within the discretion of the Directors of the ANBI. The purpose of the government’s initial capitalization of the ANBI, and in subsequent years dedicating a “reserve” of 1% or less of annual tax revenue, is simply to guarantee that the ANBI can pay dividends or interest until the productive improvements and projects themselves are integrated into the economy and increasing the tax revenue.
Who needs to be involved?
– The legislature, which must pass enabling legislation for the creation of a government-supported National Bank for Infrastructure (ANBI) with the authority to a) issue preferred stock and bonds to the public, b) accept project funds from the IEA government, either as deposits or as loans to ANBI; to have an authorized capital of up to 10 billion Afghani; to have the initiating mission of funding small to medium-sized and short-term infrastructure works.
– The government, which must create a reserve of (approximate estimate) ½% to 1% of national tax revenue – 1 to 2 billion Afghani – with half invested in the stock of the bank, and half loaned to the bank for its operations.
– A team of bankers with both competent experience and trusted honesty to find staff and oversee operations of the ANBI.
– Directors, from the engineering and construction profession, banking, business and the Government of Afghanistan.
– Advisors from business leaders of the productive sectors of the economy, and from civil engineers, whether academic or in business.
Where is this to be accomplished?
– In Afghanistan and as possible, in nations of significant Afghan diaspora (Iran, Pakistan, Germany, United States, Russia, United Arab Emirates, Turkey, Canada, and others).
Why is it important to achieve this goal?
– To create an Afghan national development budget funded by the nation and its citizens.
– To create a Bank so that that national development budget can expand more quickly than simply by spending tax revenue on it—even though that development budget still may be only a part of Afghanistan’s development needs.
Obstacles
– Shortage of AFN currency, which the ANBI is acting to increase through its bond issues.
– Sanctions and seizures of Afghan assets, which deprive the ANBI of potential capital it could receive for development projects.
– Economic contraction in the past two years.
Resources:
- IEA citizens.
- The Afghan diaspora.
- Afghan companies which may receiving foreign direct investment.
- Potentially, development project lending in the Belt and Road Initiative, in which Afghanistan is a member nation.
When will it be achieved?
– Gradually but beginning immediately.
– If the ANBI can be established legally within 3 months from the beginning of work to that end; and if the reserve fund of 0.5-1.0% of national tax revenue can be authorized as well, and half of that directed to purchase of capital stock in the ANBI.
– Then priority shorter-term construction and agriculture/business support projects can be selected within 6 months or less.
– Goal of 5 billion AFN non-government investment in convertible bonds/shares of ANBI in one year, beginning with the first issuance by the third quarter of 2024.